One of the cardinal rules of saving money is to do it yourself. If you can complete a task on your own, there is usually no reason to pay someone else to do it. However, doing it yourself is not always the best route.
In some cases, it makes more sense to pay a professional. There are times when paying someone who has the proper expertise can save you time — and even money in the long run. This is often the case with taxes – but only when your finances are complicated. While you might be able to fill out your tax forms on your own, there are some times when it makes sense to pay someone to file your taxes on your behalf.
Before you decide that a tax professional is a waste of time, consider that you might be better off hiring someone who could find ways to save you money on your taxes – that is, if you have complex tax issues to deal with. If your taxes are simple, then filing them yourself may be the best option. We’ll look at both scenarios below.
Simple Tax Situations
When your taxes are fairly simple, you can get the job done with just the 1040EZ Form and maybe one or two supporting documents. This makes it relatively straightforward to do it yourself. You can use the free fillable forms from the IRS and use eFile, or you can purchase tax software that can help you if things are just a little bit complicated.
Those with simple tax situations may include college students with no income of their own, people who are unemployed with no income, and single individuals with only one source of income (and no dependents).
Increasing Tax Complexity
However, at some point, you might find that your taxes are more complex than you expected. If you own a business, have investments that offer capital gains and dividends, received a windfall, recently purchases a home, or if you have experienced some type of casualty loss or other unexpected event, the situation might be a little different.
In some cases, your tax situation might include a number of different scenarios, and you might have several forms to file along with your 1040. Things get even more complex when you have all of these extra filing concerns with your state taxes as well.
If you find yourself buying the “premium” version of tax software, and still needing to read through explanations several times to make sense of the situation, it might be time to hire a professional. When you have all that complexity with your taxes, you can easily miss something — even with the help of tax preparation software. If you are subject to new tax laws and regulations, or if you are unsure of what you are missing, an expert can help you navigate the pitfalls more easily.
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Another consideration is how much time you spend reading instructions for various forms. Most people can do their own taxes if they take the time to thoroughly understand what they are doing and carefully fill out the forms. However, there comes a point when the amount of time you spend isn’t worth what you’re saving by doing it yourself. If you spend hours upon hours running calculations, and you become frustrated or you are missing out on other important activities, it might be time to turn it over to a professional who can take care of it and free up your time.
Ultimately it is only you who can decide when it’s time to switch over to paying a tax professional.
A professional understands that different scenarios can result in different tax liabilities. For example, in my own experience, the first year I went to an accountant instead of doing my own taxes, my tax savings far exceeded what I paid him. On top of that, my accountant runs different scenarios for me, and helps me plan ahead for the year so that I am as tax-efficient as possible. An expert can help you report things differently, move your assets around, and make a plan for the future.
When you reach the point where your tax situation is complex enough that the way you report your income and deductions matters, it’s probably time to stop doing it yourself and hire someone to help you file your taxes. If you’re having trouble with tax debt that you owe to the IRS, read our previous post.
Image Credit: Philip Taylor