As the tax season kicks off, a fundamental question comes to mind – Should you do your own taxes or seek a professional?
Well, the answer depends on a variety of factors including:
How comfortable you are preparing your own tax returns?
How familiar you are with your tax situation and history?
How complex your tax situation is?
Generally, if you are comfortable preparing your own tax returns, are familiar with your tax situation and you don’t have a complex tax situation (ex: you only have income from W-2 wages, interest income from interest-bearing accounts, you don’t itemize your deductions or only itemize state & local taxes & charitable contributions), you should be able to prepare your own tax returns using either an online or desktop version of tax preparation software from companies like Intuit (TurboTax), H&R Block and TaxAct, just to name a few.
These companies have been developing tax preparation software for many years and have many customers who successfully use these products to prepare and file their tax returns annually. That said, you do need to have patience, be organized and dedicate a reasonable amount of time to go through the process. While the software will walk you through the process step-by-step, you do need to understand what information the tax preparation software is asking for then input the proper and correct information for your tax returns to be accurate. Keep in mind . . . Garbage in, Garbage out!
Even though these companies work to ensure their tax preparation software is accurate and apply computations and calculations based on the applicable tax laws, having a general understanding of your tax situation and history is extremely helpful so that you can raise a red flag if you notice that the tax preparation software is showing you too high of a tax refund or too much in taxes owed. Errors can occur due to incorrect user input or a software glitch.
If you are not at all comfortable preparing your own tax returns or have a more complex tax situation, consider seeking a professional tax preparer, Accountant or CPA firm. They should have a thorough understanding of the applicable tax laws and, provided you bring them all the necessary paperwork and documentation required, they should be able to properly and correctly prepare your tax returns, as well as identify and apply all applicable and available tax deductions to get you the optimal refund or try to minimize your tax bill/taxes owed. When looking for a professional tax preparer, Accountant or CPA firm, be sure to do your research, read reviews, get recommendations and compare service fees/rates.
In the case where you run/own a business, the tax situation can get even more complicated. There are different requirements on the federal, state and local level depending on the type of legal business entity you have created (ex: LLC: Single-member LLC, Partnership, LLC taxed as a sub-chapter S, Corporation: C-Corp or S-Corp) and the state in which your entity was established.
On the business side, you’ll probably want to have a tax professional, Accountant or CPA firm that you use on an ongoing basis. Except for the single-member LLC, all other entities are required to file a business tax return (separate from the personal return) even if the entities themselves do not pay income taxes (ex: pass-through entities). You also don’t want to reinvent the wheel dealing with a different tax professional, Accountant or CPA firm every year.
On the personal side, again, it depends on your comfort level and the complexity of the situation. For an individual with a single-member LLC, MAYBE you’ll consider doing your own tax return; but generally, it’s not a bad idea to consider hiring a tax professional, Accountant or CPA firm if you run/own a business especially as a member of a LLC Partnership, LLC taxed as a sub-chapter S, or you’re a shareholder of a corporation (C-Corp or S-Corp). There are a lot of requirements (not only income tax returns) that you may or may not be aware of at the federal, state and local level (ex: estimated quarterly tax payments) so having access to a good tax professional, Accountant or CPA firm can save you major headaches down the road. Yes, a good tax professional, Accountant or CPA firm will cost a bit more, but in the end, it will be well worth it!