THE UPS AND DOWNS OF PREPARING YOUR OWN TAX RETURNS
With personal computer tax preparation software packages now available for as little as $25, many taxpayers are considering preparing their own tax returns, but questions are raised as to how much money will really be saved by not using a tax professional.
The taxpayer may be able to acquire all of the applicable rules and regulations by simply purchasing a current tax preparation software package, but what the package will not provide the taxpayer with is something just as valuable, experience. Taxpayers typically prepare one tax return per year, while tax professionals prepare hundreds of tax returns every year. This experience builds judgment, wisdom, and an ability to deal effectively with the IRS and all of its regulations. The combination of these features more than justifies the cost for a professionally prepared return.
A taxpayers with a business, property, stock investments, bond investments, or mutual fund investments will likely profit from having a professional prepare the return, as will taxpayers who have purchased a home in the current year.
Tax professionals are able to spot errors in third party documentation, like 1099s, W2s, mortgage documents, and IRS letters. Tax professionals will also be able to make suggestions regarding the archiving of records, personal finance, business finance, family finance, gift planning, and/or estate planning.
Tax software, is very good at computing the information keyed in, in fact most tax professionals use some sort of tax software themselves. However, tax software can not determine whether the user has entered the correct dollar amount, or if the user has made a careless error and keyed information into the wrong box on a form. In addition, tax software has no capacity to determine the basis, or depreciable cost, in a business or rental asset. Also, tax software packages generally provide little or no support for state returns. Finally, tax software will not be of any help if a taxpayer is audited.
Taxpayers preparing their own returns should consider having a professional review them every third year, as these are the open years for amendments.