As Benjamin Franklin once said, “nothing can be said to be certain, except death and taxes.” For many of us, doing taxes can be so confusing, the former seems like a good way to get out of them (kidding but also very much not kidding). According to research from the American Economic Journal, most Americans do not have a basic understanding of taxes. But given that the Internal Revenue Service (IRS) has received 125,000 calls per day since 1999, and 4.6 million website visits per day since 2004, there seems to be a collective intention to learn — but the numbers just aren’t clicking.
On paper, however, taxes are (or at least should be) quite simple. And if yours aren’t, well, there are accountants for that. Here’s how to decide if you should do your own taxes or hire an accountant.
When you have complex paperwork
If you’re going through a major transition, your life can get pretty complicated — and your finances will be a reflection of that. If you bought or are buying a home, own a small business, have gotten married or divorced, or had a child, an accountant may be necessary, said Ash Exantus, director of financial education and financial empowerment coach at BankMobile.
Certain business arrangements also warrant the use of an accountant. If you’re self-employed or the owner of a corporation, Exantus said the laws surrounding deductions are constantly changing, so an accountant will be up to date on them and help maximize your return.
And you can optimize their services
Hiring an accountant doesn’t mean they wave a magical wand and Marie Kondo your taxes while you sit back and eat chips (although, wouldn’t that be nice?). In fact, it helps that as a client you cooperate with them and keep your financial documents organized in a folder or on a spreadsheet.
To ensure accuracy, Exantus said it’s important that you give your accountant as much information regarding your finances as possible. That includes your bank statements, money earned and spent, a list of your assets, and receipts for expenses that you might be able to write off. For example, if you are self-employed, you may be able to write off a portion of your rent as a form of home office. Similarly, if you are currently in the process of paying off any loans, your accountant will need those statements as they might be eligible for a write-off.
“My general rule of thumb when working with an accountant would be to give [them] anything that is related to your finances and let them sort out whether it’s useful or not,” said Exantus. “It’s better that they have more than less information.”
When you should DIY
If you only have one job (and no side hustles or other sources of income), no dependents and no investments, doing your own taxes should be a walk in the park. Well, a brisk walk. Maybe a jog.
Your first option is to consult with the IRS to see if you qualify for free basic tax services from a volunteer certified tax preparer (generally, those who qualify earn under $55,000 per year, have a disability or limited English speaking abilities). If you don’t qualify, Exantus recommended TurboTax, H&R Block, TaxAct and TaxSlayer, which all have free editions.
“You simply answer a few questions and the software takes care of the rest,” he said. “If you answer the questions accurately and truthfully you won’t have any issues as these softwares are pretty user-friendly.”
Paying for a single piece of software or getting the free edition is far cheaper than hiring an accountant, which can cost anywhere from between $25 and $30 per hour, and $150 and $250 per hour for a chartered accountant. But your return on investment for opting for the latter can be worth it — both financially and emotionally.
“In some cases it is more economical to use a tax preparation software but if you have complex taxes, your accountant can potentially find exemptions and credits that you may have not found yourself using a software,” said Exantus. “There are no guarantees that paying accounting fees upfront will yield you a return on investment but it does provide peace of mind, which when dealing with the IRS is priceless.”
In the event of errors
Humans make mistakes, but unfortunately those when filing your taxes can come with a high price. That shouldn’t intimidate you out of filing on your own, but it should prompt you to “dot your i’s, cross your t‘s and then check again to be sure,” said Exantus. “This is because you are fully responsible for the accuracy of your tax returns whether you get an accountant to file them for you or not. In fact, we have seen many celebrities go to prison for tax-related issues even though it was their accountant that filed their taxes for them.”
And no, unless you fully evade your taxes, you’re not going to prison. Exantus said if you’re late or include wrong information, you’ll owe those taxes on top of a potential penalty. If you don’t maximize your deductions, you won’t receive the full refund you’re owed.
Some of the most common errors, according to Exantus, include filing under the wrong status (whether you’re single or married filing jointly or separately), trying to figure out tax credits and deductions on your own, spelling your name wrong, including the wrong social security number, including erroneous numbers from your W-2 (your employee tax form from the IRS), and generally mixing up numbers.
When the clock is ticking
Raise your hand if you procrastinated on doing your taxes because you were just so overwhelmed with paperwork. If the deadline to file is quickly approaching, should you opt for a software to complete the paperwork on your own (while potentially introducing errors), or hire an accountant last-minute who might take several days or weeks to process them? This one’s a no-brainer.
“Definitely hire an accountant last minute,” said Exantus. “Under no circumstances is it OK to rush through filing your taxes with potential errors.”
The good news is that your accountant can file for an extension, which will give them extra time to complete your taxes meticulously and avoid any late fees.