Should You Have Your Tax Prep Fees Taken Out Of Your Tax Refund?

Should you pay extra to have your tax prep fees taken out of your upcoming tax refund? It sounds like an appealing offer - paying nothing out of pocket. But is it really worth it?

The help of a tax preparation service can make your life easier and potentially lead to savings on your tax bill, but having to pay up front for tax prep services can feel like a hit to your wallet.

One option is to allow the company to take your tax preparation fees directly from your future tax refund. We explore when it makes sense to pay for tax preparation services, when it doesn't, and the logistics of paying.

When To Pay For Tax Preparation Services (And When Not To)

It’s possible to file your taxes without any assistance, or you can hire a tax professional to complete your tax return for you. Let's explore when it makes sense to work with a tax prep service and when it doesn’t.

Who Should Consider A Tax Preparation Service?

Although many tax filers opt for a DIY approach to taxes, wading into the tax code isn’t the best option for some. Tax filing can be somewhat complex, depending on your situation. Even for those with a fairly straightforward situation, going it alone could mean errors or accidentally missing out on potential tax saving opportunities. 

Here are some situations when hiring a tax prep service makes sense:

• You dread tax time. If you find yourself procrastinating and feeling a sense of dread at the prospect of having to deal with your tax return, outsourcing to a professional can help. 
• You have a complex tax situation. Multiple income streams, side hustles, real estate investments, educational expenses, and more can all add up to a complicated tax situation. Generally, it’s helpful to have a professional to work through the details of your situation. 
• You want to optimize your tax return. While you can file on your own, you might miss out on details of the tax code that could lead to savings. The right professional will find all the deductions and credits you may qualify for.

Generally, taxpayers with multiple streams of income, a business of any kind, substantial assets, or unusual income situations can benefit from working with a tax professional. 

Who Should Consider A DIY Tax Prep Option?

Many taxpayers hire professionals to prepare their returns. But sometimes, the DIY route makes sense. Below is a look at some situations when using tax software to file your own return is the best option.

• You have a simple tax situation. If you are single with a W-2 job and few assets, filing your taxes could be a simple process you can handle on your own. 
• You have the fortitude to sort through your documents. If you have a basic understanding of how taxes work and don’t mind wading through the paperwork, preparing your own tax return might not be a challenge. 

If you decide to do your own taxes, there are several free and paid tax software options available to get the job done. 

Should You Pay To Have Your Tax Prep Fees Taken Out Of Your Tax Return?

Once you've decided how you want to do your taxes, the next step is to figure out how you will pay for their services. Some tax preparers require you to pay upfront before anything is filed with the IRS. Others will send you a bill after finalizing your returns. Still others offer an option to pay for your tax prep services with a portion of your tax refund (including most tax software options).

The right payment method varies based on your situation. But if you want to keep things simple, choosing to have the tax preparation company take the funds due out of your tax return is a straightforward option. You won’t have to worry about saving up to pay for an expensive fee. Instead, you’ll pay the bill and receive a smaller tax refund check.

Not all companies offer this option, but may tax software programs do. Make sure to shop around to determine which company offers the most affordable rate for the services you require. If you have to pay significantly more to work with a particular company, it may not be worth the extra expense. 

Where Can You Pay For Tax Prep Services With Your Refund?

If you want to pay for your tax prep services directly from your tax refund, the Santa Barbara Tax Products Group (SBTPG) is typically the back office service that handles it for major tax software options like TurboTax. However, there are also others.

Here’s how the process of paying with your refund works with SBTPG or any other firm: 

1. Choose to pay by refund. Let the company know you want to pay for your tax prep services with your refund. Additionally, you’ll decide where to direct the remainder of your refund amount. 
2. File your tax return. After your tax return is finalized, you can file it. The documents will include SBTPG’s information, which means the IRS will send them your tax refund. 
3. Receive the refund. SBTPG will receive your refund and withhold your tax preparation fees. From there, the rest of the funds will be issued to you in whatever way you set it up - including a prepadi debit card.

The Bottom Line

Overall, opting to have your tax prep services paid out of your refund provides a streamlined way to cover your tax prep bill. The convenience of this service is worthwhile for many. But it’s generally not a good idea to pay significantly more for tax prep services for the express purpose of paying with your refund.