Should You Pay Someone to Do Your Taxes?
Asking someone to do your taxes can be a little like asking for help with do-it-yourself (DIY) home improvement projects. Some people enjoy doing their own home improvement projects, have the knack, and/or would rather keep their business to themselves. Meanwhile, others are quick to outsource these time-intensive chores to a professional who may also be able to do a better job.
The scenario analysis can be the same when it comes to preparing your own tax return. Whether you decide to pay someone depends on your tolerance for crunching numbers and having at least a basic understanding of tax rules.
You're probably fine forging ahead on your own, if calculations are your thing, though you might want to keep a tax professional on speed-dial because you'll probably have at least a few questions as you go along. Otherwise, you might want to pay someone to deal with your return, especially for the 2019 tax year.
What Changes in 2019?
You might want to enlist the help of a professional to prepare your 2019 return, even if you consider yourself to be pretty tax savvy, because the Tax Cuts and Jobs Act (TCJA) made some sweeping changes to the tax code when it went into effect on Jan. 1, 2018.
Standard deductions have more or less doubled since 2017, and this might make itemizing less attractive to some taxpayers who have chosen that route in the past, particularly because changes were made to quite a few itemized deductions as well.
The state and local property tax deduction (SALT) is now limited to $10,000 collectively. The casualty and theft loss deduction has been repealed, except for taxpayers who suffer a loss due to a disaster area declared by the U.S. president. Personal exemptions have been eliminated from the tax code as well.
You see where this is going. Thus, this might be one year when you'd be better off hiring a professional to make sure your return is right—particularly if itemized deductions are a high priority for you.
The Cost Factor
One nice thing about preparing your tax return yourself is that it can be free. If you are an expert and choose to do it the good old-fashioned way with a paper return and a pen—you will pay nothing. Many people also choose DIY tax preparation software through companies like TurboTax or H&R Block, with very low fees and some deals for free. These services usually have tax support for advice.
Preparing your own returns can take a lot of time, however, along with a good deal of planning and patience. The IRS estimates that the average person will require about 11 hours to prepare a 2020 tax return. Of course, the amount of time you'll spend will depend on the complexity of your financial situation. But as they say, time is money.
Where to Start for Paper Filings
If you decide to prepare your tax return in paper form, start by downloading the relevant forms and instructions from the Internal Revenue Service. And don't forget to get a state return from your state's tax department website while you're online.
You may be limited to using Form 1040 in 2020 to prepare your 2019 return. You'll no longer have the option of filing Form 1040-EZ or 1040-A—another major change brought about as an offshoot of the TCJA. The IRS decided to "streamline" tax returns to conform to the new law and it created a new Form 1040 to replace the older 1040, 1040-A, and 1040-EZ. It's shorter, but it comes with multiple attachments that all but the simplest of tax situations will probably require—another good reason why you might want to touch base with a tax professional this year.
If you get stuck and aren't sure where to enter information, check out the handy Where to Report Certain Items chart near the front of the 1040 instruction booklet you'll find online.
You can look up various documents, such as Form W-2 or Form 1099-B. The IRS has promised that the information will be updated to accommodate the new 2019 tax return. A chart will tell you which forms and line numbers are relevant to your tax situation.
Tax Preparation Software
Your best option might be to use tax preparation software. Using software is almost like having a virtual accountant sitting by your elbow as you work along. Most reputable programs will tell you what would happen if you contributed to an IRA, if you gave more money to charity, if you earned more money, or if you lost money in the stock market. You can see how entering numbers into different parts of the software can make an impact on tax calculations and tax planning.
You have several options to choose from, including free and paid software. Some of the more well-known software providers include TurboTax, H&R Block, and TaxAct. Prices range from free to $100 or more for premium versions or more complex filings. Free software is often reserved for lower-income individuals through the IRS Free File Alliance.
If you do choose to use tax preparation software, it can be expected that they'll be up to speed with the changes both to the tax code and to the 1040 by the time you get around to preparing your 2019 return in early 2020.
If You Hire a Professional
The majority of Americans opt to hire an accountant or other tax professional to prepare their tax returns because they want to be sure that it's done right. They don't want to hear from the IRS after they file.
Be sure to find a tax professional with a level of experience and specialization that's suitable for your needs. Some accountants are general practitioners. Others specialize in things such as helping Americans who live overseas or self-employed individuals in a variety of businesses.
The two most popular professional credentials for tax preparers are certified public accountant (CPA) and enrolled agent (EA). CPAs are trained in a wide range of accounting procedures and some of them specialize in tax preparation. EAs are trained specifically in tax procedures.
How Much Does a Professional Cost?
In 2017, the National Society of Accountants reported that tax professionals charged an average of $176 for a regular Form 1040 with no itemized deduction and a state return during the 2018 tax season. This jumped to about $273 for those who itemized your deductions, and it was as high as $457 for self-employed individuals who had to file a Schedule C. You can expect prices to be higher in regions with higher costs of living or if your tax return is particularly complex, and possibly because of the complexity of this new tax year.
You can also find free tax preparation services through local non-profits if you qualify. The Volunteer Income Tax Assistance (VITA) provides free tax preparation services to people who earn $56,000 or less per year as of 2019.
Those who are age 60 or older can find free tax preparation services through Tax Counseling for the Elderly (TCE) and the AARP Foundation's Tax-Aide programs. These programs set up space during the tax season at local community centers, colleges, or libraries.
The Final Decision
Your final decision can be influenced by many different factors. Overall, keep in mind you'll still have to do a lot of the work yourself even if you hire a professional.
Start gathering and organizing your 2018 tax documentation as soon as you can.
It's up to you to gather all your tax-related documents. The sooner you start the more control you will have to make the best decision. For most people, it will come down to cost, so creating a pros and cons list detailing your expenses can be prudent.
Regardless of which route you take, you will also want to save time for reviewing your tax return when it's completed for accuracy. A professional will certify accuracy and help you down the road in a tax audit, but the return filing is still only as good as the information you provide. Once you file, you will also want to keep a copy of your tax return and the related documents for at least three years in case the tax agencies have any questions.
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IRS. "Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 5," Accessed Nov. 13, 2019.
IRS. "2019 Instructions for Form 4684 Casualties and Thefts," Page 2. Accessed Nov. 11, 2019.
Federal Register. "Proposed Collection; Comment Request for Form 1040, Form 1040NR, Form 1040NR-EZ, Form 1040X, 1040-SR and All Attachments and Related Forms," Assessed Nov. 11, 2019.
IRS. "2019 Form 1040," Accessed Nov. 13, 2019.
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National Society of Accountants. "National Society of Accountants Reports on Average Tax Return Preparation Fees," Accessed Nov. 11, 2019.
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IRS. "Tax Counseling for the Elderly," Accessed Nov. 11, 2019.
AARP Foundation. "You've Got What it Takes: Volunteer With AARP Foundation Tax-Aide," Accessed Nov. 11, 2019.
IRS. "How Long Should I Keep Records?" Accessed Nov. 11, 2019.