Financial Face-Off: TurboTax vs. hiring an accountant: What’s the best way to do your taxes?

For most of us, filing our taxes is a necessary chore. Is it better to tackle your 1040 yourself with tax-prep software like Intuit’s
INTU,
-0.70%
TurboTax or H&R Block
HRB,
+0.03%,
or hire a human tax pro to do your taxes? 

Why it matters

Taxes may be a pain, but ignore them at your peril. Making a mistake on your tax return can lead to a bigger than necessary tax bill, or worse yet, fines or even an audit. Knowing the right deductions, credits and other tax breaks to claim can save you big bucks — just look at billionaires like Warren Buffett, Amazon’s
AMZN,
-1.90%
Jeff Bezos and Tesla’s
TSLA,
-4.08%
Elon Musk. You would think they pay a ton in taxes, but some have paid zero in federal taxes in recent years, according to a ProPublica investigation. How can this be? It’s all legal — they just have great tax advisers.

At a time when inflation is squeezing budgets, most Regular Joes simply want to avoid a surprise tax bill they can’t afford to pay, or maximize any refund. Unfortunately refunds are trending smaller this tax season at an average of $3,140, down from $3,200 last year, according to the IRS.

That’s bad news for the 75% of people who say they’re counting on their tax refund to improve their overall financial situation — and all the more reason to choose carefully about how you do your taxes.

Taxpayers spend an average of $250 and 13 hours preparing their returns, according to the IRS. (For non-business filers, meaning folks who have just a W-2 and not much else, the average cost is $140 and eight hours of your time; for business filers, it’s $530 and 25 hours.) 

Using tax-prep software like TurboTax, H&R Block, or others allows taxpayers to do their own taxes at their computers by uploading their financial information and answering a series of questions. Many tax software companies offer free prep for very simple returns, but make sure you check the fine print on those offers.

Many also offer live help from tax experts, if you’re willing to pay for it. TurboTax, for example, now has a “live full service” option where a tax pro prepares, reviews and files your entire return for you. “They do the taxes while the filer is with them in one meeting,” said Lisa Greene-Lewis, a CPA and tax expert with TurboTax. The price on TurboTax’s live full-service package ranges from $209 to $399 for a federal return, depending on how complicated your situation is, plus another $54 to $64 for a state return. 

When you work with a human tax pro like a certified public accountant (CPA) or enrolled agent, you typically meet with them, hand over your financial information, and they handle the rest from there. Prices for their services range from about $200 to more than $700, depending on what part of the country you’re in and the complexity of your return, according to a 2021 survey from the National Society of Accountants.

But remember: you don’t have to pay for tax prep at all if you made $73,000 or less in adjusted gross income in 2022, because you’re eligible for free tax-prep software through the IRS’s Free File program. Older taxpayers, people with disabilities and people who don’t speak English can also get free tax prep through the Volunteer Income Tax Assistance program.

The verdict

In this man vs. machine showdown, I’m going with the machine and siding with tax-prep software — if you have a simple return with no schedules and you aren’t itemizing deductions. 

However, if you’re here at MarketWatch (and we thank you for reading) because you’re an active stock market investor, chances are you have a more nuanced tax situation that could use a tax pro’s attention, according to tax experts interviewed for this column. 

My reasons

Most of us want a no-fuss, no-muss tax solution. Tax-prep software seems to be the most likely to deliver that at an affordable price.

Is my verdict best for you?

On the other hand, working with a human tax pro gives you personal attention from someone who is hopefully well-acquainted with you and your financial situation. It also provides an opportunity to become more knowledgeable about your taxes, says Tom O’Saben, director of tax content for the National Association of Tax Preparers.

He’s been a tax pro for 32 years and believes his industry’s most important role is to educate taxpayers. The best compliment a client can give him, he said, is that they understand their tax obligation better than they did when they first walked into his office. 

If you hire a pro, O’Saben advises against using one who just tells you to drop off your paperwork and calls you when your taxes are done. Ideally you’ll find someone who will discuss your situation with you, listen to you, and give you a second opinion, if needed, on tax questions, he says. “Tax laws are not always black and white,” O’Saben told MarketWatch. “They are gray and they are very much subject to interpretation. One person’s tax evasion action is another person’s tax avoidance.”

Though taxes seem cut and dry at first glance, they can get messy fast. Do you sometimes work a gig job? Did you dabble in crypto last year? Do you sell stuff on Etsy
ETSY,
-1.56%
? All could potentially affect your taxes. 

Tax software asks questions about those type of issues, but the queries aren’t always clear, and taxpayers can find themselves guessing at the right answer, said Melanie Lauridsen, Director for Tax Practice & Ethics with the American Institute of CPAs. “I’m not knocking the tax software,” Lauridsen said. “What they’re trying to do is simplify something that’s complex. But some things, I don’t care how much you put it into layman’s terms, there are complexities associated with it.”

Using tax-prep software doesn’t always turn out to be as easy and cheap as it appears at first, said Kathy Brown, president of the National Association of Enrolled Agents. She has her own tax-prep practice, The Kat Company, in Warsaw, Ky. and has also worked as a tax expert helping TurboTax customers, so she’s seen both sides of this Financial Face-off.

Tax software users often have sales pitches and add-ons presented to them as they go through the filing process, and before long, they’re paying the same as they would have for a human tax pro, Brown said, adding that her own fees are in line with what TurboTax charges.

While tax-prep software is a great solution for people with a simple tax situation, Brown said, she’s also seen taxpayers get lost trying to do their own taxes with software. “The frustration that they’re experiencing when they’re trying to understand the tax code can be overwhelming for them,” she said.