Should You Have Someone Do Your Taxes?
Unsure whether to do your own taxes or hire help? Explore the factors to consider for an informed decision.
Deciding whether to prepare your own taxes or hire a professional is a common decision taxpayers face each year. Both approaches offer distinct advantages and considerations regarding time, accuracy, and peace of mind. Evaluating your personal financial situation, the complexity of your tax affairs, and your comfort with financial data can help determine the most suitable path.
Understanding Self-Preparation
Individuals opting to prepare their own taxes often utilize commercial tax software programs or the IRS Free File program. Commercial software, such as TurboTax or H&R Block, provides a guided interview format that walks users through various income sources, deductions, and credits. These programs typically feature error checks and allow for electronic filing, simplifying submission. Many also offer integrated help sections and explanations of tax concepts.
The IRS Free File program offers free tax preparation and e-filing for eligible taxpayers, typically those with adjusted gross income below a certain threshold. This program partners with various tax software providers to offer free services. Self-preparation requires comfort with managing financial documents and understanding basic tax principles. Resources like IRS publications, instructions for common forms, and online FAQs are readily available.
Understanding Professional Preparation
Hiring a professional for tax preparation offers expertise and can be particularly beneficial for those with complex financial situations. Various types of tax preparers exist, each with distinct qualifications. Enrolled Agents (EAs) are federally licensed tax practitioners authorized to represent taxpayers before the Internal Revenue Service (IRS) for tax matters. Certified Public Accountants (CPAs) are state-licensed professionals who provide a broad range of accounting services, with tax preparation and planning being a significant part of their practice. Other tax preparers may hold certifications like the Annual Filing Season Program (AFSP) Record of Completion, indicating specific IRS-approved education.
Professional preparers typically offer comprehensive services beyond just filing a return, such as tax planning advice for future years or assistance with estimated tax calculations. They can also represent taxpayers during an IRS audit by submitting a Power of Attorney form. Engaging a professional is often advisable for individuals with self-employment income, rental properties, complex investment portfolios, or those who have experienced significant life changes like marriage, divorce, or the sale of a home. Their expertise can help identify all applicable deductions and credits, optimizing tax outcomes.
Preparing for Professional Tax Services
Before meeting with a professional tax preparer, organizing your financial documents is an important step to ensure a smooth process. You will need all income statements, such as Forms W-2 for wages, and various Forms 1099 (including 1099-INT, 1099-DIV, and 1099-NEC). Form 1099-B is necessary for stock or investment sales. For retirement distributions, prepare Form 1099-R.
Other crucial documents include K-1s from partnerships, S-corporations, or trusts, and Form 1098 for mortgage interest and property tax statements. If itemizing, gather records for charitable contributions, medical expenses, and other deductible items. For business owners, a summary of income and expenses is essential. Provide copies of your prior year’s tax returns for historical context. Also, ensure you have personal information like Social Security numbers and dates of birth for yourself, spouse, and dependents, along with bank account details for direct deposit or debit.
Engaging a Tax Professional
Once you have decided to work with a tax professional and gathered all necessary documentation, the engagement process typically begins with an initial consultation. During this meeting, you can discuss your specific tax situation, the scope of services you require, and the preparer’s fee structure, which may be a flat fee, hourly rate, or based on the complexity of your return. Following this discussion, you will provide your organized documents and information to the preparer, often through secure online portals, encrypted email, or in-person drop-off.
The tax professional will then prepare your return based on the information provided. Once drafted, they will provide it to you for review, allowing you to verify its accuracy and completeness before submission. After your approval, you will sign necessary authorization forms for electronic filing. The professional will then e-file the return on your behalf, or provide instructions if it needs to be mailed. You can generally expect an e-filed refund to be issued by the IRS within 21 days of acceptance.