Income Taxes: File Yourself or Hire a Professional?

The Shaybergs had just finished shanah rishonah. A year full of firsts. Now it was time to file their first tax return. Shloimy was pretty good with numbers and had found free tax software to file with the IRS on his own. But Shloimy’s brother, an experienced businessman, thought he was nuts for even thinking of handling the minutiae of deductions, credits, and brackets. “One mistake and it’ll cost you thousands plus a massive headache.”

Should people file taxes themselves or use an accountant?

It Depends

The tax code is absurdly complicated, and the rules keep changing too. I have always used an accountant to file my taxes and most likely always will. But many don’t because there are pros and cons of “do it yourself” filing versus hiring a professional. As with the decision about any other purchase of goods or services, there’s no one right answer to this question. Instead, the choice should be based on your personal interests, numerical savvy, and the complexity of your financial life. 

Money Matters

About half of 2019’s 155 million personal returns were filed with the IRS without professional assistance. More than 14 million of these were filed using paper forms! The main reason people do their own tax returns is to save money. Hiring a tax preparer costs hundreds of dollars or more, depending on the accountant and the number of schedules required. Many households are entitled to use free tax software, made available by various companies under a deal with the IRS, eliminating all cost for Federal filing (though state filings may still carry fees). And even for paying customers, using software while avoiding professional human intervention will obviously lower the costs incurred. 

Keeping Control

Another benefit of doing your own taxes is the ability to control the timing and intensity of the process. Accountants are exceedingly busy at tax time and will have limited attention spans. While a good tax preparer will always cover the bases, no one cares about your money more than you! Self-serve also means being able to file at your own pace instead of getting in line with tens or hundreds of others. Some people may also value the privacy of keeping their financial lives to themselves instead of sharing their income and expenses with a bunch of people in an accounting firm.

Dispelling Self-Ignorance

The biggest benefit of self-filing is the financial clarity it can bring. Many people have no clue how much they’re earning or how big their annual tax bite is. Without awareness, there can be no planning on how to improve. While some accountants offer follow-up tax guidance, nothing enlivens planning more than personal involvement in the kishkes of your tax return. Paying someone to file your taxes can provide a false sense of security—that the filer is also the tax planner. DIYers are never under any such illusions and many become very tax savvy.

Mistakes are Common—and May Be Costly

But while doing things yourself may save you some money and hassle, often this has the opposite effect. Even with software assistance, tax rules are exceedingly complex and ever shifting. It is very common to miss an input or misunderstand instructions, leading to costs that can far exceed the fees a professional would charge. A well-trained and experienced tax preparer often knows instantly what to look for and how to find every possible deduction and credit. Many of these can be esoteric to someone filing only one return annually. Often, self-filing will be penny-wise and dollar-foolish. 

You’re on Your Own

Correcting mistakes, especially if they trigger an audit, can be very nerve-wracking and time-consuming. But those who rely on professionals can approach an audit without losing their heads. I was partially audited once and while it wasn’t comfortable, I had virtually no concerns. My accountant stood by her numbers and the IRS backed off pretty easily. Another time, the IRS claimed they had not received my business returns—but I knew they were e-filed on time by my trusty accountant. Again, the IRS changed their stance with a simple letter proving this. 

Beyond Tax Filing

Even assuming an individual does a perfect job filing their taxes, they miss out on the potential counsel of a knowledgeable expert. There are many ways to lower taxes and improve financial planning. Unless someone is exceedingly well-versed in tax planning, they will benefit from having an ongoing relationship with a tax professional. I generally pay my accountant for an annual session to discuss my tax position, business trajectory, and broader financial picture. These sessions have been an excellent investment—a single piece of advice I got there once was worth more than multiple years of the fees I paid!

Balancing Complexity, Comfort, and Cost

Those with more significant assets, large incomes, or complex financial lives should definitely work with suitable tax advisors. Business owners, especially, have many angles that may affect their tax liabilities and going it alone is probably a bad idea. On the other hand, someone with just a salaried income and limited investments or deductions may be a candidate for going it alone. 

A lot of this decision will boil down to preference and capability—some people enjoy and are good with numbers and have little cash to spare. Others can easily afford the fees and would much rather focus on their own professions, leaving taxes to those who specialize in that. Interestingly, however, multiple accountants who don’t specialize specifically in personal income tax told me they hire others to file their returns. If you do your own taxes, you need to ponder this fact. Perhaps you don’t even know what you don’t know!

Want to dig deeper?

Try these related articles

Accountants vs. Unhappy Clients: Who’s Right?

White and Gray: Navigating Ambiguous Tax Terrain

Saving Your Earned Income Tax Credit

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