Each year, taxpayers prepare to file their taxes and decide whether to hire a professional or file independently using special tax preparation software to complete the forms. Working alone or using Certified Public Accountants (CPAs) or other personal tax preparers offers varying benefits and costs.
Key Takeaways
- Taxpayers can choose to prepare their taxes using special tax preparation software or by hiring a tax professional.
- Tax software generally benefits those with simple tax situations.
- Some tax preparation software may be free and easy to use.
- Hiring a professional gives taxpayers expert advice for complicated tax returns.
Tax Filing Basics
The deadline to file taxes is April 15 each year. If the date falls on a weekend or a holiday, the deadline changes to the next business day. The Internal Revenue Service (IRS) offers six-month extensions with requests in writing using Form 4868: Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
Taxpayers can file using tax software—some of which use artificial intelligence (AI)—or hire a professional preparer. The IRS strongly recommends that taxpayers file their annual returns electronically and opt for direct deposit to avoid delays in processing paperwork and refunds.
Military members in a combat zone, part of a contingency operation, or hospitalized due to service in these areas have "180 days after you leave the designated combat zone/contingency operation to file and pay taxes."
Using Tax Software
Many companies offer downloadable tax software that lets individuals complete their taxes at their own pace. The following is a list of some of the key factors you should consider as you decide which program suits your needs.
Most taxpayers choose to file their returns themselves using software because it's easy, cost-effective, and simpler to do. Individuals with one income, a minimal amount of investment income, and claim the standard deduction with a few tax credits and deductions may choose to do their taxes. Many apps and software programs offer free filing services for simple returns.
Price
Taxpayers commonly pay less for a software package to file than hiring a CPA or qualified tax professional. The price of tax preparation software varies for filers depending on the service and how complicated the returns are. Service providers like H&R Block or Turbo Tax offer package options that range from $25 to $120 based on the customer's needs.
Speed
When filing at home, taxpayers can choose when and where to complete the forms. Uncomplicated returns may take less than an hour. Once you've filed, your return is usually sent directly to the IRS and your state agency, for which you get a confirmation email. The best professionals, on the other hand, may take several days to a few weeks to process paperwork and file forms.
Simplicity
Good tax preparation software walks taxpayers through the process quickly and easily and commonly offers online support if needed. Those with only a few deductions, sources of income, or investments can benefit from independently filing their taxes.
Certain taxpayers may be eligible to file their federal tax returns using the IRS's Direct File program. It is available to people in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State, and Wyoming. You must meet other eligibility requirements to use the program. Details can be found here.
Hiring a Professional
Individuals and businesses commonly hire a professional because the filing process is complicated due to multiple sources of income or deductions. Many use the services of an accountant or other tax professional.
Keep in mind that using a professional often comes at a cost. You may pay by the hour or per return. Statistics show that the national average for a federal tax return with Scheule A and a state income tax return costs $323.
Better Software
Professional accounting software is more sophisticated than the products sold to consumers. These advanced programs can quickly scan information and organize line items and forms correctly. By automating much of the data entry and organization, there's less chance for human error on a tax return.
Expertise
Many taxpayers and businesses develop a relationship with an accountant so that they understand their financial situation and future goals. The value of advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can offer advice on tax-friendly ways to save for children's education or how toreduce taxes on capital gains.
Time Savers
Taxpayers who find themselves at the center of complicated business and investment matters may have the skill to sort through their taxes on their own, but is it worth their time? Professional tax preparers are familiar with the system, and they can quickly accomplish tasks that might take even skilled taxpayers hours of research.
Enrolled Agent
The IRS certifies enrolled agents who represent taxpayers and tackle tax matters, like attorneys or CPAs.
What Is the Difference Between a CPA and a Tax Professional or Preparer?
A certified public accountant is a certified tax professional who may choose careers outside of tax preparation, such as private accounting or auditing. Tax professionals or preparers are not CPAs and do not hold certifications, but may be employed by tax preparation companies or the IRS.
Is It Worth It to Pay for a Tax Professional?
That depends. If you have complicated taxes that require special forms and calculations, it may be worth hiring a tax professional to file the forms and ensure that all income, deductions, and itemized items are reported. If you have a simple return that is fairly straightforward without any complex deductions or documents, consider saving the money and filing yourself using a tax software program.
Where Can Taxpayers Find Important Tax Filing Information?
The IRS provides educational information, helpful tips, and online access to an individual's account through their website. You can also find a lot of useful information about taxes and tax filing on Investopedia's tax page.
The Bottom Line
Individuals with a single employer and few investments may save money by preparing their taxes. Those with business income or rental properties will find hiring an accountant worth their peace of mind and potential tax savings.
