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March 11, 2015

Five reasons you shouldn't prepare your own taxes

Personal Finance Taxes

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In New Jersey, the income tax rate is 2.54 percent, which Forbes then combined with local taxes to come up with a 12.3 percent state and local tax burden.

There are certain jobs for which the do-it-yourself approach is fine – tiling a bathroom, designing a website, re-wiring a lamp – but generally speaking, filing your federal income-tax returns really isn’t a DIY proposition.  Here are five reasons you should let a professional manage this important task.

The sheer complexity of the task

Yes, some tax forms have been streamlined in recent years, but at last count there were more than 72,000 pages of federal tax rules – not to mention the hundreds of recent tax-law changes. It is the rare individual untrained as an accountant or tax lawyer who can even begin to be familiar with the federal tax code. Because of this complexity, chances are you’ll end up spending a dramatically larger amount of time (and stress) on your taxes than if you simply hire a professional.  

Many taxpayers make the mistake of thinking that all the guidance they need is online – yet much online tax advice is amateur, insufficient, incomplete, and in many cases out of date. Your time is better spent simply organizing pertinent documents – W-2s, 1099s, interest and dividends earned during the year, capital gains or losses, the amount you paid in home mortgage interest and real estate taxes, etc. – then turning everything over to the experts.

The risk of error

Mistakes on a tax return can be costly, and there’s no more pointless waste of money than missing out on a significant tax deduction for which you might qualify simply because you’re unaware of it. That’s where a professional tax preparer earns his or her money. A professional preparer is trained to look for such deductions; to minimize your chance of either getting audited or getting a notice from the IRS saying you owe more; and to help lower your taxes and maximize your refund – legally and ethically. It’s sometimes said that one significant tax deduction can itself pay for the services of a tax preparer – and it’s often true.

A professional tax preparer can be an advocate

Professional tax preparers usually provide services that go beyond simply completing and submitting returns to the IRS. A good tax expert or Enrolled Agent (a professional who represents taxpayers before the Internal Revenue Service either by passing a comprehensive IRS test or through experience as a former IRS employee) can provide you with experienced advice and seasoned guidance during the year. And if for some reason you should be audited, a professional will generally take part in the audit, helping to explain and clarify any claimed deductions the IRS might be questioning. You won’t face the auditor alone.

Normal life events complicate taxes

Rarely, a taxpayer may have a scenario that is simple enough to warrant completing his or her own tax forms – someone with one salary, no property, no dependents, no investments or other income. For such individuals, the IRS’s free e-filing option can be useful. But the reality is that for most of us typical life events complicate tax returns. Marriage, divorce, the birth of a child, the sale or purchase of a home, the launch of a business, the sale of property, the establishment of retirement accounts all offer both possible tax liability as well as the opportunity for legal deductions. A professional tax preparer is familiar with the implications of all of these.

Peace of mind

This is perhaps the biggest advantage of having a professional prepare your taxes. You have the certainty of knowing that your return has been both prepared and checked by knowledgeable experts; that you have their support in the event of an audit or IRS notice; and that your tax payment is minimized and your claimed refund maximized – legally and according to current tax law.