When it comes to doing your taxes, you have some inexpensive options…
There are 1040 EZ forms. Free (or low-cost) online tax prep software, like Turbo Tax. And storefront tax prep mills, like those offered by H&R Block and similar independent preparation providers. The fees for which range from $0 to less than $100.
The alternative, and by far (at least up front) most expensive means, is using a Certified Public Accountant (CPA). Because depending on the scope of your tax filing, the cost of using a CPA could be hundreds or even thousands of dollars.
But does this comparison tell the WHOLE story? Let’s take a closer look at these tax prep options.
The Drawbacks of Doing Your Own Taxes
DIY and H&R Block-type tax prep methods are only financially prudent if your income tax return is simple, straightforward, and involves few, if any, deductions, tax credits, or income adjustments.
As a “novice” with little understanding of the tax code, would you feel confident in unraveling a complicated tax return with a lengthy list of potential deductions and resulting income adjustments? Would you trust a piece of software or a part-time seasonal worker with minimal training to do the job?
If the answer to any or all of the above is “no,” working with a licensed CPA is the sensible choice.
The Value of Working With a CPA
Working with a CPA offers three critical benefits.
First, a CPA is well-versed in the tax code and understands the ins and outs of all the potential deductions and tax credits that could apply to your tax return.
Secondly, a CPA knows which deductions are most likely to raise red flags, and your CPA can advise you on how to apply these deductions without arousing ire from the IRS.
And finally, if the IRS should audit you, your CPA can help guide you through the process and hopefully avoid any penalties. Or, at the very least, help negotiate to minimize any penalties leveled by the IRS.
Cost Benefit Analysis — DIY Vs. CPA
Though working with a CPA might cost more initially, the long-term savings could be significant.
Going the DIY route, you could wind up overpaying on your income taxes due to missing out on potential deductions and credits that adjust your gross income.
You could also wind up in hot water with the IRS due to incorrectly applying deductions or making other mistakes in your filing. Moreover, you’d be left to face an audit or IRS investigation without support from a qualified tax professional.
In either case, you could be looking at hundreds, thousands, or even tens of thousands of dollars lost in missed deductions or penalty fees. And the consequences could be even worse should the IRS choose to take drastic action, which could include freezing your assets or garnishing your wages.
Thus, in the final analysis, employing a CPA is the most cost-effective option.
The April 15th Tax Deadline is Looming…
Have you made your tax appointment yet? If not, the time is NOW!
In addition, I recommend reviewing my recent update on How To Prepare For Your Tax Appointment. It details most of the documents you’ll need to bring to your appointment and what info your CPA will likely request in your session.
If you have more questions about preparing for your tax appointment, get in touch for a FREE CONSULTATION!