How Much Money Doing Taxes on Your Own Can Save You
Accountants and other tax professionals undoubtedly earn their salaries. The highly specialized and often tedious work they do allows people and businesses all over the country to keep more of their income, satisfy their tax obligations and stay in good standing with the IRS.
But the reality is, it’s easier than ever to do your taxes by yourself.
Find Out: States With the Highest Property Taxes
Read: 3 Signs You’re Serious About Raising Your Credit Score
“Tax preparation software has advanced substantially over the last several years,” said Anthony DeLorenzo, a certified public accountant (CPA). “Most people only file a simple tax return with few income sources, such as W-2s, Social Security benefits, retirement accounts, or basic brokerage accounts, as well as use the standard deductions. For these people, using affordable software for tax preparation makes sense.”
It especially makes sense when you examine the cost of the alternative.
Professional Tax Help Takes a Big Bite Out of Refunds
According to the National Society of Accountants (NSA), the average cost for a professional tax preparer to file a federal Form 1040 plus state returns is $220 — but only if you take the standard deduction. If you itemize, that number climbs to $323.
But even that high number is misleadingly low because it deals with only the simplest of forms.
Sole proprietors and independent contractors pay an extra $192 for their Schedule C forms.
Do you need to report capital gains or losses with a Schedule D? That will run you $118.
Any rental income to report? A Schedule E will run you $145.
As you can see, the NSA’s average price can quickly head skyward — it’s even worse if your taxes are tricky and/or if the preparer has special credentials that command a higher fee, like certified public accountants (CPAs). Tax attorneys charge hundreds of dollars per hour.
For context, a firm called Husami and Associates states that “the fee for preparing a personal income tax return usually ranges from $600 to $2,500 with most clients paying between $800 and $1,400.“
At the very bottom, that firm’s typical range starts well above what NSA claims to be the average fee — and in the world of taxes and accounting, that range is not particularly excessive.
Take Our Poll: What Do You Plan To Use Your Tax Refund For?
You Can File on Your Own for Free — or Much Closer to It
Alternatively, you can do your own simple tax return online and pay nothing — or pay only a few dozen bucks or maybe even trickle just into three figures for the most complex returns.
If you make $73,000 or less, you can receive guided tax preparation for exactly $0 with IRS Free File. Tax software platforms like TaxAct partner with the IRS to provide the free service. Several additional companies, including TurboTax and H&R Block, offer guided tax prep software that’s free from start to finish for simple returns no matter how much you make.
Even if you need more assistance than the truly free platforms can offer because your taxes are complicated — if you’re self-employed, have assets in multiple states, etc. — all the big tax prep software sites let you scale up as needed. That leads to major savings because it gives you the opportunity to pay only for the bells and whistles that your situation requires instead of paying a CPA’s flat or by-the-hour rate.
Here’s a look at the price structures of some of the most popular sites — see how much you might be able to save:
Taxslayer: You’ll pay $0 for basic 1040 returns — both state and federal — and you can scale up to $59.95 (plus $39.95 for a state return) for the highest-priced self-employed version.
TurboTax: Unless you want the pricier full-service option, TurboTax has a $0 basic option for both state and federal, as well. The priciest package is $119 for self-employed. Users who opt for a paid version pay an additional $59 per state return.
H&R Block: H&R Block has four options that scale from $0 for simple state and federal returns up to $119 (plus $45 per state return filed) for self-employed filers.
TaxAct: TaxAct also starts at $0 for basic federal returns, and although there’s a $39.95 fee for state returns added to $0 federal tax preparation and filing, the price structure caps out at an impressive, sub-$100 price of $94.95 plus $54.95 per state filed for the self-employed.
Learn: 8 IRS Secrets To Know for the 2023 Tax Filing Season
Or You Can Save Money With a Hybrid Strategy
There’s no denying that some people have complicated tax situations that are probably best left to the pros.
“The single divorced mom who has a daughter living at home, but the father gets the child’s exemption, will not have free filing software get her filing status correct and will reduce or deny the Earned Income Tax Credit,” said Rob Burnette, CEO, financial advisor and professional tax preparer at Outlook Financial Center in Troy, Ohio. “Taxpayers with rental properties will have difficulty with Schedule E and often get the depreciation for the property wrong.”
In those cases, you might consider a hybrid strategy where you use free or budget software to do the easy part and then pay the pros to do only the heavy lifting that’s above your weight class.
“For complex returns, you can use tax preparation software, which is very assistive and can help you in the majority of cases for a significantly lower fee than an average tax preparer,” said Dmytro Serheeiv, tax consultant and co-owner of PDFliner. “Using good software, you can significantly reduce your expenses. If something appears to be too tough, you can go to a preparer just with this small chunk and do the rest.”
More From GOBankingRates
Daria Uhlig contributed to the reporting of this article.
This article originally appeared on GOBankingRates.com: How Much Money Doing Taxes on Your Own Can Save You
