April 15 is a day that many people dread. Unless it falls on a weekend or holiday, April 15 is better known as Tax Day. It’s the day that personal 1040 income tax forms have to be postmarked by. For many Americans, it’s the day that they have to write out a check to the Internal Revenue Service that they’d rather not write out. Sometimes, the check can be fairly sizable.
The payment of taxes raises an important question. Should you do your taxes yourself, or should you rather look to local tax preparers to handle your returns? The answer to this question depends upon how difficult your return is to file as well as your relative knowledge of the tax code.
For many Americans who have income from one or two sources that come from W-2 wages or salaries alone, a do-it-yourself strategy might make sense when it comes to taxes. There are a number of free or relatively cheap tax programs that can allow you to plug in your personal information and a few numbers from your W-2 forms. The simplest returns could traditionally utilize Form 1040EZ, but taxpayers will now need to fill out a new and simplified 1040 regardless of the ease of their returns. For these Americans, tax preparation could take less than an hour.
Those who have more complicated returns, on the other hand, could do better by using a tax professional. There are a few reasons why this might be advisable. First, professionals have a better knowledge of the tax code than most everyday laymen do. They know what deductions are available. Sometimes, a tax program could fail to ask the right questions. Additionally, a tax preparation professional can provide another set of eyes that see if you’ve listed all of the deductions and credits to which you’re entitled.
Another reason why a tax professional might be a good idea is in the area of tax planning. This can help you whether you’re filling out a return based entirely on W-2 income or you have business income. Running a business can make filling out your taxes more complicated because businesses bring with them deductions that are not common for people who make all of their money working for others. There are also estimated quarterly taxes to pay if your business income is high enough.
Overpaying your taxes and getting a big refund is not a good idea. While it might improve cash flow for a while and seem like a windfall that can go toward a major purchase, a big refund means that you’re leaving possible interest income in the pockets of the government.
Another major reason why it might be a good idea to use the services of a professional tax preparer is tied to the question of whether you need to file a return in the first place. Some business owners may think that they’ve failed to make enough money to owe any taxes, when in fact they should be owed a decent refund from the IRS. This is money that should go into your pocket that you might miss out on if you erroneously fail to file a return.
When looking for someone other than yourself to handle your tax return, it’s a good idea to check with someone who has the proper credentials. Certification as an enrolled agent with the IRS or a CPA license means that a potential preparer has a great deal of knowledge when it comes to the tax code and tax preparation strategies. Along with enrolled agents and CPAs, attorneys have unlimited representation rights, which means that they can stand for you should there be a problem with your returns. Other tax preparers have only limited representation rights that are restricted to returns that they prepared and signed themselves.
If your tax return is quite simple with little that you can mess up, it’s probably a good idea to go ahead and file the return yourself. You’ll likely save time, and you would definitely save a little bit of money. On the other hand, if you have one or multiple streams of business income or a wide range of income sources or other complicated aspects to your return that could theoretically lead to an audit, outsourcing your tax returns to a professional could make the most sense for you.