Did you know that the Internal Revenue Service (IRS) collected nearly $3.5 trillion from 240 million returns in 2020? While no one enjoys paying taxes, they are a necessity for essential services.
One question that you may be asking is whether or not you should file on your own or use a tax preparer? Read on to learn more about whether or not you should use tax preparation services.
Who Is a Tax Preparer?
Tax preparers are professionals who can have significantly different backgrounds, depending on their exact title. Tax accountants are Certified Public Accountants who specialized in tax preparation and they often have graduate degrees.
Many tax examiners are seasonal workers looking to supplement their income. These individuals have to take coursework on tax preparation and pass a comprehensive exam. Some of the areas covered include:
- Communication skills
- Tax preparation
- Tax Law
- Tax Filings
Whatever path to becoming a tax preparer is chosen, they will need a Preparer Tax Identification Number (PTIN) from the IRS. Some states have licensing requirements for these professionals as well.
Even when licensing isn’t required by a state, you should do your own research on a professional. Some of the items you can look for include registration and certifications.
When Should You Use Tax Preparation Services?
In general, the more complicated your taxes are, the more likely it is you will need professional tax preparation services. If you don’t have any investments, dependents, or contributions, you can probably file on your own. Just be aware that this process will take several hours.
As your financial situation gets more complex, it gets more challenging to do your own taxes. While each situation is unique, some of the items that make filing without a tax preparer more difficult include:
- Owning a business
- Earning money through contactor pay or through the gig economy
- Itemized deductions
Of course, it is still possible to do your own taxes if you have the time. However, you need to have all the required records and paperwork and there is still a chance that you can miss something.
What Are the Alternatives to Using a Tax Preparer?
The IRS offers free filing through its website for federal taxes. You may need to pay a small fee to file a state tax return. You can also use online software which can range in price, typically around $100. These programs offer online assistance for questions that come up during your filing.
What Are the Downsides to Not Using a Tax Preparer?
In addition to the time investment, you are taking a risk by doing your own taxes. If you aren’t well-versed in tax law, you could miss something that could cost you money on your refund. A worst-case scenario is to forget to declare something and be audited by the IRS, which puts you in danger of facing fines or jail time.
Given what is at stake, the financial investment is well worth the peace of mind that using a tax preparation professional brings with it.
Are You Ready to Go With a Professional?
Now that you know the risks associated with doing your own taxes, are you ready to work with a professional? If your return isn’t simple, the financial investment is a bargain compared to the risks. When looking for a tax preparer, always do your homework before choosing one.
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