Tax season is officially upon us! More than 27 million taxpayers file their own taxes each year.1 Perhaps you have prepared your own taxes in the past and are considering outsourcing this year, or maybe you are considering filing on your own for the first time. In either case, here are some pros and cons:
Pros
- Saving out-of-pocket money up front – The upfront savings are obvious, as doing taxes by hand or using retail software costs less than hiring a professional. Even if you need to buy the more expensive versions of software, it’s still less than going to a professional.
- Financial Insight – Doing your own taxes (especially by hand) can provide insight into your own tax situation. Realizing which financial moves caused an increase or decrease in your taxes may help you make adjustments for future years.
- Your schedule – It’s no secret that tax professionals are busy in February, March, and April. Doing taxes on your own schedule can be more convenient than trying to book an appointment with your professional.
Cons
- The tax code is complicated – The federal tax code tends to get more complicated every year, and the answer to the most common question of “is this deductible?” is almost always “it depends.” You may miss out on deductions or claim ones that aren’t allowed.
- Google doesn’t have all the answers – If the source isn’t the IRS, the Treasury, or actual tax law, the answer may be incorrect. Many online sources misinterpret tax law, spread tax myths, or give information that doesn’t apply to a particular situation.
- Time – It is estimated that individuals and businesses spend 6.1 billion hours each year on return preparation.2 Using a tax professional can save you hours preparing, researching, and filing your tax return.
- Accuracy-related penalties – An accuracy-related penalty of 20% may be imposed due to substantial underpayment situations. Good faith reliance on a tax professional may get that penalty waived.
Whether you choose to do your own taxes or use a professional, remember that tax preparation is not the same as tax planning. Proper tax planning in advance can not only make preparation easier, but also reduce future tax liabilities.