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.

Partnerships & LLC's by Carolyn Flaherty

I enjoy working with partnership and LLC entities because, although the IRS requirements I must affect are complicated, the end result is intended to be one of common sense. This result is to me a pleasant & refreshing rarity in the Internal Revenue Code. Whenever I get stuck trying to unravel the applicable tax codes; I always return to the partnership/LLC agreement for guidance and then ask myself, would this calculation make economic sense?

Taxation of pass-through entities is a unique area of taxation. Determining the amount of taxable income at the partnership or LLC level is done in a similar manner as for any other business organization. However, once taxable income is established, there is another more complex computation that must be performed: the allocation of income, gains, losses and the determination of distributions to the underlying partners/members.

IRS guidelines and terminology surrounding allocations is complicated and technical. However, the intended end result is to ascertain the intention of the members and enforce this intention in a way that achieves the economic reality of the deal.

When it comes to partnerships and limited liability companies, the agreement is the law. My job is to gain an understanding of the agreement and apply this understanding without exception. As an avid reader with an analytical mind, I enjoy reviewing and interpreting the agreements and making sure the members have an understanding of any conflicts or potential pitfalls in their agreement. Many times what is in the written agreement does not reflect the expectations of the members, at which point I am able to show them why and help them revise the agreement accordingly.

Of course, it is inevitable that because the road through the Internal Revenue Code is a convoluted path to common sense, I find myself attempting to explain the results of a partner/member’s allocation in layman’s terms. Although this can be difficult to clarify in a non-technical manner, I have to admit that the “ah ha” moment when a client sees the reason and benefit of the transaction’s form is extremely satisfying for me.

I am a fervent proponent of the limited liability company as a business model for several reasons. Limited liability companies avoid the double taxation inherent in regular corporate entities, they afford legal liability for the members (typically owners will not be personally liable for business debts of the company and therefore creditors of the company can not peruse personal assets for business debts), and they offer amazing flexibility in how members share in the economics of the deal and manage their business.

Of course, there are many considerations when choosing how to organize your business. You should always consult an attorney as well as a Certified Public Accountant when choosing your entity type so they may weigh the tax impact, your personal goals and the legal implications of the deal. I also advise that if you choose to organize your business as a partnership or limited liability company you carefully review and understand your agreement and it’s implications before signing.

Meet our Staff: Carolyn Flaherty

I am Carolyn Flaherty. I have had the pleasure of working for PRR, LLC for about ten years. Prior to coming to PRR, I worked in the Boston office of PWC in the financial services tax group under several dynamic and inspiring partners. At PWC I learned the complex issues that surround partnership taxation and became a partnership specialist. After having two children within seventeen months, I decided that I needed to work closer to home, (home being Wrentham MA). I was extremely lucky to find a local firm whose needs fit my expertise. In the beginning I worked only seasonally for PRR completing returns for a grouping of partnerships that deal in race horses, several real estate venture capital partnerships and a historic sightseeing business, (to name a few) and assisting with the tax season rush. I have evolved to become a year round part of the firm.

During the past ten years I've had two more children to round out our household with two girls and two boys ranging in age from twelve to three. PRR has offered me the flexibility to be there for my family while still continuing and growing in my career as a CPA. Professionalism, Responsibility and Respect are not just buzz words or ideals we offer our clients. They are the culture at PRR and the reason that our staff chooses long term careers with the firm. The members of our team treat each other like professionals allowing us to take care of our personal commitments while trusting we will serve our clients well. The team takes responsibility not only for their own workload, but is there to help and support each other when needed. Each and every member is reliable. They work efficiently and effectively. Because of this culture, we are all able to enjoy our work and our personal passions. I truly feel blessed to be a member of this team.

When people ask me what I "do," I usually respond by saying that I am a CPA. However, in reality, I am much more. I am a proud mother and an avid reader. I enjoy yoga and time at the gym. I like to garden and cook for my family or whatever crowd of people happen to be at my house at the moment. I work hard and I play hard. I love music, dancing, cats, shoes, horror movies and a good martini. I am a wife, an aunt, one of four sisters, and a daughter to two loving and supportive parents. I am active in our church and enjoying teaching CCD. I am able to be all these things and be a professional because I am part of an amazing team of CPA's at Pavento, Ratcliffe, Renzi & Co., LLC.

Meet our Staff: Tish Michelson

My name is Tish Michelson and I have worked at Pavento, Ratcliffe, Renzi & Co., LLC (in one form or another) since 1993. The year is easy for me to remember because it is also the year that I married. My experiences at PRR have included being a full-time employee, 2 maternity leaves and several variations of part-time employment. The past 17 years have flown by, due mostly to the fact that everyday in public accounting brings something different to do. This week I may be auditing and next week I will be preparing individual tax returns. This week I may do a financial statement compilation and next week I may visit a client to review their monthly close. The various types of engagements I work on keep my job at PRR interesting. I also enjoy the flexibility of public accounting as it allows me to work around the schedules of my 2 children and husband. When I am not at work I am shuttling my two children to and from their numerous activities. My life is actually much less hectic when I am at PRR.