How to Decide to Do Your Own Taxes or Hire Help
March 19, 2007
The Financial Planning Association (FPA) provides monthly articles to members of their publishers program on a variety of personal finance topics. As this year’s tax deadline of April 17 approaches here are some tips from the FPA to help you decide whether to do your own taxes or hire a pro.
Doing it yourself. If you meet the following circumstances, you can probably do your taxes by yourself:
• You work for only one employer who gives you a W-2 tax form each year.
• You earned less than $1,500 in taxable interest in 2006.
• You rent your residence and don’t own a home or vacation property.
• You don’t have kids or other dependents.
• You don’t have any complex investments such as a partnership, a trust or extensive stock holdings.
• You really like numbers, are willing to investigate annual changes to the tax code and doublecheck your work.
• You’re comfortable doing computations by calculator or by hand or by using tax software on your computer or online.
For do-it-yourselfers with computers, the Internal Revenue Service’s FreeFile program is aimed at some 95 million taxpayers with an Adjusted Gross Income (AGI) of $52,000 or less in 2006 to prepare and e-file their federal tax returns for free. E-file, the IRS’s online tax filing service, is available to both tax professionals and individuals with compatible home computer tax software, find more e-File information here.
Seeking help. It generally makes more sense to get help with your taxes if:
• You’re buying or selling property.
• You own a business or rental property.
• You get regular income from a trust or partnership.
• You trade investments frequently or have a complex portfolio.
• You’ve undergone a major financial impact during the previous tax year, such as a divorce, death of a spouse, an inheritance or a move of more than 50 miles for a new job.
• You are supporting a child between the ages of 19 and 24 who is a full-time college student.
• You don’t have time to do it yourself.
• You are subject to the Alternate Minimum Tax (AMT).
• Your income has increased by a considerable amount from the previous year.
You’re still legally responsible for your return even though you have professional help, so it’s important to choose a qualified professional to help you. The IRS gives the following suggestions for finding a qualified preparer:
1. Ask how they charge. Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
2. Don’t believe promises. If a preparer guarantees results or bases fees on a percentage of the amount of the refund, be suspicious. Tax preparers aren’t allowed to charge a contingent fee (percentage of your refund) for preparing an original tax return.
3. Ask what preparers will need. Reputable preparers will expect you to provide receipts and other paperwork if they need it to justify the return they’re preparing for you. You need to keep scrupulous records.
4. Make sure you know exactly who’s preparing your return. It’s OK if your preparer has onsite staff assistance in preparation of your return, but the person you hire needs to be the person who reviews your return and signs off on it.
5. Investigate your preparer’s record. Check with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents.
6. Check your preparer’s credentials. Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.
7. Stay aware of tax scams. Newspaper business sections and news programs focus on abusive tax shelters and scams. So does www.IRS.gov. If you have a preparer encouraging you to get involved in tax avoidance strategies that are overly complex, check them out before you agree to jump in.
One thing you may want to do before deciding to let someone else do your taxes vs. doing it yourself is to actually do your taxes online for free to determine what you owe or will be getting in a refund.
For example, this weekend I spent about 45 minutes using Tax Cut online and did our taxes. You don’t have to pay for the service unless you actually print out the forms and file. So I was able to go in and completely enter my tax information to the point of determining the results (unfortunately I owe). Now I’m faced with the option of paying the 42 bucks or whatever it is for their service and to file, or I can take that information and determine if I could see any additional benefit by hiring someone else.
I planned on letting someone else do my taxes this year because my wife and I both had new jobs, we purchased a home and had a move over 50 miles due to employment so I figured I could get more accurate results from a professional. But now that I see how much I owe and had time to use the software to maximize deductions I don’t think a tax professional would be able to reduce what is owed enough to offset the additional cost associated.
If you have time anyway it might be worth going through the process online to see what the bottom line is, and then decide whether or not you think a professional can do better.
[...] How to Decide to Do Your Own Taxes or Hire HelpFor do-it-yourselfers with computers, the Internal Revenue Service s FreeFile program is aimed at some 95 million taxpayers with an Adjusted Gross Income (AGI) of $52000 or less in 2006 to prepare and e-file their federal tax returns … [...]
[...] How to Decide Whether to do Your Own Taxes or Hire Help – Taxes suck, there is no arguing that. Since we have to file every year how do you decide whether to do it on your own or get help? [...]
I’m a paid tax preparer (a CPA) and find that most of my new clients come for the reasons you list. This year I added 10 new clients. They had an inheritance, a death, a new business start, a letter from the IRS(!), a move, a new job; they started working from home, became an independent contractor, sold a business and just thought H&R Block wasn’t personal enough. Sometimes around March (tax season peak) I wish for the “easy” single W-2, no itemized deductions sort of clients, but then I think, “Why would they come to me, a CPA? They can do simple returns themselves.”
Carol, CPA