Online Tax Software Recommendations

What option is for you?

Filing Taxes: The Choice between DIY, Online Tax Software and an Accounting Expert

Every year, taxpayers have to worry about filing tax returns. We all have different approaches to filing our tax returns. Some people prefer hiring accounting professionals to do the job for them. Others prefer to do it themselves manually or through tax software. The approach one takes depends on several underlying factors. You may consider time, convenience, cost, income levels and complexity, and tax knowledge. Most people that do their own taxes generally have an understanding of tax law. They also have simple income structures. Those opting to hire professionals tend to have complex sources of income, high income levels, and less time on their hands to do the filing. Each alternative has its benefits and demerits. The choice would therefore vary based on an individual’s circumstances.

Doing Your Own Taxes

Certain situations require an accountant to file your taxes. However, for most of the time, an accountant would be unnecessary. It is an avoidable extra cost. Some basic understanding of tax laws would help you do your taxes effectively. The following are situations in which you can prepare your own taxes include.

When you have a fairly simple tax situation
When you possess some general knowledge on income taxes
When you have a fairly low income
When you can easily access technical assistance
When you have time
When you keen on details

For employed taxpayers, filing tax returns can be fairly simple. Even if you also have interest and dividend income, the tax situation is manageable at an individual level. You do not need to hire an accountant. All you need is the W-2 form to be able to fill your tax form. You will need to provide information about your other incomes from interest and dividends as well as the deductions. The process is quite straightforward and does not require any technical expertise.

Doing your taxes is ideal for individuals that have a good understanding of income tax laws. Knowledge in income taxes means you are able to navigate through the process of filing taxes without any hassle. You will be able to provide all the information as required and it is unlikely that you will get stranded along the way. As long as you fully understand what you are doing, it will be better to do the taxes yourself rather than hire an expert. However, if you get to a point you do not understand something, you will be better off consulting someone that is knowledgeable in that area. Mistakes could land you into trouble with the tax authorities.

Doing your taxes is ideal for individuals that have a good understanding of income tax laws. Knowledge in income taxes means you are able to navigate through the process of filing taxes without any hassle. You will be able to provide all the information as required and it is unlikely that you will get stranded along the way. As long as you fully understand what you are doing, it will be better to do the taxes yourself rather than hire an expert. However, if you get to a point you do not understand something, you will be better off consulting someone that is knowledgeable in that area. Mistakes could land you into trouble with the tax authorities.

Certain levels of income require more work. However, if you have a fairly low income, then your taxes will not require a lot. The likelihood of an IRS audit would also be low if your income is lower than $50,000. It would therefore be ideal to do taxes on your own under such circumstances. An accountant would be unnecessary since it will be an extra cost for little work.

Tax returns require a certain level of accuracy. One cannot blow through the exercise as it may lead to errors that have a huge effect. Therefore, one needs a certain level of attention to be able to carry out this task. If you are keen on detail, then you will do well filing your returns. That is because you will be able to give each item the due attention it deserves. You will ensure your work is accurate and you will go through it before submitting to ensure everything is in order. Such a detailed mindset will help you avoid the extra cost of hiring someone else for the job.

One reason people with some tax knowledge hire accountants is the lack of time. Sometimes, one may have the skills to do something but lack the time. They have to hire someone else to perform the task despite them having sufficient knowledge and skills to carry out the task effectively. Income tax requires patience. That is because it takes some time to complete the forms. Where a taxpayer has the time, they can prepare their tax returns. However, the availability of time has to go hand in hand with ability to file the returns. Otherwise, time without the knowledge means you cannot do your taxes on your own.

