Filing taxes is a lot like the Facebook relationship status: terms like single, married and “it’s complicated” can all apply. (The company’s own relationship with the IRS has been thorny for years). Where the two differ is that for a messy relationship, you might just need some time to soul-search. When your tax situation is complicated, you need to hire a certified expert.
The question is, what exactly is a complicated tax situation? Is there a foolproof way to tell? What happens if you make a mistake on your tax form? Filing your own taxes can feel like tiptoeing through a financial minefield, and it’s needlessly complicated. A 2015 IRS survey found that Americans on average spend around 17 hours on their taxes every year (which includes the time you spend keeping records and not just the time it takes to fill out forms). The way we agonize over filing taxes is pretty bizarre when you think about it — it’s like ordering a meal at a restaurant and being told it’s on you to figure out the bill.
It’s no wonder that almost half of filers have used a tax preparer in the past five years, according to a NerdWallet survey. The same study found that only half of those surveyed expect a return in 2020. Almost a quarter of those who filed last year ended up owing money — a scary prospect when you’ve come to depend on your yearly refund. So, to help you make the smartest choice this tax season, we spoke to a few financial experts on how to decide if you need to phone a CPA or if you can go it on your own.
Who Should File Their Own Taxes?
“An important question to ask yourself when you’re preparing to file your taxes is, ‘Do I want to save money by filing on my own?’” says Dana Marineau, VP of Credit Karma. The National Society of Accountants found that it cost nearly $200 last year to have a professional prepare a federal Form 1040 for the simplest returns.
“What are you looking to get out of the relationship?” asks Cristina Guglielmetti, a certified financial planner and the president of Future Perfect Planning. “Even with simple situations, a pro can be helpful just in keeping you from procrastinating too long. If your circumstances are relatively straightforward though, and you're generally organized, it can be more cost-effective to DIY.”
According to experts, generally, these are signs that your taxes are going to be easy:
• Your filing status is single
• Your income came from one source
• You’re not self-employed or own a business
• You don’t own rental property
• You don’t have significant assets or investments (not counting retirement investments like 401ks)
• You didn’t undergo any major life events this year (i.e. taking a new job in a different state or country)
What’s Different This Tax Year?
Last year, new tax reform impacted how we filed our returns. To recap some of the big changes, there’s now a single 1040 form for everyone filing the individual income tax return. Unless you have to fill out a bunch of additional forms, called Schedules, filing your federal return should be simpler than before. The Schedules deal with things like claiming education credits or virtual currency you acquired during the past year (yep, the IRS taxes Bitcoin now).
Now that we’ve had a year to process the changes, though, experts expect the upcoming tax season to be less confusing. “Taxpayers won’t see big changes in the tax law as compared to what they saw last tax season — the majority of those tax changes are already in place from 2018 through 2025,” says Lisa Greene-Lewis, a certified personal accountant and TurboTax’s resident tax expert. “Like the first year of tax reform, TurboTax predicts and the IRS data confirms that 90% of taxpayers will now be able to take the standard deduction.”
Marineau agrees. “It depends on your personal situation, but tax software is updated each year to reflect the changes to the tax code,” she says. “That includes all of the changes that came with the Tax Cuts and Jobs Act, so it typically shouldn’t be any more complicated for someone to file themselves than when they hire a professional.”
What’s The Biggest Myth About Doing Your Own Taxes?
“That it's really complicated!” says Guglielmetti. “But unless you have multiple streams of income, own rental property, or have a particularly unique situation, it's not that difficult. Even if you work with a pro, you should familiarize yourself with your return and how it works.”
Marineau and Greene-Lewis both echo that one of the biggest roadblocks to doing your own taxes is the idea that it’s out of your depth. “Often times, people pay to have a professional prepare their taxes because they have a fear of messing up,” says Marineau. She notes that Credit Karma recently found that almost 70% of Gen Zers and 53% of millennials are scared of making a mistake on their taxes.
“Taxpayers in their 20s may be used to Mom and Dad doing their taxes and may think they need to hire someone if they are unsure of how to do their taxes themselves,” says Greene-Lewis.
To feel more confident and relaxed, Marineau believes the key is getting prepared early. “Take the time to gather all tax-related documents before you sit down to file your taxes,” she says. “It may sound obvious, but you’d be surprised how much time you can save if you have all of the necessary paperwork in front of you when you go to file.”
