Should You Do Your Own Taxes?
Whether You Hire a Pro Comes Down to Price and Your Comfort Level
Deciding whether to pay someone to prepare your tax return depends a great deal on your confidence in crunching numbers and your understanding of tax rules. You're could be fine forging ahead on your own if calculations are your thing, but you might want to pay someone to deal with your return otherwise. You have other options as well.
Tax Laws in 2020
You might want to enlist the help of a professional to prepare your 2020 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 in 2018.
Standard deductions more or less doubled under the TCJA, which might make itemizing less attractive for taxpayers who have chosen that route in the past, particularly because changes were made to quite a few itemized deductions as well.
For example, the TCJA limits the state and local property tax deduction (SALT) to $10,000 per calendar year. The casualty and theft loss deduction has been repealed except for taxpayers who suffer a loss due to a disaster area declared by the U.S. president.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 might be better off hiring a professional to make sure your return is right if you think you might be better off itemizing your deductions despite the provisions of the TCJA.
The Cost Factor
One nice thing about preparing your tax return yourself is that it's more or less free. You might also consider choosing tax preparation software from a company such as TurboTax or H&R Block, both which offer low fees and sometimes free deals. These services usually offer tax support and advice as well.
Preparing your own returns can take a lot of time, however, along with a good deal of planning, and time is money. Of course, the amount of time you'll spend will depend on the complexity of your financial situation, but the IRS estimated that the average person required about 11 hours to prepare their 2019 tax return.
Estimates for the 2020 tax year won't be available until filing season 2021 gets underway.
Where to Start
Begin by downloading the relevant forms and instructions from the IRS if you decide to prepare your tax return yourself in paper form.
Don't forget to get a return from your state's tax department website while you're online.
You might be limited to using Form 1040 in 2021 to prepare your 2020 return unless you're age 65 or older. You 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 law, and it created a revised Form 1040 to replace the older 1040, 1040-A, and 1040-EZ.
The 2020 tax return is shorter, but it comes with three schedules that all but the simplest of tax situations will probably require—another reason why you might want to touch base with a tax professional this year.
Tax Preparation Software
Your best option might be to use tax preparation software. It's almost like having a virtual accountant sitting by your elbow as you work.
Most reputable programs tell you what will result if you took certain actions during the tax year, such as contributing to an IRA, giving money to charity, earning more than you did the year before, or losing or gaining a dependent. You can see how entering these 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 internet programs are also available through the IRS Free File Alliance, but this program is limited to individuals whose incomes were $72,000 or less in the 2020 tax year.
You can expect that tax preparation software will be up to speed with the TCJA changes and will provide the updated 1040 form.
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 if you choose this option. 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?
The National Society of Accountants indicates that tax professionals charge an average of $176 for a regular Form 1040 with no itemized deduction, including a state return. This jumps to $273 for those who itemized their deductions, and to $184 for self-employed individuals who must file Schedule C with their return.
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 (VITA) provides free tax preparation services to people who earn $65,000 or less per year as of tax year 2020. You can also qualify if you're disabled or if English is your second language.
- Taxpayers age 60 or older can find free tax preparation services through Tax Counseling for the Elderly (TCE).
- The AARP Foundation's Tax-Aide program is similarly offered in conjunction with the IRS.
These programs often set up space at local community centers, colleges, or libraries during the tax season.
The Final Decision
Keep in mind that you'll still have to do a lot of the work yourself, even if you hire a professional.
Start gathering and organizing your 2020 tax documentation as soon as you can so you'll be prepared when it's time to file.
It's up to you to gather all your tax-related documents. The sooner you start, the more information you'll have at your fingertips to make the best decision.
You'll want to save time for reviewing your tax return for accuracy when it's completed, regardless of which route you take. A professional will certify accuracy and can help you down the road in a tax audit, but your tax return is only as good as the information you provide.
You'll also want to keep a copy of your tax return and related documents for at least three years in case the tax agencies have any questions.