If you’ve said goodbye to your tax pro in favor of tax software, you aren’t alone.
Millions of consumers have switched over to doing their taxes on their phones, tablets, and computers. Gone are the days of breaking out a couple of new pens and a calculator.
How do we explain tax software’s ascension to the gilded heights of tax season? Price.
These days, CBS News reports that having a CPA do your taxes is going to cost you, on average, at least $170 for a basic 1040 return and up to $457 for the basic freelancer taxes: 1040, Schedule C and Schedule A.
Meanwhile, TurboTax’s most expensive software will set you back about $89.99, though you can sign-up to have a CPA and EA check your work and answer questions for an extra $79.
I’ve been on both sides of the tax-return battle of man vs. machine. As a freelancer, I’ve filed taxes with a local CPA and I’ve used H&R Block, Tax Slayer, and Turbo Tax. Before I freelanced, I filed for free online and over the phone.
With all the diversity in tax situations, financial considerations and willingness or lack thereof to devote time to DIYing your 1040, the question of tax software vs. accountant isn’t really an easy one to answer.
So, we turned to experts to get their opinions on which method is best for which taxpayers. Our sources had a lot to say; we condensed it down into a list of things you need to consider before making your decision.
Tax Software Isn’t as Perfect as You Think It Is
Most of us see tax software as a fail-safe way to file our taxes.
Nothing will be missed, right? That’s not quite the case, says Randall Brody, an enrolled agent (IRS expert) with Tax Samaritan.
“A common misconception or incorrect assumption is that tax software will automatically prepare a correct tax return, but that’s only if the preparer understands their tax documents and their tax status,” Randall told us. “Tax software is great, as long as you enter the right info. However, it’s relying on you to be the tax expert.”
Randall brings up a good point. Think about all the times you’ve run into a weird or confusing question in your tax software.
If you’re like me, you read it a couple of times and, if you still don’t understand it, you google it and see if you can find a good answer. If not, what do you do?
In most cases, we tend to give the information we think the software wants, crossing our fingers and praying to the gods of tax returns that we don’t get audited.
It’s never a good idea, though, to leave your taxes to chance and prayers to fictional tax deities. Your software is only as good as the information you give it.
“If it’s garbage in, it’s garbage out,” Randall said.
We hear a similar mantra from Kyle Walters, a CFP and managing director at Atlas Wealth Advisors.
“The biggest thing with tax software … is junk in, junk out,” he said. “Tax software is all you need as long as you know what to put in.”
College Students & Recent Grads: Most Likely Don’t Need a Tax Pro
When I went to college, life was simple. I wasn’t paying any student loans. I had one job and received one W-2 each year.
Life was so simple, in fact, I filled out a 1040-EZ by hand in about 10 minutes, signed it, sent it and waited for my return money.
It’s this exact reason why Kristina Grasso, a master tax advisor with H&R Block and a tax attorney, says college students and young people, in general, don’t need to fork over a couple of hundred dollars for a tax pro.
“I don’t think the young person out of college needs a CPA,” she said. “They may start out feeling they can try to do it on their own, but as things get more complicated, they might need a tax professional.”
Freelancers with Steady Income: Think About Using an Accountant
Times are changing. NPR estimates that one in five workers in America is a contractor and that, by 2028, freelancers and contractors could make up half of the workforce.
If you have inconsistent income over the course of the year and freelancing is more of a side job, self-employed tax software works pretty well.
“Plan” is the key word here. Several experts said freelancers who consistently bringing in more than around $50,000 year might want to consider converting your business from a sole proprietorship to an S-Corp.
» For Further Reading: 12 Best Tax Tips for Freelancers
This is a tricky process and isn’t as simple as many freelance “experts” make it seem. Tax professionals will help you understand the implications of an S-Corp filing and can help you see if the costs of the decision outweigh the benefits.
The emergence of freelancers has brought a whole new wave of taxpayers who find themselves in an awkward place: happy with their work, but scraping by and not sure they want to spend cash on a tax pro.
Curt Mastio, an adjunct instructor at Northwestern University and a CPA, says this type of situation has a simple solution. Find a tax professional in your area who offers free consultations.
