Should I File My Own Taxes or Hire a Professional?

Deciding whether to prepare your own tax return or hire a professional depends on your financial circumstances, comfort with tax law, and available time. As your financial life evolves, new variables can make filing more complex. Evaluating these factors against the available filing options provides a framework for choosing between a do-it-yourself approach and professional assistance.

Assessing Your Tax Situation Complexity

The complexity of a tax return corresponds to a taxpayer’s financial life. The simplest scenarios involve individuals who earn income solely from wages reported on a Form W-2. These filers often use the standard deduction, which for the 2024 tax year is $14,600 for single individuals and $29,200 for married couples filing jointly. Their returns might include minimal additional income, such as a small amount of interest reported on Form 1099-INT.

Situations of moderate complexity introduce more variables. This category includes homeowners who choose to itemize deductions on Schedule A instead of taking the standard deduction. Itemizing becomes beneficial when the sum of deductible expenses, such as mortgage interest, state and local taxes (SALT) capped at $10,000, and charitable contributions, exceeds the standard deduction amount.

This level also includes taxpayers with children who may claim the Child Tax Credit, those who make contributions to a Health Savings Account (HSA), or individuals with basic investment income from selling stocks, which is reported on Form 1099-B.

Highly complex tax situations involve income sources and financial activities that require specialized knowledge. A primary example is self-employment or freelance income, which must be reported on Schedule C. This requires tracking all business income and deducting business expenses, as well as calculating and paying self-employment taxes on Schedule SE. You must file a return if your net earnings from self-employment exceed $400.

Another area of high complexity is rental real estate income, reported on Schedule E. Landlords must report all rental income and can deduct expenses such as mortgage interest, property taxes, and depreciation. Significant investment activities, including the trading of options or cryptocurrency, also add substantial complexity, as the IRS treats cryptocurrency as property. Finally, any income earned from foreign sources introduces another layer of reporting requirements.

Exploring the DIY Tax Filing Path

The do-it-yourself tax filing path requires gathering all necessary documents first. This includes:

• Personal identification like Social Security numbers for yourself, your spouse, and any dependents.
• All income-reporting forms, such as W-2s and 1099s (e.g., 1099-NEC, 1099-DIV, 1099-K).
• Records supporting deductions or credits, such as Form 1098 for mortgage interest, receipts for charitable gifts, and records of medical expenses.
• Records of any estimated tax payments made during the year.
• Forms 1098-T and 1098-E for educational expenses or student loan interest.

The most common DIY method is using commercial tax software. These programs guide users through a question-and-answer process designed to complete the necessary forms. They perform calculations and are designed to catch common errors, making them a popular choice for those with moderately complex returns.

A valuable resource for many taxpayers is the IRS Free File program. This public-private partnership offers two options for filing federal taxes at no cost. Guided Tax Software is available to any taxpayer with an Adjusted Gross Income (AGI) of $84,000 or less for the 2024 tax year, connecting you with partner companies for step-by-step preparation. The second option, Free File Fillable Forms, is available to taxpayers of any income level but is a basic electronic version of paper IRS forms with no guidance.

Understanding the Role of a Tax Professional

A tax professional is an individual qualified to prepare tax returns and provide advice on tax-related matters. The most common types of credentialed preparers are Certified Public Accountants (CPAs) and Enrolled Agents (EAs). CPAs are licensed at the state level and have expertise that can cover broader financial areas, while Enrolled Agents are licensed at the federal level by the IRS and specialize in tax law.

Both CPAs and EAs have unlimited representation rights, meaning they can represent any client on any tax matter before the IRS. A third category includes non-credentialed tax preparers, who must obtain a Preparer Tax Identification Number (PTIN) from the IRS but have very limited rights to represent clients.

The services offered by tax professionals extend beyond filing an annual return. A primary service is proactive tax planning, where a professional analyzes your financial situation to develop strategies that minimize your tax liability. This could involve advising on the timing of income and expenses or planning for the tax impact of selling investments.

Another service is representation. Should you receive a notice from the IRS or face an audit, a credentialed professional can communicate with the agency on your behalf. For business owners, professionals can also provide services like bookkeeping and payroll management.

When to Consider a Tax Professional

If your financial situation includes the highly complex factors discussed earlier, seeking professional assistance is a sound decision. For instance, if you are self-employed and must file a Schedule C, a professional can ensure you are accurately reporting income and maximizing business deductions. Similarly, owning rental property that requires filing a Schedule E involves complex rules around depreciation that a professional is equipped to handle.

Major life events often create new tax consequences. Getting married changes your filing status, buying a home opens up new deductions, and having a child introduces eligibility for various credits. Receiving an inheritance or going through a divorce also have tax implications that a professional can help manage.

Running a business in any form, whether as a sole proprietorship, a Limited Liability Company (LLC), or an S corporation, is a strong indicator that professional tax help is needed. Business tax law is intricate, involving decisions about entity structure, payroll taxes, and owner compensation. An LLC, for example, can elect to be taxed in different ways, each with distinct tax outcomes that benefit from expert oversight.

The decision can also come down to personal factors. Many people lack the time or desire to prepare a complex return accurately. Given the changing nature of tax laws, the peace of mind that comes from knowing a qualified professional has prepared your return can be worth the cost.