Tax Preparer vs. Tax Software: How to Choose

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Tax Preparer vs. Tax Software: How to Choose

Self-preparation accounts for somewhat less than half of all e-filed tax returns; the remainder is completed by professional tax preparers. Of course, many taxpayers who file their own taxes use tax software like Intuit TurboTax, TaxSlayer, and H&R Block Online.

It depends on your scenario whether you should use a software product or a tax professional. Here are some considerations to consider.

Key Takeaways

  • Tax software makes it simpler for consumers to complete their own taxes, but there are still times when hiring a professional is a good idea.
  • Depending on your income, the Internal Revenue Service (IRS) Free Submit program may allow you to prepare and file your taxes for free.
  • Tax software often costs $20 or more. The more complicated your scenario, the more costly the bundle you may need.

Deciding Point: The Complexity of Your Finances

In general, the more difficult your tax position, the more profitable it may be to hire a tax specialist. What exactly is complexity? If you find yourself in any of the following situations:

  • You own a company. Whether your company is a full-time enterprise or a side hustle, there are certain particular requirements that you should explore with a tax professional. For example, if your company bought equipment, there are numerous methods to deduct the cost. The optimum technique is determined by your present tax status as well as your future tax possibilities. Many of these circumstances may, of course, be handled with suitable tax software (TurboTax Self-Employed, for example, assists you in preparing a Schedule C for a sole proprietorship), but you won’t receive customized assistance.
  • This year marked a watershed moment in your life. If you founded or sold a company, divorced, acquired or sold a house, leased out your property, or had any other big life event, a tax professional may advise you on the appropriate laws to follow and tax credits to which you may be eligible.
  • In the market, you were busy, busy, busy. Data from papers such as Form 1099-B, which brokers use to record your securities transactions, may be automatically loaded into tax software. A tax professional, on the other hand, may assist ensure that you get all of the additional information needed for your return, such as your tax basis, which may not show on the 1099-B. A tax professional may also assist you in reporting and managing employee stock options or restricted shares.
  • You intend to itemize. Again, tax software allows you to include this information. Nonetheless, a tax preparer may give strategic guidance on the deductions to which you are entitled, the substantiation required, and other issues that may help you minimize your tax payment while avoiding difficulties with the IRS (IRS).
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Deciding Point: Your Tax Proficiency

Some individuals are intimidated by numbers, taxes, and the process of preparing and submitting a return. For others, taxes have become a normal duty that must be completed each year, unwillingly or not.

If you’ve been completing your taxes year after year and nothing has changed in your financial or personal status, you should be OK with your next tax return. However, make sure you’re up to date on any relevant regulation changes, such as those brought about by the Tax Cuts and Jobs Act, the major tax law that went into effect in 2018.

Consider the following examples: The standard deduction has almost quadrupled, the personal exemption has been eliminated, and new restrictions apply to mortgage interest deductions and state and local tax deductions (SALT).

Determine if you’re up to the effort if you’ve never done a tax return before. Recognize that you do not need to be a math guru; the program or online preparation site will do the calculations for you. And you don’t have to be a tax expert—you’ll be asked to provide the information needed to finish your return.

Deciding Point: Your Schedule

When determining whether to do something yourself or pay someone else to do it, time is always a significant consideration. In the case of taxes, you’ll spend the same amount of time collecting the documents required to complete your return either way. W-2 paperwork from employment; 1099 forms from banks, brokers, and other income sources; and canceled checks, credit card bills, and online banking records to prove your deductible spending are all acceptable.

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So the difference is the amount of time spent on the actual return. Depending on your circumstances, this may be a few hours or a few days. According to the IRS, filing Form 1040 or 1040-SR takes an average of 13 hours. If you don’t have the time, hiring a preparer is a preferable option.

Tax preparation prices vary greatly based on the qualifications of the preparer, the complexity of your return, and your geographic region.

Deciding Point: The Cost

Cost may also play a role in your selection. According to the IRS, filing a return costs an average of $240. (including all associated forms and schedules across all tax return preparation methods).Fees for tax professionals, on the other hand, vary greatly based on the preparer’s credentials, the complexity of your return, the kind of software utilized by the tax preparer, and your geographic region.

You can complete your own tax return for little to nothing. If your adjusted gross income (AGI) is $73,000 or less (for the 2021 tax year in tax filing season 2022), you may utilize Free File, the IRS’s free program that allows you to prepare and submit your return online.

If your salary is too high for Free File, you may purchase software or utilize a tax preparation service; rates begin around $20 and rise based on your demands. If you need specific software for self-employment income, rental income, agricultural revenue, or other more complicated scenarios, the cost will rise. Some businesses also provide free, stripped-down software versions ideal for simple refunds.

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How Long Does It Take to File Taxes?

Form 1040 or 1040-SR takes an average of 13 hours to complete. Six hours of recordkeeping, two hours of tax planning, four hours to complete and submit the form, and one hour for miscellaneous chores make up the 13 hours. Business taxpayers should budget for an average of 22 hours to complete their taxes. This equates to 12 hours of recordkeeping, four hours of tax preparation, five hours to complete and submit forms, and two hours for miscellaneous chores (but does not reach 22 owing to rounding).

How Much Does Tax Software Cost?

The cost of tax software is determined by the program you choose and its capabilities. Most software companies provide a free online version that is appropriate for taxpayers with basic returns and earnings under a particular threshold (note that you may still have to pay to file your state return).If you are unable to utilize the free version, the premium version will cost you between $20 and $200. In general, the greater the cost, the more features and capabilities.

How Much Does a Tax Preparer Cost?

According to the National Society of Accountants, the average charge to complete Form 1040 with itemizing on Schedule A in 2020 (the most recent available data) was $323, including the state return. Form 1040 with the standard deduction cost an average of $220. (again, with the state return).As you add schedules, the amount you pay rises. The average extra price for Schedule B was $42, $192 for Schedule C, $118 for Schedule D, and $145 for Schedule E.

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