“I do free consultations,” Curt said. “I don’t know how other tax professionals do it, but if they charge for phone calls and consultations, don’t go down that road. You shouldn’t be scared to call your CPA.”
I wanted to put Curt’s advice in action, so I Googled a few tax pros where I live and filled out a contact form for a free consultation.
I got two emails back, both of which were friendly. The tax pros were more than happy to meet for a free consultation.
Business Owners: Go with the Tax Professional
Once your freelancing or small business empire starts to grow, your tax returns will get more complicated. You’ll be faced with a series of decisions about deductions, and sometimes things will get confusing.
“People who own their business should see a tax professional,” Kristina Grasso said.
Not much wiggle room there, right? But it’s something we heard from several tax pros with whom we spoke.
Scott Cody, a co-CEO at Latitude Financial Group, offered the same advice as Kristina.
“I would say when it comes to taxes and business expenses and deductions, individuals ought to go to a tax preparer, enrolled agent or CPA,” Scott said.
Part of the reason it’s a good idea for business owners to use a tax pro is that, just like a business, taxes should be based on long-term planning and mapping out what benefits you the most.
Big Dreams for Your Business or Extra Income? Go with the Tax Professional
A theme that kept coming up in our discussions about software versus humans was the concept of comprehensive financial planning.
You see, taxes are a crucial part of your financial life. Any decisions you make about buying a home, investing or starting a retirement account will affect your taxes and vice versa.
“Anyone can file your taxes, but what I’d be looking for as you search for a tax professional is whether or not they’re going to help you plan,” Kyle Walters said.
“You want someone who can help you negotiate growing and selling your business, inheritances, planning for your kids’ college and more.”
Of course, not every CPA is equipped to handle tax preparation (filing taxes) and tax planning (building a strategy).
“Ultimately, what you’re looking for is a broad experience set outside of what a CPA does,” Kyle said.
So, when you’re sitting down for your consultation with a tax pro, ask them about their experience in working with people like you.
“Ask them about their process for helping people. Ask them how they go about making decisions,” he said.
“A lot of people go to a tax pro and ask them things outside the realm of taxes. Tell them what you want to do with your money and find out how they’ll handle those plans.”
This advice is something that tax software cannot offer, Kristina Grasso says. What do you do if, come September, you have a question about estate planning and you usually file online? You’re out of luck.
“A tax return is not just a one-hour visit to someone or dropping off papers to the accountant. It’s a year-round process,” Kristina said.
“You’re planning for subsequent years. You want someone who is available after tax season ends; that’s the value of a tax pro. They’re not just preparing your return, they’re giving you advice all year round.”
One Job, No Home, and No Investments: Go with Tax Software
The more complicated your tax situation gets, the more it demands a professional to crunch the numbers, ask questions and get answers.
If you find yourself hammering away at one job and don’t have any investments or own a home, then tax software can do your taxes cheaply and do them well. There are millions of people out there who never have to step into an accountant’s office.
Brian Ashcraft, director of compliance at Liberty Tax, says simple tax returns can be solved with simple tax software.
“For most people, hiring someone throughout the course of the year isn’t going to be necessary. They have simple stuff they need to keep up with,” Brian said.
“For many people, it’s like an annual check-up with your doctor. You have a normal life and just a few things you need to keep up on.”
In many cases, having one W-2 means you can file for free in about 15 minutes.
Turbo Tax vs. Accountant
TurboTax is the most popular tax software on the market, offering detailed help as you fill out your tax return. They took their services to another level in 2018 when they launched TurboTax Live.
This tier of service cost $169.99 and boasts one huge advantage over the competition: live consultations with tax pros who review your return before you send it in.
This upgraded level of services got us thinking about TurboTax versus an accountant: Is one better than the other?
Based on our research, we believe that TurboTax Live may be a good option over a CPA for one main reason.
At $169.99, there’s a good chance that the TurboTax product will be cheaper than any tax pro you can find in your city or town, especially if you fill out Schedules A and C, which is typical of freelancers and private contractors.
CPA Practice Advisor’s Managing Editor Isaac M. O’Bannon noted that the average fee for a CPA doing a one-state 1040 return in 2017 was $273.
New York-based Michael Chen, a CPA and founder of high-earner tax software Henry Tax, said that the starting tax-return fee for NYC accountants is around $750.
