The pros and cons of professional tax preparation
One of the most important decisions you can make regarding your income taxes is whether to get your tax preparation done with the help of a professional, versus trying to go it alone or using self-guided tax preparation software.
When it comes to your income taxes, a major decision you are required to make is determining whether you should get a professional to do your tax preparation or try doing it yourself or use an automatic tax preparation software for it. It can be a good idea to hand over things to a professional however, it has its cons. Here are some of the pros and cons of getting a professional to do your tax preparation:
This article discusses the pros and cons of getting a professional tax preparer to handle things for you.
Pros of Professional Tax Preparation
The Fees may be Deductible in Some Cases
It is important to be aware of the possibility that your professional tax preparation fees can be deducted on your income tax return if you satisfy certain requirements. The fee for tax preparation is regarded as a miscellaneous deduction and you can report it on the IRS Tax Form 1040 Schedule A.
For example, you can deduct things like the mileage you drove to meet with your tax preparer and the postage of mailing documents to them (including the postage of mailing your tax return to the state tax agency and the IRS). You may also be able to deduct the cost of a book you purchased regarding the new tax regulations to help you in filing the return. You can also get any fee you were charged for e-filing your tax return online deducted.
It is essential to be aware that the fees for tax preparation are considered miscellaneous deductions. For this reason, in order to claim the tax break, you are required to itemize your deductions.
Moreover, before your miscellaneous deductions are subtracted on your income tax return, they must surpass 2% of your AGI (Adjusted Gross Income).
It will Save You Money and Time
Accuracy and convenience are two of the most important benefits of hiring a professional to prepare your taxes. You can save a significant amount of time by not having to go through and try to comprehend the form instructions, news releases, and publications provided by the IRS. Even time has monetary value; the time you end up spending working on your tax return alone may cost you more than employing a tax professional’s services.
It is possible to make a lot of errors when filing your tax forms; the services of a tax professional can help you reduce those mistakes. They can also properly identify all tax deductions and/or tax credits you are suitable for to ensure that you do not end up overpaying taxes.
If you are thinking of using a tax preparation software, it is important to be aware that it is not going to take your specific circumstances into account (like your losses and capital gains). Since most tax preparation software options are created for individuals who do not have very complex tax situations, it may not be a good option for taxpayers with complicated finances.
Another benefit of professional tax preparation is that, unlike the software, you are provided with a guaranteed representation against a possible tax audit.
No Costly Errors
Probably the most critical advantages of spending money on a professional preparer are accountability and precision. Consider the hours you could avoid losing from attempting to peruse and comprehend the IRS’s guidelines, exceptions, and yearly revisions. You may find that the hours you spend working over your documents and forms wind up costing you more than the maximum cost of a professional hire.
There is a ton of space for mistakes with regards to tax documents. You can protect yourself from soaking up huge penalties for getting it all wrong. An expert assessment preparer can likewise prevent overpaying because you left out a deduction or exemption in your tax forms.
Tax software doesn’t hold your hand for all the itemized deductions. Tax code isn’t made for easy check-boxing if you’re a business owner. Same goes for things like capital gains tax exemptions.
This stuff is never handled alone by those who have built their wealth by taking advantage of the tax incentives.
Cons of Professional Tax Preparation
You may Encounter Scams – Be Vigilant When Choosing a Tax Professional
You should keep a few things in mind when hiring a tax professional. To begin, you should not delay scheduling an appointment until the last moment. Most of the best accountants near you will most likely have waiting lists. Your options are going be limited if you try to get in touch with an accountant when your return is due in a few days.
Secondly, similar to how you would handle hiring an employee, remember to check the references of the tax professional. Ask for recommendations from friends and family. Another good indicator is testimonials and reviews given by happy clients. Make sure to be vigilant of anyone who may have a license that the IRS no longer considers valid.
The Initial Cost of Professional Tax Preparation Can Be Unappealing
The most obvious drawback to hiring a tax professional who will personally prepare and file your return is the cost. The price for getting your tax return prepared by a professional may range anywhere from $60 to $1000 or more, depending on the type and number of tax form(s) you need filed. If your tax situation is relatively complicated, you should expect to pay more for professional tax preparation. If you need both your federal and state tax returns prepared by a professional, that will cost you more as well.
A survey was recently conducted by the National Society of Accountants (NSA) which showed that the average cost of professional tax preparation is $246. This is price that most tax preparers will charge for a 1040 Tax Form with itemized deductions (Schedule A) plus a state tax return. On the other hand, the cost of getting a simple 1040 Form (without itemized deductions) prepared by a professional averages around $143. As for business tax returns, the NSA survey found that the average cost for preparing an 1120 Tax Form (corporations) is $759, while the average cost for preparing an 1120S Tax Form (S corporations) is $717.