Friday, February 5, 2010

CPA or Software

People look at me funny when I say that this is my favorite time of year. I love tax time. It’s true, I am a nerd - I think my love for it has to do with the planning piece. That‘s neither here nor there. During this time of year, many people ask me which I think is better, tax software bought off the shelf or a professional CPA.

I have to disclose my bias here, I am an accountanttaxes by training and most of my college buddies are practicing in firms across the city. However, I do see value on the other side of the fence as well. Let me break it down for you.


I must say, the idea to create tax software was one of the better uses of technology over the past 20 years. What did we do before the question and answer personal income tax format!? At the formation of our tax code, the income tax system and the 1040 specifically, was intended to be simple enough for an 8th grader to complete. Whether or not the government succeeded at that level is… debatable. Truth be told, the software out there is a fine solution for those of you who have a relatively straight forward tax situation. Even if you had a scenario such as the first time home buyer credit take place last year, the software is robust enough to easily guide you through the maze. Most software now even offer a storage function that saves your past returns in electronic format for up to 3 years for no extra cost. (**side note: please also print out a copy of your return and save it for at least 10 years**) This is nice and can provide a valuable reference point when doing your taxes year to year assuming that you completed your return correctly in the past.

Which leads me to my critic of the tax software world. Ultimately the software is only as good as the user answering the questions. Let’s face it, most people do not have a clear understanding of the forms they are completing and would have no idea if a specific schedule were missing. At the end of the day this is the biggest and most looming issue out there, so much so that any other issues I might have had are irrelevant.

Certified Public Accountant (CPA)

I am only going to talk about CPA’s here, there are companies out there that offer tax preparation by folks who are not CPA’s, I would just as soon buy the tax software and attempt it myself. A CPA is a professional who has completed rigorous collegiate education, has passed an even more rigorous series of exams and has logged significant work experience. Needless to say, using a CPA will probably cost you a few more bucks than purchasing tax software but you get what you pay for.

The biggest plus that comes from working with a CPA, in my opinion, is not only the fact that you have a seasoned professional completing your forms; but it is that they actually sign the return as the preparer. If your return is audited by the IRS, the CPA that signed your form can act as support when generating responses and can help answer your questions about what is being requested.

For many people the cost of working with a CPA might not make sense until their financial situation becomes increasingly complicated. Every person’s financial scenario is completely different, choosing between tax software or a public accountant is not only a dollars and cents choice but also a personal preference. Do what feels comfortable.


  1. Some very good points. I recently read an article about what to use to prepare tax forms and I think a good suggestion is that people have their returns reviewed at least once every 3 years. This will allow for amended returns to be filed if something is wrong. The IRS will not give refunds on amended returns after 3 years of the due date. Another cost savings hint is to organize your tax documents, this will save you a lot of money if you have everything lined up. One thing that I think most people don't know is that you don't need to bring in your receipts for everything. I suggest bringing in a sheet of paper will totals of amounts - and if more information is deemed necessary, then you can hand it over. Another tip for people with a lot of tax items that need to be included in your return - wait to send in your information until you have it all, or think you do. Adding things to a return over and over takes much longer to prepare than doing it all at once.

  2. Great comments, very valuable! Thanks Clark.