Hiring an Accountant

Not all situations will allow you to do your taxes yourself. Some can be a nightmare and only an expert can help you. It is advisable to hire an accountant on occasions where doing it on your own would not yield the best outcomes. Some of the circumstances under which you need to hire an accountant include:

When you have a complicated tax situation
When you are under self-employment
When your knowledge of income taxes is little to none
When you have not time
When you income level is high
When You Have Dependents

An accountant is necessary for situations with complex tax issues. Where, as a taxpayer, you do not understand some tax issue, it is advisable to hire someone conversant with it to help you. Sometimes, your taxes involve issues on large capital transactions, net operating losses, K-1s due from partnerships of S-Corporations, and appreciated assets as gifts. Such transactions involve complex tax treatments and require someone with a deep understanding of tax regulations. Doing your taxes may result in mistakes that may be trouble to you.

Sometimes, you may ordinarily have a simple tax situation. However, you may an occasional complication that would complicate your taxes. For instance, a sale of property, asset inheritance or an early pension distribution may make your tax situation complex. Life events such as inheritance and divorce may affect your tax situation. The complexity of such an instance would necessitate the use of an accountant’s services. An accountant would be in a position to know how to treat such transactions in accordance to regulations. Doing it yourself may end up putting you in a fix that could be costly.

Investments form a big part of our lives. Many people invest in stock or bonds. With 401(k) plans, 403(b) plans and retirement accounts, your money can grow tax-free. That adds some complexity to your situation. When you also own investments that yield taxable returns such as dividends, your taxes become trickier. You have to have all the tax forms that the IRS has from your brokerage to file your returns. In case of an investment sale, you have to establish your cost basis for the investment. That will help determine your loss or gain, which ultimately affects your taxes. Investments in other assets such as gold and cryptocurrencies can have a huge impact on your taxes too. You may not be in a position to tackle all these issues on your own. Thus, it is necessary to hire an accountant to help you.

Income from self-employment requires more detail in terms of taxes. You will need to provide details about your costs and expenses. You may need to know the tax treatment of various items that contribute to your income. Unlike full-time employees, a self-employed individual can make work-related deductions for tax purposes. That can be a whole load to process and understand. In such circumstances, it is better to have an accountant that already knows how to treat all the items. Hiring an accountant would relieve you of the struggle to understand each little detail about the tax issues. You will enjoy peace of mind, knowing that you do not have to worry about mistakes in your tax forms.

By now, you probably know that knowledge of tax laws is crucial in preparing your taxes. Therefore, limited or zero knowledge would be detrimental to someone trying to file returns. It would be an exercise in futility as it may result in bigger issues. Mistakes in your tax return forms could attract the attention of tax authorities. Nobody wants the scrutiny of the IRS on their affairs. To avoid all this trouble, get someone that knows how to navigate through the different tax issues without making mistakes. You are better off paying a fee for the services than facing hefty fines from the tax authorities.

Time plays a big part in your decision to hire an accountant. Preparing taxes needs time. You have to be patient to sort out your taxes. Sometimes you have to reconcile different items contributing to your income. For a busy person, time is a valuable commodity. Spending too much time working out taxes may not be ideal. Incurring a small cost to procure the services of a tax consultant to do your taxes may not be a bad idea if you need to spend that time on other things. It does not matter whether you are adept in tax matters or not. If you have little time, then the best option would be to hire someone for the job.

High incomes attract tax audits. The higher your income rises, the more attention you attract from tax authorities. You may have a simple tax situation, but the attention you get from tax authorities may call for an accountant to work on your taxes. That provides you independent representation in case the authorities come poking around. Having a qualified person do your taxes cushions you against unnecessary run-ins with the tax agencies. It ensures you are safe from potential fines resulting from tax audits that may unearth errors in your tax computations and declarations.

Dependents complicate your tax situation. For children, they yield tax deductions that vary over the years. In a child’s early years, you are eligible for deductions on qualified childcare costs. However, these deductions have a limit. The calculations become more complex as the children reach college-going ages. Tax regulations exempt interest on money you set aside for tuition under a 529 plan. You can later take advantage of the education and fees deduction to bring down your tax liability. Tax professionals will be in a good position to advise you on how to navigate the complications arising due to dependents. They will be able to guide you on claiming qualified expenses on education.

