Do You Really Save Money Doing Your Own Taxes?

I got a call last week from a woman who opened a small company this year. She wanted to know if it was advisable for her to have a professional prepare her income tax return or should she just get all the forms and do it herself or maybe just get a software package off the shelf and get them done that way?
I’m not surprised at the question, I myself had the same question 15 years ago when I first opened my doors. I’m a smart guy, I’m in finances… I can follow instructions and fill these forms out… besides it is only adding and subtracting from there. It’s not like calculating the time value of money…
But come to think of it, there are 75,000 pages of the tax code. And of course, the laws are ever changing especially for those who write their own paycheck or God forbid, have a payroll. Still, entrepreneurs are a smart bunch. They understand income versus expenses and the fact you don’t have to pay taxes on the money you don’t make right? Every year, scores of sole-proprietors list their sales, add up all the business expenses and viola, their tax return is complete!
My momma always told me, if it sounds too easy then you’re not looking hard enough. As a certified tax coach, we focus our long days on the tax code where we take many things into consideration, especially when it comes to start ups and how those expenses are treated, logged and reported. Unless you have spent thousands of hours researching, studying and networking with tax colleagues, you may miss some valuable deductions or worse, set yourself up for an audit. In fact, according to the Treasury Department, a person who prepares their own Schedule is 5 times more likely to get audited.
The IRS has increased its audit enforcement and will be conducting many more correspondence audits than ever before which leads to me to understand that whatever money a business owner may save on the front end make cost a lot more down the road. And isn’t it funny, how those things happen at the most inopportune times? Not that there is ever a good time for an audit, but it seems they always happen at the worst possible time!
Another client of mine who owns quite a few rental properties, has always done his own taxes. He understood that it is a simple process of adding up all of his rental income and subtract out the expenses. But he always seem to be complaining about the amount of taxes he owed, especially because he was taking all of the risk, doing the repairs and collecting rent. I told him unless you know the rules for depreciation, amortization, passive vs active losses, the difference between capital improvements and repairs and a myriad of other laws, he will continually pay too much in income taxes.
A now this year is going be even more fun because of the healthcare law changes that effect all of us. I always hear at holiday parties and family gatherings that they’re simply going to buy a software package for $50 and it will guide them through all of the ins and outs of the tax returns. They are good to a point. Those software packages cannot hold every question, and they certainly do not give guidance as to how to save on taxes going forward. They are simply there to help you put the right number in the right box on the right form. A seasoned certified tax strategist will intuitively ask all the right questions, to get you to the right answers to minimize your overall tax obligation from this year and every year thereafter.
One final thought, what happens if you make a mistake because you interpreted the rules or laws incorrectly? Is your software company going to come and represent you? One thing is simple when it comes to the IRS, not following the rules and the tax laws that are laid out for us may have serious ramifications. It first starts with a letter, then a visit with a friendly IRS agent who is only too happy to let you know how much you still owe the US Treasury. My momma also said, it’s better to avoid a problem than to fix one.