The pros and cons of professional tax preparationPublished:
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 $1,000 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. You’ll also pay more if you’re filing taxes with your state, too.
A survey by the National Society of Accountants (NSA) showed that the average cost of professional tax preparation is $246. This is the 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 Professional Tax Preparer Can Help You Save Time and Money
If you’re juggling multiple sources of income and wanting to minimize your tax liability, you might find a serious financial incentive if a professional can help you take advantage of deductions you might have missed.
There’s a reason a whole profession devotes its time to studying the tax code. Financial situations can be complex, and the tax regulations and rules change each year. 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. Along with time, how much do you value your peace of mind? Costly mistakes can make hiring a professional worth every penny.
The risk of error when filing tax forms can be daunting, 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 tax deductions you’re eligible for.
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 included with most professional tax preparation.
CON: There Are Many Scams. Be Careful About Hiring the Right Tax Professional
Speaking of cons, 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. Tax season is busy, and the month of April might be one of the busiest times to try picking a professional tax preparer.
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.
PRO: Your May Be Able to Deduct The Cost of Tax Preparation Fees
Let’s get back to those professional tax preparer fees. 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. They’re under the itemized deductions on IRS Tax Form 1040 Schedule A. For instance, the mileage you drove to your tax preparer, 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 – that’s all deductible. Did you buy a book on the ever-changing tax laws to help you file your return? Then you may be able to deduct that book’s cost. 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. If you don’t itemize your deductions, you can’t 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.