So, as you can see, TurboTax offers good value for taxpayers who don’t want to pay more than $270 to get their taxes prepared by a professional.
The advantage to hiring a CPA, though, is that you have someone you can talk with face-to-face and, if you like their work, you can return to them every year and build a relationship with them.
There’s no guarantee that you'll be able to get the same CPA or enrolled agent at TurboTax every year.
The other issue that might be on your mind is an IRS audit. CPA's provide more peace of mind in that area than tax software does. In our conversations with TurboTax reps Sacha Adam and Lisa Greene-Lewis, however, notes that TurboTax Live subscribers get audit help from their tax experts.
But, remember, according to our research on IRS audits, if you make less than $200,000 and don’t ask for deductions that are far outside the norm for people in your income bracket and filing status, there’s a good chance you won’t be audited.
It’s a well-known fact that less than 1% of taxpayers are audited each year. While this isn’t a guarantee that you won’t get an audit notice in the mail, it does put things in perspective.
Hiring a Tax Professional? Don’t Be Afraid to Be the Boss
One of the things we learned in financial discussions with Raghav Sharma, founder of financial advising firm GuideVine, is that, as we get older, our financial situation tends to get more complicated.
As a result, both financial and tax experts recommend that you hire a firm or a team of professionals to help you negotiate things like estate planning, college funds, home sales, rental properties, stock investments, retirement and more.
When you do that, you might have a tendency to adopt the “set it and forget it” mentality – you give them all the paperwork and let them handle everything. You call around tax time, but that’s it. Latitude Financial’s Scott Cody says that’s the last thing you want to do.
If you’ve decided hiring a tax professional is your best fit, then somewhere down the road, you’re going to need someone who can help you file in April and also plan the rest of the year.
You might choose a tax firm who gives you a team to handle your preparing and planning, or you might hire a CPA and a financial advisor or planner. Either way, Scott told us, you’re allowed to call the shots.
“You may have to lay out some clear expectations by saying, ‘This is your role and this is what I want from you and I need all of you to communicate,’” he said. “Your tax and financial professionals should be working for you.”
Final Thoughts on Tax Software vs. Accountant
We’ll be the first to admit we aren’t tax experts. Anything we say about filing statuses, deductions, and other things is based on our experience and our interviews with tax experts we’ve quoted in this article. Always consult with a professional if you have any questions about the details of your tax return.
That being said, we think the experts we talked with gave a pretty clear picture of the choice between filing online and hiring a professional to do your taxes.
If you decide to use a software website this year, you won’t be alone.
» For Further Reading: The Best Tax Software of 2019 and How to Choose the Right One
Financial website GOBankingRates said a questionnaire they sent out revealed that 43% of taxpayers do their taxes through tax software or by hand, which is 7% more than those who take their returns to an accountant.
Now, just because more Americans choose to DIY their taxes instead of hiring a pro doesn’t mean that you have to.
Your decision shouldn’t be driven by what everyone else is doing. Take a few minutes to think about your tax situation:
- How many jobs do you have?
- Do you own any investments?
- Do you have any inheritances coming your way?
- Are you doing estate planning?
- Are you a freelancer with a steady income?
These types of questions can help you zero in on how complicated your tax return will be. Based on our research, a good rule of thumb would be to hire a professional if, at any point, you feel overwhelmed or confused by your tax situation. The few hundred dollars you pay a pro to do your taxes will be worth the relief – nobody wants to stress out about the IRS.
However, if your taxes don’t intimidate you and they’re relatively easy, there’s a good chance you’ll have success using tax software.
Many of the popular tax sites have refined their software to be more accurate and more helpful.
Also, if you’re single, have no student loans and are filing one W-2, there’s a good chance you can file for free.
Above all, remember that accuracy matters. Double check the social security numbers and birthdays you enter or give to your tax pro.
More Tax Filing Tips
If you’re worried about making an error, read our article about some of the most common tax mistakes. Our expert sources will help you understand what the common trip-ups are and how you can avoid them.
We’ve also created a guide to some of the most commonly overlooked or missed taxed deductions; you won’t want to miss it, as our tips can help taxpayers in many different tax situations.