Should I Prepare My Own Tax Return? by Carolyn Flaherty

Whether or not you should prepare your own tax return is largely a subjective determination. There is no formula which can tell you that if you make “xyz and have these investments, do not pass GO! Proceed directly to a professional!”

There are of course some important things you should consider in making the decision. Moreover, you should understand what you want from a tax preparer and where you will get it.

First, you must weigh the value of your time against the value of the money you will spend to hire a professional. Many people simply have neither the time nor the desire to do their own return. This is understandable considering that not only must you compile all the necessary paperwork but then you must also properly record information on the oh so intuitive tax forms and file in a timely manner. Life is busy, taxes are not your job, and last I checked preparing a tax return was not on the list of most popular leisure activities.

There are many free and inexpensive programs that will walk you through the process of inputting your data. These programs are extremely helpful and as accurate as the information you put in to them. That said, the interview process they provide can be time consuming and assumes that you know the implications of the questions being asked, how to obtain the information required and what the benefit will be to you. You may spend a great deal of time pulling together records only to ascertain that you are not eligible for a deduction.

Second, how complicated is your return? Do you itemize your deductions? Do you have children, children with earned income, children in college? Do you have dependents over 18? Do you run a business or rent a property? Do you work from home? Do you maintain investments in the stock market? Do you buy and sell investments frequently? Have you bought or sold a home during the year? Do you work in one state, but live in another? Do you invest in energy efficient property? If you are answering yes to any of these questions, and the average taxpayer will, then there is the possibility that you could be missing opportunities for deductions and perhaps more importantly for tax planning to minimize your liability over time.

Let’s face it; the tax code is complicated and constantly changing. In recent years the changes have been coming in rapid fire. As a professional, keeping up with the changes is difficult. You must assess whether or not you are comfortable with your ability to keep up with the law. Certified Public Accountants are required to renew their license every two years and must have 80 hours of continuing education for each renewal period. This requirement is the profession acknowledging how important it is to be constantly educated.

Third is the dreaded and misunderstood AMT or alternative minimum tax. I will paraphrase the best explanation I have ever heard with regard to AMT: Because you are investing wisely, managing your finances and tax planning well, the IRS is not getting what they expected from you. Therefore they will recalculate your tax liability to make sure they get what they want. AMT used to be a “rich” man’s penalty, but is affecting the middle class on a swiftly increasing scale. AMT calculations are complicated and cumbersome and best left to a professional.

Finally, what is your risk tolerance? The most subjective piece of this puzzle boils down to how confident you are interacting with the IRS. From the point of filing a return, asking a question, receiving notices, correcting mistakes, or worse yet, an agent questioning tax positions; you are having a “conversation” with the IRS. Many people would rather have a mediator between them and the IRS, that being their CPA.

Very few people are excited about handing money over to the government. Preparing tax returns is not something people look forward to and indeed many resent it. Then to add insult to injury here I am implying that it may be best to PAY to figure out how much you owe Uncle Sam. That just feels like being kicked when you are down.

However, if you choose the correct professional, then you are not going to a “storefront” preparer so they can put numbers in boxes. You are entering into a year round relationship with a trusted advisor. You are soliciting the assistance of a virtual foreign language interpreter (the language being the tax code). And, you are hiring an intermediary to interface with the IRS. Finally, you can free up your time to do what you do best and enjoy most.

I can sincerely say that there are friends and family members that I have advised to prepare their own returns. I feel good telling them that because I know them, they’ve shared their basic financial picture with me and, if needed, I am here for them as a trusted advisor. There are also those who are simply confident and capable and maybe just enough interested in taxation and finance that they prefer to do their own return. I take my hat off to those people. My grandfather reads the tax code for fun! These people exist…

Regardless, I strongly recommend that once every three to five years you go for a financial “check up.” Allow a professional to review several years of returns and make sure you are not missing any deductions or planning opportunities. If nothing else, this will provide you security in your decision to continue preparing your own tax return.