Income Taxes: To DIY This Year or Work With A Preparer?

Income Taxes

Income Taxes: To DIY This Year or Work With A Preparer?

* This article was originally published on Jan. 22, 2020. It has been updated for 2021.

It’s tax season! You’ve probably received your forms in the mail and have seen the TV ads. They seem to make tax preparation look so easy! But maybe your tax situation is different than it’s been in the past. Whether it’s gotten simpler or more complex, you might have the question on your mind that many income-earning Americans share this time of year: To prepare your taxes yourself or work with a preparer?

The good news is that you still have time to decide. But that doesn’t mean you should kick back and relax until April. In fact, now is the perfect time to get started, beginning with the big preparation decision. So if you’re on the fence about doing your own or sending them to a tax pro, read on for some considerations that may help you decide.

DIY

Although taxes often get a bad rap for being confusing, doing your own taxes doesn’t have to be. You may consider DIY-ing if:

Your tax situation is rather simple. You work a job or two with earnings reported on Form W-2, receive a Form 1099 with interest income, and take the standard deduction.

You enjoy doing your taxes. You want to better understand your full financial picture, and that includes digging into your tax situation.

You don’t mind spending the time. Tax preparation takes time — about 12 hours for a single Form 1040 — especially if you’re not a tax professional yourself. But you’ve got the time, and you want to dedicate it to prepping your taxes.

You don’t want to spend much, if anything. With the availability of low-cost and free-to-use online tax prep software, DIY-ing your taxes could save you a pretty penny.

If you’ve decided that you’ll be your own tax preparer this year, you have a few options. You can go the old-fashioned way by downloading and filling the necessary forms from the IRS and state, use IRS Free File if your income was under $72,000 for 2020, or try one of the low-to-no-cost software options available from multiple providers online.

Work with a tax preparer 

Did you just read through the DIY considerations, thinking, “That’s not me!”? You might choose not to go the do-it-yourself route if:

Your situation is more complex. You’re self-employed and have employees, work more than one contractor job in the gig economy, own a handful of rental properties, have multiple state returns to file, or itemize your deductions.

Your Comprehensive Services Package Includes Tax Prep at No Additional Cost

Bring the pieces of your financial life together! When your financial professional understands your financial planning and investment goals along with your tax situation, they can help you see the whole picture. Interested in a comprehensive financial strategy? Learn more.

You don’t care to spend the time and don’t mind spending the money. Taxes simply aren’t your thing, or you’d just rather spend the money to make sure they’re done right, by a professional. But it goes beyond saving your time and avoiding mistakes. You also want someone by your side in case of an audit.

You’re looking for guidance. Tax prep is more than just “getting taxes done” for you. You want objective advice and tax planning guidance along the way so you can make the most of tax season this year — and in the future.

You don’t want to miss a thing. It’s not that you don’t trust yourself to get your taxes done right. You just want to be sure not to gloss over a credit or deduction you could otherwise benefit from. This may be especially true if a critical life moment, like a job change, home purchase, marriage, or addition to the family, will impact your 2020 taxes. 

You want to work with a tax preparer who does more than just tax prep. You’re looking for a tax preparer who can also be your financial professional, someone you can work with to better understand how taxes impact other areas of your financial life. 

Rather than adding a new professional to your team, if you already work with a financial pro, you may consider asking if he or she also prepares individual tax returns. Combining multiple aspects of your financial life with one team can offer you a more complete view of where you are now and help you form a cohesive and streamlined strategy to reach your goals.

Finding a tax preparer

If you’ve decided that DIY-ing isn’t for you this year and it’s time to find a tax professional to work with, it’s best to plan ahead and begin your search early. That’s because it can take time to find a preparer you like and trust. Plus, tax season can quickly get busy for both filers and preparers. Tax preparers’ calendars tend to fill up quickly and, as Tax Day draws nearer, it’s likely that more filers will be vying for the limited spots remaining on their schedules. 

While the IRS authorizes those with preparer tax identification numbers (PTINs) to prepare tax returns for compensation, you may want to search for a preparer with credentials that show both expertise in the field and a commitment to continued education, like:

A CPA — Certified public accountants, or CPAs, have passed the American Institute of Certified Public Accountants (AICPA) Uniform CPA Examination. They follow a code of ethics and must complete annual education requirements. While some CPAs specialize in tax preparation, others have their own areas of accounting expertise.

An EA — EAs, or Enrolled Agents, are licensed to represent taxpayers before the IRS. They must pass a tax law exam that covers both individual and business returns as well as complete continuing professional education requirements to maintain their designations.

An Annual Filing Season Program Participant — Although generally not CPAs, EAs, or tax attorneys (more on them next), these professionals set themselves apart from tax preparers by completing a course and test along with continuing education each year to earn their inclusion in the IRS’s listing of Annual Filing Season Program Participants

A tax attorney — Tax attorneys are lawyers who specialize in tax law and can represent their clients in court. Rather than prepare simple individual tax returns, many tax attorneys focus on more complex situations like taxable estate planning and criminal court cases involving the IRS. 

Whether you’ve decided to DIY or work with a pro this year, one thing is for sure: The countdown to April 15 is on! So grab last year’s return, and start gathering your tax documents if you haven’t already. And if you’re looking for more tax prep and planning information — including getting a head start on 2021 planning — you can find more of our blogs on tax-related topics here. Happy Tax Season!

If you have questions, try the chat feature at the lower-left corner of this page.

Ready to schedule your next meeting? Simply head to the Meeting page where you can find and schedule a convenient time to discuss whatever is on your mind.

Jason Speciner
Jason Speciner
jason@fpfoco.com

Jason Speciner is a CERTIFIED FINANCIAL PLANNER™ professional, an Enrolled Agent, and the founder of fee-only firm Financial Planning Fort Collins. He is also a member of the National Association of Personal Financial Advisors (NAPFA), Financial Planning Association (FPA), and XY Planning Network. Since 2004, he has served clients of all ages and backgrounds with unique experience working with members of generations X and Y. To learn more, check out Jason's blogs and see the media he's been featured in.