Ask the Readers: Should I Prepare My Own Taxes or Go to an Accountant?

Greetings! The last time I did my own taxes — or tried to do them — was for the 2005 tax year. That was the first time my husband and I had a business, and although we’d lost a lot of money and didn’t net but $200 or so, it was still a pain to try and sift through receipts. After seven very painful, tear-filled hours, my brother suggested, “Uhm, why don’t you just use Turbo Tax?”

Hallelujah! I’d been in such a frustrating funk that I hadn’t even thought of it. I immediately downloaded the software, and within less than two hours had all my paperwork and completed forms printed out and ready to sign.

Now that we live in a state that levies an income tax (at the time we were in Texas, which doesn’t), I definitely don’t want to mess with doing my own. I’ve been very happy with Turbo Tax. We don’t own a home (yet), don’t qualify for any major deductions other than against my freelancing business last year, and have a combined gross income of less than $75k. So we’re pretty happy with the software program.

Cheers,
Marjorie

I was recently received my CPA license and have been working as an accountant for about 4 years. With that said, I am an auditor and don’t specialize in taxes, in fact, I hate worrying about taxes. I know enough about them, but when it comes to doing my taxes, I use Turbo Tax. My rule is and what I have found from experience is that the software is great for basic taxes (most people) and it is easy and fast. But,if you have a complex tax structure as a result of investments or businesses and the such or have done anything significantly different from prior years that affects your income, I would definitely look into having someone else do them for you. That is where you tend to find hidden or hard to find deductions and/or areas where you may owe extra taxes that you are not aware of. My brother is also a CPA and has been using tax software for years. I would also recommend using some of the other tips to help out if you use software depending on your situation.

I do my own taxes. When I started, it was easy because I could use the 1040EZ form. One by one I learned how to deal with self-employment, home ownership, and investing. Now my taxes are a bit complicated but not crazy (I’m in Jon Morrow’s bottom tier and probably always will be, I live and work in the same country, my self-employment was things like tutoring that didn’t require any business expenses other than gas, etc.)

As each form comes in, I pencil in the appropriate entries on one copy of the forms. At the end of January, I go through the whole form making sure I haven’t missed anything and making sure I don’t need to contact anyone who hadn’t sent me something I needed. Then I pull out a copy of an old return as another way to check that I didn’t miss anything. Then I check all my math. Then I copy it all in ink to the other form of the copy, check carefully for errors like sticking things in the wrong blanks, make a copy and then send it in.

I learned how just by reading the tax forms and (parts of) the instruction booklets. Each year I read the whole form line by line. Every deduction has a line for it somewhere! If I don’t know what something is, I look it up. If I need to fill in one of the lines, I look it up. It looks like a huge, depressing amount of reading, but you don’t have to read it all and if you just do it when you’re awake and you’re not in a rush, it generally makes perfect sense. (Well, I don’t always understand the why’s but I feel I do understand the how’s.)

If it says I need an additional form, I get it online. Only once I couldn’t figure something out, so I called the IRS for an answer. Unbelievably, they don’t guarantee they’ll give you the right answer, but at least you can take down a name and get someone in trouble if they mess up.

A friend of mine used to always get his taxes returned because the IRS had found an error, even when he was using the 1040EZ. And he’s not an idiot and he’s not afraid of math or bad at it, so I don’t really get that. But now that he uses Turbo Tax, this has never happened to him. Note: we live in a state with no income tax, so we don’t need any of the special or deluxe packages. However, in at least two stores this year, those were the ONLY things on the shelves and he had to ask someone to get the regular version from the back.

The great thing about doing your own taxes is that you keep seeing what counts as income and what kinds of things can be deducted. So, when there’s a change in your life, you’re more likely to pay attention to the relevant details. And you’re more likely to make the job easier when you know what matters: You’re more likely to save the important receipts and you can learn to sell your stocks in the same quantities you bought them in. Those kinds of actions should make things easier for your accountant, too, and thus cheaper for you.

