The pros and cons of professional tax preparation
One of the most important decisions you can make regarding your income taxes is whether to get your tax preparation done with the help of a professional, versus trying to go it alone or using self-guided tax preparation software.
This article discusses the pros and cons of getting a professional tax preparer to handle things for you.
CON: The Initial Cost of Professional Tax Preparation Can Be Unappealing
The most obvious drawback to hiring a tax professional who will personally prepare and file your return is the cost. The price for getting your tax return prepared by a professional may range anywhere from $60 to $1000 or more, depending on the type and number of tax form(s) you need filed. If your tax situation is relatively complicated, you should expect to pay more for professional tax preparation. If you need both your federal and state tax returns prepared by a professional, that will cost you more as well.
A survey was recently conducted by the National Society of Accountants (NSA) which showed that the average cost of professional tax preparation is $246. This is price that most tax preparers will charge for a 1040 Tax Form with itemized deductions (Schedule A) plus a state tax return. On the other hand, the cost of getting a simple 1040 Form (without itemized deductions) prepared by a professional averages around $143. As for business tax returns, the NSA survey found that the average cost for preparing an 1120 Tax Form (corporations) is $759, while the average cost for preparing an 1120S Tax Form (S corporations) is $717.
PRO: A Tax Professional Can Help You Save Time and Money
Some of the most significant benefits of shelling out for professional tax preparation are convenience and accuracy. Think about the hours you could save yourself from trying to read through and understand the IRS’s form instructions, publications, and news releases. If you put a monetary value on your time, you might find that the hours you spend laboring over your tax return ends up costing you more than the services of a tax professional.
There is a lot of room for error when it comes to filing tax forms, but you can minimize that by hiring a tax professional. A professional tax preparer can also help you avoid overpaying taxes by properly identifying all the tax credits and/or tax deductions you’re eligible for.
On a related note, if you choose to use tax preparation software to file your taxes
For those who don’t want to spend the money on a tax professional but don’t want to go it alone, purchasing tax preparation software is often a good middle ground. However, you should keep in mind that a tax preparation software program cannot always ask you the right questions about your particular circumstances (such as your capital gains and losses). This is because the majority of tax preparation software is designed for individuals with simpler tax situations, and is not well-suited for taxpayers with complex finances. Additionally, tax preparation software programs do not provide you with the guarantee of representation against a potential tax audit ? a benefit that is included with most professional tax preparation.
CON: There are Many Scams — Be Careful about Who You Hire
There are several things you should consider when employing the services of a tax professional. For one thing, you don’t wait until the last minute to schedule an appointment. The best accountants in your area will likely have waiting lists that fill up by January or February. You will not have many options regarding professional tax preparation if you attempt to contact someone a few days before your return is due (typically April 15th), although online tax preparation software will still be available.
If you do decide on professional tax preparation, make sure to check the tax professional’s references, just as you would before taking on any type of employee. Ask friends and family for recommendations, and remember that testimonials and reviews by satisfied customers are a good indicator. You will want to keep your eye out for any business whose license is no longer valid with the IRS. The IRS comes out with new regulations on tax accountant competency in 2011, and tax professionals nationwide have until the end of 2013 to take their exams.
PRO: Your Tax Preparation Fees May Be Deductible
Finally, keep in mind that the fees associated with professional tax preparation may be deductible on your income tax return as long as you meet certain eligibility requirements. Tax preparation fees are considered a “miscellaneous” deduction (under itemized deductions) and can be reported on IRS Tax Form 1040 Schedule A.
For instance, you may be able to deduct the mileage you drove to meet with your tax preparer, as well as the postage you paid to mail documents to your tax preparer (and the postage you paid to mail your tax return to the IRS and state tax agency). If you purchased a book about new tax regulations for the purposes of helping you file your return, you may be able to deduct that cost of the book. In some cases, tax preparation software programs (where a tax accountant/preparer is not involved) can be tax-deductible. Additionally, if you paid a fee to e-file your tax return online, you may be able to deduct that expense.
It is important to remember that tax preparation fees are categorized as a miscellaneous deduction. Therefore, you must itemize your deductions in order to claim this tax break. Also note that your miscellaneous deductions must exceed 2% of your adjusted gross income (AGI) before they can start being counted against your taxes.