Some friends I play softball with in the summer got together for our ‘Winter Meeting’ the other night. We don’t talk too much softball, but enjoy a few beers and catch up on what’s happened in our lives since last August when we played our last game.
This year, we started chatting about getting our income taxes pulled together. Some guys had already filed their 1040 forms, others like me are still ‘in process’. Everyone in our group has a different approach to filing the paperwork from using software like TurboTax, store front tax preparation places like H&R Block, to having an ongoing accountant.
Most Americans (56%) use professional tax preparers, rather than a software/DIY approach. Average costs run from $175 for a simple 1040 form with no itemized deductions to $450 for self-employed filers with a schedule C.
While these options are pretty expensive, studies have shown that having forms professionally prepared generally pay for themselves in terms of tax savings. It’s estimated that Americans overpay their taxes by about $1B a year and people that use professional tax preparers save about $800 on average.
Our taxes are pretty complicated, so we’ve used an accountant for the last 15 years or so. I can’t even remember the last time I did my own taxes (with TurboTax), but I know that I missed some things that our accountant found later. Even when we switched accountants a few years back, our new accountant found additional tax savings which we captured by amending our filings from earlier years.
I would say if you have a six-figure income, have a meaningful investment portfolio, own your own business, have significant capital gains (or use tax-loss harvesting), or fiddle a lot with real estate, you should definitely be getting a professional tax preparer on your side.
Unfortunately, we are all stuck with a tax code that is over 15,000 pages long and there are a lot of places where things can go wrong. I can’t imagine anyone that is on a path to FIRE wouldn’t want to use a professional to help them with this important activity each year, but when I talk to people I know, sometimes I am surprised.
How are you tackling your taxes? Do-it-yourself, or use an accountant?
Image Credit Pixabay