By Paula Pant, WiserAdvisor contributor
Lots of people honor traditions. Some people eat turkey on Thanksgiving. Some people bake an apple pie on Independence Day.
Me? I abide by a longstanding tradition, as well: I yank my hair out every April, when I attempt to file my own taxes.
Life hasn't always felt this way. Back in ancient times (college), I only had one or two W2 forms and a single mutual fund. I could complete my 1040 without breaking a sweat.
But after I graduated, life became complex. I started collecting both W2 forms (given to employees) and 1099-MISC forms (given to contract-based workers). I earned interest income, dividend income and capital gains -- and I earned these through multiple financial institutions. I sheltered my money through multiple types of tax-deferred accounts: the 401k, the IRA, the Health Savings Account.
My taxes morphed from a breezy afterthought into a paperwork nightmare. That's when my longstanding tradition of growing grey hairs in April began.
This year, my taxes will reflect even more complexity: I own a house, multiple rental properties and a handful of small businesses. My taxes require a depreciation schedule.
Clearly, I need professional help.
And so my cherished tradition of April frustration is coming to a close. It's time for me to hire a CPA.
But should you? Should you file your own taxes, either by hand (long-form) or using software such as TurboTax? Or should you hire a CPA?
As with most questions in personal finance, there's no "right" answer. But here are the factors you should consider.
Advantages to Filing Your Own Taxes:
#1: Strong Understanding of the Tax Code. Years of filing my own taxes have taught me more about the tax code than any human being should know. (I'm half-joking.)
In all seriousness, filing your own taxes is incredibly educational. You'll learn a lot about how the tax system works, and you can then apply that knowledge towards your future tax planning. Yes, you can (and should) involve a CPA in your future tax planning conversations, but you can't outsource 100 percent of your strategic thinking. You'll need to have a two-way dialogue.
#2: Save Money. Assuming you have relatively simple taxes -- such as a single W2 form, minimal investments and a standard deduction -- you probably don't need to use a CPA. (Heck, you probably don't even need to use TurboTax software.) If you fit into this category, as I did when I was younger, filing your own taxes will help you save on the expense of hiring someone else.
#3: Less Time. If your taxes are as simple as described above, then you may actually save time by filing yourself. Most likely, you can complete your taxes in 15 or 20 minutes -- far less than the amount of time it would take you to hire a CPA.
Advantages to Hiring a CPA:
#1: Expert Advice. Your CPA may be able to offer you advice regarding how you can save more money on taxes. For example, you might be eligible to contribute more to your tax-sheltered accounts, claim child care or educational expenses, or claim deductions for adoption, educator expenses and more.
#2: Save Money. The expert advice that you receive from your CPA can translate into potentially saving thousands of dollars on taxes. In this regard, hiring a CPA can be viewed as an "investment."
#3: Less Time. The more complex your taxes, the more time it takes you to file. Your CPA is far more experienced at handling taxes and can knock out the work in a fraction of the time that it takes you.
Which Should You Choose?
You might have noticed that Reasons #2 and #3 for both "file it yourself" and "hire a CPA" are identical. Depending on your personal situation, either option could help you save time and money.
Reasons #1 for both options are two sides of the same coin: You'll either learn enough to advise yourself or you'll benefit from expert advice from an accredited professional.
Given that the advantages mirror each other so much, which option should you pick?
Let's look at a few hypothetical examples.
Mike is 22. He's a recent college graduate with no student loans, and he works full-time as a salaried W2 employee. He rents his home and has no investments other than his company 401k.
Mike is a strong candidate for someone who should file his own taxes.
Jessica is 43. She owns two homes, one of which she uses as a rental property. She has a full-time job as a teacher, but she performs freelance projects during the summertime for extra income. She's recently divorced and has two children, and she's actively saving money in her kids' 529 College Savings Accounts, as well as her own 403(b) account.
Jessica may want to hire a CPA.
Derek is 54. He works full-time as an hourly employee, rents his home and has no investments other than his IRA account. He's single with no children.
Under normal circumstances, Derek would be a good candidate for someone who should file his own taxes. His situation is similar to Mike.
However, Derek feels anxious about his taxes. He's nervous that he might be "doing it wrong" and may be subject to penalties. He can easily afford to pay a few hundred for a CPA, and this expense will help him sleep easier at night.
Derek should hire a CPA.