I couldn’t resist this topic as I just received a question from a reader.
They were asking where I recommend that people get their taxes completed. Here’s the question:
“How do you recommend people get their taxes “done”? Should we go to an accountant, or one of those companies that have the guy dressed as the statue of liberty standing outside waving a banner, or TurboTax (or the like)?”
My answer: Start your tax return for free with a service like TurboTax online.
If you get to the end and feel confident in your own efforts, then pay for the service and file your return. If you don’t feel confident at that point, then take your information to a retail shop or CPA (depending on what you can afford, although I highly recommend the later) and compare their results with your online results.
Next year you might be more confident in doing your taxes yourself.
If you need another rule of thumb, then consider this: the more complex your financial situation becomes (i.e. rental properties, heavy stock trades, small business), the more likely it is that you should use a professional, like a CPA, to help you with tax planning and filing your taxes.
More Detail: The 3 Places to Get Taxes Done
This really is the ultimate tax preparation question isn’t it?
There are basically three major players in the tax preparation game:
- the public accountants (CPAs and Enrolled Agents) and other traditional practitioners,
- retail/franchise tax preparation services (i.e. H&R Block and Liberty Tax), and
- do-it-yourself tax software (i.e. TurboTax).
From what I could find in my limited research, H&R Block does 1 out of every 7 tax returns. TurboTax claims to prepare more than anyone, so that leaves the professional with at least 2 out of every 7 to do.
Like most things in personal finance, the answer to this reader question really depends on a set of personal circumstances.
A CPA could do his or her personal taxes with off-the-shelf software and a retail tax preparation store could employ the smartest tax wizard on the planet. So it’s impossible to pick one of these avenues as the very best for every situation.
Why Tax Software is Cheapest
One thing to note is that they each are working a different price-point. Software is typically the cheapest. This doesn’t mean they aren’t the best.
Tax software has become extremely sophisticated. So don’t look to a professional to outsmart the software. They are probably just using a professional version themselves.
Software has a harder time with this. You can’t have lunch with and discuss your small business with software.
CPAs are usually the most expensive option, but you’re paying for someone to help you with a difficult tax situation or simply to give you that extra assurance.
Right down the middle is the retail preparation outlet, who tries to serve the client who wants a bit of help, but doesn’t want to pay for the premium practitioner.
See this video I made with some other tax professionals about getting started with your taxes:
Take Time to Understand Your Taxes
I can’t stress this enough: there is no substitute for your own personal knowledge of your tax information. Unless your situation is extremely simple, no one but you could possibly know the complete ins and outs of your financial situation.
You should really strive to understand your own taxes, even if from a high level. Start with last year’s return. Look at the different sections (income, deductions, itemized deductions and exemptions, credits, and tax payments) and understand learn how they work together.
If you use a CPA, have them thoroughly review the return with you so that you understand what they did. A tax preparer of any kind (software, retail, professional) should really just be for assurance, not so that you can turn a blind eye to what is going on.
Want to use the CPA that I use to get my taxes done? Check out Larry G. Taylor, CPA.