It is amazing how many people, even those who think of themselves as business-savvy, don’t take an active role in preparing their annual tax return. Many people sign and send back the returns prepared by their accountants without checking to see if they made sense.
While you should listen to your accountant, and know what he or she is doing, you should also take an active role in telling him or her what you want done. If you are being audited, for example, it’s up to you to decide how much risk you are willing to accept. And it’s always worth asking your accountant if there are ways to reduce your tax burden legally.
A good accountant will give you advice on these points, but only if he or she knows it’s needed. You have to tell them that it’s needed.
“This is the time to get ahead of the game,” said Shelly L. Schoen, a partner at Marcum LLP, one of the nation’s largest accounting firms. “If you’re not very comfortable with numbers, or you can’t get your financial house in order, this is your chance to get it done.”
How can I do my tax preparation
One option is hiring a professional accountant to take care of all your tax work. This could be especially beneficial for small businesses that often overlook tax-saving opportunities and end up facing the Internal Revenue Service with too few records and too little time to back up their deductions.
The other option is to do it yourself. More and more people are choosing this route as computer software becomes more user-friendly and available online, and as tax rules become more complex. The self-employed must file their own taxes each year (no such requirement exists for those who work for someone else), and many people hold multiple jobs, creating a complicated patchwork of sources of income.
Pros and Cons
In preparing your tax returns, you might have a limited amount of time and money available. In theory, you can then spend that time and money to minimize your tax liability. In practice, the IRS offers a vast array of tax-avoidance options that you can take advantage of if you hire a tax accountant.
If you decide to do it yourself, you will be using a combination of free software and paid assistance from places like H&R Block or a similar retail service. You can choose to pay more for better service.
Are you going to get better service by paying for help than by doing it yourself? It’s hard to say.
The quality of different paid services varies widely, and even the best services may not be significantly superior to good do-it-yourself work. So the best way to find out is just to try both ways.
The biggest advantage of doing your own taxes is that you will learn how taxes work and become more familiar with your financial situation overall. You will also feel a little more in control of your finances and more confident about them.
What is the best way to handle taxes when you are self-employed? The obvious answer is to hire an accountant. But in fact, there are several reasons why you should prepare your own taxes.
The main reason why you should prepare your own taxes is that it will make it more likely that they will be done right. Hiring an accountant can be expensive, and if you do not know what questions to ask, it might not be worth the money. You probably will not know all of the tax deductions that apply to you, and an accountant might overlook some that are justified.
This is not just hypothetical; I have heard of cases where people were paying accountants to prepare their taxes correctly, but the accountants were using incorrect methods anyway.
It’s also possible that you will get audited by the IRS. If someone else prepares your taxes, they are legally responsible for any mistakes or omissions. And if they make a mistake or omit something accidentally, they may have more resources available to deal with an audit than you do. As a self-employed person, though, if your return is audited, you would have to pay for a lawyer yourself.
A tax professional will do much of the legwork required to file your tax return, but you should be aware that many preparers are not CPAs or Enrolled Agents (EAs) (the only two types of preparers who are authorized by the IRS to represent clients before it). Tax return preparers may include attorneys, accountants, enrolled agents and other individuals. The IRS has strict rules covering the representation of taxpayers before it. An individual who represents or aids in representing taxpayers before the IRS must be an enrolled agent (EA) or a CPA.
If your accountant does your taxes for you. This is great, because it lets you not think about taxes for the other forty-seven weeks of the year.
Most people who are not CPAs or certified public accountants are not overly familiar with the tax laws of their own country. This is especially true of Americans, who make up less than five percent of the population of the planet but about fifty percent of those who regularly do their own taxes.
As a result, most people either pay too much in taxes or fill out their forms incorrectly and get audited by the IRS. Or both. I am regularly involved with taxes because I regularly make large amounts of money and the government always wants its share (and then some). So I have learned to think about taxation as a programmer thinks about bugs: as something that interferes with my life and must therefore be coped with as efficiently as possible.