New Year's is getting closer and closer, and while everyone is enjoying the celebration feeling, one more thought lingers behind: tax software vs. accountant, which one should you pick?
Yes, the tax year is also coming to an end, which means that you'll have a bit of tax preparation to do. Should you hire an accountant to get the job done, or should you use tax preparation software instead?
Well, we are going to help you make a decision, allowing you to breeze through this tax season.
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Using tax preparation software is a very popular option for people who wish to do their own online tax work. Comparing tax planning options such as TurboTax vs. an accountant, the software can be a more affordable option for tax preparers who want to save some cash.
If you have a simple tax situation to address, with not too many roundabouts, then there is also a free online option for filing your taxes. This often works best for those who only need a W-2. Packages are offered to people with complex tax needs as well (i.e., self-employed people) or those filing a 1099 with a W-2.
In most circumstances, the software won't leave you completely on your own either. TurboTax, for instance, will ask you questions along the way as you are filing for tax return.
Its algorithm was also made specifically to see if you are eligible for deductions under the tax law. This way, you will not have to hire a professional to see exactly what tax returns you are eligible for.
Tax preparation software can suggest 1099 deductions based on your domain or any other information that you may be able to provide. However, bear in mind that you are the one responsible for any potential representations you make inside the software.
Using tax software comes with a few advantages for your personal financial situation. Comparing software such as Bonsai Tax, H&R Block and TurboTax vs. an accountant, here are the advantages that software brings you:
It costs less to calculate your income tax return this way. Since you are not paying a tax professional to give you advice, that money will go straight into your pocket.
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You get a quicker turnaround for your tax returns, as you'll be able to sit there yourself and do the taxes. When hiring a tax professional, you'll have to wait on them, giving you a slower turnaround. If you are planning a quick audit defense, then this option might not prove to be too beneficial for you.
With tax planning software, all you have to do is to answer the questions put your way. The algorithm of the tax software will take care of the rest for you.
While tax preparation software does have a couple of advantages, there are also some disadvantages that you might want to keep in mind.
Unlike an accountant, you may not know exactly how to efficiently compile your personal financial information. You may spend hours trying to sort out your tax returns.
An accountant has an eye for tax planning; it's what they were trained to do. However, you may not have such an easy time. When you don't hire a tax accountant, you might have difficulties in handling complex tax concerns such as for a small business.
No piece of software is ever perfect. Bugs can happen, and mistakes in the compilation can change the entire course. Anyone who has ever dealt with software and computer science knows that a single missing bracket can change the whole result. If your input was not correct, it may lead to some very expensive mistakes in the long run.
If you use tax software, you are the one responsible for filing your income tax. If you get audited, everything you file is completely on you.
Those who do not want to calculate their taxes by themselves might decide on hiring an accountant instead. You may file for a Certified Public Accountant (CPA) online, or you may get one to work for you in person.
Hiring an accountant will take numerous problems off your hands when you are tax filing. Since they are trained to handle more complex concerns, you don't have to worry about any potentially inaccurate answers.
You are still the one responsible for your taxes. However, there are certain delicate circumstances where you might want to go for an accountant. These circumstances might include:
In the majority of the circumstances, you'll have to make an appointment in person. That being said, this can also be much slower and complex as opposed to an online appointment.
Meeting with the CPA face to face can be more convenient, as you can get some firsthand insight, along with more tips on how to handle your taxes. Dealing with taxes is often easier and more open when you have a professional in front of you.
Bonus Tip: If you have problems with the IRS or have been in conflict with them before, then you might also want to bring a professional accountant in the mix. A CPA may be able to offer you additional expertise on that matter.
Accountants can have their benefits. Here is what you may reap by using a CPA:
Rather than relying on an algorithm to calculate your taxes, a CPA relies on years of experience. While they may occasionally use a tax tool or two, most of their results come from the skills that they have honed over the years.
The average tax software only offers you the exact information that you need. A CPA, on the other hand, can also provide some nice tax hacks for business owners/ insight on that matter. They may also give you professional advice on how to handle your taxes in the future.
Using an accountant as opposed to just TurboTax has its perks. However, there are also a couple of disadvantages that you may want to keep in mind.
Software such as TurboTax is typically more affordable when you are filing taxes. When you are using an accountant, you are paying for extra services - which will cost you more in the long run.
When filing for a tax return using tax preparation software, you get your tax return the moment you file your papers. However, it might take longer with an accountant, as you will also have to make an appointment.
Humans are not machines - and just like machines, humans aren't perfect. As knowledgeable as accountants may be, human error can occur at any time, and this can cost you a lot in the long run.
In some cases, it is better to go to an accountant to get your taxes done. If you do not have the patience, nor the time to prep your own taxes, then an accountant should help save you both time and money.
Taxpayers with a more difficult tax situation might also benefit from hiring an accountant. TurboTax might not be able to assess your current situation, but an accountant might have some personal insight into it. They'll take your business into account, your employment type, your lifestyle, and many more.
If you've also had a major change in your life, financially speaking, then you might also want to consider hiring an accountant. They'll be able to help you process the situation so that you do not have any tax problems.
Last but not least, if you don't trust yourself to calculate your taxes, then it is much better to go to an accountant. This way, you will be able to save money by avoiding some very expensive mistakes.
While there are similarities between the two, tax preparers and accountants are not the same. Indeed, both can help you with your taxes, but a tax preparer's knowledge is often limited as compared to an accountant's.
Every accountant can be a tax preparer, but not every tax preparer can be an accountant. For instance, a tax preparer is only limited to helping you file for tax returns. However, an accountant will go deeper into your financial life. From life events to small business and tax returns, a certified accountant can take a wider range of accounting skills.
While tax preparers may have the knowledge to help you with your taxes, they do not usually have any credentials. Because of this, their knowledge may be limited when it comes to matters outside tax forms - something that may significantly affect your tax returns.
We live in a time when technology is at a strong point - so, if there are any pieces that can help us do our job better, we grasp that opportunity. This includes tax software, which may be used by CPAs as well.
That being said, while a CPA can use tax software such as Bonsai Tax to calculate your taxes, they won't be relying on it entirely. They will use their own professional knowledge, and the tax software may just be used for some quick verifications or to quickly categorize receipts. This is very common with online accountants, as they can offer the best of both worlds.
Using all methods of calculation available gives the taxpayers some peace of mind. Both knowledge and technology should be taken advantage of when paying your taxes. As a result, even though they are CPAs, this doesn't mean they cannot use the software.
In most cases, using a professional tax preparer is completely worth it, especially if you know for a fact that they can do a good job. Even if they are not an official CPA, tax preparers still probably know more than you do, which will help you save money when you file taxes.
Tax preparers also have a better eye for detail as compared to you. They may find tax credit or deductible self-employed expenses that you may have normally missed. It may also take less time to file taxes, which takes care of the hassle in the long run.
That being said, if you have the funds, it is worth it to get a CPA rather than just a tax preparer. A CPA is an enrolled agent who has been certified in the business, so they can help you with bigger concerns than your tax forms.
In some cases, it is better to use an accountant in order to calculate your deductions. In other circumstances, it may be enough to use software such as TurboTax. You just need to determine how complicated your taxes are for you - and if they are too difficult to handle, go for an accountant.
