When Does It Make Sense to Hire a Tax Pro?
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Here's your money briefing for Wednesday, March 8th. I'm J.R. Whelan for The Wall Street Journal. The commercials are everywhere this time of year. Tax software programs that claim to make it easy for you to fill out your returns. But many companies have gone a step further and
They'll have add-on programs where you can ask basic tax questions and add-on programs where you can actually have a tax pro do your return for you from start to finish.
So when does it make sense to hire a tax pro? We'll talk to Wall Street Journal personal finance reporter Ashleya Ebling after the break.
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Although tax preparation software programs have made it easier for people to do their taxes themselves, some taxpayers are opting to tack on the additional expense of enlisting a professional to either answer tricky questions or handle their tax return altogether. But when is using a tax pro necessary, and what should you look for in a tax pro? Wall Street Journal personal finance reporter Ashleya Ebling joins us with more.
What is the episode about and why are tax pro ads everywhere?
Hey Ashleya, thanks so much for being with us.
Nice to be here.
So Ashleya, I don't know if anybody actually looks forward to doing their taxes.
Well, the IRS estimates the average time all Americans spend on taxes is 13 hours at a cost of $250, including both those who file through, prepare, and on their own. So it's a big-time commitment. For individual filers with business income, like self-employment income reported on Schedule C, the average burden is even greater. It's 25 hours at a cost of $530.
Wow, that's a lot. And so everyone's tax situation is different, but in what cases is just using tax software enough?
Well, accountants say usually someone with a straightforward return can benefit from software. Some examples would be a retiree with income, including a social security check, a pension check, and maybe an annual distribution from an individual retirement account. Or it could be a married couple where both spouses have W-2 wage and tax statements and they have limited investments outside their workplace retirement plans. Either of those types of filers could use commercial tax software without any extra help in most cases.
All right. So the do-it-yourself software programs can make things easy, but we're seeing the tax software companies offer add-on services, including enlisting a tax professional to answer tricky questions. What types of issues might fall into that category?
So the growing complexity of tax filing is definitely convincing more Americans to pay someone for help. And that can be tax software companies. They'll have add-on programs where you can ask basic tax questions. And then they also have add-on programs where you can actually have a tax pro do your return for you from start to finish. Those types of complex issues that might require that would be working in multiple states, having restricted stock units that vest, or selling a rental property. Even taxpayers with self-employment income may want paid advice because it can involve higher audit red flags, such as excessive business deductions or the home office deduction.
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