Filing taxes can be confusing, tedious, and time-consuming. With constantly changing tax laws and regulations, many taxpayers wonder if hiring a tax accountant is worth the money and effort or if they can just do their taxes themselves. Here is an in-depth look at the pros and cons of using a tax accountant versus DIY tax preparation.
The benefits of using a tax accountant
There are several advantages to hiring a professional tax accountant or CPA to prepare your tax return:
- Expertise – Tax accountants are experts in tax laws and stay up-to-date on the latest changes and regulations. They know all the deductions, credits, and strategies to legally minimize your tax liability. Doing your own taxes, you may miss out on deductions you didn’t even know existed.
- Saves time – A tax accountant will gather all the necessary documentation and handle completing all the complex forms for you. This saves you the hassle and hours spent poring over tax documents and instructions.
- Identify tax-saving opportunities – Tax accountants look at your full financial situation to find tax-saving opportunities tailored to your circumstances, like income-splitting options, maximizing retirement contributions, setting up a corporation, etc.
- Audit support – If you get audited, your tax accountant can represent you and negotiate with the IRS on your behalf. Their expertise improves your chances of a smooth audit.
- Peace of mind – Having an experienced professional file your taxes gives you confidence everything was done accurately and legally to optimize your tax outcome.
Potential drawbacks of using a tax accountant
The disadvantages of using a tax accountant include:
- Cost – Hiring a tax accountant can be expensive. Expect fees starting at several hundred dollars and going up depending on the complexity of your tax situation.
- Loss of control – When someone else handles your taxes, you have less visibility into the details and process.
- Tax knowledge deficit – If a tax accountant always prepares your return, you may have big knowledge gaps when it comes to tax regulations and your own finances.
- Tax planning limitations – General tax preparation may not involve in-depth tax planning strategies that could save you more money.
- Tedious prep work – You’ll still need to gather all your tax documentation and have meetings with your accountant. You can’t completely outsource tax prep.
Who should use a tax accountant?
Here are some situations where hiring a tax accountant often makes the most sense:
- Self-employed – With complex reporting requirements for self-employment income and expenses, tax help can be invaluable.
- Rental properties – Reporting rental property income/expenses and depreciation can get tricky.
- Complex finances – If you have lots of investments, business ventures, retirement accounts, etc. an expert can optimize your taxes.
- Major life events – Getting married, having kids, retiring, or inheriting money can all impact your taxes. A tax pro can advise the tax implications.
- Limit time/patience – If you dislike doing your own taxes or don’t have time, hired help can be a lifesaver.
Who can likely do their own taxes?
Certain taxpayers may be able to self-prepare without too much hassle:
- W-2 employees – With just one stream of income from an employer, taxes are more straightforward.
- Limited deductions/credits – Without a home, kids, education expenses, etc. your tax situation is simpler.
- Organized finances – If you are very organized with documentation and tracking of income/expenses all year long preparing your own return is easier.
- Tax law knowledge – If you have confidence in your tax knowledge and ability to apply current regulations you may choose DIY.
- Enjoy taxes – Believe it or not, some people like taxes and find doing their own returns satisfying.
DIY tax preparation options
Thanks to technology, preparing your own taxes is easier than ever. Here are some popular DIY options:
- IRS Free File program – Offers free tax prep for taxpayers under income thresholds based on age and state. Partners with top tax software companies.
- Tax software – User-friendly programs like TurboTax and H&R Block guide you through entering income, deductions, etc. Some offer free basic filing.
- Paper filing – The old-fashioned way, you can request physical forms from the IRS, fill them out by hand, and mail them in.
- IRS Fillable Forms – Electronic versions of IRS paper forms you fill out and efile or print and mail.
- Volunteer tax preparation – The IRS sponsors free tax help from volunteers for those under certain income limits.
How much does a tax accountant cost?
