With the rising cost of living, most Americans are looking for every corner they can cut to make ends meet. As tax season approaches and most people are receiving their end of year statements, many Americans are considering using common tax software or wondering if they should go to a local tax professional. It’s a common thought that tax software is the cheaper option to go with, but is there more of a cost than the sticker price?
A tax professional is often able to make valuable tax savings suggestions that a software program just can’t anticipate. The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children’s education or how to reduce taxes on your capital gains.
Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that they understand your family’s financial situation and future goals. As a trusted professional, a good accountant will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.
There are a few notable downfalls when filing your taxes on your own.
1. You will spend more time. By filing taxes on your own, you will need to commit a significantly larger amount of time than if you hire an accountant. The U.S. tax code can be complex and difficult to understand, and to accurately submit your return, you’ll need to organize and prepare all relevant documents. These documents include your W-2, any 1099s you may have, information on interest and dividends earned, as well as capital gains or losses, and what you paid in home mortgage interest and real estate taxes. However, once you know what you need, you can create a filing system to lessen the time needed to prepare and file.
2. Does online assistance add up? Even when using tax preparation software, you may still frequently find yourself unsure as to whether you qualify for a deduction. For instance, health insurance premiums are an allowable deduction in some instances, but not all. If you qualify but don’t take the deduction, you could miss out on additional savings. However, if you do take the deduction and it turns out to be incorrect, it could cost you in the way of audits, penalties, and interest charges. For additional advice, many online services and software will offer CPA guidance for an additional fee. Typically, those cost $100-$300 depending on the help needed which means the company is instantly making more money and you are losing all while still having to complete the forms yourself.
3. Cost of errors. By filing without assistance, you and you alone will be 100 percent accountable for your return. It is strongly advisable that if you self-prepare your taxes to fully complete the return, and then set it aside for several days before filing. Reflect on the previous year, and see if you can recall anything you’ve neglected to include. Once you’ve taken this breather, review your return, make any necessary changes, and then submit. One of the benefits of hiring a tax professional is that you get a risk covered consultation. Tax advisors are responsible for preparing the statements of your tax return and having proficiency in the field of tax so that there is minimum or no risk of making errors on your accounts. These professionals also cover the risk of any legal consequences by taking preventative measures and providing audit assistance.