I’d say try doing your own taxes. If you qualify for something other than the 1040, look over the 1040 anyway, which just has extra stuff on it, to see if you might be able to get a better bottom line. If you feel unsure when you’re done, then go to a professional. That’s what I’ll do if I get in over my head. (And I’ll use Jim’s hint of doing as much as I can myself, first, to keep the costs down). Then I will pay attention to how it’s done so that I can do it myself the next time.

i did my own taxes from 2003-2006.

The IRS took them and sent me nice return checks.

Now 2007, I received a letter telling me I owe them $2000+ in back taxes, due before the end of March.

I believe I will start having someone else do my taxes for me starting this year.

I am a Revenue Agent with the IRS and have been for many years. Here is my advice – if you have a simple return ie Schedule A stuff – W-2 wages – use Turbo tax. If you have a Sch C Business, Sch E rentals – Capital Gains – use a CPA. Under NO circumstances would I recommend ever using H&R Block or the like. A novice with Turbo Tax and half a brain could do as well. I also recommend using a CPA that is recommended by a friend and ALWAYS double check their work to the best of your ability. Many CPA’s take what you tell them and slap it on the return – correct or not – they are not the ones responsible for an incorrect return – YOU ARE!

I’ve always done my own taxes, including when I was renting out my condo and when I sold it. I’ve always read the instructions line by line, even if they appeared the same as the previous year, and when there was a reference to a publication, I found it and read it. When I was renting out and had to do schedule E, I made sure to read everything about residential rental property. Sure it took time to read all of it, and at one point I called the IRS to double check something I didn’t understand, but I only needed to do it once – when I started. Thereafter, I just followed the instructions to the relevant forms carefully and made sure that nothing changed year-to-year. When I sold my property was the first year I used TurboTax since I kept getting different results with a calculator — my capital gains raised my income to the point when I had to do a whole bunch of worksheets on both federal and NY State forms and I guess I kept entering the numbers wrong. Since then I use Turbo Tax and it works great.

Maybe if I had a business it’d be different, but when you work for a company it’s not that complicated. You just need to read everything carefully and not to assume anything.

Using a CPA doesn’t guarantee correctness, and some of them take a whole bunch of questionable deductions which can get you in trouble when audited. I prefer to understand every line and to be able to explain and justify every item in my return.

I second the comment on using taxslayer.com. I found this sit e a few years ago and have used them every year since. It lets you file your federal tax return and the state return for like ten dollars.

I have a ridiculously complicated return, thanks to royalty income, freelance income, and all the ‘regular’ stuff like my regular salary, child care deductions, mortgage deductions, etc. On top of that, my husband is in the midst of a huge artistic project that’s receiving grants. We also span 3 states, due to employment and residences. I can not imagine trying to file by myself, and I actually dread the day that my accountant decides to step down.

Until last tax year, I prepared my own taxes. Life was simple–I earned money, had interest on a student loan and took the standard deduction. When I bought my house, there were itemized deductions and lots of other things. I used TurboTax, liked it and plan on using it this year.

My mother prepares taxes for the farm she and my dad own and uses TurboTax to do it. I know the paperwork is complex but she has filed taxes herself for over 30 years.

I would stay away from H&R Block based on their refund anticipation loan they push every year. However, I have a colleague who uses an independent accountant and she likes his service. I think it comes down to comfort level. If you want someone to prepare taxes, ask friends, neighbors and colleagues for suggestions.

I have been lurking here for some time. Love your site.

I think it depends upon your income, how complex your life is, and how complex your business structure is.

I did my taxes for 15+ years; each year they got incrementally more complex. Used software (both Turbo Tax and TaxCut).

In year two of our business I decided to go to a CPA I had seen at a seminar. She saved me money in the current year and went back two years and saved me even more money (1040x).

In fact, she motivated me to go back to school for the needed accounting courses and take the CPA exam (I take part four of the exam in a few weeks).

Of course, I am doing my taxes again. A CPA can tell you a multitude of things that a program can not and provide advice based on discussions with you (timing of selling/buying stocks, planning for kids eduction, setting up retirement plans, business entity options, heath care planning, etc.).

I generally consider a good CPA worth every penny. However, if you are earning under $75,000 per year and/or your tax issues all relate to one home and a few stocks/mutual funds I would recommend you do them yourself. If you own a business a CPA is a must have. In fact, I strongly recommend one consult with a CPA before entering any business venture (and a lawyer also).

