Smart TaxesSmart Taxes

Do you really need a tax pro?

Most people don't and could easily get free help or do their own taxes with an online service. But if you truly need help, here's how to pick the right professional.

By MSN Money Partner Jan 29, 2014 1:57PM

This post comes from Stacy Johnson at partner site Money Talks News.

Money Talks News on MSN MoneyAccording to the IRS, 60 percent of Americans use a paid professional to prepare their taxes. But April 15 is taxing enough without blowing big bucks on paid preparers who are either overkill or overpriced.

For many people, there's no reason to pay at all.

Free tax preparation and filing

If you made $52,000 or less last year, it will cost you zip to sit across the desk from a live, human tax preparer. All you have to do is make an appointment at a Volunteer Income Tax Assistance site. And even if you made more than 52K, if you're willing to do varying degrees of the work yourself, you can still file free.

Simple taxes? Simple solution: software

Two other options are to buy software and install it on your computer, or use an online-only preparation service. Of those two options, online generally offers more choices and lower prices.

For the vast majority of people, this is the right approach to taxes. Because while income taxes may seem exceedingly detailed and complicated to you, doing math and remembering a few thousand rules and variables is exactly what computers were invented to do. So if all you've got is a W-2, a couple of 1099s and a mortgage deduction, there's no reason to give a tax preparation company $150. Go with online software and do it yourself.

Hit the software supermarket

There's a ton of online tax prep companies to pick from. Best way to check out a bunch in one place? Head for the IRS Free File website.

As the name implies, this site is really for those qualifying for free filing, but the companies participating in that program also list their prices for paid online prep on the same site. There are dozens of companies listed on the Free File site, many with prices much lower than traditional sources like TurboTax.

But before you make a selection, be sure to check the prices not just on federal returns, but state as well. They vary widely.

Still insist on sitting down with a live human? At least get the right one.

Financial adviser © NULL, Blend Images, Getty ImagesDo you really need a pro?

When you decide against do-it-yourself software and walk into a paid preparer's office, you may not be accomplishing much, other than creating a bigger bill. That's because virtually every human tax preparer is also using software to prepare your return. You're giving them your information, and they're doing the same thing you could be doing: typing it into a software program that spits out a completed return.

In other words, in many cases paying a pro means paying someone from $50 to $500 an hour to do your typing for you.

So why go to a human preparer? There's only one reason: Sometimes human beings can do things that software can't. For example, by asking the right questions, they can ferret out deductions that software might have missed. Or by getting to know your situation, they might help you formulate a strategy to minimize future taxes, or answer other financial questions unrelated to taxes.

While most modern software does ask questions, provide answers and try to help with strategy, it will never be a match for an expert human brain. So don't be penny-wise and pound-foolish. If a pro can really help you, buck up. But if you don't need or don't receive valuable personal advice, don’t pay for it. Use software and do your own typing.

How to find the right pro

If you've decided you need personal help, the way you hire a tax preparer is the same way you'd hire anyone, whether it’s a contractor, a lawyer, a mechanic or a doctor.

  • Ask your friends or co-workers for referrals. But the most useful will be those sharing a situation somewhat similar to yours.
  • Check out credentials. All paid tax return preparers are required to have a Preparer Tax Identification Number, but professional credentials aren't required. They are, however, desirable. In declining order of cost, there's tax attorney, then CPA, then enrolled agent. To learn more about what various designations mean, see the IRS guide, "Understanding Tax Return Preparer Credentials."
  • Ask about experience. Credentials and education are nice, but experience is critical — especially experience in dealing with people in situations similar to yours.
  • Ask for referrals. Any professional in any field should be happy to provide them. Of course, only an idiotic professional would provide referrals that would bad-mouth them, so don't put too much weight on this one.
  • Talk to several before you decide. This is easily the single most important thing before hiring any service professional. Only after talking to several people will the positive attributes you're seeking surface in one of them.
  • Ask about continuing education. I've been a CPA for more than 30 years, and along the way have skated through many meaningless correspondence courses simply to keep my license active. So a preparer taking continuing ed is no guarantee they're up to speed. But it's better than nothing.
  • Ask about professional organizations they belong to. As with continuing ed, not the be-all and end-all, but belonging to professional organizations at least indicates they take an interest in their profession.
  • Make sure they're around all year. You could need help with an audit in August.
  • Compare prices. If one pro charges more than another, what justifies the premium price? There's no harm in asking.
  • See what the IRS suggests. Check out these brief, easy-to-read articles from Uncle Sam: "What are the red flags? IRS tips for choosing a tax preparer" and "When, and how, do I file a complaint about a tax preparer?

Bottom line? If you're going to pay a pro, ask as many questions as you can about strategies to minimize your taxes and get enough sensible, specific, actionable advice to offset the additional cost.

What's your opinion when it comes to paying a pro or doing it yourself?

More on Money Talks News:


Jan 29, 2014 4:10PM
Turbo tax is all I need.  As long as keep track of your money, typing in numbers is not that hard.  Most liberals have it really easy beacuse people on welfare don't have that much to enter.
Jan 29, 2014 4:29PM
My family has been using our accountant (and his family members who have followed in his footsteps) since the 1950's----no reason to quit now.  I just went to visit the old man last night to get my taxes done--he's like 183 years old now and still working...hahaha :)
Jan 30, 2014 10:24AM
If you have individual stocks, IRS's, foreign stocks, or don't want to spend more than five hours in front of your computer, hire a professional.
Jan 30, 2014 12:16PM
Taxes are one of the biggest expenses you pay.  Even if you use software or a CPA, you should understand the long form 1040.  I go through every line item to understand if it's potentially applicable and how it might reduce or defer taxes now or in the future.  Knowledge is power and in this case, knowledge is more money in your pocket.  Some of the tax software is ok if you have a plain vanilla situation but understanding the 1040 is worth your while.
Jan 29, 2014 5:35PM
I have worked for a national tax prep company, but now have a full time job so not doing taxes this year. Even while working for the national company, I used Turbo Tax for my family's returns. My husband is self-employed (truck driver) and I was able to use the program even before I began doing taxes professionally. As the article says, most people can do their taxes themselves. Tonight, I will watch as my 20-year-old son does his taxes by himself for the 1st time. It is that easy! I always felt guilty charging people for doing something they could do themselves. If you have unusual things going on, like investments, gambling winnings or need to file injured spouse then go to a paid preparer. If not, do it yourself. ( Injured spouse doesn't mean they got hurt-it means one spouse has a debt such as student loan or child support, that can cause a refund to be detoured to the debtor. Filing injured spouse allows the spouse without the debt to receive their portion of the refund. To use this form, the injured spouse must have worked. The one with the debt doesn't have to have worked. This does delay the refund-but it's better than not getting it at all!)
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