Tax accountant fees vary widely depending on experience level, location, complexity of your tax situation, and what specific services you need. According to the National Society of Accountants, some typical price ranges include:
- Basic individual tax return – $150-$400
- Itemized individual return – $300-$700
- Complex individual return – $400-$800
- Small business return – $400-$800
- Additional services like bookkeeping, planning, audit representation etc. generally $100-$500 per hour
Reputable tax accountants will provide fee estimates upfront so you aren’t surprised by costs. Be wary of fees based on a percentage of your refund, which is illegal in many states.
Questions to ask a potential tax accountant
If you decide to use a tax accountant, be sure to vet them thoroughly first. Some key questions to ask prospective accountants include:
- What credentials and training do you have?
- How many years of tax experience do you have?
- What is your knowledge of my particular tax situation and needs?
- Will you be doing the actual tax preparation or delegating to staff?
- What is your fee structure and what services are included?
- Do you represent clients if they get audited and what is your audit success rate?
- Can you provide references from current clients with situations similar to mine?
- Are you available year-round to answer tax questions and provide planning advice?
Red flags when vetting a tax accountant
Watch out for these red flags when evaluating tax accountants:
- Unclear credentials
- Fees based on refund size rather than time/complexity
- Vague promises about obtaining large refunds
- Not willing to sign your tax return
- Hard sales tactics pushing unnecessary audits or ancillary services
Tips for choosing a tax accountant
Follow these tips for finding the right tax pro:
- Ask trusted contacts like your financial advisor for referrals.
- Search IRS databases to ensure they have a valid PTIN as a paid tax preparer.
- Look for CPAs, EAs, or accountants with tax specialty credentials.
- Ask about their experience handling situations similar to yours.
- Understand their fee structure and get multiple quotes.
- Don’t feel pressured into unnecessary services or exorbitant fees.
DIY tax tips
If preparing your own taxes, keep these tips in mind:
- Gather tax documents early – W-2s, 1099s, receipts, etc.
- Stay organized and keep records in case of audit.
- Read IRS instructions carefully.
- Claim all deductions you qualify for.
- Double check for errors before filing.
- File early to maximize chance of a fast refund.
- Use direct deposit for fastest refund.
- Ask the IRS/software provider if you have any tax questions.
Warning signs you need a tax accountant
Consider getting professional help if:
- You have a complex tax situation.
- You keep missing key deductions.
- You make frequent mistakes completing your return.
- You owe taxes and penalties every year.
- You don’t understand the optimal filing status for your situation.
- Tax laws constantly confuse you.
- You don’t have time or patience for taxes.
- You worry about an audit.
Can a tax accountant find missed deductions?
Yes, an experienced tax accountant can often find deductions and credits taxpayers miss on their own. Things they may identify include:
- Self-employment expenses
- Depreciation
- Mileage and transportation deductions
- Home office deductions
- Charitable donations
- Medical expenses
- Mortgage points and interest
- Childcare costs
- Education credits
- Retirement savings contributions
Maximizing these deductions legally can reduce your taxable income and amount owed.
Will a tax accountant get me a bigger refund?
There is no guarantee a tax accountant will get you a bigger refund than you can get on your own. Ethical tax pros focus on filing an accurate return minimzing the tax liability under current law. However, a qualified accountant well-versed in deductions, credits, etc. is likely to maximize your legal refund potential. The right strategies can sometimes add hundreds or thousands in tax savings.
How long do tax accountants keep records?
There is no set rule on how long tax accountants must retain records. General best practice guidelines recommend keeping tax records for at least these time frames:
- Individual tax returns – Minimum of 3 years. Recommended 7 years.
- Supporting tax documentation – Recommended 6 years.
- Business returns – Minimum of 3 years. Recommended permanently.
Records relevant to assets with long tax lives like home, equipment, etc. should be kept longer. Accountants generally keep records as long as they feel necessary in case of an audit.
Conclusion
Deciding whether to use a tax accountant depends on your personal tax situation, finances, and preferences. For complex returns, high assets, self-employment income, tax planning needs, or if you simply dislike doing your own taxes, the cost of hiring a pro is usually well worth it. For basic, straightforward returns, DIY options can save you money. Make sure to vet any tax accountant thoroughly on credentials, experience, and fees before engaging their services.
