DIY is all the rage. All across America, people are canning their own vegetables, crocheting their own throw pillows and 3-D-printing their own action figures. But is there a limit to what you feel comfortable doing yourself -- changing the oil in your car, painting the living room walls -- and what you would absolutely call a professional to handle? Like your taxes, for instance?
Are you comfortable filling out your own 1040, or do you worry that you'll miss out on lucrative deductions -- or worse, catch the unwanted attention of an IRS auditor?
With the popularity of tax preparation software, more Americans are doing their taxes themselves. According to 2014 IRS numbers, 47.9 million American taxpayers self-prepared their 2013 income tax returns on their home computers. That represents 38 percent of all electronic tax filings. The lion's share of all electronic filings -- 77.8 million -- are still done by tax professionals [source: IRS].
How do you decide if it's worth the risk doing your own taxes or if you're better off shelling out a couple hundred bucks for a professional? First, you have to answer three important questions:
- How complex is your tax situation? The IRS offers three flavors of the 1040 income tax form, each designed for different tax situations. If you meet the criteria for the 1040EZ or 1040A -- income under $100,000, no itemized deductions, no self-employment income or Schedule C -- then you should have no problem preparing your own taxes on your computer [source: IRS]. More complex situations, which require the regular 1040 -- itemizing deductions, claiming business expenses, paying self-employment tax -- might require professional help.
- How much time and money do you want to spend on taxes? The IRS estimates that the average non-business taxpayer will spend seven hours and $120 per year on income taxes. That includes planning, recordkeeping and filling out the forms. The estimate increases to 24 hours and $430 for business owners. Are you the kind of detail-oriented person who loves carefully tracking expenses and staring at spreadsheets? Or would it be much more satisfying to pay a little extra for someone else to dig through your receipts?
- What's your stress level? To do your own taxes, you need to be comfortable with a certain level of uncertainty. Will the highly unlikely prospect of an audit keep you up at night? Or do you trust the good people at TaxACT or TurboTax to have your back? Your stress level over taxes will help decide if software or a tax pro is right for you.
Up next, we'll go over the best reasons to choose tax preparation software and then explore the benefits of hiring a professional.