MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
TAX QUIZ: HOW MUCH TAX HELP DO YOU NEED?
December 21, 2004) — Now is a good time to decide whether you plan to prepare your tax return yourself or turn it over to a professional. The answer generally depends on how complicated your tax situation is, advises the Virginia Society of CPAs.
The assistance available to do-it-yourselfers has grown more sophisticated. The IRS and other Web sites provide access to tax rules, filing procedures, and downloadable forms. There’s also tax preparation software designed for calculating and filing tax returns.
Not everyone needs the help of a CPA or tax professional, but as your financial situation becomes more complex, paying for tax advice and preparation could save you money in the long run. The following quiz can help you determine how much help you need:
1. Do you have the time?
The IRS estimates that it can take roughly 28½ hours to research tax law, organize your records, and complete a standard 1040 return with three common schedules: Schedule A for itemized deductions, Schedule B for interest and dividends, and Schedule D for capital gains. The Form 1040 instruction booklet, alone is more than 130 pages long.
2. Are you a salaried employee who takes the standard deduction?
If so, your return is likely to be simple so you may be able to do the work on your own or by using tax preparation software. Keep in mind that using software as opposed to paper and pencil greatly reduces the likelihood of mathematical errors.
3. Are you technologically savvy?
If you are comfortable using computers and various software programs, you may benefit from using tax preparation software. Today, most tax programs use a question-and-answer interview format that prompts you through the filing process, ascertains your eligibility for deductions and credits, and helps you enter information on the forms. However, if you are not technologically savvy and are unaccustomed to using tax software, you may want to seek some help from your CPA.
4. Have you kept abreast of changing tax laws?
Tax law is constantly changing and getting more complex. If you plan on doing your own taxes, it’s important that you keep up to date on the latest changes and how they affect your situation.
5. Are you itemizing your deductions on Schedule A?
Owning a home is often the factor that makes itemizers out of those who take the standard deduction. If you own a home, your mortgage interest and real estate taxes are deductible on Schedule A. Most taxpayers can complete Schedule A on their own.
6. Have you had a major life change such as marriage or divorce?
Lifestyle changes often call for specialized help, both in terms of taxes and financial planning opportunities.
7. Have you exercised employee stock options or actively traded stocks?
Complex returns have more gray areas where judgment calls and expert advice can make a significant difference. CPAs and other tax professionals are typically well versed in these areas.
8. Do you own a vacation home or rental property?
Owning a second home, particularly one that you rent out, can complicate your tax situation. For example, depending on how often you rent the house and how much you use it yourself, different tax rules apply. CPAs can explain the impact of ownership and rental income on your tax liability so you pay the correct amount of tax.
9. Are you self-employed or do you own a small business?
Self-employed individuals and small business owners are frequently the targets of IRS audits. Working with a CPA can help your business minimize audit risk.
10. Do you have high income or live in a state with high income taxes?
Watch out! You may be subject to the Alternative Minimum Tax or AMT. The AMT, which eliminates many itemized deductions, was created to ensure that the wealthy pay their share of taxes. But because the thresholds have not been adjusted regularly for inflation, more filers are finding themselves subject to this tax. If you think you might be affected, consult a CPA.
Keep in mind that tax planning is a year round activity. Don’t wait until April to get your taxes in order. CPAs can assist you in developing a plan to maximize savings while meeting your tax responsibilities.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional
2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia, 20171
208 South King Street, Suite 201, Leesburg, Virginia, email@example.com
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