Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

April 4, 2013
What are the pros/cons of doing my own tax return?

Q: What are the advantages or disadvantages to doing your own taxes electronically rather than going to a professional tax preparer?
Donald
Sacramento

A: First, a disclaimer: I'm biased. I make my living providing tax planning and tax preparation services and have done so for over 25 years. Before that I spent 6 years auditing income tax returns for the IRS.

That being said, let's start with the advantages of preparing and filing your own tax returns electronically. I am assuming you mean using the IRS' free tax-filing service (http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free) and the FTB's CalFile option (https://www.ftb.ca.gov/individuals/efile/allsoftware.shtml):
The main advantage: It's free.

Now let's talk about the disadvantages:
-- Unless your taxes are very simple (ie. you are single, you don't have any children, your only income is from wages, you don't have any deductible expenditures and didn't pay any education-related expenses), you run the risk of making costly mistakes without knowing it.
--If your taxes are not extremely simple, you are liable to spend an inordinate amount of time figuring out how to prepare your return.
--You are liable to miss tax saving deductions and credits without knowing it.
--If you have questions, you either have to try finding the answers yourself or call the IRS and FTB tax help lines, which this time of year means spending lots of time on hold. This assumes you know what questions to ask.
--If you receive a notice from the IRS or FTB regarding your return after you have filed it, you have to figure out what the notice means and how to respond to it.
--Income tax has its own language. Words that have one meaning in general usage may mean something entirely different in the world of income taxation. What you think you know, you may not know.

Here are a few advantages of using a professional tax preparer:
--You get the benefit of his/her training and experience to prepare your return as timely as possible.
--You reduce the chance of errors when using an experienced, well-trained tax professional.
--You reduce the possibility of missing valuable deductions or credits that might legitimately lower your tax liability.
--You may get some suggestions about how to save taxes going forward that you might not have known about.
--You have someone to ask questions.
--If you receive a notice from the IRS or FTB regarding your tax return, you have someone knowledgeable to deal with it on your behalf.

So what are the potential disadvantages of using a professional tax preparer?
--You have to pay fees.
--You have to decide who to use, which can be daunting since professional tax preparers range from unlicensed individuals to multi-national accounting firms.
--You face the possibility of using a bad preparer - or a good preparer who makes an error preparing your return.

Almost 60 percent of people filing federal income tax returns use a tax preparer, according to the IRS (Publication 4822, Taxpayer Filing Attribute Report). Except in fewer and fewer cases, there is no such thing as a simple income tax return, given the growing complexity of this country's tax laws. Throw in California's 200-plus differences from the federal rules and you face a tax-filing landscape full of traps for the unwary.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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