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Decisions, decisions...
You Think You Can File an Accurate Tax Return, Do You?


Unless you think like Al Capone, you probably plan to file your tax returns. Still, the question remains even for the law abiding: "Should I do it myself, or pay a professional tax preparer to do it?" 1099 Magazine speaks with three professionals about the risks of each method.

Unless you think like Al Capone, you probably plan to file your tax returns. Still, a question that might nag even law abiding citizens is, 'Should I do it myself, or pay a professional tax preparer to do it?' 1099 spoke with two IPs (independent professionals) and a corporate representative who all have expertise in this matter: Jefferson Boone, a Boston lawyer who does accounting for IPs; Maggie Doedtman, Tax Research and Training Specialist with H&R Block at its Kansas City headquarters; and June Walker, a Sante Fe accountant (and 1099's tax columnist) who specializes in IP tax issues. All three agree that IP taxes are far more complex than those of W-2 workers; but whether the average professional tax preparer understands IP tax issues better than IPs themselves was cause for talk.

Hiring a professional tax preparer will save you time and probably spare you a measure of anxiety, but it won't, of course, be free. On the other hand, time is money, and the time you spend doing it yourself may cost you more in billable time than paying someone else to do it. However you decide to do your taxes, you ought at least to think about your options.

If you decide to undertake the task yourself, you could fill out the old paper forms by hand, a time honored but laborious method. More sensibly, you could use computer software designed specifically for calculating and filing tax returns. Software programs that run locally on your computer include Intuit's "Turbo Tax" and "MacInTax," and Block Financial's "Tax Cut." Online tax preparation systems allow you to prepare and file your taxes via the Web. Some of these are Intuit's "WebTurboTax" and Universal Tax Systems' "SecureTax.com." Many experts, however, tend to be lukewarm about any do-it-yourself method.

Boone, offering the most vociferous objection to the pen and paper approach, calls it "the worst possible method," noting in particular the high risk of making small but potentially costly arithmetical and transcription errors. Doedtman agrees. "No tax pros use pen and paper any more," she says. "The potential for math errors is tremendous."

Computer software reduces the likelihood of computational error, but nonetheless assumes that you have a complete and accurate record of your income and expenses. Also, as with any method of doing your own taxes, using software requires both that you understand the tax issues affecting you and that you enter the data flawlessly. Boone endorses the use of tax preparation software, with reservations: "If you're comfortable with your software and you're willing to take a couple of days each tax season to bring yourself up-to-date on the tax law, and if you have no special issues, and you're right that you have no special issues, then fine. The risk is in not knowing the tax law." Doedtman also advises caution, but expresses more faith in the reliability of the software approach. "If you use the software as it's intended to be used, it's not usually a problem," she says. "It's designed to follow a certain path, using [built-in] questionnaires and expert advice. You may not have to learn all the theory, because it's built into the questionnaire format."

Walker, who specializes in IP tax issues, says that neither manual method -- writing by hand or using a computer program -- has much to recommend it for the typical IP. Which one you use "doesn't matter," she says. Writing out the forms "just takes longer." On the other hand, "tax programs make errors too. The tax law changes every year. The corrections bill this year is about 800 pages long. Can the guys in the back room updating the software keep up with that? No way."

In fact, Doedtman and Boone both feel strongly that IPs should solicit professional help -- from a regular professional accountant, a national chain like H&R Block, a CPA, an Enrolled Agent, or a tax lawyer -- when preparing their tax returns. IP tax returns, they say, are simply hard to do, because the tax code wasn't written with IPs in mind.

But finding competent professional help may itself be an impossible chore, according to Walker. "Most tax pro's don't pay attention to IPs," she says. "They don't know the tax laws for IPs." Moreover, many IPs compound their tax season confusion by keeping sloppy records throughout the year, she says.
Admittedly, recordkeeping isn't always easy for IPs. "Someone running a small company is forced to keep good records, because they have employees and payroll taxes," Walker points out. "Nobody's forcing an IP to keep records. All he's got to do is pay his taxes somehow."
In spite of their general lack of expertise in IP tax issues, however, a trained tax preparer will probably be able to clarify ambiguities -- whether or not a certain purchase is deductible, for example -- especially if the two of you go over the return together.

"The heart of good tax preparation is the interview," says Boone, "and it must be in person. There's much less chance of miscommunication in person. You need to see each other's demeanor. Some questions should lead to other questions and the client's demeanor is a clue to that. I have to build trust with my client so he'll tell me the truth."

"Human contact is important," echoes Doedtman, who adds that it's important to work with a tax preparer you like, not just a warm body with an accounting degree. "Of course I'd love to see everybody come to H&R Block, but make sure you have a relationship with your tax preparer. They have to understand how comfortable you are at taking risks, so you'll feel comfortable answering their questions. We want to get the accurate tax return."

In the final analysis, says Walker, the biggest factor in reducing the pain of tax season is neither the filing method nor the expertise of the person who files the return. "The important thing," she says, "is the bookkeeping all year that feeds into the tax return."



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