It's that dreaded time of the year again, when that teetering pile of W-2 and 1099 forms haunt your dreams, and the perennial question gnaws at you: "Should I do my taxes myself, or hire an accountant?" A poll here on Lifehacker last month shows that most of you complete your income tax returns using software like TurboTax. In the past few years, I've gone back and forth between using an expensive human accountant and TurboTax.com to file my tax return. This year I decided to do both and see which solution saved me the most money and heartache. Read on to see who comes out victorious in the battle of the human tax accountant versus TurboTax.com.
Note and disclaimer: Everyone's tax situation is different, so if you do this same experiment, your mileage will most likely vary. As an independent contractor who had seven different employers in 2007 and who itemises her deductions, my income tax return is more complicated than the average person.
The Expensive Human Accountant
My tax accountant is a terribly nice guy who specialises in helping oddballs like me with unconventional careers, like actors, real estate brokers, and other freelancers. He's also hip to the current tax laws around domestic partnership and joint returns, which is important to me. He's someone I can shoot off an email at any time during the year with a random tax question—"What's the best retirement account for me?" "Can I deduct [insert random expense] ?"—and he'll get back to me within a day or two with an answer in plain English. He sends me holiday cards.
In January of each year, he emails me a simple Excel workbook to fill out with my tax information. I do that, scan any forms I've received from employers or banks to PDF, and email the whole shebang back to him. Two days later, my tax returns are done with a smile. One year, when I owed a large sum of money, he actually called me on the phone to make sure I was sitting down before he broke the news.
This human touch and personalised service isn't cheap. My accountant's fee for preparing my return this year came out to right around $US485. Ouch!
I don't envy the people who develop tax software and web applications like TurboTax.com. No matter how wizardly they make the data entry, no matter how many help pop-ups are on page, and now matter how many live chats with tax professionals they build into it, working your way through tax software like TurboTax makes anyone want to gauge their eyeballs out with a sharpened pencil.
Armed with the spreadsheet of deductions that I'd already prepared for my accountant, I spent two hours last night working through my returns at TurboTax.com. While TurboTax.com may be as easy as it could ever be, it's still not that easy. There are always questions inside TurboTax that you respond to with just a tinge of doubt, and a few of those mount into a larger sense of uncertainty. I got stuck at a question I couldn't answer in TurboTax about estimated taxes I paid in 2007 for 2006 (something my accountant didn't ask me about) and had to go back and delete that whole section to settle it. When TurboTax reviewed my return it threw up red flags about another two issues I wasn't sure how to resolve. They weren't dealbreakers; I could shut my eyes and hit the "Continue" button, but again, that gnawing feeling of dubiousness left me worried I'd get audited for not getting it right.
This teeth-gnashing, hair-pulling two hours would pay off, however. TurboTax.com's calculation of what I owe the Fed was more than $400 LESS than what my accountant said I owed. Also, TurboTax's preparation fee is almost $300 less than my accountant's fee. (TurboTax.com's Home and Business edition, for state and federal returns, cost me just under $200 last year.)
That means if I file my returns with TurboTax.com, I would save around $700. Quite a bit of dough! Seems like the obvious choice, right? Not so fast.
The Big Catch
My accountant caught something—a big something—that TurboTax.com did not. Turns out that one of my employers reported my income to New York State, even though I only lived and worked in California in 2007. While I'm still figuring out why this happened, chances are it was a mistake on the part of my employer, who will most likely issue a corrected 1099. TurboTax.com did not catch this major issue (which would mean I'm supposed to file a state return to New York), and I imagine if I went with TurboTax and didn't get the mistake corrected, it would be a problem somewhere down the road.
Even though my accountant is expensive, and even though I'm no software-phobe, this year I've decided to trust and choose my human accountant over TurboTax.com. If you have any doubts, you can do what I did and complete your return at TurboTax.com without actually filing it to compare results against what your accountant brings you.
The nice thing about dealing with a human is that I can (and will!) call him up and ask why the software's total was different from the one he gave me. Surely there's a logical explanation.
Just because I'm so much more comfortable with my accountant than I am with TurboTax.com that I'm willing to pay a premium, doesn't mean you have to be—especially if your tax situation is more straightforward than mine. So tell us what your take is.
How do you get your taxes done right? How did you find an accountant you trust? Tell us your strategies for making April 15th as stress-free and low-cost as possible.
Gina Trapani, the editor of Lifehacker, is willing to suffer through doing her income tax return both ways in the name of research. Her weekly feature, Geek to Live, appears once a week on Lifehacker. Subscribe to the Geek to Live feed to get new installments in your newsreader.