There’s one thing everyone agrees on. No one wants to mess up their tax returns. Filing taxes can be a least-favorite event when you’re uncertain whether to use tax software or employ the services of a professional tax preparer.
Albert Einstein understood your dilemma when he said, “The hardest thing to understand in this world is the income tax.” So, you’re in good company if you haven’t quite figured out who you want to complete your taxes.
This post will help you decide whether to purchase tax software or entrust your records to a local tax preparer. You can compare the differences between the two and decide what’s the better route to take.
What is tax software?
If you prefer a do-it-yourself approach, tax software is a computer program designed to help you prepare and submit income, corporate, and other types of returns.
As you enter financial data, the tax software automatically updates forms and provides tax tips along the way. It alerts you to any deductions and credits you may qualify for and calculates your business’s tax obligation.
As with any software, it comes with pros and cons:
Pros of tax software
- You don’t need to have a degree in accounting to prepare your taxes. If you make mistakes, don’t worry, as most tax software programs have built-in error finders.
- As you use the tax software, you may learn about common business deductions you can take.
- Paying a tax preparer is generally more expensive than using tax software to prepare your tax return.
- You don’t need to make an appointment to use the software since you own it. You can work on your taxes whenever you like.
- Most tax software usually stores prior tax records so you can access the data as necessary.
Cons of tax software
- If you have a specific question related to your business’s taxes, there’s no one to ask. On the other hand, some tax preparers are available to answer questions all year long.
- Tax software may not be adequate to handle more complicated accounting normally encountered by larger businesses.
- If the IRS disputes your tax return, it’s up to you to reach an agreement. You probably don’t have experience in these types of issues or sufficient accounting knowledge to go head-to-head with the IRS.
What does a tax preparer do?
The professional’s job is to gather information about your business’s annual financial transactions to prepare an accurate tax return. They stay up to date on tax codes as well as federal and state tax laws.
A tax preparer recommends what exemptions and deductions your business qualifies for and helps you plan for future growth by letting you know of any changes in tax requirements. They also represent taxpayers during IRS audits.
Here are some advantages and disadvantages to consider when using a taxpayer.
Pros of tax preparers
- When a tax preparer is available all year, you can call them or make an appointment to discuss specific financial concerns. Plus, preparing a return using a preparer seems more personable compared to using a machine and software.
- You can deduct the fees you pay for tax preparation services as a business expense.
- By delegating preparing taxes to someone else, you free up your time and shift the responsibility to a professional.
Cons of tax preparers
- The cost to hire a tax preparer is more than purchasing tax software. Even when you need to update the software, it’s still less than paying for professional services.
- You must adhere to the tax preparer’s schedule to complete your tax return. If you fail to make an appointment to have your taxes done, the preparer may not be able to take you on as a client. Then, you could scramble to find someone who’s available at the last minute.
- You lose the opportunity to learn about tax laws that could benefit your business in the future when you don’t prepare your own taxes.
How to choose a tax preparer
If you think a tax preparer is what your business needs, here are some tips to find the best fit:
Find out how often they’re available
If tax preparers are only open for business during tax time, you can’t reach them when a tax issue comes up during the year.
Check their credentials
Refer to the IRS Federal Tax Return Preparers Directory to review a person’s qualifications. You can sort the directory by zip code to find individuals working close to you. Moreover, it’s a good idea to get recommendations from other business owners who are satisfied with their tax preparers.
Ask for pricing information
A candidate should be able to give you a detailed listing of their charges so you know what to expect.
Review the preparer’s history
If there have been any complaints, most people lodge them with the Better Business Bureau. You can check their licensing status and whether any disciplinary actions have been taken.
Decide if you feel comfortable sharing sensitive information
Because tax preparers review confidential financial information, they need to be trustworthy.
Tax preparer vs tax software
This comparison provides a quick snapshot to compare both options.
|Tax Software||Tax Preparer|
|You have more control over when and how you complete your tax return.||Based on their schedule, a professional decides when and how to complete your tax return.|
|Expenses include the cost of the software plus upgrades and updates.||Expenses are ongoing each year depending on the services you contract the professional to complete.|
|You don’t need a degree in accounting to use the software.||Credentialed professionals are certified in their field of study.|
|You can pull up prior tax records at your convenience.||If you don’t have a physical copy of your tax return, you must contact the tax preparer to get one.|
|There’s no one available to ask questions.||You can pick up the phone or email someone to answer your questions.|
|The software may not be able to handle complex tax returns.||Professionals have experience and knowledge to draw on to complete complicated accountings.|
Tax preparation just got easier
Having the knowledge to tackle a problem is always simpler than wondering what to do. Hopefully, we’ve helped make your decision easier on whether to purchase tax software, to prepare your tax return yourself, or hire a tax preparer.
To keep reading about tax preparation, check out this article on “The best tax software for small business owners.”
At Camino Financial we provide free tools and resources on a variety of subjects so you can make informed decisions. We’re your go-to financial institution when you have challenging questions you aren’t able to answer. We live up to our motto “No Business Left Behind” by helping you grow your business.