If you’re reading this article, it’s probably tax season and you’re wondering:
- “Should I do my taxes solo again?”
- “Is hiring a tax professional really worth it?”
Valid questions and my typical accountant’s answer is:, ‘It depends.’
There are situations when doing it yourself is a no-brainer. Others that make it 100% worth the money to hire me or another certified professional.
But saying ‘it depends’ doesn’t help you make a decision. So, let’s walk through when it’s best to do taxes yourself and when you should hire a tax professional.
When to do taxes yourself
It’s best to DIY your taxes whenever you have a simple tax situation.
While every tax filing program defines ‘simple tax returns’ differently, it typically means you only have basic income and deduction elements to account for. In my experience, you:
- Have no major life changes: ie. income, lifestyle, location, etc.
- Work one job (or multiple as a W2 employee).
- Only file in one state.
- Use the standard deduction or have simple Schedule A item deductions (ie. mortgage interest, property taxes, charitable contributions).
The only benefit of self-filing is that it’s cheaper. You’re realistically paying between nothing to less than $100 per year.
The tradeoff for those savings is your time and potentially missed deductions. Even in the simplest tax situation, you’ll still spend roughly 13 hours to complete your taxes. And if you opt for the standard deduction you may miss out on additional savings.
If neither are concerns, then self-filing is your best option.
When to hire a tax professional
Anytime filing your taxes becomes complicated, confusing, or overly time-consuming—it’s time to hire a professional.
Your exact reasons will vary, but typically one or more of the following applies:
- A major life change occurred (moved, kids, new job, etc.)
- You run your own business/side hustle and file your business income or loss.
- You are currently or are at risk of being audited.
- Need to maximize retirement/investment savings.
- Filing in multiple states.
- You’re filing Married Filing Single in a Community Property State.
- You have K-1 income/losses.
- Recently received an inheritance.
- Gave gifts exceeding the yearly gifting threshold.
- You own rental/investment properties.
- You sold an investment property.
- You typically owe a lot every year (or even get too big of a refund).
One of these situations can add dozens of hours to your tax preparation and increase your likelihood of overpaying or making costly errors. Throw in multiple and those issues compound.
That’s why hiring a professional is the right call whenever your taxes become anything but simple. Yes, you will pay more than self-filing and lose control over when and how your return is filed (your preparer may even need to file for an extension).
But the peace of mind, time savings, and potentially greater tax savings will more than makeup for it.
Be careful when hiring someone to do your taxes
There’s just one caveat when hiring a tax professional. To get the value I described, you need to hire someone good. Choose the wrong tax preparer and you run the risk of missing deadlines, losing out on savings, and potentially even being cheated out of your return.
The good news? There are a few obvious red flags you can look out for:
- They don’t have a Preparer Tax Identification Number.
- Their fee is a percentage of your refund (this is illegal for preparers to do).
- Overpromise potential for returns.
- Struggle to answer basic financial questions.
- Don’t take the time to understand your situation.
So, even if you’re coming up on the tax deadline (remember you can always get an extension), be sure to take your time, ask for recommendations, and speak with multiple tax advisors. And if it comes down to it, don’t be afraid to fall back on self-filing.
Ready to connect with a certified tax pro? Schedule a free 15-minute consultation where we’ll explore your financial situation, give you time to ask questions, and determine if we’re the best fit for you.