It’s that time of year again, by now you should have received all of your W-2’s, 1099’s, and perhaps all manner of other letter-number combination of forms related to taxes. A question I often get, is “Should I hire a professional, or is TurboTax fine?”.
This is not advice to answer that question (since I don’t know your specifics), but in general, most people’s taxes are too simple to need a professional. The decision to hire a professional should be based on: ‘Can an accountant save me more money then his fee is worth’. If the answer is no, you should probably do it yourself (or use TurboTax). How do you know how complicated your taxes are?
Usually the line of complicated vs non-complicated is whether you can itemize your deductions. What this means is you can “write things off” on your taxes, to reduce your taxable income. For 2012, the standard deduction for married couples filing jointly is $11,900, and for individuals it’s $5,950. That means unless you can find OVER that amount in deductions, it’s not worth itemizing your taxes. Typically the largest deduction for most Americans is their house, so first look at the amount of interest you paid on your mortgage last year, and if that number is around or above the standard deduction, then you probably should itemize your taxes.
If you rent, and make just a standard paycheck (ie, you only received W-2 forms in the mail), you almost certainly do not need a professional. In fact, you probably don’t even need software like TurboTax, you probably qualify for a 1040ez, which really just requires a pen and some basic arithmetic.
Now, if you do need to itemize, should you use online software or an accountant? In general, I think if your deductions are straight forward (like owning a house, maybe a few charitable contributions), I’ve found TurboTax to be fine for this (or TaxAct). When you go to an accountant, they are almost certainly plugging your numbers into similar software. The main advantage of an accountant is that they can look at your finances with a human eye and find things you may not have known about otherwise.
If you run a business, it’s almost certainly worth your while to hire an accountant. The most important thing they do, besides telling you what you can and can’t deduct, is let you know what could be an audit flag. That is, just because you CAN deduct something, doesn’t mean you should. Some deductions are more of a risk then the reward is worth. For example, my accountant told me that partially deducting your home office as a business expense is a big audit flag (I’m not sure if this is true anymore, so don’t take this as advice). But something like that may not be caught with online software (although it also has audit flags).
So this year, take a few minutes and evaluate what is the most cost-effective way of getting your taxes filed.