I practice public accounting in a Seattle suburb. Around this time of year, that means I get lots of calls from people who need a tax return prepared or some tax question answered.
One of the most common questions is, “Can I get by with something like TurboTax (from Intuit) or TaxCut (from H & R Block)?”
The Case for Tax Software
My usual recommendation? Most people can and should use a tax software program like TurboTax. The programs should be easy to use if you’ve got computer experience. Especially after the first year you use the software.
The programs are also really good at catching the usual errors. And they easily handle the most common tax questions or problems that the individual tax payer is likely to encounter.
What’s more, the price is right. Tax return preparation fees vary by region and the skill of the tax accountant. But just to give you an example, I charge close to $400 for a typical individual tax return.
In comparison, you can often find tax preparation software selling for between $25 and $50. That’s a huge savings compared to an accountant.
The Exceptions to the Rule You Should Use Tax Software
In a handful of special cases, tax software (in my opinion) isn’t as good a choice. Specifically, I recommend people spend the extra money on a good enrolled agent or certified public accountant in two situations:
Special Circumstance #1: You’ve got carry-forwards for things like capital losses, alternative minimum taxes, or passive suspended losses.
In each of these cases, to prepare this year’s tax return, you need to grab data from previous year’s tax returns. Accountants and professional tax software like your accountant uses track these carry-forward items extremely carefully.
In comparison, many tax payers don’t know which items need to be carried forward. TurboTax and TaxCut, by the way, do know. And as long as you keep using the same software on the same computer, you should be okay.
However, if you get a new computer and forget to transfer your tax files or if you bungle the file transfer, you could lose thousands of dollars of tax savings.
Special Circumstance #2: You’ve got more than one tax return to prepare. For example, you’ve got both a business tax return (like an S corporation, limited liability company or partnership return) to prepare and you’ve also got your individual tax return to prepare.
In this case, you should consider the business return when you prepare the individual return. And vice versa-you should consider the individual return when you prepare the business return.
As good as the tax software programs are, the programs can’t know as you’re preparing one tax return about the other returns you’ll need to prepare as well. And that lack of insight means the tax software can’t recommend tax accounting choices on one return that let you minimize the taxes you’ll pay on another return.
In comparison, a good accountant will consider your individual tax liability as he or she makes accounting choices on your business return. The accountant, for example, will consider your individual tax bill when depreciation methods are selected on the business return.
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