Should I Prepare My Own Taxes?

We had some cold this winter.

The age-old question has flooded my in-box: Should I do my own taxes?

I try to give a short encouraging reply, but it always feels contrived. Normally I write: If you are comfortable preparing your own taxes you should at least see how the process works by trying. If you run into an issue or don’t know the tax law on a certain area of your return you can always call in a professional.

You may have already received a similar email from me if you asked the question. In the name of efficiency I should keep my reply in a file for a faster copy and paste. But I don’t. I write the thing out every time and it’s starting to sound like a broken record.

The short answer salves my conscious by answering a call from the dark. There real answer, however, is a bit more involved.

If I do this right you should be in a better position to determine if you should be doing your own tax return so pay close attention. I’m only going to say this once.

Either Way I Win

The reason so many people email me with “the” question is because they see I offer a DIY tax program on this blog. The banners and links are an affiliate program. I also get paid when I prepare a tax return. I win either way.

Don’t take this as an arrogant slight. My intention is to disclose my relationship to whatever decision you make. Someone in my profession is getting paid regardless.

Comfort Zone

My biggest concern when people prepare their own return is they think they know what they’re doing when they really don’t. I see self-prepared returns often enough to see some really ugly problems the IRS will take a serious interest in.

Refi student loans at low rates.

That doesn’t mean you should hire a pro. Many errors I see on self-prepared returns have nothing to do with tax law! Unreported income and missed deductions are the two biggest issues I see. This isn’t a tax law issue; it’s a sloppiness issue.

A recent return my office amended, the client reported all the rental deductions (except depreciation) but missed adding any rental income. It was a serious matter!

My first recommendation for you when considering preparing your own taxes involves organization. If your tax records are stuffed in a paper bag or scattered everywhere you probably need a tax pro to crack the whip. Guys like me are in a better position to make a judgment call on missing information. There are disclosures a tax professional can attach to a tax return telling the IRS how the situation was handled. If the tax pro uses a reasonable method it virtually avoids an audit on an issue with no clear answer. Remember, the last thing you want is to be in an audit going, “Ahhhhhhh . . . .”




Call in the Troops

There is nothing wrong with doing your own return to the best of your ability and then hiring a tax pro for the return you will file. (Read the last sentence again and again until it sinks in.) Yes, you might have two prep fees for the year: one for the DIY program (required when you print) and the accountant. But you will also see where you missed things.

An alternative is to hire a tax pro when you have a unique issue and then go back to preparing your return for a couple years. Some accountants hate this. I don’t. What you consider hard I consider a normal day at the office. My computer updates your personal information annually so when you come back is six years I just pick up where I left off. I probably have data you already forgot about allowing me to bring you back up to speed.

Finally, there is no harm in having a tax pro review your return prior to filing. Yes, you will be charged. You want to be billed for the review! A knowledgeable tax pro will demand payment for her time. Payment also increases the chances the tax pro will give your return the review it deserves.

Preparing your own tax return is scary for some people. It shouldn’t be. Most software, including the program on this blog, has plenty of help features. If you plan on preparing your own return I hope you consider the 1040 program links and banners here. (Man has to eat.) If not, no worries. (Zig Ziglar always said you must ask for the sale. I never argue with Zig.)

Even if you hire your tax work done, consider opening a file at 1040 (the DIY software here) and seeing how well you do compared to the pro. There is no cost until you print and/or e-file. You might be better at it than you think.

Regardless, you can always call in the troops if you find yourself in too deep. Hiring a pro if you are concerned about anything on your work is not a sign of weakness! At the very minimum you have a better understanding of what the accountant is doing on the other side of the desk.

Tax pros get it wrong, too! Much of what we get wrong is the result of a misunderstanding or outright lack of knowledge of your personal situation. You know you better than I ever can. If I don’t find the right questions to get the answers needed for an accurate return I’m going to get it wrong. Even practicing DIY preparation can open your eyes to additional tax liability reductions. No tax pro would ever be offended by that!




The Boss is Back

After several years of adjustment to a national footprint my firm is finally gaining traction. I’ve trained new staff, added new technology (something old guys set in their ways resist) and focusing on our niche, we are ready to accept a few additional clients this year.

I’m opening the gate (LOOK OUT TEAM!!! THE HERD IS LOOSE!) a smidge. Technology will free serious amounts of my time to work with more clients directly. Scanning technology enters virtually the entire return so my task is to review and organize the return for maximize efficiency and audit proofing.

