“Should I hire a CPA or do my own taxes?”
“Should I hire a CPA or do my own taxes?”
That question comes up often in client meetings this time of year. As a self-employed person, I can relate to the pros and cons of this decision. Personally, I’ve used both approaches over my years as a business owner. So, which is best? Read on to hear several of the pros and cons of hiring an accountant vs. doing it yourself and gain a sense of which is right for you.
Pros
You’re an Expert in What You Do (Which Is Probably Not Taxes)
You’re good at what you do; that’s how you’ve achieved your success. Most clients I talk with don’t want to become experts in taxation. At the same time, none of us wants to pay more taxes than necessary. This is one of the key potential value-adds of working with a CPA.
Better Return on Time Investment (ROTI) Elsewhere
For my self-employed clients, spending precious hours on the things they’re best at usually leads to a better ROTI. I’m a big believer in investing time where it is most valuable…whether that is in your ventures, time with family, health and exercise, or any other part of your life that is important to you. Before doing your own taxes, a must-ask question to yourself is: “Is this a good investment of my time?”
Tax Laws Change Frequently
The pace of tax law changes can be dizzying. As soon as we get used to one set of rules, laws seem to sunset. For example, the Tax Cuts and Jobs Act (TCJA) – which modified all of the ordinary income brackets and created the qualified business income (QBI) deduction (among many other things) – is currently scheduled to sunset at the end of 2025. What will congress enact between now and then? We’ll find out, and we will need to adapt when it happens. Staying on top of these changes is one of the things a CPA is hired to do.
An Expert During an Audit
Depending on how much the potential of a tax audit worries you, this may be your most meaningful reason to delegate. When a CPA has prepared your return, someone is familiar with your situation, knows the reasoning behind reporting things in a certain way, and – ideally – will represent you with the IRS in defending your return.
Reducing Stress
Simply mentioning taxes and filing returns is stress-inducing for many folks. The concerns are quite understandable and relatable:
What if I make a mistake and the IRS or state says I owe more taxes?
What if I mess up my estimated tax payments or withhold the wrong amount?
What if I miss something that could save me money?
What if I miscalculate and owe penalties and interest?
When you have discretionary income, the benefits of reducing stress by delegating – from tax preparation to yardwork – can be worth far more than the cost.
Cons
Familiarity with Your Tax Situation
For clients that choose to self-prepare, perhaps the most cited reason is to have a better understanding of how their taxes work and their overall tax picture. I can speak to this personally: in years that I’ve chosen to self-prepare, a desire to be deeply familiar with my own personal and business tax scenarios has been a significant motivator. Understanding your 1040 or the deductions you claim on Schedule C/E, for example, can have a demystifying effect.
Cost – It Isn’t Cheap (And Has Been Getting More Expensive)
In some respects, tax preparation costs could be seen as an additional tax; you pay fees to have an expert ensure that all available deductions and other tax-saving measures are taken. For those with self-employment income, I frequently see tax preparation fees start at over $1,000 per year (on the low end) and easily rise to several thousand dollars. If making an S Corp election, a second return typically must be prepared, and costs can rise further. Of course, it’s worth noting a portion of that cost may be deductible as well.
Finding an Accountant with Capacity is Hard Right Now
There has been a well-documented trend of CPAs leaving the tax preparation field, and talented CPAs often reach their capacity for new clients quickly. Along the same lines, if your accountant moves on to a different role or retires altogether, finding a suitable replacement can be challenging. If you are still searching for an accountant this tax season, it is wise to act sooner rather than later.
The Returns Are Simple
There are plenty of returns in the U.S. that are sufficiently simple to be self-prepared without concern. To illustrate, a taxpayer with W-2 income, 401(k) contributions, and a 1099 from an investment account may find that their software of choice and a few hours is all it takes. As a counterexample, my wife and I both have our own respective businesses. As you might expect, our returns require far more time to prepare, even when done by a CPA.
Bottom Line
So, should you hire a CPA or tackle your taxes yourself? Most of my clients weigh these considerations and decide to delegate. The decision comes down to your situation, priorities, and comfort level. If your goal is to spend time elsewhere, reduce stress, avoid building another area of expertise, and have support if an audit arose, you’re likely a good candidate to hire a professional. However, if you prefer to gain a deep understanding of your tax situation, want to keep costs down, or have a relatively straightforward situation, filing your own taxes may do the trick.