Should you do your own taxes?
Some people can handle them alone. Other folks need professional help. Here’s how to tell which group you belong to — plus a few tips for choosing the right preparer.
It’s not what you know that’s important here. It’s what you don’t know . . . or, more to the point, what you think you know and really don’t.
If you have a simple return, you might consider e-filing or using a simple tax program. But remember, you’re not hiring a tax pro just to put numbers in boxes. Any monkey can do that.
To help you decide whether to do your own taxes, I offer three questions that can help you frame the issue.
Before we get any deeper into this, a disclosure: I have two law degrees, and I’m licensed by the New Jersey Board of Certified Public Accountants. I make a lot of money as a tax preparer. I have a vested interest.
3 questions to ask yourself
1. Are you prepared to give your taxes your time?
In 2010, the IRS estimated that the average taxpayer needed 21.4 hours to do his or her 2009 tax return, 31.9 hours if a Schedule C for business or a Schedule E for rental properties was filed.
Filing online through the IRS website, or through a tax program such as TaxCut or TurboTax, can save you a lot of time filling out the forms. But you still must organize all the materials.
And that assumes you have a fairly simple return with a limited number of deductions. It also assumes you have a good idea of which records you’ll need to do your taxes.
2. Are you prepared to put up cash to hire a preparer?
Getting someone to do your taxes can cost $50 to $100 at the low end — assuming a simple return — or up to several thousand dollars for a complicated return. The average for an itemized return is more than $200.
One consideration: Any fee you pay may be deductible on your next year’s return if you itemize. Tax preparation fees qualify as miscellaneous deductions, the sum of which must be more than 2% of your adjusted gross income before you can claim a deduction.
Taxpayers spend more than 7.6 billion hours and more than $193 billion each year complying with the tax code – and that’s just to figure out what we owe.
3. Are you prepared to deal with the complexity of the federal code?
Because the tax code is so complicated, more than 60% of Americans have professionals do their tax returns. Tax law has had major changes in 44 of the past 47 years. Several tax law changes have been passed in 2010.
A growing number of individuals are filing electronically; more than 95 million taxpayers filed their 2009 returns that way. Much of this growth has come from professionals filing clients’ returns. The IRS wants professional preparers who do a substantial number of returns to file electronically. About 64% of the individual tax returns filed electronically were done by professionals in 2010.
Even though electronic filing has made mathematical errors less likely, many taxpayers still need or want assistance. So if you’ve got the money, and you lack the time, skills or interest to handle your own IRS paperwork, look for a tax preparer who will give you your money’s worth.
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