This is the first year the Tax Cuts and Jobs Act will affect taxpayers’ returns, but the new tax law doesn’t mean they need to run to their nearest accountant.
There’s a fine line between filing your own taxes and seeking a professional’s help. The wrong move could lead to an inaccurate return, a call from the Internal Revenue Service and extra fees. With so many changes this year — the TCJA was considered the largest overhaul of tax law in more than 30 years — taxpayers must be extra cautious.
TCJA introduced lower individual rates, doubled standard deductions, eliminated personal and dependent exemptions, increased the child-tax credit and limited state and local tax and mortgage-interest deductions, to name a few changes.
The law stressed out many Americans last year, even though it was not incorporated into their 2018-filed returns. More than three-quarters (77%) of workers were confused by the TCJA, according to a TaxAudit survey of 2,500 people, who said they did not know if it would benefit them.
Whether it will is yet to be determined, considering 21% of taxpayers are expected to be underwithheld (and therefore owe the government more money) because of the changes.
So where’s the line between professional help and do-it-yourself?
Going to a professional for what could be a simple return would mean spending hundreds of dollars when you can do it for free online or a minimum fee of $40 on TurboTax. The National Society of Accountants says the average cost is $176, but can run as high as $688 or more, depending on the complexity of your accounts.
Mark Jaeger, director of tax development at tax software company TaxAct, advises asking yourself three questions:
• How much time do you have?
• How much will it will cost?
• And what is your level of comfort?
There’s no real definition of a simple tax return, because a “simple tax situation” looks different for everyone, he said. “I go off that level of comfort,” he said.
When should you do it yourself and hire someone?
This year, the Internal Revenue Service shortened Form 1040, where individuals report their income. The tax form is now a double-sided postcard: The front includes basic information, like name and Social Security Number, and the back reports income.
Some taxpayers may need to fill out additional paperwork, including a Schedule 2 for alternative minimum tax and Schedule 3, for nonrefundable credits (like those for higher-education and child-care expenses). The new form is intended to simplify the process of filing a return.
Tax return software companies including TurboTax INTU, +0.80% among others, now have hybrid services that allow users to work with a real tax preparer (an enrolled agent or CPA) on the spot for $150 (they will also review your return before you file). The user can type in their question for an expert for an immediate answer or schedule an appointment.
“You don’t have to leave and hire a babysitter or take off from work, you’re able to get that same level of service,” said Lisa Greene Lewis, a CPA at TurboTax. H&R Block HRB, -7.56% also allows free online consultations.
When should you do it all yourself?
Tax-filing software companies can be very user-friendly. They ask questions like “Did you pay for any tuition?” Or, “What states do your investments originate from?” The software typically prompts the user to upload the relevant documents.
Ask these three questions, according to personal-finance site SmartAsset:
• Has your tax situation changed?
• Will you itemize or take the standard deduction?
• And do you own a business?
It also helps if you’ve organized your tax documents (including W-2 forms, receipts for itemized deductions and 1099 forms for additional income), it added. Filing your taxes on your own could take a few hours, or a few days, depending on how prepared you are and whether your situation is particularly complicated.
When to consult a professional
Situations aren’t always as “cut and dry” as a single taxpayer entering a W-2, answering “yes or no” to questions and clicking submit. Some people may have to weigh options. For example, is it a better financial move to file jointly or individually when married? You may need an expert to discern the benefits or risks.
Freelancers may have trouble crunching the numbers and deciding what counts as a legitimate business expense (and avoid an IRS audit). Some taxpayers may not even know that they are required to include certain types of income, like interest from a savings account.
What kind of professional should you choose?
Enrolled agents are licensed by the Internal Revenue Service. Certified Public Accountants are licensed by state boards and have completed study in accounting at a college or university. Attorneys are licensed by state courts and earned a degree in law and passed a bar exam.
There are other tax-return preparers who have no professional credentials, but may have studied accounting. Tax experts may charge vastly different rates, depending on their set of skills, background and qualifications. Some have set fees based on the complexity of the task at hand, while others charge an hourly rate.