Should you do your own taxes?

I remember being a kid and watch my dad do the family’s taxes. I remember our dining room table covered and overflowing with various papers and documents. It seemed like he was there for weeks.

In the U.S., assuming that the government can get its act together enough to stay open for any period of time, it’s tax season. From now until mid-April, this is a particular type of griping season, where people complain about taxes, lament their incomes, and generally whine in that way that people do in order to feel a sense of connectedness with others.

(See also: “It’s almost Friday.” “Man, traffic is so terrible here.” “I’m too busy to take any time off work.“)

Anyway, taxes. They are a burden to prepare of course. It takes time, energy, and the organization required to get a bunch of documents together and filled out properly.

All of which begs the question: is it worth it to do your own taxes, or have them done for you?

Do it yourself

Doing taxes yourself is certainly the least expensive option. And while it’s only free to electronically file your federal taxes (filing your state is only free when you use a provider), you can always just put a stamp on the return and mail it out.

However, when I talk about filing your taxes yourself, I’m going to rule out the case where you fill out the forms completely manually. Don’t do this. There is way too much opportunity for error here. If you misunderstand some part of the instructions (and you will), that could lead to either under- or over-reporting, or in the worst case scenario, a fraudulent return.

So when I say do-it-yourself, what I really mean is…

Use tax software

You’ve probably heard of both TurboTax and H&R Block. TurboTax is by the company that also does Mint and Quicken, and H&R Block is the great old-school god of tax preparation.

For most people, these services will run in the range of $100-$200, depending on which tier you sign up for. (Beware that the prices are often “federal only” and will include a surcharge for state taxes. You have been warned.)

Some of the many different permutations of pricing for TurboTax.

Confusingly, there are two ways to use the software. You can purchase the software and use it on your computer, or you can use the online version. The biggest advantage of the online version is that you can use it all the way up to the filing stage without paying for it. You can find out what your bill/refund is going to be for free.

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The biggest advantage of the offline version is that you don’t need to enter your personal financial information to a website, if this feels like a security/privacy concern.

Another benefit of the online version is that it saves your previous year’s return, making it much easier to import information to the following year.

But if that’s too much work, you could always…

Hire a tax professional

You could also give the keys to someone else and let them drive.

I would divide this option into two sub-options: “Chain” tax preparation services like H&R Block, and independent tax agents.

I used an H&R Block local branch to do my taxes years ago when I first moved to New York City from Pennsylvania in the middle of the year. I had what felt like to me a complex situation, having multiple state returns to contend with, and I didn’t want to mess it up. So I figured I’d pay a professional to do it for me.

My experience at the time was less than overwhelming. I mean, the guy was fine, he did all that was required of him, and I haven’t gotten audited yet, so that’s good.

But I couldn’t shake the feeling that instead of going through a software wizard to do my taxes, I was paying someone to ask me the questions that the software wizard was asking. I didn’t really feel like I was getting so much of a value add there.

Now, one anecdote isn’t data, and I’m sure there are people at tax preparation companies that are fantastic at what they do, going above and beyond like that guy in the Incredibles did.

But I’m left to think that the margins of that service mean that the quality of the product just can’t be good.

I don’t recall what I paid for my service, but I think it was around $150. (Granted this was years ago.) How much personalized service can you expect for that price? Especially when there’s all that company overhead? Not much.

Which is why the other option exists, to hire an independent tax professional. These are people who make their living doing tax work.

I have never used a tax professional to do my taxes, though I have done consultations with them over the years.

This is, in general, a premium service, not unlike hiring counsel. They may have lots of other clients, but they work for you. And the price, is going to match accordingly. While fees vary widely, $200 to $400 seem like a good range from what I’ve seen.

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Something else I should mention here though is that there exist volunteer services that will help you do your taxes for free. If you’re struggling with the process, perhaps this is something to look into.

What is worth it to you?

If you paid $500 and knew it would get you $1000 later, would you do it? Of course you would.

That’s the argument with tax preparers. You pay more, but you get more.

But there’s also a subtle promise made that tax preparers will be able to magically find that one special tax credit that will make your tax bill zero. Personally, I don’t believe that those things exist for most people. I wouldn’t chase this dream too much.

Magic aside, is the cost of the tax preparation going to be less than the benefit you get from it?

I would insert the question of how much is your time worth, but neither hiring a tax pro or using tax software takes a whole lot of time, and in fact, it seems to me that a professional might suck up more time, in order for them to assess your potential for tax breaks.

Conclusion

For the majority of people, I would recommend using tax software. These days, the software is robust, easy enough to use, doesn’t require any math skills, takes only a few hours, can often import data for you, and lets you use it for free before paying anything.

I’ve used tax software for years, and I’ve found that every year it gets easier to use, even if my personal situation doesn’t.

Now, just because I know this is a personally lopsided analysis (in that I haven’t gone through with a tax professional), I will eventually revisit this, hire someone, and write an update.

But the point I want to make is that there isn’t a magical “pay-no-taxes” option for most people. Doing taxes doesn’t need to be particularly complex. I say just get it done as quickly as you can, and move on. There isn’t too much benefit to going too deep here.

Postscript

Taxes are actually pretty awesome. They help fund our infrastructure, our safety, research, transportation, and education, basically, a lot of our society. They benefit not only ourselves, but also other people, including many less fortunate. Don’t try too hard to grift the system.

Prove me wrong here. If you think there’s a serious advantage to using a tax professions, I’d love to hear about it in the comments below.

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