By T.J. Porter, WCI Contributor
There aren’t many people who can say they enjoy doing taxes, but they are one of those things that everyone must do.
How Hard Is It To Do Your Own Taxes?
Doing your taxes can feel like a chore, but it’s important to make sure that it’s done properly instead of quickly. Taking time with your taxes could save you plenty of money that you would have otherwise paid to the government.
Because taxes are so complicated and can take such a long time, many people wonder whether it’s worth paying someone else to do their taxes. This article will cover the pros and cons of doing taxes yourself vs. paying someone else.
Is Doing Your Own Taxes Hard?
It’s hard to answer whether doing your own taxes is difficult. Everyone’s tax situation is different. For some people, tax preparation means filling out one or two forms. For others, it can be dozens of different forms and schedules added to a normal tax return.
The bad news for physicians is that you’re more likely to have a complex tax return than most other people.
If you’re still early in your career, you could be dealing with additional forms and paperwork for potential student loan interest deductions (though most attendings don't actually qualify for the student loan interest deduction). As your career continues, you’ll be adding real estate taxes and deductions, investment income, and potentially self-employment to your annual tax return, meaning the process of doing your taxes will take longer and get more complicated.
How Much Will It Cost to Hire an Accountant to Do My Taxes?
According to the National Society of Accountants, a typical accounting firm charges $323 to file Form 1040, the basic individual income tax form, with itemized deductions. Adding more forms to your tax return means paying extra. For example, if you form your own practice and file Form 1120 for corporations, that means paying an extra $913 on average.
When It Makes Sense to Do Your Own Taxes
Doing your own taxes can take some effort, but there are some situations where it can make sense to do so.
The most obvious is when money is tight and you want to save a few dollars. If your taxes aren’t particularly complicated—for example, if you’re still in school or early in your career and you don’t own property or have investments—you can get away with doing your own taxes without much trouble.
Even as your taxes get more complicated, it might make sense to try doing them on your own every few years. Doing your taxes forces you to examine all of your financial accounts and possessions. That gives you an opportunity to identify areas of your personal finance that are due for changes, such as old bank accounts you no longer need, investments you want to sell, etc.
At the very least, working a bit more closely with your accountant to get a better look at your finances every few years isn’t a bad idea.
When Should You Pay Someone to Do Your Taxes?
For most physicians, it makes more sense to pay someone else to do your taxes than to do them yourself.
The typical white coat investor could have taxes that are more complicated, and they could also have more assets than the average person. This means that doing your taxes on your own could take a long time and that you could make more mistakes when preparing and filing your taxes. But if you still want to file your own taxes, the good news is that your tax situation probably won't change much from year to year.
A good tax professional can often pay for themselves by optimizing your tax return to take advantage of deductions and credits. They can also give you advice on how to reduce or defer your tax liabilities by organizing your business as an S Corporation or taking other actions (though depending on what happens with the current tax bill in Congress [2021], organizing as an S Corp might end up being a waste of time).
Where Should You Get Your Taxes Done
There are many places that you can look to if you want to get your taxes done.
Many companies, like H&R Block and TurboTax, offer tax software to help you do your own taxes or connect you with a professional who can prepare your taxes for you.
One of the best places for medical professionals to look when getting their taxes done is a private tax company. There are many CPAs who start their own companies to offer tax services. Some CPAs choose to specialize in providing tax services to certain groups of people, including doctors.
Working with an accountant who has chosen to specialize in preparing taxes for doctors or other high-income individuals means they’ll likely have seen similar tax situations to yours and will be well-equipped to help you design a tax plan.
How to Choose a Tax Professional
There are a few ways to go about searching for and choosing a tax professional.
One of your best resources when looking for any kind of service, whether it's taxes or home maintenance, is your network of friends and colleagues. Talk to people you know and see if they work with a specific accountant or accounting firm. Ask if they like the work their accountant does and how good the service is. This is one of the best ways to get a candid review of an accountant.
You can also research your options online. Make a list of tax professionals in your area and look for online reviews. You should also take a look at their website to see if it mentions any specific expertise you’re looking for.
Finally, sit down with someone from the accounting firm and make sure they’re a good fit. Don’t rush to hire someone just because you want to be done with the process.
Ask about how the company operates. Will you have a dedicated tax preparer, or will you be working with a team? Are they available to answer questions throughout the year, or do they just fill out your paperwork during tax season? How many other doctors does the company work with, or what is their experience with similar clients?
The answers the CPA provides can help you determine whether they’re a good fit for your needs and whether you’ll work well together.
Doing your taxes can be difficult, especially if you’re facing the complicated tax situations that most doctors have to deal with. Hiring a tax professional to do your taxes can be expensive, but for most doctors, a good CPA is well worth the cost. In many cases, a good tax pro can find deductions and tax credits that will more than make up for the cost of their services.
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