Let me start by saying that I’m a big fan of most tax preparation software. Taxes are a cost in and of themselves. Any way to automate the prep and filing process in a compliant and inexpensive way is A-OK in my book.
But even though they’re easy to use, Turbotax and others are still software programs that have limitations just like any other robot. When your financial picture becomes sufficiently complicated, spending the extra cash to hire a professional can actually save you money in the long run. Here’s my take on when you should ditch the software for an experienced professional.
What You Should Know About Tax Prep Software
When people talk about tax in general, there are really two sides to the conversation: tax planning and tax compliance.
Tax planning is essentially planning transactions before they happen, and making thoughtful decisions that will minimize the total amount of tax you owe. Tax compliance, on the other hand, has to do with preparing your return, filling out forms, and reporting on transactions that have already occurred.
While tax prep software is great and all, it’s really only useful for tax compliance. The more complicated your financial profile becomes, the more decisions you’ll have to make, and the more important tax planning will become.