Tax preparation costs an average of $176 for your Form 1040 and state return without itemized deductions. If you itemize with Schedule A it bumps up to an average of $273, and itemizing with Schedule C costs an average of $457.
No matter what your budget, doing your own taxes is tempting so you can save that money. But paying a pro to do the job can save you time, stress, and money in the long run.
The answer to, “Should I do my own taxes?” depends largely on your situation and your feelings toward the task. Sometimes it's worth the money to take the pressure off of you at tax time.
Take the following factors into account to see if you should budget for professional tax preparation.
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Hiring someone to do your taxes for you results in tax preparation fees. But often that additional cost is worth it for the accuracy of your tax return and peace of mind you get.
Making a mistake on your income taxes can cost you money in penalties. You may have to pay interest on the outstanding balance if you under-calculate what you owe.
Trying to figure out a complicated return can take you hours. Your time has value, so trading those hours to do your own taxes still costs you.
The Complexity of Your Situation
If you have a straightforward tax return, you can likely do your own taxes fairly easily. Every unique tax situation adds to the complexity and leaves more room for error. You might miss potential deductions that lower your tax obligations or give yourself deductions you don't qualify for, which can end up causing a penalty.
Your job situation, dependents, investments, other financial situations, and life changes are often factors in how complex your tax situation is. Consider those factors when deciding to do your taxes yourself.
The more tax-changing situations you have, the more you benefit from having a tax pro do the work. You're more likely to miss possible deductions or make calculation errors with more complexities to handle.
Type of Job
Are you a regular employee with a single job that results in you getting a W-2 form? If that's your only source of income, that part of your tax situation is straightforward and easy to report.
Things get more difficult to report if you have additional sources of income or if you're an independent contractor, which means you're considered self-employed. You're responsible for paying your own taxes rather than having an employer withhold taxes for you. You may also be able to take business deductions.
Owning a small business, especially if you have employees, complicates your tax return even more. Having a tax pro who specializes in small business taxes is likely worth the money you'll pay. You ensure you get your taxes done correctly and minimize what you owe as much as possible.
If you have lots of investments or assets, a tax professional can help you deal with the tax implications of those situations. You want to protect your money as much as possible by minimizing your tax obligation. Complex investments or assets can be difficult to understand tax-wise, so consider letting an expert handle it.
Does your life look different due to major changes? Having a child, buying or selling a house, going through foreclosure, getting married, and getting divorced are examples of life events that change your tax situation.
A tax pro can help you best navigate those situations on your taxes to get your tax obligation as low as possible. Sometimes those life events only affect one year's taxes, so you might want to use a tax preparation service that year and go back to doing it yourself in subsequent years. Or you may like the ease of letting someone else handle your return and decide to use a service every year.
Time Availability and Patience
Even a simple tax return can take you hours to complete. It's something that requires your full attention, so you need dedicated time to focus on the return. When your schedule is already busy, you may not want to devote hours to calculating your taxes.
If you're not familiar with tax regulations, you'll likely spend a lot of time looking them up to make sure your return is accurate. Ask yourself if you have the spare time and the patience to deal with your taxes.
Professional tax preparation services understand the laws thoroughly, and they stay current on new tax regulations. They're able to complete tax returns much faster than you can. They also have access to the latest tax preparation software to make the job easier.
Comfort With Taxes
How do you feel about your math skills? If you find income taxes confusing or aren't strong with numbers, you may want to let a pro handle your taxes, even if your situation is straightforward.
Lacking confidence in your tax preparation skills makes the process more stressful. If you make a mistake, you may end up owing more taxes. You may be charged a penalty or interest based on the amount owed if you calculate your taxes incorrectly.
Letting a pro handle the taxes reduces your stress levels. For many people, making tax season easier is worth paying the fees.
Anyone can get audited, and it can be a scary situation. Most tax preparation services will help you through the audit process if you find yourself in that situation. Having a tax expert walk you through the audit can make the situation less intimidating.
Is Doing Your Own Taxes Best?
Doing your own taxes can save you money, but it also adds to your stress and can take hours of your time. Even small tax mistakes can end up costing you in penalties or missed tax deductions. Weight your personal situation and deciding if you can afford the tax prep fees helps you make your decision.
Looking for more ways to save money? Check out more articles for lots of other great tips.