Should I Pay Someone To Do My Taxes?
You Might Have More Options Than You Think
Asking if you should pay someone to do your taxes is a little like asking if you should pay someone to fix your plumbing. Some people enjoy doing their own home improvement projects while others are quick to hire a professional to come in and fix the faucet. It's the same when it comes to preparing your own tax return.
Whether you pay someone depends on your tolerance for details and crushing numbers.
If calculations are your thing, you're probably fine forging ahead on your own although you might want to keep a tax professional on speed-dial because you'll probably have questions as you go along. Otherwise, you might want to pay someone else to deal things with tax time.
The Cost Factor
One nice thing about preparing your tax return yourself is that it's free, at least if you do it manually. But this takes a lot of time and patience. The IRS estimates that it takes the average person about 13 hours to prepare a tax return. Of course, the amount of time depends on the complexity of your financial situation. And as they say, time is money.
Where to Start
If you decide to prepare your tax return the good, old-fashioned way, start by downloading the relevant forms and instructions from the Internal Revenue Service. Don't forget to get a state return from your state's tax department website as well.
Most U.S. citizens and resident aliens will use Form 1040 and they'll need the Instructions for Form 1040 as well. It wouldn't hurt to get Publication 17 from the IRS website, too. These three documents will get you started.
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 can look up various documents, such as Form W-2 or Form 1099-B. They can all be located online by searching for the relevant forms, and the chart tells you which forms and line numbers are relevant.
Tax Preparation Software
Your best option might be to use tax preparation software. You can avoid using a tax professional and effectively prepare your return yourself ... with a little help. 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 better known software providers include TurboTax, H&R Block, and TaxAct. Prices range from free for some lesser known products (but don't expect much from that virtual accountant) to $100 or more for premium versions of the well-known products. Free software is often reserved for lower-income individuals through the IRS Free File Alliance.
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, such as in 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?
Tax professionals charged an average of $175 for a regular Form 1040 with no itemized deductions and a state return in the 2017 tax year.
This jumps to about $275 if you want to itemize your deductions, and it can go as high as $450 if you're self-employed and have to file Schedule C. You can expect prices to be higher in regions with higher costs of living or if your tax return is particularly complex.
You can also find free tax preparation services through local non-profits if you qualify. The Volunteer Income Tax Assistance program, or VITA for short, provides free tax preparation services to people who earn $54,000 or less per year. 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.
Keep in mind that even if you hire a professional, you'll still have to do some of the work yourself. It's up to you to gather all your tax-related documents, and you'll want to review your tax return when it's completed to make sure it's accurate. Keep a copy of your tax return and the related documents for at least three years in case the tax agencies have any questions.
A Word of Warning for 2018
You can expect a lot of changes with your 2018 tax return due to the passage of the Tax Cuts and Jobs Act in December 2017. The new law is exceptionally complex and most of the provisions go into effect on January 1, 2018, so this might be one year when you'd be better off hiring a professional to make sure your return is right. If you do choose to use tax preparation software, it can be expected that they'll be up to speed with the changes by the time you get around to preparing your 2018 return in early 2019.
The vast majority of the TCJA provisions are not retroactive, however, so you should be OK preparing your 2017 return on your own if that's your decision.