Now that the computers will enter most data I stand a lower risk of a carpel tunnel relapse. (I never had carpel tunnel issues and hope to keep it that way.)

You don’t want to pay me for data entry services; you want me for my experience and tax knowledge. By unleashing the IT guys we can do more, better than before.

Game Plan

If you need an accountant, contact me. We aren’t the cheapest (just so you know up front), but I dig deeper than most accountants you’ve met. I don’t stop at a merely accurate return. I’m always looking for items missed. In short, I give every return moving through my office a proctology exam. Don’t worry. I have plenty of latex gloves.

Be prepared for a summer consulting session considering the new tax laws if my office handles your tax return.

I strongly encourage you to try your hand at preparing your own return. If you have a business or rental properties you might want to forgo the DIY option. A good tax pro will know many ways to cut your taxes the DIY programs can’t possibly ask in these situations. It is still a valuable exercise to walk through the process yourself, however, to see if there are things even the accountant didn’t ask.

If you start to feel uncomfortable you can always call in the troops.




An Even Better Game Plan

2017 tax year will look and feel like previous years. You can continue preparing your own return without much issue. The few changes from the TAX CUT AND JOBS ACT that do affect 2017 should be handled automatically by the DIY software (all of them, not just mine) as long as you enter the data correctly.

2018 is another animal. You might want to plan ahead. Secure an accountant for the 2018 tax return or at least have a consultation on issues pertinent to you.

Finding a qualified tax pro is hard to impossible. I feel your pain. I need to hire tax pros to do the work and face the same issues. But it’s not impossible.

Accountants will be under a lot of pressure over the next year as small business owners plan for the tax law changes affecting them. Time will be at a premium.

A summer consultation is probably a good idea. Be sure to provide the tax pro a copy of your filed 2017 return. Nobody has been shot amending a return to correct missed or incorrectly handled data except for three guys in Ohio, but they had it coming. (Sorry for picking on Ohio. I still love you guys. (Maybe I should have said Delaware.))

If you find yourself in too deep preparing your own return, call a tax pro! Yes, we are all busy during tax season. But nobody has ever been shot for filing an extension except for those three guys again from Ohio.

Oh, who am I kidding? Use good judgment preparing your own return or call me (or another tax pro).  It’s your only hope, especially if you’re from Ohio.

 



Keith Taxguy

28 Comments

  1. Mike at Balanced Dividends on January 17, 2018 at 8:27 am

    I’m glad you have extra gloves, Keith – wow, that made me laugh.

    This also stuck out: “There is nothing wrong with doing your own return to the best of your ability and then hiring a tax pro for the return you will file.”

    Not only is today’s post very timely due to tax season, but I also recently wrote about major f-ups I’ve made. One I made doing my own taxes several years ago. In short, I filed as single for the year I got married. I then found myself paying someone else hundreds of dollars to fix my stupid mistake.

    Thanks for the post.

    • Keith Schroeder on January 17, 2018 at 9:18 am

      Mike, DIY tax discussions aren’t must-read material so I spiced it up in a way only I can. (That and I’m feeling my oats.) Don’t feel bad about making a tax prep error; even pros do it at times. You learned something and that does make a difference.

      I’m also glad to see you pulled out the one sentence I hoped the crowd would digest. It’s important.

  2. Full Time Finance on January 17, 2018 at 8:34 am

    As probably the only person reading your blog from the tiny state of Delaware I take offense to that remark.. Come on.. who would not want to live in a state with extreme cold, heat, and a “screen door factory in historic Wilmington”.

    But I digress. I use the process you mentioned for doing my taxes. I file with an accountant once every few years when things change to get the lay of the land and then go back to doing it myself. I’m actually weighing a similar decision this year. My wife started a business this year.. But she has a total of 5 expenses and 1 customer (ie 1 source of income). As such I think I’m going to muddle through for one more year and pick up a pro in 18 for the changes coming down the pike. I expect more sources of income in 18 as well so the change will be larger. To date my biggest tax headache is OID from 0 interest bonds. If I knew what I do now I wouldn’t have ever bought them.

    • Keith Schroeder on January 17, 2018 at 9:14 am

      Sorry about the OID, FTF. I see a lot of accountants get that one wrong, too.

      In defense of my Ohio/Delaware comment I wasn’t intoxicated at the time. I promise to drink heavily before picking up the keyboard in the future.

