Filing taxes is, for many people, an unpleasant process -- and a stressful one at that. It's also something you can't get out of (unless your income level is such that you're exempt). And while taxes have never been fun, new laws resulting from the Tax Cuts and Jobs Act of 2017 have made the process even more confusing for many filers.
Now that the 2020 tax season is well under way, you may be asking yourself: Should I pay someone to do my taxes? Or can I handle them myself? Here's how to know when it pays to hire a tax professional, or when you should be OK to save your money.
What does tax prep cost?
If you don't have any itemized deductions to claim, the average cost of having a professional prepare Form 1040 plus your state tax return is $176, as per the National Society of Accountants. For a 1040 with a Schedule A for itemized deductions and a state tax return, it's $273. And for an itemized 1040 with a Schedule C, which is a profit and loss statement from business activities, plus a state tax return, it's $457.
Of course, these are just averages. If your tax situation is really complex, you could pay a lot more.
When to file on your own
As a general rule, if you're planning to claim the standard deduction, there's really no reason to hire someone to prepare your tax return. All you need to do in that case is list your income from your W-2 and 1099 forms and see where that takes you. In other words, if you can read and copy over numbers, you're all set. You can either pay a modest fee for software (like TurboTax) and submit your own electronic return, or print out a paper return and send it in by mail. You're generally better off going the electronic route, though, as it will help you avoid errors, capitalize on the deductions and credits you're entitled to, and get you your refund faster, assuming you're entitled to one.
Furthermore, if you earn less than $69,000, you're entitled to file your taxes for free. You can do so through the IRS's website.
Now if you're planning to itemize your deductions but they're all pretty straightforward, then you can still get away with filing taxes yourself. For example, if you're simply copying your mortgage interest total, deducting property taxes, and listing your charitable donations from the past year, that's not incredibly complicated work. In fact, the bulk of the hassle involved is gathering that information in the first place, so unless you're truly intimidated by the notion of messing up your taxes, you can probably spare yourself the fees associated with hiring a professional.
When to get help
Anyone with a relatively complicated tax situation can benefit from hiring a professional. If you own a business, for example, and have lots of different expenses to deduct, it may be worth paying someone who can help you navigate your return, maximize the tax breaks you're entitled to, and avoid errors. The same holds true if you don't own a business, but you're dealing with multiple state tax returns or a host of different investments and assets.
In many cases, you'll find that the fee you pay to hire a professional makes up for itself in tax savings you otherwise would not have uncovered yourself. Just as importantly, when you hire a professional, you usually get the benefit of audit support should the IRS question your return down the line. And that's a very good thing to have.
Hiring someone who knows the tax code inside and out is a great way to give yourself added peace of mind, too. And that alone is a good reason to spend a little extra money.