What's the best way to get your taxes done? Should you invest in tax preparation software or work with a certified public accountant? There are advantages and disadvantages to each approach. What you decide to do depends on your particular situation.
Tax Software: Advantages
- Price. The clear advantage for tax preparation software is the cost, which ranges from around $20 to $100, depending on the type of software and what kind of taxes you need to file (business programs tend to cost more, for example). At the cheapest, a tax preparer will charge around $100, and a CPA will likely charge several hundred. If you're using software to do your taxes, the up-front price is much lower.
- Speed. If you want your taxes to get done right away, you can't beat tax software. From start to finish -- depending on the complexity of your taxes -- you can get everything done in the course of a Sunday afternoon. If you use a CPA to do your taxes, it will take longer, because the accountant will not be focused solely on you and your tax return. CPAs are especially busy from February through April as they juggle taxes for all of their clients.
- Simplicity. Everything about using tax software is simple. Many programs can be downloaded directly to your computer, so you don't even have to leave your house. Tax preparation software guides you through entering your income, calculating deductions, and claiming the right credits. It uses algorithms to ensure that you will save the most money on your tax return.
- Education. Do you learn by doing? Working your way through your tax return with a tax preparation program can help you understand what's important when filing your taxes, learn more about credits and deductions, and get familiar with the tax code.
- Knowledge base. CPAs know their stuff. Even though tax preparation software has the whole tax code in its memory, CPAs have know-how and real-world experience. This means they can understand how to apply their knowledge to you in a way that software can't. CPAs also have access to materials that regular consumers don't, like professional-grade tax preparation software that costs over more than $1,000.
- Familiarity. The best thing CPAs do that software can't is plan for the future. Consumer tax prep software uses a simple input-output process to finish your taxes, but a skilled CPA gets to know you and your financial situation in order to help prepare for the coming years. A good CPA assesses your goals and finances and can make suggestions to bolster your finances, identifying potential pitfalls and savings opportunities.
- Problem solving. If you have a messy or otherwise challenging tax situation, a CPA can help you clean everything up and make sense of your taxes. CPAs have worked with all types of problems and know how to help you set things right. Furthermore, if you have the misfortune of being audited, a CPA can guide you through the process in a way that tax preparation software cannot.
So what will you choose this year? If you like to do things for yourself or want an inexpensive and speedy way to get your taxes done, tax software may be your best choice. If you want an expert on your side, have a complex tax situation, or want help planning for the future, it could be worthwhile to work with a CPA.