As a CPA and provider of tax services, I have seen thousands of tax returns and have dealt with various tax preparation software. Through these experiences I have dealt with many different clients from all walks of life and sizes. Each individual or small business owner has their own method of recording their transactions and maintaining tax records. Are these the numbers you are comfortable with? What do you do from here? Individuals and small businesses have options when it comes to filing their taxes. In a three part blog I will explore these options in detail to help build a firm understanding of the value you receive, or lack thereof.
The first option to be discussed is Do It Yourself. This phrase has become popular in the past few years with just about everything from home improvement to manicures, so why not filing taxes? There is even a DIY Network dedicated to this phenomenon of completing tasks without the aid of professionals.
The whole concept of Do It Yourself with any project is to save money. Saving money is great, but unless you have specific knowledge or experience related to your project you will likely sacrifice quality simultaneously. Sacrificing quality will lead to damages and ultimately cost you money to repair. In most cases, the cost of repair will be more than the price of the initial project if it were completed by a professional. Also, how long will this project take you to complete? I would bet my life that any decent professional would be able to wrap up a job before you. Now think of that basic Do It Yourself equation in terms of preparing your tax return, all while keeping in mind that your tax return documents your financial activity for the year to determine your tax liability for the Internal Revenue Service and state and/or local tax collection agency. Your tax return is likely the only form of communication you have with these agencies.
The price of Do It Yourself tax software, like TurboTax, and tax preparation websites can be quite deceiving. The advertised price to file is never the final price. Your first cost would be the price of the software. If you have used this software in the past or have researched this software you will know that the price has steadily increased over the years. The advertised price may pertain to you if you have just a W-2,you are not married, have no dependents, deductions, or additional schedules, are not filing with a state, and choose to paper file. That is a small percentage of the population of individual taxpayers. Be prepared to pay additional fees for each schedule that you add to your tax return as well as each state or local tax return. And if you would like to e-file, a process that is much more efficient than paper filing and has been around for 20 years now, you will need to cough up some extra dough. Let’s face it, by the time you are complete you have now paid more than 2-3 times the software cost or 5-10 times the advertised web file price. Filing business returns can cost you even more. In the end, have you actually saved any money?
Besides the financial aspect of preparing your tax return with various tax software or tax websites, think about the time involved in the process. The whole event of buying, preparing, and filing your tax return can be quite a painful experience. Your journey would begin by researching various tax software to use. You can make your purchase based on brand reputation, referral from a friend, or conduct your own research. All options involve time consumption in some manner. Once you have the tax software in hand and installed on your computer, do you know how to use it? I have researched and used various tax software that claim to be user friendly and simple. As a CPA and professional tax preparer I found most of these tax software to be very wordy. In most cases, you would probably spend a good amount of time reading questions you don’t understand for forms that you don’t even use. I’ve heard from some people that it will take them a few weekends (and a great deal of aggravation) to complete their tax return. You are wasting time and TIME is your most valuable asset.
Why would you not consider your time valuable when it comes to preparing your tax return? @MJDeMarco describes the value of time best is his book The Millionaire Fastlane. You may also want to check out this video describing some peoples’ udder disregard for their time.
Think about, if you were to apply your hourly rate from whatever occupation you may have to the time it takes for you to prepare your tax return is it really saving you money? Not to mention you are using your valuable time that could otherwise be used for leisure. For business owners, preparing your tax return removes you from your operations and ability to provide a service or sell a product.
Now that you spent some money on tax software and countless hours trying to figure everything out, how do you feel about the end result? Are you confident that you included all of your income and deductions and reported them on the correct tax forms? Unless you have tax preparation experience you really do not know the correct tax forms or lines that should be filled. You only know to enter the information where you think the tax software is asking for it. Ultimately, you have no assurance on the work that you spent so much time on, and will likely receive a notice from the Internal Revenue Service or state tax collection agency.
To keep things simple, I own a pair of scissors and a mirror but I choose to go to a barber for a haircut. You should seek professional assistance as well, especially when it comes to your tax return.
Stay posted for Part 2 of this blog exploring your tax return filing options.