Stock investing for dummies
It’s tax season – which means money is on most peoples’ minds. Getting a tax refund is a big part of that driver. Most people hope for a refund and look forward to getting their direct deposits (who gets a paper check anymore)?
But doing your taxes can be hard, or so the mainstream media tells you, along with commercials and more. So, should you pay someone to do your taxes?
As with most things, the answer is: it depends.
It depends on a few factors, and we break down whether you should pay someone to do your taxes, or whether it makes more sense to do it yourself. And if you are going to pay someone, who should you be paying – does using one of those big companies like H&R Block even make sense.
Here’s what you need to know.
When It Makes Sense To Do Your Own Taxes
For many Americans, it makes sense to do your taxes. Honestly, the actual act of doing your taxes is very easy (especially if you’re financially organized). If you can read a form and input information onto a computer screen, you can do your taxes.
There are a lot of free tax software options if your income is below $62,000, and even if it’s more, tax software prices are very reasonable (much less than a paid tax preparer). When we compared the major tax software options, the average price for paid versions was about $60 for itemized deductions.
If you have a straightforward tax situation, it makes sense to do it yourself because it will be much cheaper. So, what does a straightforward tax situation look like? Here are some common examples of when it makes sense to do it yourself:
- You’re single, have a job, and not much else
- You don’t own a business
- You don’t have complicated investments
- You have the patience to sit down and do it
You should also have a basic understanding of how taxes work. If you don’t yet, because maybe it’s your first time filing your taxes, take it slow and learn about what you’re doing – that will make future years really easy.
When You Should Pay Someone To Do Your Taxes
If you’re going to pay someone to do your taxes, you should be looking for help that is MORE than just data entry. Yes, while a tax preparer is there to actually file your taxes – the process of getting ready to do so can involve a lot of moving parts. And this expert you’re going to hire should be able to help navigate you through it.
Some common examples of when it makes sense to pay someone to do your taxes:
- You make over $200,000 per year
- You had a life event, such as marriage, divorce, or children
- You started a business
- You own complicated investments like partnerships or trusts
- You have questions that you can’t answer
The goal of paying someone to do your taxes should be two-fold. Of course, getting your actual taxes done. And getting help and advice. Some common areas where a paid professional can help include:
- Optimizing your accounts to lower your tax burden
- Ensuring that you qualify for credits and deductions or that you take all credits and deductions you’re qualified for
- Keep accurate records of complicated investments, such as partnerships
- Help you optimize your business structure to lower your taxes
So, when deciding if you should pay someone, keep those ideas in mind when discussing your situation.
Where You Should Get Your Taxes Done
Now that you know when it makes sense to pay someone to do your taxes, where should you get it done?
It’s important to note the cost of getting your taxes done. For a basic return (one that you likely should do yourself), it will start at $100 or more. According to a recent study by the National Society of Accountants, the average cost of getting your taxes done is $261. If you’re asking for help on a myriad of financial topics, you can expect to pay about $350-500 to get your taxes done, but that includes advice as well.
For most people that “should” get their taxes done by a professional (versus those that simply do but don’t need to), a CPA usually makes the most sense. But even if you do go to a company like H&R Block, you want to make sure that you know who you’re working with, and if they are qualified. Some unscrupulous tax preparers have a tendency to mislead.
The IRS requires all tax preparers to register, and you can find their information online: The National Directory of Registered Tax Preparers and Professionals.
Make sure you check whoever you work with, no matter the firm – large or small, public or private.
Also, make sure you develop a good relationship with that person. They should be able to help you with your tax related questions. If they can’t answer or help you, it’s a sign that you need to find someone else. If they just want to do data entry, it’s not someone you should pay several hundred dollars to.
Finally, remember, even if you pay someone to prepare your taxes, you personally are responsible for the accuracy of the information provided. The tax preparer can help you, but you need to make sure it’s right.
One of the biggest errors I see every year are typos – especially from people that use the major mass-market tax preparation companies that you see on TV. These data entry professionals (because they rarely offer advice or help), can mess up. They can misspell your name, mistype your Social Security number, and more. All of those will result in delays on your tax refund.
Make sure that you do a thorough review of your tax return before you file – no matter if you do it yourself or if you pay someone to help you.
– stock investing for dummies