Tax Hacks: Paying a Pro to Do Your Taxes? Read This First

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According to the IRS, 60 percent of Americans use a paid professional to prepare their taxes. But April 15 is taxing enough without blowing big bucks on paid preparers who are either overkill or overpriced.

For many people, there’s no reason to pay at all.

Free tax preparation and filing

If you made $52,000 or less last year, it will cost you zip to sit across the desk from a live, human tax preparer. All you have to do is make an appointment at a Volunteer Income Tax Assistance (VITA) site. And even if you made more than 52K, if you’re willing to do varying degrees of the work yourself, you can still file free. For more details, see “5 Ways to Get Free Help With Tax Prep.”

Simple taxes? Simple solution: software

Two other options are to buy software and install it on your computer, or use an online-only preparation service. Of those two options, online generally offers more choices and lower prices.

For the vast majority of people, this is the right approach to taxes. Because while income taxes may seem exceedingly detailed and complicated to you, doing math and remembering a few thousand rules and variables is exactly what computers were invented to do. So if all you’ve got is a W-2, a couple of 1099s and a mortgage deduction, there’s no reason to give a tax preparation company $150. Go with online software and do it yourself.

Hit the software supermarket

There’s a ton of online tax prep companies to pick from. Best way to check out a bunch in one place? Head for the IRS Free File website.

As the name implies, this site is really for those qualifying for free filing, but the companies participating in that program also list their prices for paid online prep on the same site. There are dozens of companies listed on the Free File site, many with prices much lower than traditional sources like TurboTax.

But before you make a selection, be sure to check the prices not just on federal returns, but state as well. They vary widely.

Still insist on sitting down with a live human? At least get the right one. Watch the following video, then meet me on the other side.

Do you really need a pro?

When you decide against do-it-yourself software and walk into a paid preparer’s office, you may not be accomplishing much, other than creating a bigger bill. That’s because virtually every human tax preparer is also using software to prepare your return. You’re giving them your information, and they’re doing the same thing you could be doing: typing it into a software program that spits out a completed return.

In other words, in many cases paying a pro means paying someone from $50 to $500 an hour to do your typing for you.

So why go to a human preparer? There’s only one reason: Sometimes human beings can do things that software can’t. For example, by asking the right questions, they can ferret out deductions that software might have missed. Or by getting to know your situation, they might help you formulate a strategy to minimize future taxes, or answer other financial questions unrelated to taxes.

While most modern software does ask questions, provide answers and try to help with strategy, it will never be a match for an expert human brain. So don’t be penny-wise and pound-foolish. If a pro can really help you, buck up. But if you don’t need or don’t receive valuable personal advice, don’t pay for it. Use software and do your own typing.

How to find the right pro

If you’ve decided you need personal help, the way you hire a tax preparer is the same way you’d hire anyone, whether it’s a contractor, a lawyer, a mechanic or a doctor.

  • Ask your friends or co-workers for referrals. But the most useful will be those sharing a situation somewhat similar to yours.
  • Check out credentials. All paid tax return preparers are required to have a Preparer Tax Identification Number, but professional credentials aren’t required. They are, however, desirable. In declining order of cost, there’s tax attorney, then CPA, then enrolled agent. To learn more about what various designations mean, see the IRS guide, Understanding Tax Return Preparer Credentials.
  • Ask about experience. Credentials and education are nice, but experience is critical — especially experience in dealing with people in situations similar to yours.
  • Ask for referrals. Any professional in any field should be happy to provide them. Of course, only an idiotic professional would provide referrals that would bad-mouth them, so don’t put too much weight on this one.
  • Talk to several before you decide. This is easily the single most important thing before hiring any service professional. Only after talking to several people will the positive attributes you’re seeking surface in one of them.
  • Ask about continuing education. I’ve been a CPA for more than 30 years, and along the way have skated through many meaningless correspondence courses simply to keep my license active. So a preparer taking continuing ed is no guarantee they’re up to speed. But it’s better than nothing.
  • Ask about professional organizations they belong to. As with continuing ed, not the be-all and end-all, but belonging to professional organizations at least indicates they take an interest in their profession.
  • Make sure they’re around all year. You could need help with an audit in August.
  • Compare prices. If one pro charges more than another, what justifies the premium price? There’s no harm in asking.
  • See what the IRS suggests. Check out these brief, easy-to-read articles from Uncle Sam: “What Are the Red Flags? IRS Tips for Choosing a Tax Preparer” and “When, and How, Do I File a Complaint About a Tax Preparer?

Bottom line? If you’re going to pay a pro, ask as many questions as you can about strategies to minimize your taxes and get enough sensible, specific, actionable advice to offset the additional cost.

What’s your opinion when it comes to paying a pro or doing it yourself? Let me know below or on our Facebook page.

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