By Randy Neumann
Is preparing your own taxes getting to be more and more of a challenge? Are you thinking of hiring someone to do it for you? Are you wondering if it will be worth the cost?
There are times in life when you really should turn to a professional for tax preparation. In addition to potentially saving you money, that professional can also help you gain a better understanding of your tax situation year after year.
When should you hire someone else to prepare your taxes? The basic answer is: “When you no longer feel comfortable doing them yourself.” If you are going to buy a home or invest in real estate, if you are starting a business or entering into some kind of business partnership, you really should have your taxes prepared by a professional.
Are you starting a family? Are you getting married or divorced? Are you moving to a new state? These events can complicate your tax picture, so it may be in your best interest to seek the help of a tax professional.
Instead of hiring a professional, why not just buy some software? Good question. Software has no experience. It can’t replace the life experience, the insight and the perspective of a good CPA. Some taxpayers think, “Why should I go to a tax preparer? All he/she does is use the same software that I can buy for $39.99.”
In reality, he/she knows much more than how to use a software program. They have an understanding of the tax treatment of investments, capital gains, different kinds of business entities, W-2 and 1099 status, and other “fine points.” They have a knowledge base you probably don’t have but may need if the tax software asks you a question that thoroughly confuses you.
They know not to claim a deduction that stretches credibility – the kind that hopeful business owners sometimes take; the kind that the Internal Revenue Service finds very interesting. They can recommend adjustments to your deductions and suggest ways to save money this year and in the future.
As a CPA will tell you, the do-it-yourselfers sometimes end up being the ones who need the most help, because they get stuck on some kind of question or because of the ambiguity presented by the software or because they realize they are in over their heads.
Yes, software is terrific – so terrific that professionals use it. And, if your taxes have grown more complicated, you will want a professionally prepared return as a safety precaution. A tax professional who is an Enrolled Agent can even represent you before the IRS should there be a problem.
An experienced CPA or tax attorney can work hard to save you money and also help you make sense of short-term and long-term financial issues affecting your business and your life.
Here’s the story of a man who could have used some expert advice. In 2006, the IRS discovered that he failed to pay $34,023 in taxes from 2001 to 2004. It sent him a bill, which he partially paid. However, when he was informed that he was up for a “big” government job, he quickly paid up the back taxes, as the hearings for the job were but a few days away.
While being interviewed for the position, the candidate said he took responsibility for what he called “careless” and “avoidable” mistakes, while insisting they were “unintentional.” He testified that he used TurboTax to prepare his 2001 return and admitted that the errors were his own responsibility.
Perhaps the most embarrassing moment was when he was questioned as to why he had only remedied the error on back taxes for years 2 through 4. Because the statute of limitations had run out on the 2001-2002 tax payments, the job candidate was not legally required to pay them, so he didn’t, until Senate confirmation hearings were imminent.
Based on the no harm/no foul theory, this candidate, Timothy Geithner, was appointed as the Secretary of the Treasury on Jan. 26, 2009. And part of his job is to supervise the Internal Revenue Service!
So, the moral of the story is, get good advice from a qualified tax professional.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann CFP® is a registered representative with securities and insurance offered through LPL Financial. Member FINRA/SIPC. He can be reached at 12 Route 17N, Suite 115, Paramus, 201-291-9000.