Should you file your own taxes this year? If you hire help, avoid those who get paid as a percentage of your refund.
The 2021 tax-filing season is officially upon us. On February 12, the IRS began accepting tax returns for the 2020 tax year, and the sooner you submit yours, the quicker you'll get any refund you're owed.
But 2020 was a strange year for a lot of people, and in light of that, you may be wondering whether you should file taxes on your own this year, or hire a professional to do them for you. In a recent Jackson Hewitt survey, 36% of respondents say they plan to file their taxes online with no help. Meanwhile, 50% intend to use a professional – either in person or online.
So what's the best call for you? Ask yourself these questions to find out.
1. Are my taxes fairly simple?
If you're a salaried employee and don't itemize on your tax return, there's really little benefit to hiring a professional – especially if your circumstances stayed the same in 2020. In that case, all you really need to do is report your income from your W-2 on your taxes and call it a day.
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Even if you have additional income to report – interest in a bank account or earnings in a brokerage account – those are fairly easy to report, too. You'll just copy over the details you see on your 1099 forms.
2. Am I planning to itemize for the first time?
If you're new to itemizing – say, you just bought a home in 2020 so it's the first tax year you're not claiming the standard deduction – then it could pay to bring in a professional this time around. A tax preparer can help make sure that you claim all of the tax breaks you're entitled to, all the while making sure you don't erroneously claim deductions that don't apply to you.
3. Did my financial circumstances change significantly in 2020?
Many people were impacted financially by the pandemic last year. If that's the case for you, then this could be a good year to get outside help.
"I urge taxpayers who have had any sort of life change to work with an experienced tax professional this year," says Mark Steber, Chief Tax Information Officer at Jackson Hewitt. This includes people who got married, got divorced, or lost their jobs and collected unemployment benefits.
Those who took a CARES Act withdrawal from a retirement savings plan should also consider consulting with a tax professional. Normally, withdrawals from a tax-advantaged savings plan taken prior to age 59 1/2 incur penalties. Those penalties were waived last year for those impacted by the pandemic, but there are still tax implications involved, and a professional can help navigate those.
While it's true that hiring a tax preparer means spending a bit of money, what you pay for that service, you might more than make up for in extra tax breaks you wouldn't have identified yourself. That said, if you're going to use a professional, hire the right one. Aim for a tax preparer who charges a flat fee or even an hourly fee, but avoid those who get paid as a percentage of your refund. The last thing you want is to hire someone who may be motivated to get aggressive with your return in an attempt to pad his or her own earnings, because that's a good way to get yourself audited.
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