Should I Do My Own Tax Return?

Have any of you walked into an Office Depot or Staples and not seen tax preparation software for sale? It�s everywhere. It�s so easy. You can even export your Quicken records directly into Turbo Tax. And, presto, a tax return! Have you ever wondered whether the tax return was actually correct? Or whether the computer took advantage of the tax laws in your favor?

We have had a chance to review some tax returns that were prepared by well-intentioned Do-It-Yourselfers. In some cases, the results were accurate. On other returns, we found minor mistakes that were not significant enough to warrant a change. In about a third of the returns, we found significant mistakes or misapplication of tax law. By fixing these errors, we have saved the taxpayers anywhere from a few hundred dollars to several thousand dollars in taxes.

There are people who can prepare their own tax returns and come up with accurate results. However, not everyone can. We would like to identify for you those situations in which people should hire a professional to prepare their tax returns. Here is our list. (See if you can find yourself on it.)

  1. You have a small business.
  2. You want to put a retirement plan in place and need help choosing the correct one.
  3. You have investments in stocks or mutual funds. (There are a host of subtle tax issues relating to foreign taxes, U.S. Government interest, and nontaxable income to deal with.)
  4. You pay for college or pre-college education expenses.
  5. You own stock options or belong to an employee stock purchase program through your employer.
  6. Your children (under age 14) have investment accounts.
  7. You own a rental property.
  8. You are subject to alternative minimum tax or you have an alternative minimum tax credit.
  9. You are a schoolteacher with out-of-pocket classroom expenses.
  10. You moved into or out of Maryland during the last tax year and need to file more than one state income tax return.
  11. Either you will receive a very large refund, or you owe taxes (and possibly penalties) with the return.

Here are some other circumstances that may indicate you need professional tax planning help:

  1. You pay, or should pay, estimated taxes.
  2. You are a high income individual subject to phaseouts.
  3. You switched from the tax preparation software you used for the previous tax year to a different program and you did not properly identify carryover items such as IRA cost basis, capital loss carryovers, depreciation expenses on business equipment or rental properties.
  4. You are not using any tax preparation software at all (i.e., you are preparing your tax return by hand).
  5. Tax terminology sounds like Greek to you.

What advantages does a BWFA professional tax preparer bring to bear?

  1. The experience and knowledge to identify and apply tax savings opportunities
  2. The experience and instinct to know when to dig deeper into your records in order to avoid problems with the IRS
  3. The ability to identify and help you address general financial non-tax issues.

We have observed that most people would prefer to prepare their own tax returns, save a little money, and get the job done with a minimum of effort. However, our experience tells us that at least two thirds of the people who choose this approach do not achieve these objectives.

If you find the process of preparing your own tax returns frustrating, or if you are simply unsure of your results, we are here to help. Give us a call.