Rob

You can actually get your return prepared for free by IRS trained and certified volunteers. Most sites are open to people with any income, but they don’t typically do highly complex returns. I’ve been a volunteer and they use tax prep software to prevent errors.

See: http://www.irs.gov/individuals/article/0,,id=107626,00.html

How much does an accountant cost? I’m in a fairly low tax bracket (I made about $35k last year) but my income came from multiple sources. In 2006 I ended up owning a lot of money to the government (I used TurboTax Online) but I felt like I might have filled something out wrong. This year I’m thinking about getting an accountant, but I’m not sure if it would be worth it. Thoughts?

I would never go to H&R Block. They are only well-capable with simple returns. If your return is simple, you can do it yourself.

I did my own taxes for years but then they became very involved and difficult, so I hired a CPA. After a couple of years, I, though my own research and study became aware that he had been doing part of my taxes incorrectly. He fixed that but it got to thinking that I knew at least as much as he did about MY taxes.

In any case, I moved to another state and, again, instead of doing them myself I hired a CPA. Again, after my taxes were completed, I went over them with a fine-tooth comb and found two errors. I pointed them out to him and he agreed and corrected them.

1) Since I knew enough to know how my taxes should be done; including finding CPA errors, I started doing them myself.

2) There is no point paying for returns that you will have to learn about/know enough to check for errors and omissions.

So, the next year I used TurboTax. Guess what? TurboTax made an error. Well, not an error, but the interview process left out a couple of things that I had to input manually. If I just followed the interview, etc. then I would cost myself about $420.

Now, I use a program like the free version of TaxAct or TaxCut or TurboTax to prepare the first version of my taxes. I let this be a way that I check my math, in advance, and cover all the basics. Then I print a copy of my taxes and go line-by-line, using a tax guide, to make sure of all the details. Once I make any changes necessary, I send off my taxes with confidence.

Short answer: Paying someone to do your taxes can be costly, in more ways than one. Since you’d better learn about the factors that apply to your taxes anyway, for purposes of double-checking your tax man, then you might as well do them yourself.

Note: Some people just hate it or just don’t get it. They should hire a CPA.

I did my own (and my husband’s) taxes for years, using the H&R Block software. It was confusing and took hours, not including time spent downloading updates to the software and so forth.

Last year I went to an accountant. For about double the price of the software plus an hour of my time (answering questions and signing documents) she did my taxes. She also reviewed my previous year’s taxes and found an error that might have cost me a bundle if I had let it go until an audit.

Oregon’s legislature made last-minute changes to the state taxes at the end of 2007; it will take the software programs a while (weeks? months?) to write updates incorporating those changes. In the meantime my accountant is already up to date and ready to file as soon as I have all my documents. I’ll keep using her instead of doing it myself.

I’ve been doing my own taxes for years. In the beginning they were pretty simple, just W2s and student loan interest forms. While in college I did some computer consulting and ran into trouble finding a place to put that income using the online forms. My basic online research told me that I was supposed to be sending in coupons four times a year or some other nonsense. I ended up just putting down the amount I made for the year under “other income” on the form. I should have gone to a CPA *before* starting the so-called business. Since then I haven’t done side work so I am still doing my own taxes but I am always worried that something will come back to bite me.

Preparing the tax return is only half of the service a good preparer will provide. Anyone can prepare their own return and do a good job. The idea of having a real professional, not H&R, etc, is for them to look for the hidden deductions, but more so, to look for interplay within the family, and to suggest future tax savings. For example, the difference between the Roth IRA and a 529 plan; or to prepay the mortage or put some funds into another investment. The tax return is not just about the current taxes.

I have always done my taxes (I’m 36). This year I will use a CPA. Why? I got married. I want to see how a professional will handle them. Maybe I will resume doing them again next year, we’ll see. Most importantly, I received a referral from someone who I have complete trust in. If I did not have this referral, I might have stuck with Turbo Tax.

Our library system offers FREE AARP Tax Assistance 2 days a week for several hours. It is not limited to seniors (or even those just in our borrowing area).

As a public librarian, this is an incredible service to our community. Never forget your library as a source…