      The really sad part is I actually think I’m funny.

  3. Becky on January 17, 2018 at 10:22 am

    Thanks for the post! I’ve been doing my own taxes since I was 14. However, my spouse and I are lucky to be in an interesting position this year of not being able to use many of our deductions any longer because we are over the cap on them. We are a two income family of 5 and we don’t own any businesses or rentals. So taxes are painful this year. I’m not sure if I should take the route of looking for a financial planner or tax/accountant advisor. Thoughts?

    • Keith Schroeder on January 17, 2018 at 10:34 am

      When in doubt it’s time to call in the troops. At minimum you want a dialog with a tax pro before deciding. One additional piece of advice: Stay away from the tax guys also doing investments. Frequently the tax end is only a front for the investment side of the firm. Before things go crazy you want a dedicated tax pro to advise you.

      • Becky on January 17, 2018 at 10:40 am

        Thank you for the advice! I’ll gather up my documents and go have a dialog with a tax pro. 🙂

  4. Marc Stump on January 17, 2018 at 10:34 am

    I have to play stupid here, Keith. I’m from Ohio. What 3 guys are you talking about? A Google search didn’t bring anything up about it, but I did find one about 4 shot in Detroit over tax returns.

    • Keith Schroeder on January 17, 2018 at 10:40 am

      Nooooo! I was making it up as a joke! Nobody died! This is a family blog people only get boo-boos here (reference George of the Jungle movie with Brendan Fraser). Really! Ohio just sounded funny. If I said my home state (Wisconsin) somebody might have assaulted me.

      Now if I’d have Googled my joke I might have found the Detroit thing, used that instead and then linked to it. After considerable thought, I’ll pass of that. Detroit is a tough town that might not take kindly to a weaselly Weeesconsin boy talking smack about them.

      Sorry for sending you on a wild goose chase, Marc. I only wanted to spice up a dry topic.

  5. Dave on January 17, 2018 at 11:31 am

    Not sure if you want to answer but are you planning on using Gruntworx?

    • Keith Schroeder on January 17, 2018 at 11:41 am

      It’s not a plan; it’s a fact. We put Grunworx through the tests all summer and fall and will use extensively this year.

      That said, some things work better than other with Gruntworx. Example: I don’t like listing every investment transaction if the client is trading a lot. We always inputted bottom line numbers in the past and attached the 1099-B. Gruntworx is expensive if used to enter piles of data. Gruntworx also doesn’t handle all data so we need to manually enter those numbers.

      Gruntworx will probably enter 50% or more of all W-2s, 1099s and K-1s this year. We also invested the time to update QuickBooks to import data into our software.

      All these and the testing of bar-code scanners should free serious time to focus on the important issues of communicating with clients and improving the efficiency of each tax return leaving the office.

      Like any business, it’s an evolving process. I’ll share my results after tax season.

      • Dave on January 19, 2018 at 8:26 am

        Do you plan to scan all your docs to Gruntworx or just the forms that will populate? It sure would be nice if you could “tag” items on a page that do not populate and tell were to go. For example, if you had a list of contributions, it would be nice to “stamp” or “tag” something like “ACon” next to a number and populate into the return. Something like Tic Tie Calculate.

        • Keith Schroeder on January 19, 2018 at 9:56 am

          Dave, we only send Gruntworx what we want them to populate. Tic Tie Calculate (or something similar) is provided free or at nominal charge from Gruntworx (unless that is unique to Drake).

          Be clear, not all our returns will go to Gruntworx! We will pick and choose what’s most effective and reserve the right to modify our procedures on the fly.

  6. jerry gordon on January 17, 2018 at 11:57 am

    Couple of questions. #1 Will 1040.com take the info from my current tax prep software? #2 will I be able to upload my Fidelity information w/o entering it by hand?

    • Keith Schroeder on January 17, 2018 at 12:38 pm

      No and yes, Jerry. You can’t import prior year data from a prior year from outside 1040, but you can import brokerage statements like Fidelity. Hopefully there isn’t much to import. Maybe kick the tires on 1040 to see if it works for you before making a final decision.

