Is tax preparation software worth it? Here's what some experts think
It's officially tax season, and while you technically have until April 15 to file your tax returns, the time is now to hone your strategy.
Will you DIY your return or go to a tax professional? Or, maybe, like millions of Americans, you'll let tax preparation software — like TurboTax, H&R Block, or TaxSlayer — guide the way.
Don't wait until the last minute. Find out your tax filing options online here.
Is tax preparation software worth it? Here's what some experts think
The right choice depends on your income and how complicated your tax situation is. Not sure whether tax preparation software is the right move for your tax returns this year? Here's what experts say.
When tax preparation software is worth it
Tax preparation software typically works like a questionnaire — asking you information about your earnings and expenses and then compiling all that information into a digital return that you can submit to the IRS electronically.
Generally speaking, it can simplify the tax filing process and save you money, at least when compared to hiring a CPA or tax professional. But it's only right if you have a fairly straightforward tax situation, experts say.
"If you have a simple return with only wages from Form W-2 and take the standard deduction, tax prep software is usually a good choice," says Rob Burnette, CEO and professional tax preparer at Outlook Financial Center.
Explore today's best tax preparation options here.
When tax preparation software isn't worth it
If you itemize your deductions, have lots of investments or earn non-W2 income, tax software may not be the best option, as it could mean missing valuable write-offs or reporting your income incorrectly.
According to Aaron Cirksena, CEO and financial advisor at MDRN Capital, you should skip the tax software and hire a tax pro if:
- You earn 1099 income
- You have multiple jobs or side gigs
- You own rental properties
- You have K-1 distributions
- You own your business
That last one is important, as business owners typically have fairly complex tax scenarios. Having a trained tax professional involved can ensure deductions are maximized and that there's a solid plan in place for future taxes.
"Having a great CPA who can help you find all the tax deductions and opportunities can be beneficial, and it is often worth the fee they charge to prepare your taxes," says Shawn Clark, co-founder of Mosaic Financial Group. "If the CPA knows you and your business, it could help identify potential areas of tax savings now or in the future. "
Hiring a tax professional can also help if your return gets audited, experts say, so if you're at higher risk of auditing — you have a particularly high income or claim the Earned Income Tax Credit — you may want a tax pro on your side.
Tips for using tax prep software
If you do opt to use tax preparation software to file your tax returns this year, experts say there are a few things you can do to ensure success.
First, do your research. While tax software can help with the basics, understanding what goes into your tax filing and having a rough idea of what you owe or your potential tax refund is still important. As Clark explains, "When using tax software, don't put 100% of your trust in the software. Depending on the software alone could be detrimental if a mistake is made in your data entry or the software's understanding of your tax situation. Having a basic understanding of how to fill out a Form 1040 will usually help to catch any major errors."
You should also be extra diligent when entering data, Burnette says, and double-check your input before filing your return. A client of his accidentally mistyped their mortgage interest amount once, and the result was messy.
"They inadvertently entered mortgage interest of $1701 as $170,100 due to a simple misunderstanding of how the software expected the number to be entered," Burnette says. "The IRS paid a large refund that the taxpayer had to return later."
