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Tax Planning

9 Reasons to Stop Doing Your Own Taxes

by
Gordon W. McNamee
on
3/25/2020
9 Reasons to Stop Doing Your Own Taxes

Note: The tax filing and payment deadline for 2019 tax returns has been delayed from April 15, 2020 to July 15, 2020.

No matter your individual tax situation, it’s likely you have some sort of complication that comes from just living your life – whether it’s a marriage, a divorce, a rental property, or anything else, attempting your taxes alone isn’t going to bring about the optimal result.

Here are nine reasons to skip the DIY route with your taxes and hire a professional.

1. Software won’t stop you from making human errors.

Whether you’re a single taxpayer who owns rental apartments, a divorcee navigating alimony payments, or anything in between, mistakes are possible when you tackle your taxes by yourself. While you’re essentially stuck with the outcome your software spits out at the end, tax professionals are trained to spot errors and help you remedy them – saving you money in the process.

2. The questions that tax software asks are often not pertinent.

If you’ve ever used an off-the-shelf tax software program, you know that the process involves responding to a series of questions, filling in answers and being taken down a path that its algorithms are programmed to think makes sense. But there are some questions that are not so simple to answer. Some don’t make sense at all, some have complicated answers, and many of them end up wasting a lot of time and causing a ton of frustration.

Contrast this experience with how things go when you work with an actual tax professional with whom you’ve established a relationship and who knows what is going on in your life, and you’ll quickly see that there’s no comparison. Even if the program gives you the ability to call and speak with a real live human, the amount of time that it takes and the impersonality of the exchange is likely to leave you feeling far from satisfied, and still uncertain as to whether your return is actually reflecting the reality of your life. You’re far better off having somebody that has a sense of what you’ve been doing all year rather than trying to figure things out with a computer screen in the days leading up to the deadline.

3. Why make the burden greater when a family member dies?

In the year (or years) following the death of a partner, grief alone could be reason enough to enlist a tax professional to handle things. 

On top of that, widows and widowers must consider the technical issues they face on top of the emotional burden they’re carrying. For instance, which tax return specific income goes on, how to treat income both before and after the date of death, understanding any tax implications for the will, how to value inherited assets, and more. A tax professional can help you work through all these issues and relieve any unnecessary stress.

4. Getting divorced changes the entire tax game.

If your year included a separation or a divorce, you know all too well that things get complicated in a lot of ways. Not only do you need to grapple with questions about how to handle spousal support and asset changes based on division of property, but you also suddenly face the very real possibility that when your ex presents their new tax pro with your previous years’ tax returns, uncomfortable questions or previous errors may arise. If you’ve been using tax software, you may find it a whole lot easier to stop that practice and put a professional between you and those questions.

5. As a single parent, you need to understand your options.

If you are a single adult who has one or more children living with you and relying on you, you already have enough on your plate without having to worry about whether you’re better off filing ‘single’ or ‘head of household’, or how the various child tax credits and education credits apply to your situation. Working with an experienced and knowledgeable tax professional will provide you with the confidence of knowing that you are getting all of the deductions to which you are entitled, minimizing your liability and maximizing the refund you’re eligible for.

6. You are employing a nanny but haven’t talked about taxes yet.

This can be awkward. While people who pay babysitters on the books – i.e. filling out the proper forms and complying with rules and regulations – may undertake an extreme administrative burden, you also don’t want to casually issue a 1099 to a nanny who didn’t know it was coming.

As a household employer, you should avoid dropping a surprise like that on someone. Instead, hire an expert to manage the situation for you and ensure all sides are doing what’s proper.

7. You own rental property.

There’s no doubt that renting out a room can help defray mortgage costs, and there can be big investment upside to renting out an entire apartment or property, whether for a week, a month or a year at a time. But the tax implications of doing so can be extremely complicated. You need to understand how to allocate rental income and how to depreciate portions of your home, even if the land that it sits on is not depreciating. 

You also need to understand what can be categorized as a rental property vs a primary residence, and how you or your family members spending time there can impact your calculation. A tax professional will be your most valuable tool to make sure that you are using the correct depreciation rates, that you know what to do when you sell a property, and that you know how to deal with gains or losses.

8. If your compensation includes stock options, you need help.

Working for a tech company or start-up often means working in an employee-forward environment that may include benefits like ping pong tables, free lunches, and most important of all, stock options. Unfortunately, as amazing as it may feel to get what feels like a major financial gift in exchange for your loyalty and hard work, those options require special attention that no tax software is going to guide you through.

When you sell your stock and realize those financial advantages, your payroll department is not deducting taxes for them in the same way that they do your income. You have a couple of options, but only a tax professional can recommend which one is right. Wait until tax time and start inputting information into tax software and there’s a very good chance you’re going to find out that you owe the IRS a significant chunk of change.

9. You’ve repeatedly failed to file.

It’s all too easy to skip paying your taxes. You may simply have been too intimidated by the process, or feared owing too much, or thought that you didn’t have to because your company takes out taxes from your paycheck. Unfortunately, as common as those excuses are, they don’t eliminate your obligation to prepare and submit a tax return and any monies that you owe.

If you’ve fallen into this trap, the only way out is to go through it, and a tax professional is going to provide you with the best guidance, as well as a calming explanation of all of the things you need to do, why you need to do them, and how the process will impact you.

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

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