Tax Thursdays: 3 Reasons Not To Do Your Taxes Yourself
Turbo Tax and TaxAct, the two market leaders in Do It Yourself (DIY) tax software make up 78% of the DIY tax preparation market. A market that grew 11% in 2012. Obviously a growing number of people are choosing to prepare their own taxes, but there are times when I think you really do need to talk to a tax professional. I am always in favor of clients who have a good handle on their own finances, so why am I telling you not do your own tax return?
In 15+ years of doing tax returns there have been some individuals who used DIY software and then came to me afterwards for help. I try to track where clients come from and looking back, my experience breaks down like this:
- Twice a prospective client paid me for an hour of my time, I looked at the individual tax returns and told them what they were doing was fine and it was not worth them paying me to do their taxes.
- One individual with a couple of businesses still likes to do the returns himself, but pays me for 1-2 hours of time each year to sit down with him and review what he has prepared. We have done that for 3 years and every year I have found mistakes, but his errors are getting smaller.
- Approximately 12 times I have saved the person more in taxes than the fee to have me do the return for them. I don’t know the average but there have been at least 2 of those 12 that were in excess of $2,000 and one that was in excess of $12,000 and one guy I probably kept out of jail because IRS enforcement agents had already shown up at his house.
While I don’t get a ton of DIY tax software users, the examples above are still quite shocking. Your situation is worth a professional look to ensure you’re paying back only what you owe come tax time.
Here are 3 Reasons Not To Do Your Taxes Yourself:
1. Any time you have an unusual transaction such as buying/selling real estate, exercising stock options, receiving an inheritance or rental and royalty income. It’s likely you’ll only need to see the tax professional that one year you have an issue, but it’s worth it to get the extra guidance that year. DIY tax software is designed to handle the 80% of tax returns that don’t have any out of the ordinary tax issues. An uncommon tax situation will likely either not be programmed into the software or the software won’t be able to consider all the options you have and questions you should ask to be sure you minimize your tax liability.
2. If you own a business, Schedule C, partnership, S or C Corporation, you should have your taxes done by a professional. It is not a matter of just doing the tax return when you own a business. There are inevitably questions that come up during the year and you need to have a relationship with someone who knows your business and can offer advice when you have questions. The DIY software is not going to offer any assistance when you want to consider the tax implications of buying a piece of equipment in December. In addition, I don’t know many business owners that have a strong accounting background, so it takes them time away from doing what they really love to do.
3. If you are totally uncomfortable with taxes, numbers or software. I have some clients that honestly have very simple returns, but their personality is such that when you mention numbers and the IRS, it completely stresses them out. It is worth their piece of mind and time to have someone do their taxes for them.
If all you do is work and get a W-2 and maybe have interest or dividend income or even buy and sell some stock, the DIY software can likely handle your taxes just fine, but for a small business owner who fit in one of the 3 buckets above, opt for a tax professional.
About the author: Wray Rives is a Certified Public Accountant and Chartered Global Management Accountant, learn more about what he offers at RivesCPA.