Do-it-yourself may be fine for painting a bedroom or changing your car's oil, but how do you know if it makes sense to file your own tax return?
It's still early in tax season, but it appears more people are taking the DIY leap for taxes this year, reversing a decade-long trend.
Last week, H&R Block, the nation's largest tax preparer, said that, through Feb. 15, the number of returns handled by its storefront locations fell 8.2 percent from last year.
Meanwhile, Intuit Inc. said sales of its TurboTax e-filing software rose 11 percent in that time.
The Internal Revenue Service hasn't released data about this season's early returns. But last year, more than 60 percent of tax returns were completed by a paid preparer. That was flat with 2008, but up from less than 54 percent in 2000.
The recession is one likely reason more people will try to handle their own returns this year. Consider that hiring someone to do your taxes costs about $200 on average. By comparison, the $30 to $40 price tag for software seems like a bargain.
And the majority of taxpayers don't even need to pay that much: the IRS says about 70 percent can file for free using its Free File program. Free filing options are available to anyone whose adjusted gross income — their income after certain deductions — was $57,000 or less. There are about 20 choices of software available through Free File, all of which can be accessed through the IRS Web site, www.irs.gov.
But how do you know if you should give DIY a try or if you're better off paying an expert?
It all comes down to how complicated your return is going to be.
If all you have to deal with is one W-2 form, one or two interest statements from your bank and a couple of deductions, you'll probably be OK on your own.
But the more complicated your return, the better off you are seeking out a professional, said John W. Roth, senior tax analyst at tax law publisher CCH.
Most tax preparation software these days has prompts that ask the same sort of questions a tax preparer would, he noted. But they're not foolproof, especially if you have any complicated tax issues. "The more complex your return gets, the greater the probability you might answer something wrong," Roth said.
Here are some questions to consider if you're still trying to decide how to get your return prepared:
1. Have you had a major life change in the past year?
If you've gotten married or divorced, retired or lost your job, started or shut down a business, had a baby or adopted a child, your tax situation may be significantly different from what it was last year. Each of these events can make your return more complicated and you might benefit from some professional advice.
2. Did you move in 2009?
If you relocated to a new state, you likely still have to file a return in the one you left, said Maureen McGetrick, a tax partner at BDO Sideman. "It's complex making sure you determine how you should be reporting in each of those states," she said, so hiring a pro may be a good move. Likewise, if you worked in another country for all or part of the year, you could benefit from guidance on how to report your income.
3. Do you hope to claim credits or deductions for actions such as buying a house or car, making home renovations or education?
While claiming some new deductions or credits is fairly simple, adding these additional calculations to your return increases the potential for mistakes, and you may benefit from some help.
In addition, if you claim the homebuyer credit, you cannot file electronically, because you have to document the home purchase.
4. Do you have complex investments to report?
If you have money invested with a hedge fund or other nontraditional vehicle, or money invested overseas, you'll want to make sure those items are reported correctly and all disclosures are handled properly, McGetrick noted.
Likewise, if you trade stocks frequently, you'll benefit from help gathering all the data you need to include on your return.
5. Do you have the time to prepare your return?
It will take at least a few hours to gather the necessary paperwork and fill out the tax forms, more if you have problems or don't understand some element of your return. Roth, the tax analyst, noted that for some people, the money they might save on their own might not be worth the amount of time required.