You’ve Always Filed Your Own Taxes. At What Point Should You Stop?
For a small minority, filing your annual tax return is a moment of satisfaction or even relief. But for most, it’s an unwelcome source of stress because it is the time of year when the government reconciles whether you overpaid or did not pay enough in taxes over the previous year.
Neither occurrence is ideal. Underpay, and you owe the IRS the balance due—sometimes with penalties and interest layered on top. Overpay, and you’ve effectively given the government an interest-free loan that could have otherwise been saved, invested, or spent elsewhere throughout the year. And as incomes grow and financial lives become more complex, these seemingly small errors have a way of adding up.
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For most taxpayers, there are two ways to get a return filed: you can prepare it yourself, usually with the help of tax software, or you can hire a professional to file on your behalf.
For many people, filing your own taxes is not only reasonable, it is also efficient. Tax software has improved drastically over the years, and for households with a straightforward financial picture (e.g., no more than two W-2 incomes, limited deductions, and no major life changes) these tools are often more than sufficient.
Modern tax software is designed to provide a step-by-step guide to users, ask the right questions, and flag obvious issues along the way. The challenge is that tax complexity tends to grow over time, and it’s rarely declared when a DIY approach has become too risky.
Consider a couple who is recently married and now earns $600,000 combined annually. One spouse receives part of their compensation in restricted stock units (RSUs), and together the couple owns both a primary residence and a rental property and plan to itemize deductions. On paper, they may feel financially organized and that their tax situation is straightforward. But underneath the surface, there could be a number of tax traps waiting for them.
Said couple may be subject to alternative minimum tax considerations. RSUs vesting late in the year can push income into higher brackets. Depreciation on a rental property can be mishandled or recaptured incorrectly, and capital gains, state taxes, and withholding mismatches can quickly stack up. At their new income threshold, any one of these errors can turn into a five-figure problem.
This is precisely the type of situation where mistakes are easy to make, not because the taxpayers are careless or uninformed, but because the interactions between different sections of the tax code are no longer intuitive. And modern tax software is designed to be comprehensive, not strategic. It assumes you know what questions to ask in the first place.
Generally, the more financial transactions you have throughout the year, the more opportunities there are to overlook something material. Major life events further complicate matters. Marriage, home purchases, the birth of a child, or the sale of an investment can all have lasting tax consequences. The first year these events appear on a return often lays the groundwork for years to come. Entering the wrong information doesn’t just affect one filing, it can cause a ripple effect.
There’s also a misconception that hiring a tax professional is a permanent decision. In reality, there’s no rule that says once you stop preparing your return on your own, you can never go back. Many people rotate between using professional help and self-preparation as their circumstances change.
Experience and credentials matter when making the decision to hire a professional. Not all tax preparers are created equal, and the complexity of your situation should dictate the level of expertise you seek.
The two most widely recognized tax credentials are Certified Public Accountants (CPAs) and Enrolled Agents (EAs). Both are licensed professionals held to high standards by the IRS, and returns prepared by either tend to face fewer issues in the event of scrutiny.
CPAs are often regarded as the gold standard. They are licensed accounting professionals who typically hold graduate degrees, have passed the rigorous CPA exam, and are trained across a broad range of accounting disciplines—including audit, financial reporting, and tax preparation. Some CPAs focus heavily on tax work, while others do it as part of a broader practice.
In contrast, EAs specialize exclusively in taxation. They are federally licensed by the IRS and trained specifically in tax law. Because of this narrower focus, EAs are often a more cost-effective option for individuals whose primary need is tax preparation.
Beyond simply keying in numbers into a return, a qualified professional can research the tax code as it applies to your specific circumstances, answer nuanced questions, and help identify planning opportunities that software often misses. They can also represent you before the IRS in the event of an audit or serve as an intermediary if questions arise after filing.
Then there are preparers without formal credentials. Some are experienced and competent, while others are not. Unlike CPAs and EAs, these preparers are not held to the same continuing education or ethical standards and cannot always represent clients before the IRS. For higher-income households, this distinction becomes increasingly important.
Typically, when taxpayers begin to consider hiring a professional, both timesaving and reducing stress are of the utmost interest. But the most important thing to consider is risk management. The higher your income and the more complex your situation, the more expensive even minor mistakes become.
There’s also the value of time. The IRS estimates that preparing a Form 1040 takes a total of roughly 16 hours. Thus, if your time is worth $200 per hour, that’s an implied cost of $3,200, assuming everything is done correctly the first time. And any errors, amended returns, or IRS correspondence will quickly add to that tally.
When your financial life is simple, filing your own taxes often makes sense. But as income rises and complexity compounds, the cost of even small mistakes grows exponentially. At that point, the question is no longer whether you can do your own taxes, it’s whether you still should.
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Malcolm Ethridge is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. His areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.
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