Benefits of Doing Your Own Taxes

Although preparing your own taxes can be tasking, it has its merits. Cumulatively, the benefits can tilt the scale to convince you to acquire the necessary skills to do the job yourself. Some of the key benefits include:

• It helps you save money
• It saves time for you
• It helps you develop financial self-awareness
• It helps you avoid potential tax audits
• It allows you to access the tax returns from previous years
• It provides instant filing and prompt refunds

Saving Money

Accountants offer an important and invaluable service. However, the service comes at a cost. Different accountants charge differently depending on several factors. On average, tax preparers charge $246 for an itemized 1040, Schedule A and a state return tax. However, you can eliminate this cost by doing your taxes on your own. Using a tax app significantly lowers this cost. For example, using an app like TurboTax to file returns would cost $39.99 on average with an additional $36.99 for those filing state tax. That gives you over $150 in savings. Tax preparers charge more for each extra form. The complexity of the tax situation also contributes the fee. Therefore, eliminating accountants from the equation would free up a significant amount of money for you. You can use either online tax software or apps to file your taxes to minimize or eliminate costs.

Saving Time

One argument for hiring an accountant to do your taxes is that it saves time. However, doing it yourself actually saves you time. First, you do not have to make calls to schedule appointments. You also do not have to visit the accountant’s office to take your paperwork. Preparing your taxes reduces the amount of time you need for these activities. Unlike hiring a tax preparer, you also do not need to wait for anyone to call back and give you information about your tax position or refunds. You get all the information instantly and you can correct any errors on the spot. You do not need any back and forth communication.

Hiring someone also involves a search to find the best accountant for your needs. However, that wastes valuable time. Using an online software or app for your taxes can give the same results as a good accountant. You do not need to spend your time looking for an appropriate accountant. The apps and software can help you get large refunds.

As you prepare your taxes, it is important to maintain some order in your paperwork. When you engage someone else for the job, you will have to take the paperwork to them. Sometimes, some of the documents get misplaced. It may take a lot of time to find those documents and reorganize everything. Taking care of your taxes eliminates this unnecessary trouble. You will have all your documents in one place and in the right order. You will therefore spend less time trying to locate documents.

Financial Self-Awareness

Sometimes having people do things for you breeds ignorance. For taxes, you become blind to your financial situation. Although you may have a general idea of your incomes, expenditure, assets and liabilities, you never really get to have a closer and more detailed look at all that information. The person you hire is the one that gets that clear picture. When you work on your taxes, you are able to see all this clearly and discern areas you may want to change going into the future. Filing taxes exposes you to the consequences of all your financial choices. You do not just get the resultant tax position alone. You get to see what caused a given tax effect. That helps you determine the course of action to take to improve your financial position. It can help you in setting financial goals for coming years.

Avoiding Tax Audits

Accountants constantly try to get their clients the largest refund possible. They use refunds to drive their popularity to increase the likelihood of getting clients. However, that can be risky to the client. The outcome may be an undesired audit. Although it may not be common, accountants may go for write-offs and other actions that result in lower taxes and higher refunds. That attracts unnecessary attention. Data indicates that audited taxpayers account for about 1%-2% of all taxpayers. You can avoid being part of this statistic by doing your taxes diligently.

Using a tax software may help you avoid audits. Doing your returns on physical forms may not yield the best outcomes at times. That is because it is prone to human errors. Unlike tax software and apps that prompt you to provide certain information, one can easily forget some detail when filling physical forms. You can also get your math wrong even when you fill the right information. According to the IRS, there were almost 2 million math errors on individual tax returns for the year 2018. That is a significant number suggesting that many people make errors in their taxes. Such errors are causes for tax audits. Although audits may result from your tax filing, doing your own taxes reduces the risk as you do not have the pressure to generate huge refunds like accountants do.

Accessing Previous tax returns

Another advantage of doing your taxes is that you get to keep a record of your returns from the previous year. Whether you use a physical form or an online software or app, you will be able to retrieve your returns and have a look at them conveniently. If you are using an online tax product, it can retrieve your information from the previous year and use it to get you started. You will only have to edit a few things that may have changed over the year. That saves you time as you do not have to fill everything afresh. As long as your income does not change much, there is little change to effect in your entries. Unlike accountants that will require you to send them all the paperwork for the current tax year under review, doing your taxes allows you to start from information you already have and build from there. However, you need to be careful not to omit any relevant and material changes in your tax situation. That may lead to a confrontation with the tax authorities.