Getting ready long before the April 15 due date also means you’ll have plenty of time to do your research. If you’re expecting a refund, she suggests making a plan for where the refund will go. “To avoid frivolous spending, it’s important to have a plan for how you’re going to use that money.”
The good news is that there’s a lot of free or cheap tax software and online tax tools available today. TurboTax offers a wide range of software, like its version of the IRS Free File (which includes truly free federal and state return filing, but only for those who made $36,000 and under this year) or a version that gives you a free federal return and charges $29.99 for each state return. Its priciest edition costs $170 for federal filing, and includes a service where you can talk to CPAs or enrolled agents.
Credit Karma Tax is completely free and doesn’t have paid tiers, but in certain tax situations — like claiming earned income tax credit with non-dependents or having multiple state returns — its tool won’t be able to file for you.
Of course, if you don’t have the first clue about taxes (and perhaps, in fact, just Googled what a “tax” is), it might still be wiser to work with and learn from a professional.
So, Who Should Hire A Professional?
Maybe you got married, moved states for a new job, had a baby, bought property, earned foreign income, and then got divorced all in the same year. Maybe you made most of your money doing a million different side gigs. Maybe you’re just too stressed to think about any of this. Or maybe you work 80 hours a week and worry where you’ll find the time to actually figure this out. If it takes you five hours to gather all of your records and fill out the appropriate forms, how much monetary value would you put on that time? Is there a better value in hiring a professional?
A professional you can meet up with in person and ask questions to might give you priceless peace of mind, too. “Nearly one-in-three Gen Zers would be willing to pay between $100 and $250 if it guaranteed their taxes would be filed completely accurately,” Marineau says. “The millennial population was even more likely to spend the same amount to ensure accuracy in filing their taxes.”
You should also find out if taking the standard federal deduction makes sense for you. That means automatically deducting $12,200 if you’re filing single (or are married but filing separately), $18,350 if you’re head of household, and $24,400 if you’re married and filing jointly. The standard deduction means that you don’t have to prove why you should be able to deduct a given amount from your taxable income — you’re agreeing to just take the amount the IRS has set for your filing status.
If you itemize deductions, you’re claiming individual deductions and tallying it up. And there are a lot of deductions that exist in the U.S. tax code. For example, did you know that if your pet is a legit influencer, you could potentially deduct his or her expenses?
One of the biggest changes brought about by the 2017 tax reform, though, was that it eliminated many deductions, such as one for your moving expenses, and increased the standard deduction. And while before you could deduct either your state or local taxes no matter how much they were, there’s now a $10,000 deduction limit.
So you might not be as up-to-date on which deductions are still fair game; you might want to speak to a professional who can give you personalized advice. “The mortgage interest one is still valid, though it seems like it was taken away,” Guglielmetti says. “Since the standard deduction has increased so much, many fewer people itemize now. But for those on the cusp of having enough to itemize, many planners (including me) push clients to employ a deduction bunching strategy, in which you increase your mortgage payments or charitable contributions in one year to itemize, then take the standard deduction the next, and alternate in that way.”
If you can afford it, having a financial expert you trust may be what’s best for your money in the long-term, too, and not just to get through this tax season. “I think people are primarily worried they'll do something wrong and be carted off to jail, which is understandable if not very likely,” Guglielmetti says. “Then they're worried they're paying more than they have to, not taking all the deductions, etc. The 2017 law took away a lot of immediate planning opportunities for the middle class. But planners, especially those like me who work with a lot of young and mid-career clients, use it as a learning opportunity to illustrate how fast things can change, and how you shouldn't have all your eggs in one tax basket.”
Having your taxes professionally prepared can cost a little under $200 for simple non-itemized federal and state returns. The average jumps to almost $300 if you’re itemizing deductions, with a fee for each additional Schedule. You’ll usually have to pay extra if you need your W-2 and 1099 documents prepared, too.
Where Can You Find Free Tax Preparation?
Using free online software or paying hundreds of dollars to get face-to-face advice from a certified professional aren't your only options. The IRS-sponsored Volunteer Income Tax Assistance program provides free tax preparation for people who earned less than $56,000 this year. You can also check your local library to see if it offers tax preparation assistance. If you’re wondering whether you’re eligible for programs like the earned income tax credit, these professionals can help you make sure you’re not overpaying your taxes. If you need help getting through an audit, dealing with owed taxes, or receiving your refund, the Low Income Taxpayer Clinics can help.