There are always a handful of people that I run into this time of year who like to brag about the fact that they do their own taxes. Always have, they say — and always will.
If you’re one of these folks, I applaud you for tackling this task. It’s very complicated, time-consuming and stressful — and that’s exactly why I would caution you to at least consider whether it makes more sense to have a professional help you this year.
Yes, You Can Do It Yourself. But That Doesn’t Mean You Should.
A point that many people don’t consider when making the decision to outsource something — be it your taxes or almost any other skilled work or service — is that asking for help doesn’t automatically mean you’re not capable of doing that task or project.
The question should not be, “Can I do this?” The answer is probably going to be yes, you can. You can do the required research, learning and work involved to prepare and file your own taxes. But it’s not a question of what you’re capable of.
Better questions to ask might be:
— How much will a mistake cost me?
— Is that cost higher than the fee of hiring a professional?
— Do I have the time and energy to devote to doing this task well?
— Is there a better use of the time and energy it would take me to complete this on my own?
When you start considering these questions, the value of hiring a CPA to handle your taxes becomes much more clear.
How Much Time and Stress Could a Professional Save You?
This is exactly why I have both a CPA and a bookkeeper. I’m a financial planner and I run my own business — but that doesn’t make me as knowledgeable about taxes as a CPA, whose full-time job includes knowing every in and out of the tax laws.
Running through those questions above also makes it obvious to me that I need to hire help for my taxes, because I simply don’t have the time (or the energy) to devote to doing it myself. I also don’t want the stress and pressure; I have enough on my plate, and trying to cram in my taxes just makes it more likely that I’ll make an error due to lack of mental clarity.
I think some of the appeal of the DIY approach is that you can treat your return like an accomplishment. Again, it’s a tough thing to do on your own — but choosing to work with a CPA doesn’t make you any less accomplished or intelligent.
In fact, I’d say it’s the opposite. The smartest people I know are smart not because of what they know, but because they acknowledge what they don’t know. They even admit there are things they don’t know they don’t know.
It’s called a blind spot for a reason: There are things you simply can’t see or are not aware of, and you can miss important things if you didn’t even know you needed to check for them. Overconfidence in your own knowledge can lead to mistakes, missed opportunities and bad decisions.
The Cost of Financial and Tax-Related Mistakes
It’s all of those things above that can lead to less money in your pocket (not to mention a whole lot more stress and a lot less free time to enjoy things I assume you’d rather do than your own taxes). Any errors that you make on your tax return are likely to be far more expensive than any fees you’ll pay to a CPA.
The challenge with any tax-related mistake is that things tend to compound over time. Say you miss something on your tax return this year and pay less in taxes than you actually owed. If you get audited down the road, the IRS isn’t going to just shrug it off as “oh well, everyone makes mistakes.” You’re going to owe what you didn’t pay — with interest and penalties, too. According to the IRS, interest accrues on any unpaid tax from the due date until full payment is made, and late-payment penalties can add up to a maximum of 25% of the amount owed.
Making big mistakes that cost serious money or opportunities simply aren’t worth it. Not when it’s your hard-earned money on the line.
Who Needs a CPA – and Who Can Get Away with DIY
In general, most people will benefit from using a CPA. Even if your financial situation is relatively straightforward, you’ll save time and energy by getting help from a professional. You’ll also get added peace of mind that someone who lives and breathes taxes reviewed your situation. This makes mistakes less likely than if you did your taxes on your own, and also increases the likelihood that you’ll take advantage of every opportunity you can to reduce your tax bill.
All this being said, not everyone needs a CPA. Here’s a good general rule of thumb to use to help you determine if you can DIY: Do you have one source of income via a W2 from a single employer? Then you can probably get away with doing your own taxes. But the moment your financial situation gets any more complicated than that — say you earn 1099 income (even if it’s on the side of your full-time job and you don’t consider yourself “self-employed”) or you have enough deductions that you think it makes sense to itemize — it’s a good idea to find a CPA who can help you.
At the very least, you’ll save yourself time and stress, and any fee you pay to free up more time while reducing your stress is probably going to be well worth the cost.
(Article written by Eric Roberge)
(SOURCE: TCA)
