A study by the IRS found that about half of all taxpayers use a paid tax professional. The rest take their taxes into their own hands — often with the help of tools like professional tax software, Google and even artificial intelligence. But is taking a DIY approach to taxes a good idea?
Doing your own taxes can save quite a bit of money. However, those savings are only worth it if you have the time, patience and know-how to prepare your tax return accurately and on time. If you’re wondering whether you should handle your own taxes this year, there’s a few things you should know first.
Pros and cons of filing your own taxes
It’s important to understand the major pros and cons when it comes to handling your taxes. Be sure that the advantages outweigh any potential risks.
Pros:
- Savings. For most people, the main motivation for filing taxes on their own is the cost savings. The average cost for a firm to prepare a Form 1040 was $220 for a nonitemized return, or $323 for an itemized return, according to a 2020-2021 survey by the National Society of Accountants. Of course, if your financial situation is particularly complex, it can cost much more to have a professional prepare your return.
- Timeline. Another reason you might choose to file your own taxes is so they can be done according to your schedule, especially if you’re filing at the last minute. There’s also the convenience of not having to leave your house to meet with an accountant. “Sometimes as tax professionals, we get a big backlog of tax returns during the tax season, and we can’t get them done right away,” said Derrick Doerr, vice president of tax and advanced markets at Nepsis, a wealth management firm. At his previous firm, a two-week turnaround was typical, he said.
- Privacy. Doerr said some people are a bit squeamish about sharing personal information with other parties. If you’re one of them, doing your own taxes allows you to maintain some privacy over your financial details.
Cons:
- Potential for mistakes. These days, tax software is designed to catch glaring mistakes. But there’s plenty of room for error when you’re the one preparing and reviewing your return. According to the IRS, common mistakes include choosing the wrong filing status, math errors and entering inaccurate information related to wages, dividends, bank interest and other sources of income.
- Missing out on write-offs. “Another big disadvantage is that you can overlook deductions or credits that you’re eligible for,” Doerr said. If you aren’t regularly reading up on current tax law, it’s hard to know everything that’s available and when certain write-offs apply. TurboTax notes that some of the most commonly missed deductions include state sales taxes, student loan interest and the earned income tax credit.
- Missing deadlines. When you hire an accountant, it’s their job to ensure your taxes are filed on time. If you’re preparing your own return, it can be easy for this task to fall to the wayside amid competing priorities and distractions. “If you have a CPA or a tax preparer, they can remind you to file or pay on time,” Doerr said.
Signs that you should hire a pro
Although there are plenty of benefits to handling your own tax return, it’s not a great idea for everyone. Here are some signs that you’re better off relying on a professional.
- You have a complicated financial situation. “The most important factor to consider is the complexity of your tax situation,” Doerr said. He explained that if you have a straightforward situation with primarily wage income and maybe a few itemized deductions, you’re probably safe to prepare your own return. “But if you own a business … or have a lot of investments and activity … your tax filing would be much more difficult and be more in need of a tax professional,” Doerr said.
- You’re not comfortable navigating tax law. It’s important to consider your personal tax knowledge and experience, as well as how much you keep up with changes in tax laws. It’s easy enough to look up the information you need on the internet, Doerr said, but the average person still doesn’t have the specialized expertise or access to robust tax research software that professional tax preparers do. “We have in-depth knowledge of tax laws and regulations and can provide expert guidance on complex tax matters, as well as help people understand changes to the tax code,” Doerr said. “The Internal Revenue code book just gets bigger and bigger, especially the last few years.” He added that a tax professional can not only help develop tax strategies to minimize someone’s liabilities, but also can help reduce the risk of mistakes and take responsibility for any mistakes that do occur.
- You don’t have the time. Getting your taxes filed by the April 15 deadline is crucial. The IRS imposes penalties for filing late and failure to pay, which can add up, depending on how long you wait to get your taxes done. So it’s important to be realistic about how much time you have available to work on your tax return and whether you’re willing to spend the appropriate amount of time and effort.
