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Is it Better to Do Your Own Taxes or Should You Hire Someone?

This is an extremely touchy subject and I will do my best to present both sides fairly.  First let me start by saying, it NEVER hurts to have a reputable CPAs, EA or Tax Accountants signature at the bottom of your tax return.  However, because the services of these individuals cost the taxpayer money, many people try to avoid them.

The rule of thumb is:  If you have a regular 1040 and maybe a Schedule B.  It might be easy for you to do your own taxes.  However, if you have a Schedule A, C, D, E, F, H or J, it may be best to hire a tax professional. 

Why?

Well, Congress, votes in dozens of new tax laws each year.  (Tax Preparers in California have to renew their Tax Licenses each year due to all the changes that Congress implements) The major tax software companies keep up with these new tax laws and include them within the software to help you complete your own taxes.  No problem there, except, there are a few cases where you need to understand the tax law in order to correctly complete the tax return.  Most times the tax software will ask you enough questions to trigger a correct tax return. 

The problem is, when you get into Schedule A, C, D, E,  F, H or J, there are more then a couple deductions that you may not be aware of and the software may not ask you about! AND you may trigger an AMT.  If you understand exactly what and how the AMT works then you are ahead of the game and perhaps doing your own taxes may not be such a bad idea.

Yet, there are other factors that come into play. For example; you have a small home business and you have product that you sale; should you use the cash or the accrual method?  Or you use your auto for your small business, you read the instructions on weather to take the mileage or actual cost of operating your vehicle for business; will you understand the out come of this decision in the coming tax years? (Its not like you can change it whenever you want)

 Another example;  if you own rental property, do you understand the tax difference between  "replacing" the rental property roof and "repairing" the roof? 

An even more complex question is; you decided to earn a little extra money by renting out the garage area that was turned into a "in-law" studio.  You don't charge much rent; your tenant pays you in cash and by check.  Should you report this income and if so, how do you get your tax deductions?  And what will happen if you report the income and then next year, you decided to sale your home?  If you totally understand the ramifications of such a situation, especially if you live in California and your tenant wants to take the Renters Credit and puts your name and address down as his landlord; then you might be ready to do your own taxes!

An even worst case of taxpayers doing their own taxes is, when they do Schedule D and they forget to prorate the date acquired with the date sold and the basis of the stock when stock was purchased at different times and sold on a single date. 

When you make an error on your tax return, IRS will correct the return for you.  Please be aware they won't go out of their way to make the correction in your favor.

It is becoming increasingly clear that taxpayers may be paying more taxes because they insist on doing their own taxes, even when the tax code is becoming more complex.  By all means if you have a regular tax return, 1040 and maybe Schedule B; do your own taxes.  However, if you have a more difficult return, interview several tax professionals until you find the correct match for your personality and your wallet.

 

A good tax professional can save you a lot of money, especially the ones who call you in July and say "Lets go over your tax situation, we don't want any surprises come April 15"

 


 

 

 

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