Instant Filing and Prompt Refunds

When filing your taxes, communication is instant and direct to you. You get immediate notifications about the receipt of your returns. The process is even faster if you are using a tax software or app. Unlike hiring an accountant, you do not have to wait on someone to provide you with the information about your tax returns. You instantly see the acceptance of your entries and the refunds. If you are using an online software, you also get your refunds promptly.

Arguments for Hiring an Accountant

There have always been some strong arguments for the use of tax experts to do your taxes. However, overtime, these arguments have become weaker. That is because the use of technology has provided taxpayers with the same benefits they would have derived from accountants. Some of the common arguments for hiring accountants include:

• Accountants are up to date on tax laws
• Accountants provide an extra eye to avoid errors
• Accountants provide expert advice
• Accountants provide tax guidance all year round

However, these points do not suffice in the modern era. Tax software and online platforms provide most of the services that accountants do. For instance, most tax software is based on tax law. There are CPAs dedicated to updating the throughout the year, ensuring they are up to date. Thus, a taxpayer can enjoy tax services based on updated tax information. Similarly, most online tax service providers have platforms where you can seek free expert advice. You do not even have to visit their offices. Asa user of their product, you get to enjoy free tax advice at any time. That eliminates the need for an accountant on the basis of expert advice.

While it is true that you need an extra set of eyes, that aspect of accountants has been overtaken by tax software. The software is programmed such that it rejects certain entries. Thus, it stops you from making certain errors. Such software also has questions that guide you along as you fill different tax forms.

The IRS Website

The IRS has a platform through which you can file your tax returns. It provides an option to print out forms that you can fill and post via mail. However, it encourages people to do their filing online. The IRS filing portal is free and has a list of qualified tax preparers that can provide federal filing services free. The free services are for those with incomes below $69,000. However, for those exceeding $69,000, they can still access the free services if their income is straightforward. For complex income situations, you will have to pay for an online tax software. As a taxpayer wishing to file your own returns, the IRS website would therefore be a good option as it is free. It also offers you necessary guidance to ensure you file your returns correctly.

Tax Software

There is a variety of online software that you can use for your tax needs. Some of the software are quite inexpensive, ranging between $30 and $40. However, the cost varies depending on several factors. The complexity of the taxes can increase the cost up to $100. Similarly, the need to file both federal and state taxes significantly increases the charge for the software. Some of the available software include TurboTax, TaxSlayer, H&R Block, Jackson Hewitt, Credit Karma Tax Prep, eSmart Tax, Liberty Tax, WeVest, TaxAct and Rocket Dollar. You can also use the IRS platform, which is free. Each of these platforms has its strengths and weaknesses. They offer services at different rates based on different criteria. They have teams that ensure the software is up to date with current tax legislation so that they offer you the services you need as per the law.

Making the Choice

Online tax software has eased the tax preparation process. Taxpayers do not have to worry so much about the nitty gritty details of tax. The software guides them through the process. That has elicited questions on the need to hire accountants to do your taxes. There are compelling arguments for and against using accountants. The arguments are around the cost, professional expertise, availability of time and complexity of your tax situations. Several factors will determine your choice either to hire a tax preparer or to do it yourself. Many people are shifting to online software because of convenience and cost. However, as an individual, you need to consider your circumstances before making the final decision. Doing your taxes on your own may grant you some benefits, but it may also expose you to some risks that would lead you to trouble with the IRS. If your tax situation is complex and you do not have the prerequisite tax knowledge to effectively do your taxes, then you need to hire an accountant. However, if you feel confident about your skills and abilities, then you can use the tax software to do your taxes.

The IRS provides guidelines on how to go about your taxes. You can always consult its website in order to up date your knowledge.