Tax Prep: Should I Hire a Tax Professional?
The deadline for filing your tax return for 2019 is rapidly approaching and tax prep may have its challenges. Even if you are expecting a refund, the process of filing your return still leaves many with a headache. Perhaps you’re one of the few that’s been organized and diligent in keeping receipts and important tax documents, but it’s likely that most of us are not. For those that have not performed the necessary tax prep, gathering forms and documents can be time-consuming and painful.
In addition to taking up a lot of time, tax prep can be costly when done incorrectly. Inadvertent mistakes, filing your return later than the deadline, and failing to properly report taxes that have already been paid can result in penalties that can cost you real dollars.
There are two ways to go about preparing your tax return each year: preparing your return yourself or hiring a professional. Let’s take a look at both options to help you determine which one is right for you.
Preparing Your Own Return
When You Should Do Your Own Taxes
When deciding if you should prepare your own return, there are a few considerations. If your investment vehicles are relatively simple and your retirement plans consist of your 401k or IRA, you should be able to complete your tax returns on your own.
Also, the best candidates for DIY tax preparation are people that typically use the standard deduction as opposed to itemizing deductions. If you do not own a business and have few dependents, you may also find preparing your return is more cost-effective than hiring a professional.
If you have complicated investment vehicles in your portfolios such as partnerships or rental income, you may want to consider using a professional.
Using Tax Prep Softwares
When preparing your own taxes, there are many popular online tax preparation software, such as TurboTax, that makes filing your taxes easier. If your return is very straightforward, you can also use the preparation software available on IRS.gov.
An advantage to using these tools is that they can help you reduce errors with your filing. The cost is also relatively low. Most tax preparation software can range between $25-$150 while the IRS tool is free.
It Can Be Time-Consuming
Do-it-yourself tax prep is a significant investment of time. The total estimated process (including gathering documents and completing your filing) will take approximately 7 hours on average. So, if you are working on this on your own, take your time and try working on it in smaller blocks of time.
It Is a Lot of Responsibility
Disadvantages of preparing your returns yourself are errors and unintentional omissions. These errors can sometimes be costly, so make sure that you check and recheck your return before submission.
Hiring a Professional
When You Should Hire a Professional
You should hire a professional for your tax prep if:
- Your investments are more complicated, e.g., you own a business or receive part of your income from self-employment.
- You itemize your deductions or have complicated investment portfolios, such as real estate or other complicated investments.
- You had a major change from the prior tax year, such as moving costs or retiring.
Hiring a Professional Is Time-Efficient
A complicated tax return can take on average 20 hours to complete. If you’re short on time and patience, you may want to seek the help of a qualified professional.
It Can Be Costly
Although a professional typically reduces your exposure to errors and omissions, it is more expensive than doing it yourself. Costs for preparing a Form 1040 can cost hundreds of dollars depending on the complexity of your return and how diligent you have been in organizing your supporting documentation.
What to look for in a professional:
If you decide to get assistance in preparing your return, here are some tips to think about when looking for the right professional.
Make Sure They Have a PTIN
PTIN stands for Preparer Tax Identification Number. The IRS requires anyone who prepares or assists in preparing tax returns for compensation to have a PTIN. They will need to include this information on your tax return. They will also need this information to represent you in the event of an audit, appeal, or payment issues.
Look for a Professional Designation
While the CPA designation tends to be the gold standard, you can also have your taxes prepared by a licensed attorney or enrolled agent. These professionals usually complete varying amounts of education and examinations proving their competency. They also typically complete the Annual Filing Season program hosted by the IRS which further demonstrates their ability to prepare your returns ethically and accurately.
When possible, selecting a professional that is a member of a professional organization can add further evidence to support their capabilities. Organizations such as the National Association of Tax Professionals or the American Institute of Certified Public Accountants maintain codes of ethics and professional conduct requirements that must be adhered to in order to remain in good standing.
When selecting a tax professional, you should not be afraid to compare prices among providers. Prices can vary depending on the professional. Typically, most tax professionals charge by the hour. If you find a preparer that charges in other ways, you may want to keep shopping. The typical cost for a 1040 preparation was around $294 in 2018.
Tax prep can bring about a certain level of anxiety. However, depending on the complexity of your return, you may be able to avoid the cost of hiring a professional. If you do need the help of a professional, be sure to hire someone that is capable, ethical, and reasonably priced to assist you with your tax preparation.
Kindur is a New York based financial technology company dedicated to helping Baby Boomers feel prepared moving into retirement. We provide smart, automated advice to personalize your retirement strategy so you can manage your savings with confidence. Learn more at kindur.com