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Recent articles by Jeff Schnepper: • How the tax code can help you in a layoff , 1/31/2006 • 7 easy steps to an early tax refund, 1/22/2006 • Do it right: Your 15-point tax checklist, 1/17/2006 More... |
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Even for those with uncomplicated returns, the occasional professionally prepared return is like a checkup with the doctor: You never know what you might find. By Jeff Schnepper Should you do your own taxes or hire the job out? Its not the eternal question, but it is worth pondering because it involves two subjects near and dear to my heart: taxes and money. You dont want to miss deductions, and you dont want to spend too much money. Lets see if I cant help you come to a conclusion. First, a disclosure: I have two law degrees, and Im also licensed by the New Jersey Board of Certified Public Accountants. I make a lot of money as a tax preparer. I have a vested interest. You may decide youre comfortable doing your taxes because youve done them for years. Thats fine. Many people view tax preparation as a puzzle to be completed and actually enjoy the process. (My editor did his taxes for years. He gave up when he had to fill out an Iowa tax form.) MSN Money can make your job easier with an online tax program provided by our partnerTurbotax. But if youre not sure, ask yourself three questions.
Are you prepared to give your taxes your time? According to the IRS (and we know how accurate they are), if you itemized your deductions and had some investment income and capital gains, it took you more than 27 hours to do last years tax return. Thats longer than the year before -- and thats after tax simplification. An online program, or a tax program such as Turbotax, can save you a lot of time in filling out the forms, but you still must organize all the materials. And that assumes you have a fairly simple return with a limited number of deductions. Are you prepared to put up the cash to hire a preparer? Getting someone else to do your taxes can cost you $40 to $50 at the low end -- again, that assumes a simple return -- to perhaps several thousand dollars at the high end with a complicated return. The average for an itemized return is about $200. It's cheapest to get a return done in the Midwest and most expensive in the West. Are you prepared to deal with the complexity of the federal code? One way to find out if youre up to it is to try our Tax IQ test. Including 2005, Congress has changed the nation's tax laws in 37 of the last 40 years. Just since 1986, there have been no fewer than 80 major changes to the tax code -- including the Tax Relief Act of 2000, the big tax cut of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. In 2005, nearly 134 million individual returns were filed -- 68 million of them electronically. Of these, 48 million were filed by tax preparers. Where a tax preparer really earns his money Heres what you really want from a tax preparer. If you go to a tax preparer who just takes your numbers and inputs them onto your return, youve wasted your money and time. What you should actually pay for is advice and direction, and here are three things you should expect:
For example, if you tell your tax preparer that you have three kids, he should go beyond simply taking them as dependents and claiming three additional personal exemptions and possibly the child tax credit. He should ask if youre self-employed (Could you hire the children as employees?) and how youre saving for their college educations. (Is a Coverdell IRA appropriate, or would a Section 529 plan be more effective? Are you at least having some investment income taxed to them at their lower marginal rates?) I dont care if the preparer is a lawyer, a CPA or an enrolled agent. The key is to make sure the individual you need focuses on taxation and keeps up with tax trends. Quite frankly, a lawyer who passed the bar exam 10 years ago and who hasnt updated, or a CPA who spends the rest of the year doing audit work, is useless for tax preparation. All either person will do is put numbers in boxes, and hell ask you for the numbers. Clearly, a tax attorney is going to be more expensive than an enrolled agent or a storefront tax preparer. But, if your income justifies it, the more sophisticated advice and direction should more than offset the additional cost. If you do nothing else, get a checkup Again, Im biased, and if you expect to do your own taxes, fair enough. But let me make a suggestion: consult with a good tax professional at least every three-to-five years just to find out what youre missing. A simple wage earner who itemized saved enough to cover my fee when I told him he could deduct the old clothes he was trashing by donating them to Goodwill or the Salvation Army. After the first year, those tax savings were pure profit for him. Dont minimize the psychological impact of professional tax preparation, either. Theres usually a sense of security in having a professional do your tax return. But that doesnt always work. My father was a construction plumber who usually had a friend do his simple return, and Dad usually broke even. One year, he let me do his return, and I found enough new deductions to get him a $600 refund! I was thrilled, but he never let me do his return again. The big refund kept him awake at night fearing an audit. | |||||||||||||||
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