There comes a time every year when you'll have to pop the big question: Should I file my own taxes or hire a professional? The answer usually defaults to the infamous response: "It all depends." Life changes could affect the credits and deductions you qualify for and what new tax forms you'll have to add to your list.
Since hardly anything having to do with taxes is ever as straightforward as we would like it to be, here are some items to consider when evaluating if it makes sense to do your own taxes or hire a professional.
Make the decision easier
There's no need to guess whether you should do your taxes when you have the information at your disposal to make an educated decision.
First, gather all your documents to see what you are working with. Pull out last year's tax return, your W-2s, your Form 1099s, and all the other tax documents you received.
Here are some questions to consider:
- Did you receive any new forms this year?
- Do you have a basic understanding of the tax return?
- Are you familiar with the most common tax forms you'll need to use?
- Did you get married, get divorced, have a baby, or experience any other changes that could affect your filing status?
- Do you plan to file your taxes electronically?
- How much time do you have to allocate to tax preparation?
- What are the potential costs?
Go through this checklist to help make your decision less stressful. If you find that your tax situation hasn't changed since last year, there's nothing wrong with completing your own tax return if you have time available to do it. But if you're already spinning your wheels looking at all the various tax documents, you may be better off hiring someone else to take all the tedious tax work off your plate.
The case for doing your own taxes
You don't have to be a tax expert to file your own tax returns -- especially if you have a simple tax situation.
Let's say you're a 28-year-old single woman who earns $50,000 per year in W-2 income. If you have no dependents or children and no other sources of income, you'll have one of the easier tax returns. All you have to do is complete the basic personal and tax questions and transfer the numbers from your W-2 to your tax return to determine how much you owe or receive as a refund.
Filing online makes the process easier and helps you to avoid the most common filing mistakes. Free tax software is available through the IRS, allowing you to file your taxes for free at any of the partner tax sites. You just have to meet the annual income requirements to qualify for the service. The tax software is really easy to use and does all the necessary calculations for you. If you're comfortable using the software and submitting your tax return on your own, this is a great way to save money at tax time.
The case for hiring a professional
Not all tax returns are created equal. Some tax returns are a bit more complex, including items such as self-employment income, capital gains, retirement distributions, unemployment income, and child care expenses. The last thing you want to do is sacrifice your ability to claim popular benefits such as the earned income tax credit just because you skipped hiring a professional to save a few hundred dollars. Submitting a tax return with tons of errors could actually end up costing you more in the long run.
The best rule of thumb is to go with a professional if your tax situation is daunting. If you have no idea how taxes work, have never prepared a tax return, don't have time to complete the tax return on your own, or have a new tax situation on your hands, just save yourself the headache and seek out a professional.
The best thing about working with a tax professional is that you can possibly unlock credits and deductions that you didn't even know you qualified for. The more credits you have, the more money you walk away with. The extra money you spend on a tax preparer could be worth it in the end when you pay fewer taxes or receive a bigger refund than you expected. Do your due diligence to ensure the tax preparer you choose is well versed in your situation and is knowledgeable enough to help you fill in the gaps.
Don't wait until the last minute to decide between doing your taxes yourself or hiring a professional. By being proactive, you can turn a stressful tax situation into a smooth filing process that saves you time and money.