Tax preparation software has improved significantly over the past several years, and more and more people are using it to file their own taxes. If you are debating whether doing your own taxes is right for you, consider the following factors:
- Simplicity of your Tax Situation – If you have relatively few deductions, few sources of income, and limited investments, tax preparation software should be able to handle your taxes with relative ease. If you have a complex tax situation with business interests, rental properties, multiple investments, or estate issues, it's probably best to use a CPA or licensed tax preparer.
- Familiarity with Taxes – The less familiar you are with taxes, the more questions a CPA will have to ask about your situation to help you find applicable deductions. Most of the tax software programs have information prompts and warnings based on the information you supply, with varying degrees of straightforward language and ease of use. An intuitive CPA who knows you and your situation and has worked with you for years is best, but a less inquisitive CPA may not be any better than the tax software (and could arguably be worse). Advises Betterment Head of Tax Eric Bronnenkant, "Find someone who has experience with someone in your situation. Let's say you work at a company, and you have stock options and other types of equity compensation, you want to work with someone who has experience with those types of investment vehicles. Not everyone does. Or let's say you travel a lot, so you are working in multiple states. Having someone who understands how to allocate your income between all the states you work in is important, too."
If you have a greater familiarity with taxes, you are more likely to input information into the software correctly and spot potential errors and numbers that do not look right. Even if you have been doing your own taxes for years, you may be uncertain of how the changes in the 2017 Tax Cuts and Jobs Act and the 2018 Bipartisan Budget Act may affect your taxes this year. A professional tax preparer will be able to advise you on all the latest tax changes. In choosing a tax preparer, says Bronnenkant, "The number one thing is finding someone who is honest and has integrity. It's someone who you're trusting with all of your personal financial information, so that provision shouldn't be taken lightly."
- Time – For simpler returns, this is not an issue. If you have a complex tax situation, it may take you considerably longer to do your own taxes – and you are also more likely to be a busy professional. Is this the best use of your time? If you are already using a banking software program like Quicken, it may be quick (pun intended) to export the information to a tax program, but that doesn’t mean you will get all the deductions to which you are entitled.
- Personal Service – Virtually all the software vendors have phone or chat support, but the reviews of these services are all over the map. If personal service and contact is important to you, it's hard to beat the services of a quality CPA. They offer year-round advice and help you keep things in order for the next year's taxes.
- Expense and Risk Tolerance – In all cases, a CPA will cost more than tax preparation software, but if you have an extremely low tolerance of risk, you should probably use a CPA for peace of mind.
While there are free or introductory versions available for most software vendors, you may need the upgrade for your situation. Check the details of each package to determine what level of expense and features you are comfortable with. Some offer free come-ons like free federal filing, neglecting to mention that they will charge a hefty amount to file your state return based on the same information.
- Audit Support – Audit support is available from most of the software companies, although it may require an additional fee. If support to handle an IRS audit is important to you, check individual companies to see what levels of support are offered, whether they are offering advice or representation, and whether they outsource support. Your CPA may provide audit support as well, but terms can vary, and the expenses are likely to be greater.
If you are just biased against software, you should realize that CPAs use software too – just far more complex and sophisticated specialized software.
Head-to-head comparisons of CPAs versus software, and many software reviews, are available online. Again, the results are all over the map. Tax situations are so different that direct comparisons with one set of circumstances may not compare to yours.
If your taxes are relatively complex and you still aren't sure what to do, try IRS Free File or one of the free or less expensive versions of tax software and get a feel for your comfort level with the product. Compare the results that you get with a trusted CPA, and let that guide you in succeeding years.
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