Should I hire a Tax Professional to do my taxes?
With the tax season approaching I am asked all the time about deciding the best way to prepare your taxes. Ultimately three are really three choices: file on your own, go to one of the large companies that you see in commercials, or find a tax professional. Much of deciding which choice is best for you should depend on the complexity of your taxes and your knowledge of what you are doing. Making the wrong choice can in the end cost you much more than the price of getting your taxes done right.
Doing your taxes on your own.
Many people today believe that it is much easier and cheaper to just go to one of the many websites that offer you the ability to file your taxes for free or for the price to e-file your return. This might be fine for someone who just has an “easy” return where you have a W-2 and maybe some child tax credits but nothing else. When you fill out your return on these sites you are asked a series of questions and from those questions a tax return is created. When I meet new clients I always ask them to show me their prior year’s return. There are many times when going over that return I find things missing that the client says the software never asked them about. I also find that there instances where the client just answered questions wrong which disqualified them from certain tax breaks. By doing your taxes with a live person who knows what questions to ask and what to answer and check on your return you can end up saving much more money than doing it by yourself. I like to give clients the example of cutting my own hair when discussing doing it yourself or getting a professional. I can certainly cut my hair every week and save myself the $25 I pay my barber every time, but I am certain that he does a better job than I can ever do. I would much rather pay him than to mess up my hair doing it on my own. I can’t tell you how many times someone did their taxes on their own and then got a letter about them missing something or doing something wrong on the return from the IRS. Since they couldn’t get someone from the website to call the IRS to fix it they end up hiring a professional like myself anyway.
Going to a large company.
Going to one of the large companies who do taxes can sometimes be hit or miss. While there are times when your prior year taxes are done right by these companies, most of the time they are horrible. Something that you need to realize is that most of the time when you go to get your taxes done they are being prepared by someone who barely knows more than you about doing taxes. These companies hire seasonal employees who don’t have any knowledge outside of the few weeks they are trained right before the start of the season. During the training they are taught how to do basic returns and use much of the same software that you could download on your own. If you are lucky you might get a preparer who has been doing it for a few years and has some further training than the classes. But for the most part you should not take your taxes to one of these places if your return again is more complex than a simple 1040. Small business owners and people with other types of forms that need to be filled out doing the return should really find a true tax professional. If you are worried about a professional being more expensive than going to one of these places, you will be amazed to find that many cost about the same and in many cases much less than what the stores charge. I know the “interest free” advance checks those places offer can seem very enticing. But trust me sometimes making sure it is done right is worth the wait.
I think it is important to first define what makes someone a professional at doing taxes. A professional is someone who does taxes on a regular basis. The person has a formal education and takes classes throughout the year to get the knowledge, along with the credits needed, to know all the different changes and codes that occur pretty much every year. If you want your taxes done right you should hire someone who does this as their profession…not someone who does this part time during tax season. One of the best parts of hiring a professional is that you build a relationship with the person doing your taxes. I meet with many of my clients on a monthly basis to not only talk about their tax return but many other things that not only can help them but things they need to do throughout the year. If you are a small business owner you will need someone to help you with things such as quarterly estimates, sales tax reports, payroll, cash flow reports, forecasting, and budgeting. You cannot do all these things by meeting a complete stranger once a year. I also talk to clients who don’t own businesses on a regular basis about retirement, financial planning, and budgeting. There are things that you can do during the year in these areas that can have a huge affect on your taxes. When you hire the right professional it will be well worth the price you pay when compared to doing it yourself or going to one of the large companies.