taxes

Who Can DIY Their Taxes – and Who Should Use a Pro

For a lot of people, even money-savvy financial planners, it makes perfect sense to outsource this task ... and not just because it's aggravating.

There are always a handful of people that I run into this time of year who like to brag about the fact that they do their own taxes. Always have, they say — and always will.

The Cost of Financial and Tax-Related Mistakes

It’s all of those things above that can lead to less money in your pocket (not to mention a whole lot more stress and a lot less free time to enjoy things I assume you’d rather do than your own taxes). Any errors that you make on your tax return are likely to be far more expensive than any fees you’ll pay to a CPA.

The challenge with any tax-related mistake is that things tend to compound over time. Say you miss something on your tax return this year and pay less in taxes than you actually owed. If you get audited down the road, the IRS isn’t going to just shrug it off as “oh well, everyone makes mistakes.” You’re going to owe what you didn’t pay — with interest and penalties, too. According to the IRS, interest accrues on any unpaid tax from the due date until full payment is made, and late-payment penalties can add up to a maximum of 25% of the amount owed.

Making big mistakes that cost serious money or opportunities simply aren’t worth it. Not when it’s your hard-earned money on the line.

Who Needs a CPA – and Who Can Get Away with DIY

In general, most people will benefit from using a CPA. Even if your financial situation is relatively straightforward, you’ll save time and energy by getting help from a professional. You’ll also get added peace of mind that someone who lives and breathes taxes reviewed your situation. This makes mistakes less likely than if you did your taxes on your own, and also increases the likelihood that you’ll take advantage of every opportunity you can to reduce your tax bill.

All this being said, not everyone needs a CPA. Here’s a good general rule of thumb to use to help you determine if you can DIY: Do you have one source of income via a W2 from a single employer? Then you can probably get away with doing your own taxes. But the moment your financial situation gets any more complicated than that — say you earn 1099 income (even if it’s on the side of your full-time job and you don’t consider yourself “self-employed”) or you have enough deductions that you think it makes sense to itemize — it’s a good idea to find a CPA who can help you.

At the very least, you’ll save yourself time and stress, and any fee you pay to free up more time while reducing your stress is probably going to be well worth the cost.

About the Author

Eric Roberge, Certified Financial Planner (CFP) and Investment Adviser

Founder, Beyond Your Hammock

Eric Roberge, CFP®, is the founder of Beyond Your Hammock, a financial planning firm working in Boston, Massachusetts and virtually across the country. BYH specializes in helping professionals in their 30s and 40s use their money as a tool to enjoy life today while planning responsibly for tomorrow. Eric has been named one of Investopedia's Top 100 most influential financial advisers since 2017 and is a member of Investment News' 40 Under 40 class of 2016 and Think Advisor's Luminaries class of 2021.

Most Popular

4 Big Retirement Blunders (and How to Avoid Them)
retirement

4 Big Retirement Blunders (and How to Avoid Them)

It’s too bad, but financial advisers see these four mistakes all the time. Don’t fall into the same traps.
October 6, 2021
The Best Vanguard Funds for 401(k) Retirement Savers
mutual funds

The Best Vanguard Funds for 401(k) Retirement Savers

Vanguard funds account for roughly a third of the 100 most popular 401(k) retirement products. We rank Vanguard's best actively managed funds, includi…
October 8, 2021
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
October 4, 2021

Recommended

Living and Working in Different States Can Be a Tax Headache
state tax

Living and Working in Different States Can Be a Tax Headache

Living in one state and working in another can trigger a number of tax issues. Here are several things to keep in mind if you and/or your spouse are i…
October 22, 2021
Generation-Skipping Transfer Tax Basics
tax planning

Generation-Skipping Transfer Tax Basics

If your estate is big enough, you should know how generation-skipping transfer taxes work, and how to avoid paying more than you must.
October 22, 2021
10 Year-End Moves to Lower Your 2021 Tax Bill
taxes

10 Year-End Moves to Lower Your 2021 Tax Bill

What you do between now and the end of the year can have a significant impact on how much tax you have to pay next April.
October 19, 2021
The Pros and Cons of Target Date Funds with Tony Drake
Financial Planning

The Pros and Cons of Target Date Funds with Tony Drake

The simplicity of target date funds has made them popular, particularly among 401(k) savers. But investors may be paying a price.
October 19, 2021