    • jerry gordon on January 17, 2018 at 12:54 pm

      I have a rental property I might be selling this summer and will need your expertise…I have lived in it as a B&B..used it as a vacation rental (while taking some days for myself) and used it as a monthly rental..lots of moving parts..probably will do my taxes this year and get a consultation this summer

  7. Carlo on January 17, 2018 at 12:20 pm

    Thanks for the post! What are your thoughts on programs such as Turbotax or H&R Block online for basic MFJ filers with just W-2 income and some 1099 interest on savings? Is this overkill for what the fees are?

    • Keith Schroeder on January 17, 2018 at 12:27 pm

      OMG! Carlo, those guys are the worst! Of course I’m saying that because I have a vested interest in my program.

      Seriously, they probably do a good job. Most online DIY software is well structured. You do pay extra for the Turbotax or H&R Block name, but they are still good programs. (I should get an affiliate link from those guys so I get paid to say that.)

      Is it overkill? My opinion is some online services are getting to a point where you’d be better off just having a tax pro do it. They can get pricey. Basic returns should be somewhat close in price to other programs. In the end it’s up to you to decide if it’s worth the investment.

  8. Maria on January 17, 2018 at 12:39 pm

    I always prepare my return myself but hire someone too. It’s the only way I am able to remember all the things the accountant needs. Although I’m usually close, I’m never completely right.
    Although I have someone taking care of us this year, I will probably hit you up for a consultation this summer if you aren’t completely full by then! I’m trying to start a business this year and feel completely lost.

    • Keith Schroeder on January 17, 2018 at 12:41 pm

      Look forward to speaking with you, Maria.

  9. Yellow Brick Freedom on January 18, 2018 at 8:48 am

    Great post! As a CPA myself, I think there are so many people out there that just get completely overwhelmed with tax returns. For the most part, many people are capable of completing their own simple returns. I just have to give them the confidence!

    • Matt E on January 19, 2018 at 11:25 am

      Absolutely. Filing taxes is incredibly easy for a taxpayer who doesn’t itemize and doesn’t have taxable investments or any other kind of misc income/deduction to report. A lot of times people in simpler situations just need to be shown the ropes a time or two and once they get the hang of using the software, they realize its quite easy.

  10. Allen TPL on January 18, 2018 at 10:00 am

    Happy new year!

    I’ve been using TurboTax for the past few years since my accountant retired. Mainly because I can’t find a quality Accountant in the suburbs of Los Angeles. Plus I “think” my return is simple enough since I’ve sold my rental a few years back and I only have 1 income from my corporate job with all my after tax investments in VTSAX.

    I know you’ve written this somewhere on how to find a good accountant area my area but it’d be nice if I can use your firm’s services even when I’m thousands of miles away. If this is possible please let me know how to best reach your staff!

    • Keith Schroeder on January 18, 2018 at 10:08 am

      The best way to contact me/my office is to use the Contact button on this blog.

      • Allen TPL on January 18, 2018 at 11:46 am

        Thank you Keith. Karen and I are talking now. That was fast. You rock!

    • Triple-Nickels on January 18, 2018 at 6:07 pm

      Keith,

      I’m in the same boat as Allen TPL. I do my own taxes via turbo tax (MFJ) and have done forever. Our financial lives are fairly simple and we have one W-2 income (mine – for one more year, yeah!), a municipal pension, and decent passive income from dividends and interest.

      I’m sure I’ve made mistakes in filing our taxes over the many years (rental real estate, 2nd homes, ISO sales, etc etc). We’re in a much simpler place now (from my POV), however, I’m thinking of looking for a tax accountant in my local area, or outside Calif if I can get comfortable that they can deal with out of state clients easily and securely.

      What I’m most interested in is finding a great tax person who can also advise on tax strategies for tax minimization, and withdrawals from tax deferred vs after-tax accts vs savings, etc, and not trying to sell me stuff (investments, insurance, annuities, etc) I don’t need. Filing tax returns is a bonus, it’s the advisory tax services that I’m mostly after (flat fee if possible). I’ve talked with a few financial advisors, but mostly they were interested in managing my investments (for a %), which I quickly passed on.

      Can you help me from your tax practice? Or give any suggestions?

      Thanks,
      Triple-Nickels

  11. […] blog. Please consider using the same tax software my office uses online when doing your own return. I published on preparing your own tax return recently. It might be worth another read before […]

  12. MissSaraBee on January 20, 2018 at 1:11 pm

    I do my own taxes, and I feel anyone with traditional income should do the same. Having said that, my mother is an accountant and taught me well, so I am aware that I have an unfair advantage. There is no shame is asking for help if you need it.

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