Do You Need a Professional to Do Your Taxes?

I recently ran into a couple of articles on whether or not you need a professional to help you with your taxes and I thought they would make a good basis for a conversation. Let's start with a piece from Money Talks News that says you probably do not need a tax professional:

For the vast majority of people, software is the perfect solution for taxes. Because while income taxes may seem exceedingly detailed and complicated to you, doing math and remembering a few thousand rules is exactly what computers were invented to do.

If that doesn’t convince you, maybe this will: Virtually every human tax preparer is also using software to prepare your return. You’re giving them your information, and they’re doing the same thing you could be doing: inputting it into a software program that spits out a completed return. In other words, in many cases when you’re sitting across the desk from a tax professional, what you’re really doing is paying someone from $50 to $500 an hour to do your typing for you.

In other words, they think that most of us do NOT need professional tax help. That is in contrast to what's happening (the piece simply says that a majority of Americans use a professional to help them file their taxes.)

Then again, there are times when you may need some help:

So why go to a human preparer? There’s only one reason: Sometimes human beings can do things that software can’t. For example, by asking the right questions they can ferret out deductions that software might have missed. Or by getting to know your situation, they might help you formulate a strategy to minimize future taxes, or answer other financial questions you might have. So don’t be penny-wise and pound-foolish: If a pro can really help you, buck up. But if you don’t need or receive valuable personal advice, don’t pay for it. Use software and do your own typing.

On the other side of the argument, the Wall Street Journal says it's worth paying a tax pro. Their thoughts:

This tax season, entrepreneurs operating on a tight budget may be tempted to forgo professional help in preparing their companies' returns. But experts say the investment is typically worthwhile -- at least for those just starting out -- to maximize deductions and avoid penalties. Tax specialists can help ensure that business owners don't pay Uncle Sam too much or too little and help identify all the tax breaks they're eligible to receive.

Really though, this advice isn't for the Average Joe -- it's for a business owner. So the point is really the same for both articles: if you have specialized or complicated tax returns, it's probably worth it to pay a professional. Otherwise, you're better off doing it yourself.

This is the same sort of reasoning I used when I explained that I use a CPA to do my taxes. That said, my returns are fairly consistent and I think I have them down now -- even though they can be a bit complicated. I'm guessing that in the next year or two I'll be doing them myself instead of using a CPA.

How about you? Do you use a tax professional? Why or why not?

Comments

[Jonathan]

I use a CPA but primarily because she's my mom and does them for free. That said, she says she learns a lot from our tax returns because they are much more complicated than most of her clients'. We have W-2 income, 1099 income, lots of deductions, depreciation, rental income, K-1s from LLC investments, carried capital losses, personal loan interest income, etc.

I sometimes wonder how difficult (or easy) it would be to do them myself using tax software, and how much my mom would charge us if we were any other client.

[Sarah]

I use a CPA because I find it a bit daunting otherwise. We have two state returns, because we own a rental property in another state, a home business, plus local (both where i work and live), state, and federal income taxes to deal with.

We used turbotax for a while, but I don't know how turbotax does at depreciation and figuring all that out, and I don't have the knowledge to check it and see if it seems right. Not to mention that turbo tax home business + 2 states & local - by the time all the turbotax is paid for its not that much more to have a CPA look at it.

[KH]

My taxes(state+federal) are fairly straightforward and I used to do them myself. But about 10 years ago I started using a paid tax preparer because it was included in my job's compensation package. I was surprised that the guy found more deductions that I did. I always see the same guy and he gives me advice every year about upcoming rule changes and if he sees me approaching a tax bracket or something like that--very useful for planning ahead. Definitely worth it.

[Matt]

My father did his own until he retired and started to see things were getting too complicated for him. To figure out the MRD from his IRA when he turend 70 1/2 and my mother is 7 years younger he did not want to screw up. Plus I think he did not want the hassle any longer.

I will do my own up until the point that it is too complicated for me to do which I think will be never.

But then again I never would have thoguth my father would hire someone to do his taxes.

[RateMonster]

I definitely think even for individuals it is worth hiring someone because if you get a good tax preparer they will always pay for themselves. Remember they are experts at what they do and can help you in ways you will never think of. Only a fool represents himself in court; same goes with tax prep.

[Strick]

taxes = plumbing.

I know how to do both, but they're not much fun, an expert can do it so much faster than me that their overall bill is not much per the number of hours it would have taken me to get all the materials and do it right, and I'd much rather have someone other than myself to blame if something goes horribly wrong...

[Old Limey]

I have never paid anyone to do my taxes since 1958 when I emigrated to the USA.
I am a nitpicker, I keep good records, I am very logical, an engineer, and so far everything has worked out well for me. Calculating the MRDs for your IRAs is probably complicated but I have all of my investments at Fidelity and they have an MRD calculator on their website that's so easy to use even a moron could get it right. H&R Block would charge about $450 for a return like ours so I figure I have saved a whole lot of money over the last 52 years by doing it myself.

