Last Minute Tax Filing: Doing It Yourself Vs. Hiring A Professional
With the April 18th, 2016 tax filing deadline right around the corner, last minute tax-preparers have a crucial question to ask: Should I file my own taxes or hire a professional to do it? Whether or not you are late on filing taxes or not, understanding which option is best for you is still crucial. Each choice has its own sets of pros and cons. We spoke with accredited tax professionals to get the dish on what you need to consider in order to make the best tax filing decision and avoid making what could be detrimental tax filing mistakes.
Here’s what you should consider when making this important tax filing decision:
CPA Jonathan Rivlin notes, “It’s not the dollar amount of income that should determine [whether you file your own taxes], it’s the complexity. Some people with modest income have complex situations and need a professional. Some people have higher incomes but little complexity and might be able to do it themselves.”
Eva Rosenberg, an enrolled agent and founder of taxmama.com, recommends filing your own taxes if your financial life is “straightforward and uncomplicated.” She mentions the following as indicators that filing your own taxes is the best route:
- Your income is from wages, regular pensions, social security income, and interest income.
- You have routine dividends – nothing complicated.
- You have IRA contributions with no re-characterizations, and have been keeping track of any basis.
- You have a modest mortgage and uncomplicated property taxes.
- You have children with valid Social Security numbers and with documented child care expenses.
- You have a receipt for every single charitable contribution you make.
- Your children are in college, but don’t have jobs or scholarships or income of their own that might prompt them to file their own tax returns.
MAJOR LIFE CHANGES
“If you had a major lifestyle change (got married, had a baby, bought a house, started a business, etc.), you may want to consider hiring a tax professional to make sure you are getting the most deductions legally possible and you are submitting the correct tax forms to the IRS,” says Yvette D. Best of Best Services Unlimited LLC, a firm that provides personal income tax return preparation and small business start up and consulting services.
When choosing the right tax preparer, she recommends using her AGENT method below:
A – Always use a credentialed preparer. Research their name on the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.
G – Get as much information about their background as possible. Google search their name and business for complaints. Review their business listing at the Better Business Bureau.
E – Always e-file your tax return. Do not use a tax professional that requires you to mail in your tax forms or does not offer IRS e-file services.
N – Never put your signature on a blank tax form or a completed tax return not sign by your paid tax preparer which includes their Preparer Tax Identification Number (PTIN). Any paid tax preparer must include this information on tax returns prepared by them.
T – Always get a copy of your tax return. Make sure to maintain a copy of all tax records used to complete your tax return for your own record-keeping.
MINIMIZING TAX PAYMENTS & AUDIT RISK
If you aren’t familiar with tax laws, you probably don’t want to risk filing your taxes the wrong way. Pamela Kornblatt of The Tax Strategist warns, “Just as I would never treat myself for a medical condition or represent myself in a court of law, so too should anyone not familiar with tax law prepare their own return. Working with a good professional will help you minimize the amount you’ll pay in taxes by knowing what is reasonable for you to claim without exposing you to unnecessary audit risk.” Though tax preparers can be an “added cost, it pays to work with someone who “[knows] the law well enough to ensure you pay no more than you have to.”
Furthermore, Daven Sharma, a CPA & Certified Financial Planner mentions, “When someone is preparing their own return, they are simply focused on getting the job done. A professional [is looking] for opportunities to reduce the tax liability going forward.” He continues, “If you have “rental properties, employer provided stock & option benefits, or business income,” you’re better off working with a pro.”
In Sharma’s words, “Tax returns are no longer a stand-alone year-by-year computation. To generate higher and higher revenues, Congress continuously tweaks the tax laws. For example, many years back, all losses from owning a rental property could be claimed against other income (such as wages, interest, dividends, etc.). When high income individuals started using real estate as a tax shelter, Congress acted and limited the loss deduction for higher income individuals and couples. [Once], I reviewed a self-prepared return, I realized that the taxpayer had failed to claim the carry-forward losses after the property was disposed. Fortunately, there was still time to file an amended return, which resulted in a refund of over $25,000.”
Steven Patton, a U.S. tax attorney who focuses on helping Americans who live or invest abroad, recommends working with a tax pro if you have non-US investments.
“The IRS has created a complicated web of specialized rules and disclosure forms for US citizens who own non-US assets (such as bank accounts, stock of non-US companies, and non-US mutual funds),” Patton said. “Failing to file one of these forms on time carries a hefty penalty, typically starting at $10,000 per form per year. However, the IRS also has several amnesty procedures taxpayers can use to catch up on delinquent disclosure forms and avoid these hefty penalties.”
If you have foreign assets, it’s crucial to report them properly. A tax pro such as a US tax attorney can help you navigate amnesty programs if you misfile by doing it yourself.
Remember, you still have time before the April 18th, 2016 tax filing deadline to make sure you make the right decision for our unique financial situation. At this point in the game, if you are unsure of tax laws, it’s probably best to make the investment and work with an accredited tax professional who can help you navigate your personal tax landscape. If you fall under the “uncomplicated taxes” vertical, doing it yourself may be the better choice. Choose wisely.
Rana Campbell is a marketing/branding professional who helps creatives & lifestyle entrepreneurs build brands that SHINE in the business world. She is also the host of the Dreams in Drive: No Parking Podcast. Connect with her on Twitter, Instagram, Linkedin, or ranacampbell.com.