Taxes: Human vs. Software

It’s that time of year again. Taxpayers across the country are digging through their records, searching for statements, and collecting receipts. As my clients navigate the tax return process, we often return to a familiar conversation regarding tax preparation: to DIY or hire a CPA (Certified Public Accountant)?

In 2007, I was new to the workforce and working for a foreign University. I was also a beginner when it came to taxes and was terrified of doing something wrong (or worse, being audited). So, I asked a family member for a referral – and in turn hired my accountant. Since then, I’ve undergone career changes, gotten married, and have had two children, all of which led to an assortment of deductible events and expenses. I have long valued the advocacy and oversight provided by my CPA – and have continued to employ his services every year.

During the same time, digital tax advice has become less expensive and more accessible. Digital tax programs were once clunky and expensive desktop applications. They have evolved into low cost and user friendly browser-based experiences. They are enriched by live support and searchable databases of FAQs and tax topics. Many of my family, peers, and clients make use of such tools with great success and little complaint. Many readers may report the same experience.

When clients ask for guidance on which option to explore, my feedback is both quantitative and qualitative. For families or individuals with limited tax literacy, complex situations, or multiple streams of income, the case for a professional can be compelling. Other clients excel with 1099s, relish itemized deductions, and prefer to DIY their AGI. In such cases, the self-service model may be more appropriate. Below are some of the other questions I pose to clients when weighing their options.

  • Is the cost of the professional tax preparation worth the peace of mind it provides?
  • If you were audited, would be you comfortable substantiating your own returns?
  • Are you comfortable with tax terminology?
  • Are you well organized, and do you keep secure records of current and prior year tax documents?
  • Are you undergoing any major life transitions that call for an evaluation of your approach to taxes (i.e.: becoming a parent, buying a home, retiring, estate planning)?

Responses to these questions may vary. For some people, including myself, the support, continuity, and record keeping provided by the accountant justifies the expense. For others, the ease of software and simplicity of their returns begs for a DIY approach. As is the case with many financial decisions, pros and cons must be weighed and costs must be considered. At the end of the day, the decision is a personal one; it is important to weigh the personal and emotional benefits rendered by either option.

Thinking of going with a professional? Here are some questions to ask when vetting potential candidates:

  • Do you hold the CPA credential?
  • What kind of clients do you usually work with?
  • What are your rates, and can you estimate the cost for a return like mine (ours)?
  • Are you available for periodic check-ins during the year? Would occasional emails be subject to hourly billing?

 

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