One tip for retirees that have to take MRDs is to have your estimated taxes withheld when you transfer money out of an IRA into another account. Even though you have them withheld in December the IRS and our state treat the funds as if they were withheld on a monthly basis so it eliminates the work and bother of filing quarterly returns and payments.

The politicians keep talking about a simplified tax code but it never happens, the tax code just keeps getting bigger and bigger.

I was talking with a friend this afternoon whose husband died a few weeks ago. She verified what I have always known which is that the simpler you keep your investments the easier it will be for whoever has to deal with all the paperwork when you are gone. Unfortunately her husband didn't do this. It's not a good idea to have your portfolio in bits and pieces spread all over the country.
Keep It Simple.

[Noadi]

I have a small business so my taxes are a bit complicated but not as bad as it could be. I can't say I've ever found taxes difficult to do, just very time consuming.

[Jim]

I use a CPA since our taxes are pretty complex. I could probably manage figuring it out on my own and did most of the same stuff in the past. But given the complexity I'd rather trust a professional. Plus she did find specific deductions that I wouldn't have known myself. But we're talking like 30 pages of forms for HSA, rentals, multiple states, stock option sales, etc. not a simple 1040 with itemization.

I agree with the article that most people can do just fine with software.

[Money Reasons]

I'm not to the point where I believe I need an accountant, at least not yet. I am starting to get more complex though, and I would like to buy some real estate in the coming years. I think before I take the real estate plunge, I'm going to talk to an accountant first.

[Robert Muir]

I own a business, but since it's just me, myself, and I, all I need to do is subtract expenses from income and I'm done.

[First Gen American]

The software isn't foolproof either. I remember trying to deduct either day care expenses or an energy tax credit and I had to talk to one of those online help people to walk me through how to get to that page in the software. I still think it's good to read up on the tax law changes if you're going to be doing them yourself.

[Paul]

I succombed to the software 7 years ago. Before that, I vowed never to pay money to file my taxes. But the silly little worksheets got so cumbersome and time consuming, I realized paying for the software was worth it. I find that sad. Why should the tax code be so complicated that most college educated people can't file their taxes without at least software help?

[Darin H]

I've used Tax-Cut (now H&R Block at Home) for 7+ years, used Turbo Tax before that. We don't have that complicated of a return and it was only $27 with the 20% off coupon and we live in FL so we don't have to file state taxes. I don't know how much more complicated we'd have to get for us to use a CPA (probably if I started a business).

[KMI]

We've used Turbotax for years since we don't have a particularly complicated return. The only time we met with an accountant was a number of years ago when my husband was self employed and wanted to understand the tax consequences of setting up different types of corporations, limited partnerships, and so on.

[Spencer]

I do it myself because I am a CPA (even though tax isn't my area of expertise) and my return isn't complicated, plus I can ask questions of coworkers who are CPA's and specialize in tax if I don't completely understand something. That being said, as my return gets more complicated, I'll probably turn to a CPA to do mine.

[CoolMouseLuke]

In my 20's, I always did my own taxes. Someone very savvy recommended having a CPA do mine one year, and review my last 3 years. The combined savings they found from the 4 returns was over $3000, and that was when I was not making much money. Since then I always use a CPA.

For me, the value is not in the filling out the forms, or even the calculations. It is the tax strategy, planning things over multiple years. I wouldn't pay to have someone just fill out forms. I always have a CPA that includes several calls a year for 15-30 minutes each as part of the yearly fee. One decision can easily swing my tax liability by more than the yearly total cost. I only spend $425 for all that, and I have an LLC, multiple rental properties in different states, depreciation, etc...

Old Limey - I love your contributions and perceptions from your experiences, and almost always agree. And I do agree you probably have saved tons of money over the years by not paying for someone to fill out the forms and do the calculations. Not to mention by staying on top of it, and knowing the implications of different moves. But I wonder if you did an audit, have a CPA check your this years and last few years returns, and see if there was anything you missed, or could have done a different way. Maybe not, but it might be worth the limited cost to just check up and still feel confident.

Companies do this of course, audit their tax filings. Maybe for the folks pretty confident in their abilities to do themselves, continue to do that, and just audit every few years?

[choco]

I've use the free online tax suggestion on the Income Tax website for a few years. It was simple and seemed to ask the right questions at the right time. I now have a mortgage and will probably use the same free online tax software as before. However, I was thinking that in the future I would like to go to a tax pro and so I should prepare. How do I start to prepare for going to a CPA next year? What receipts should I save and how should I group them? Should I keep up on the math by maintaining a running total or should I just assume the CPA will add them all up? Any other advice?
thanks