What is the best way to file your taxes? Is hiring an accountant or a CPA worth the money you spend and what are the advantages and disadvantages of using tax accounting software? How to save money and time when preparing taxes?
Today, I will try to answer these and other questions and share my personal experience of filing my returns during a few years in a row. I have made some conclusions both on using accounting professionals and accounting software.
My story covers a period of 3 years during which I tried out a few different ways to get my returns prepared. At the beginning, I filed taxes with the use of TurboTax which I still consider one of the most reliable accounting software. Then, I decided to ask for help from a tax preparer and this year I hired a CPA. Below are the conclusions I came to.
Now, I am running a flourishing business but 2 years ago I owned a small company, basically, startup. At that time, filing taxes was not in the circle of my interests and I was thinking about hiring a professional. Though my friend suggested me using an online software, particularly, TurboTax as it was very user-friendly and created both for individuals and businesses. I thought it might be a good experience, besides, I would be able to keep a finger on the pulse of my business, so I decided to subscribe to the program.
When to use TurboTax?
The first thing I was surprised with was a super low price. I started with Deluxe version which cost under $40. It wasn’t necessary to buy a more expensive version because I wasn't investing in anything and didn't have any industry-specific expenses as I had just started my business. So, if you are struggling with financial problems or not expected to pay large amounts of money, you can use Base or Deluxe version to file the simplest forms (1040EZ/1040A).
TurboTax is helpful with deductions you are entitled to as it is up-to-date with all the latest laws. Though, as my experience shows, not all because when I ensured doing my calculations to a CPA, he found a few more deductions than TurboTax. I had a possibility to compare as long as I continued to use it. At least, using this program you can take advantage of the most common deductions, so you won’t lose much money in the end.
Another benefit is that your calculations are promised to be 100% accurate. The return is double-checked before it is filed and when I was cooperating with an accountant, TurboTax helped me to find a few errors in his return. That time, I managed to avoid an audit just thanks to this software but for me, there remained a question what should I do in the future. The IRS penalty is actually minuscule but it is not the reason to worry about. An audit I heard can be really terrifying and chances of getting audited again go up exponentially.
What are advantages and disadvantages of hiring a tax preparer?
As I was more and more engaged in my business and out of control of tax preparation, I decided that it’s time to entrust doing taxes to an accountant. I hesitated actually. I found sharing my financial data with someone risky a bit. As I mentioned above, I continued to use TurboTax and eventually it helped me to find some errors in the return.
Now, let’s talk about a fee, the tax preparer is charging for his services. I should say that it appears to be quite costly compared to the cost of the program. My accountant charged $200 an hour. As a result, he prepared my return for $500. There is actually no big difference between these two ways except for TurboTax does this quickly while a specialist checks for errors and performs his job manually twice. You still risk relying only on the program no matter how accurate it is claimed to be.
There are some disadvantages of using an accountant. First, he is not auditing the datum. The accountant is not responsible for any fraud or write-offs but only for calculations. Besides, it is you who is interested and obliged to make sure that your employee is provided with all the bills, checks, accounts and other documents to have things done correctly. There was one thing that almost shocked me. The accountant I hired wasn’t going to check up on my business deductions until I asked him for this. So, you should be ready to communicate closely with a professional you hire and know what services you are offered.
What ensured me to hire an accountant was the fact that if I am audited, he is responsible for every error he makes. Though I as a client also have some duties in relation to a professional. I have to ask him any questions in advance and not allow reducing deductions to the extent that it can trigger the audit.
What are the benefits of hiring a CPA?
The CPA or auditor is a licensed accounting professional who conducts audits of the public companies. The CPAs are also hired to file taxes, especially, in cases when client’s situation is complicated. They are highly recommended to use in the event of an audit. For extra pay, an auditor will take care of dealing with the IRS for you.
After having my taxes prepared by an accountant, I decided to find some experienced CPA. When hiring a CPA, you pay a much higher fee. Now I know this but actually, I don't regret about spending an extra thousand dollars for a qualitative job.
The CPA I found was always easy to reach and I could ask him even the most of basic questions I was concerned about. The return was made quickly and was error free. I didn't have to remind about deductions and all I had to do was to give him my financial information. The CPA is required to be aware of even the most obscure tax rules and laws. You don't need to use any additional software.
When comparing the benefits of using an online accounting software, a tax accountant, and CPA services, one might make the following conclusions.
TurboTax accounting software I was telling about here is helpful for those who either are not willing to spend much on preparing taxes or just don't need this for the reason of running a small business. A tax accountant is a specialist who can fix any accounting related issues for you on a daily basis and file taxes when it is needed at a comparatively low price. The CPA is simply a lifesaver in case if you face any problems with preparing taxes. The fee charged by this certified professional is higher but in a result, the job he does is worth it.
In general, to save money and time you should know a few things. Notice that the specialist you hire should not base the fee on a percentage of the return. It should be calculated per each form and schedule or charged by an hourly rate. Some accounting firms are charging a flat fee per return. Also, well-organized payers who keep their records in order, start and file early, at least, two weeks before a filing deadline, spend usually less being able to decrease their fee for a hundred dollars or more.