People who are not trained in accounting or bookkeeping make a lot of expensive mistakes.
Free or low-cost tax software choices make ‘do it yourself’ seem like a normal thing to do when it comes to tax preparation. For many people, filing taxes is a quick and easy process. Countless situations are much more complicated and without a tax pro in your corner, taxpayers can run into some very costly mistakes. But when do you know it is time to have professional tax help? Today I will share some very valuable questions you can ask yourself about your income and goals along with certain complexities that could easily be entered into a tax software for reliable results as well as the benefit to trusting an experienced CPA or tax professional like you will find at Moore Accounting Services.
Who needs a tax pro?
People with businesses, rental properties, complicated stock options cancellation of debt issues, people going through bankruptcy past or presently, sales of properties, employee stock options, major gifts, inheritance, prizes or gambling winnings, or anything that could confuse you. Those situations are just a few to consider hiring a tax pro to help guide you through another tax year. Sometimes, just a consultation with a tax expert can help you determine if you are on the right path or if it may be time to have tax pro help. Tax preparation fees can also be a tax deduction!
Changes to the tax code and tax laws are ever-changing. A CPA may spend 20-30 hours each year learning about the current tax code and implications for the upcoming filing season. If you do choose to ‘go it alone’ – be sure you are using the latest version of tax software to minimize the need for amended returns later. When you are a wage earner with a single W2, and your tax is withheld correctly throughout the year – ‘free’ tax software may suit your needs just fine. Even a married couple with a pair of W2 tax forms can comfortably complete and file their taxes reasonably well with tax software. Do you know how to apply deductions relevant to you and your family? Do you work for an employer or are you self-employed? If you are a 1099 contract employee tax is not withheld in your paychecks. Most contract employees choose to pay estimated taxes throughout the year as they earn their wage, so they are not hit with a large tax bill at filing time. Contract employees could still use a tax software to file their taxes – but many of those taxpayers may not know which items for self-employment could be tax deductible to improve their overall situation.
Tax and the entrepreneurs:
Lori Grainer from Shark Tank said something very true about entrepreneurs: They are the only people willing to work 80 hours a week to avoid working 40! Very true!
Let us say you are one of the millions of taxpayers with a LLC, Sole-Proprietorship, S-Corp, or C-Corp. Maybe you need to file a K1 business partnership tax return. Would you even consider doing your taxes yourself with tax software? Many do. They agonize over compiling their profit and loss statements (P&L), balance sheet information, business and personal expenses, etc. and then spend a week (even a whole month) or a power weekend marathon working on their tax return. There are a few taxpayers who enjoy the process and get a sense of accomplishment from hammering the details together year over year. Are they really getting the right numbers? Do they leave money on the table? We have examined many thousands of returns that were prepared by the individual or even another tax preparer that were full of errors and almost all of them could have improved their tax numbers with our professional preparation. For instance, a 27 year old real estate agent who had been using TurboTax confidently was given a no-cost examination of previous tax year and was surprised to learn the IRS owed him nearly $700.00 that he had no idea was left on the table. (LINK TO THAT TESTIMONIAL???)
You have heard the expression you get what you pay for? Most of our clients will either SAVE from tax debt more than our fee or get a refund that is much larger than they expected more than covering the cost of professional tax prep fees. Not to mention the peace of mind that comes with choosing the right preparer or turning over the documents and letting us spend hours putting it together for you!
“S Corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.” Does that sound like another language to you? Then tax software probably is not a wise filing route for you. The IRS is on the warpath auditing S corps that do not have their working officers receiving reasonable payroll compensation. Our office can provide tax solutions you may rely on for this situation and many others.
What about home-buyer tax-credit mistakes?
“I purchased a home in 2018 and lived in it for one year. I moved to be closer to work and I am renting an apartment. I have been renting my house out since July. Since I received the first-time home-buyer credit, am I required to repay the money?” Ouch! By not discussing that with a tax pro in advance, this person cost herself $8,000 to repay the first-time home-buyer credit. Since the home was turned into a rental within a year of purchase, she will have to spend extra money to amend the tax return – paying interest and penalties on the repayment of the credit. There goes whatever benefit she got from moving closer to her job. Tax software cannot help you with most of these types of issues.
What about battle between the ex’s – who gets the tax benefits for dependent children? What about drawing money from retirement plans for a host of different reasons? What if you borrowed money so your child can buy a home? Who would get to deduct the interest? Sitting down for an hour or two either in person or on the phone or video call with your tax professional can save you hundreds or thousands of dollars of unnecessary taxes and penalties. The session can help you do better planning for future tax savings. The right advice helps you avoid the pain, expense and stress of an audit.
Practically everyone has a business on the side these days. Keeping books is becoming a universal issue. Many clients elect to do their own bookkeeping using tools like QuickBooks. When it comes time for tax returns, the clients import the data into TurboTax and try to complete their tax returns. When things don’t work out right, or the tax returns don’t make sense, they turn to a tax pro demanding help – but they don’t want to pay for all the extra time it takes to correct and fix their books. It generally takes the pro longer to fix the books than it would have taken to do the work correctly in the first place.
Bottom line – folks not trained in accounting or bookkeeping often make major mistakes. Try to remember it took the tax pros several years to get degrees in accounting or advanced tax accreditation like CPA licenses. Years of bookkeeping classes and in-depth examination of tax laws and practice.
What types of errors do tax pros find?
If you include loans to your business as income – draw from your business as wages – log full car loan payments as auto expenses? If you do not do an inventory at year-end leaving your entire inventory on the books as purchases? If you have capital improvements or fixtures, or assets that should be depreciated? Meals and entertainment expense lumped with travel? Personal expenses remain on business books without adjusting them out before preparing your tax return? These are just a few of the minor adjustments we often correct with do-it-yourself bookkeepers.
There is a time in a taxpayer’s life when it would certainly be feasible to use tax prep software for your simple return. As your career evolves and life unfolds there will be all kinds of twists and turns in your tax reporting. At any stage? If it confuses you? Seek professional assistance. It is worth every penny for the peace of mind and much less anxiety that comes from pro tax help.
Keep in mind also that not all tax pros are created equally.
A CPA (Certified Public Accountant) like Brian Moore, CPA is required to have a four-year accounting degree in addition to a CPA license. In Brian’s case, he holds two bachelor’s degrees and two active CPA licenses in both Ohio and South Carolina.
An Enrolled Agent is a tax preparer who is authorized to work directly with the IRS/State to help resolve tax issues. You do not have to have a college degree to become an EA, but most EA’s do have formal training.
An accountant usually holds an accounting degree with either a bachelor’s degree or an associate degree with a minimum of 2 years education in accounting and business or finance.
Many small tax chains employ agents who have little to no advanced tax education and use generic software available to the individuals. They often have other tiers of professionals that supervise those offices for more complicated issues, for additional fees. Accountants, EA’s or enrolled agents, or CPA’s are usually available with various degrees of expertise.
When you choose a tax pro, they should be signing your tax return with their name and PTIN number – a number obtained by the IRS specifically for registering as a tax preparer. Your CPA will have a license and registration number.
Additionally, if a mistake does occur with a professionally prepared tax return, the person who prepared your tax return is obligated to correct and amend the return as added peace of mind to the taxpayer.
I hope you found this information helpful. If you have questions or comments we invite the feedback in this forum or feel free to send an email to firstname.lastname@example.org
**QuickBooks name is registered with Intuit tax software
**Moore Accounting Services is a CPA firm in Greenville, SC owned by Brian Moore, CPA specializing in tax debt relief services in all 50 states in the USA as well as Corporate and Small Business entities