Preparing Tax Returns for Individuals
Preparing Tax Returns for Individuals
The Pros and Cons of Preparing Taxes Yourself
Doing your own individual tax returns yourself saves you the preparation fees and it assists in getting the forms done in your own time. This is fine if you are fluent and competent in doing your own taxes and if there are not too many “complications”. If you find yourself guessing where to put the numbers, or you are not sure what you can deduct or not, it probably is a bad idea to do your own return.
The bottom line is that if you know what you are doing, there is no problem doing your own taxes. At Torchlight, we have done arduous training to get our Enrolled Agent credential, and do intensive continuing education yearly. It is not a small job keeping up-to-date on tax law and regulation, and it may not be worth your time and effort for one tax return.
Preparing your individual tax return is a hassle for many people. They do not know the nomenclature. They do not know the rules. They spend hours and even days getting the records together and preparing their tax return. Oftentimes, they spend hours on unnecessary paper work. An example of this is the person who drives as part of his work gathering all his receipts for gas and maintenance, when he gets a far larger deduction reporting his mileage, and does not need the receipts at all.
There are also people who save money on the tax preparation fee, but spend far more money on taxes than they have to. The taxpayer should look at this total tax bill for the year in relation to the tax preparation fee. If he has any uncertainty on his tax preparation skills, he would be wise to seek an EA he can trust.
At Torchlight Tax, we save our clients in the aggregate far more in taxes than they ever pay us in fees.
Things you Need to Know
CPAs, Enrolled Agents (EAs) and tax lawyers are the only tax professionals who are required to pass professional exams. The “licensed tax preparer” only has to send off an application and fee to be licensed and receive his “Professional Taxpayer ID Number”. Some licensed tax preparers may have trained on their own or in their company. Some do a decent job.
These professionals are going to cost you some money and it is good to weigh up its real worth to you before hiring a pro of any kind. Taxes are not going to go away, so assessing your current position now and into the future would be a good idea, so future planning is taken care of.
On average 13 – 16 hours is spent by taxpayers completing individual tax return form 1040. A good Enrolled Agent can save you this time, save you money finding tax breaks you missed, and complete a return that will stand up in event of IRS audit. He can also advise you on how to set things up to save you future tax dollars.
The Up Side to Professional Advice
Perhaps the greatest upside of having a tax pro do your individual tax returns for you (apart from the relief of stress of getting it right and in on time) is that it is assured of having no “holes” and is complete – meaning you minimize what you pay and maximize what you get back. There is no looking over your shoulder going into the future.
The tax professional can also defend your tax position in case you get audited by the IRS.
Best Advice for Doing your Tax Returns through a Tax Pro
In conclusion, if your income situation and your tax knowledge makes filing a tax return easy and you are confident you are doing it right, there’s no reason for you to hire someone to do your taxes. But as you grow financially — adding investments, a home, a spouse, a second income, start up a business, have an online business and are receiving income from various parts of the country or world, etc., you probably want to use an enrolled agent.. The more complicated your individual tax returns get, the more likely you’ll want to employ an EA.
Even a simple return is simple only because you understand the basic rules and nomenclature. Low Income wage earners with only W-2 incomes have missed out on thousands of dollars of refunds from the Earned Income Credit and Child Tax Credit because they did not know what they were doing, and filled out their simple tax return in a way that disqualified themselves from these credits.
The basic rule of tax filing is KNOW BEFORE YOU GO.
Also, while many CPAs do a fine job on taxes, their education and training focuses more on ‘standard accounting procedures” and “financial reports”. If you are a publicly traded corporation, a CPA needs to review the company books and oversee the financial reports. This training is not tax training. The individual or small businessman (sole proprietor, partner, LLC, S-Corp, or small C-Corp) is usually better served in tax matters working with an EA – America’s top tax specialist. The typical EA is or has a well-trained bookkeeper in his employ, and spends 90% of his time doing taxes. He earned his EA credential by passing a series of rigorous tax exams, and all his continuing professional education (mandated by the IRS) is on taxes.