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.
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
To help you decide whether to do your own taxes, I offer three questions that can help you frame the issue:
1. Are you prepared to give your taxes your time?
In 2007, the IRS estimated that the average taxpayer needed 24.2 hours to do his or her 2006 tax return, 52.2 hours if a Schedule C for business or a Schedule E for rental properties was filed.
Filing online through the IRS Web site, 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 what the records you’ll need to do your taxes. Not sure? No problem. MSN Money has a checklist that can help.
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 2009 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.
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.
A growing number of individuals are filing electronically – more than 90 million taxpayers filed their 2008 returns that way. Much of this growth has come from professionals filing their client’s returns electronically.
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.
Pay for advice, not typing skills
There are four basic categories of tax preparers: storefront agents such as those at H&R Block, certified public accountants, enrolled agents and lawyers. It’s not the title that’s important. It’s the way the preparer approaches your return.
If you go to a tax preparer who just takes your numbers and inputs them into your return, I believe you’ve wasted your money and time. The key is finding an individual who specializes in taxation and keeps up with tax trends and changes in tax law. What you should pay for is advice and direction. More specifically, here’s what to expect:
A good tax preparer starts by asking a lot of questions. The only way you’ll get your money’s worth is if the preparer understands what you do and how you do it — and then scours for every legitimate deduction.
A good preparer focuses not only on your 2009 transactions, but also on how you can reduce your 2010 taxes.
Clearly, a tax attorney is going to be more expensive than an enrolled agent or a storefront tax preparer. But if your income justifies it, the more sophisticated advice and direction should more than offset the additional cost.
If you do nothing else, get a checkup
Again, I’m biased. If you choose to do your own taxes, fair enough. But let me make a suggestion: Consult with a good tax professional at least once every three to five years — just to find out whether you’re missing anything.
If you’re starting your first job, for example, you may not know that you could contribute to a Roth IRA.
You can’t successfully play the tax game if you don’t know all the rules. That’s why I think everyone should — at least occasionally — pay a professional.