Income Tax Prep – Online Software vs CPA

“Should I self-prepare my tax return, or should I hire a professional?” is a question asked by many taxpayers. As life gets more complicated, is it smart to use Turbo Tax, Tax Slayer, H&R Block, or any of the multiple low-cost on-line options or do they ultimately leave money on the table?  

The simple answer is that you will probably know when the time is right to hire a professional but there are guidelines that I can offer to help you recognize that time.  

First, I would like to say that some of the tax preparation apps are decent. I strongly encourage teens and young adults to explore low-cost filing options such as the free filing on the website for their less complicated tax returns. The online options will not search for deductions or provide insight into your personal tax situation to help you understand why you owe (or got a refund), but they will likely keep you compliant. 

When your personal financial situation becomes sufficiently complicated, or when your life is sufficiently packed with other tasks, it is probably a great time to spend the money on a professional who can probably save you time and money in the long run.

You do have choices when you hire a tax professional.  You can hire a CPA or Certified Public Accountant who is an accounting professional who has passed a series of exams and maintains a minimum level of training (40 hours annually in Colorado).  Alternatively, you can hire an Enrolled Agent or EA who is also legally recognized as a tax practitioner.  EAs are also required to pass an exam and undergo continuing education requirements. EAs are generally focused on tax compliance (preparation of tax returns) and resolution for problems. CPAs are generally more well-rounded in their accounting background and can provide support for deeper matters beyond your personal tax return preparation such as your small business tax plan, estate plan and trust accounting and reporting. 

In addition, having a tax professional/CPA in your court will give you the tools and resources for unplanned events, good and bad, such as the startup of a new business or the passing of a loved one. If you find yourself in a situation where you are assigned a role as executor or trustee, you really want to have a solid team in your court. Having someone that you trust to help you navigate uncertain situations is crucial. Other situations where a CPA is helpful could include purchasing a rental or investment property, getting married (or divorced), buying a home, adding a dependent, experiencing substantial increases or decreases in household income, and planning for retirement.  A CPA can help you prepare for the tax consequences that will eventually evolve from any of these situations. 

Please reach out if you are ready to hire a CPA to help with your financial picture.