Can You Do Your Own Taxes?

Every year when tax season rolls around, a lot of us ask the same question: How hard is it to do your own taxes? In 2023, the tax season officially began on January 23. Filers have until April 18 to either submit their returns for 2022 or file for an extension. Whether you decide to file yourself or get help, the sooner you start, the better.

Fortunately, there are a lot of DIY tax software packages on the market that can make income tax preparation seem easy.

So is it time to “fire” your accountant and go the DIY route? Read on to find out when you should hire an accountant and when it makes sense to do your taxes yourself.

When You Should DIY Your Taxes

Preparing your own taxes can save you hundreds of dollars you'd pay to hire a professional tax preparer. So when does it make sense to prepare your own taxes?

• When your tax situation is fairly simple. If you’re a W-2 employee with interest and dividend income and the usual deductions (mortgage interest, property taxes, charitable contributions, and the like), doing your own taxes is usually the right thing to do. There’s no need to pay for an accountant when your taxes are straightforward.
• When you have a solid general understanding of income taxes. You may be one of those people who’s fairly well versed in all things income tax, and if you are, you can probably do your own taxes. Just be sure you don’t start flirting with tax situations that exceed your knowledge base.
• When you have access to technical answers. Do you know a tax expert — someone whom you can call and ask for guidance on a tough issue? If you do, you may be better off doing your own taxes. Although you may not have all the knowledge you need, you know where to get it, and that’s nearly as good.
• When your income is fairly low. The lower your income, the less chance you have of facing an IRS audit. If you make less than $50,000, your chances of being audited are very low, at least if you avoid taking excessive deductions.
• If you are fairly detail-oriented. If you have an eye for detail, you’re a better candidate for income tax DIY. Tax preparation is not something you can afford to “blow through.” You need to recognize that everything you put on your tax return means something and be willing to be accurate and check your work after the fact. Some people don’t have this kind of mindset and are better off not doing their own taxes.
• If you have the time. Income tax preparation takes time and patience. If you have both, you can prepare your own return. If not, don’t even bother! It’s not just that income tax preparation is fairly complicated by its very nature, but also the fact that you only prepare one return, once every 12 months. That’s not enough frequency to become fluid at it. You can compensate by spending the necessary time to do the job right, to investigate gray areas, and to check your work.

Here is our recommended Tax Software you can use:

Recommended Service		Feature
	Turbo Tax Premier	Full Range of Tax-Filing Products
	TaxAct Premier+	Easiest for Investors
	H&R Block Premium	Unlimited Real-Time Tax Advice
	TaxSlayer Premium	All Needed Tax Breaks for Investments
	Liberty Tax	Fast, Easy and Secure Online Tax Filing

When It’s Time to Hire an Accountant

There are circumstances in which doing your taxes yourself can set you up for an income tax nightmare, and going DIY thinking you understand the tax regulations can invite trouble later on.

What are the situations when it's best to hire an accountant?

• When your tax situation is complicated. If you have a complicated tax situation, you should hire an accountant and not give it another thought. Complicated includes any tax issue you don’t understand. But more specifically, it may involve large capital transactions (particularly investment real estate), K-1s from S-corporations or partnerships, gifts of appreciated assets, and net operating losses — and that’s a short list.
• If you have any weird tax situations. It may be that you normally have a simple tax situation and do your own taxes. But if you have a complication arise, it’s time to call in an accountant. Such a complication could come from just about any direction — a Roth IRA conversion, an early pension distribution, the sale of a property, or inherited assets.
• When you’re self-employed. If you’re self-employed, you don't necessarily need an accountant to do your taxes. Many software programs make it possible to file self-employed taxes yourself. But to make sure you're filling out the correct forms, reporting the right activities, and maximizing your deductions, it's a good idea to call in for help.
• When you know nothing about taxes. You wouldn’t try to fix your own car if you knew nothing about auto repair, would you? Why would you try to prepare your own taxes if you know anything about it? If you do, you might invite closer scrutiny by the IRS, and that’s an opponent you don’t need to take on.
• When you have better things to do. Preparing your own taxes requires time. If you don’t have any, or if your time is more valuable spent doing other things, you’re better off hiring an accountant to prepare your tax return.
• When you have a high income. As noted above, you’re a better candidate for an IRS audit as your income rises. The risk begins to increase at about $500,000 per year and rises rapidly at higher levels. Even if your situation is simple, you might want to hire an accountant just to have independent representation in the event of an audit. It could be money well spent.

Which Is Better for Accuracy?

Each year, tax laws change and tax professionals and individuals alike have to spend time learning the new rules.

But tax software programs do much of this work for you so you can make sure you're following regulations even if you're not an expert.

So you can hire a personal accountant who has a deep and thorough knowledge of tax law and can provide personal insight into your particular situation. Or you can save money and use tax software that guarantees accuracy (and, very often, the maximum refund you're entitled to).

Both are great options, but which one is right for you?

Personal Touch vs. Online Convenience

There are a lot of things to consider when deciding between using tax software and hiring an accountant. We'll get into the details in the next section, but first, let's outline the major differences.

When you hire an accountant or other tax professional, you get a person to do your taxes. That person can answer all your specific questions and tailor their knowledge to your needs. To get a feel for their strengths and abilities, you can email them and check with other people who've used them before.

With online tax software, you get the convenience of filing your taxes from anywhere at any time. You don't have to worry about turning over your information to another person. Tax software tends to be cheaper than hiring a person as well, meaning you could save yourself some money.

The other big thing to consider is how complex your taxes are. If you have one job and need to file only one W-2 form, filing with an online program makes a lot of sense.

If you have multiple streams of income — say, a full-time job, a rental property, and a side hustle — your taxes are going to be a lot more complicated. There are specific forms you need to file for rental income. And the deductions you can take for your side hustle and your rental property are going to vary. Hiring a professional to make sure all the details are covered may make the most sense.

What to Consider for Each Option

Let's dig into some of the specific differences between these two filing options.

Cost

Accountant costs vary, but you can expect to pay somewhere between $100 and $200 per hour for a personal accountant to file your taxes for you.

An online program can range from $0 to over $100 for federal tax returns with additional fees for filing state taxes. If you have a very simple tax situation, you could file completely free.

Tax Issues

If you owe back taxes or have any kind of dispute with the IRS, you may want to hire a real person to handle your return. Tax software programs might be able to provide some general information, but an expert with experience will be able to advocate for you and handle any incoming paperwork.

Knowledge

How much knowledge you need to do your own taxes will depend on your financial situation. You might have enough know-how on your own to handle it. Many of the software programs are broken down to be as simple as possible. However, you might want to pay someone to do it just to relieve yourself of the stress and make sure nothing gets missed. When you hire a person, you're paying them for their knowledge, training, and experience.

Speed

Usually, doing your taxes yourself with tax software takes a few hours. You easily could get it done in one night. If you hire someone to file your return, it probably will take at least a week, if not several, before the work is done. There's also usually a bit of back and forth with an accountant as they gather all your information and get clear on your finances. These extra steps are eliminated if you use a software program.

Relationships

If you hire an accountant, they'll be available to help you all year long. This is a huge perk for those with multiple streams of income or those who own their own business. Having an accountant whom you trust and who knows your financial history can be invaluable when you need help with your finances in June.

Tax prep software includes varying levels of support. Some provide only basic general assistance while others offer live help from pros whenever you need it. If this is important to you and you want to file for yourself, check out software programs with live assistance included in the price or available as an add-on.