I find it amazing how everyone except tax accountants are experts in tax advice. I hear from people all the time “well, my doctor told me” or “my friend told me” or “I heard on Fox News” . . . Instead of going straight to an expert and trained professional, people seek out advice from untrained individuals or organizations and accept the findings as gospel. I have also seen the problems from people that have taken this amateur advice and the additional costs they have incurred from having to fix the problems with their tax returns.
I, myself, was a big self-preparer for many years. Each year I coughed up money for a “Do It Yourself” tax preparation software. I spent an afternoon at my kitchen table loading the software and preparing my income tax return. For many years, it worked pretty good. I almost always received a hefty refund. Then, I moved to a different State and began work with a different company. All of a sudden, I was not getting as much back. I finally broke down and ran my taxes through a licensed tax professional. Once I did that, the licensed tax professional was able to take advantage of tax credits that I, nor the tax software, were aware of. I was back in the good graces of the tax refund gods.
I know of another person that completely misinterpreted what the tax software was asking her and tried to take a deduction on something that was not deductible. The daughter of an existing client tried to take a deduction on the purchase of a Prius when the tax software asked if she had purchased or upgraded any energy efficient materials or equipment. Of course, the IRS rejected the return. Although a highly educated and bright engineer, this young lady was not sure how to fix the problem with the tax return. This misinterpretation cost her another $150.00 to adjust the tax return and file it with the IRS.
I have a few good friends that decided to take advantage of the “free” tax preparation services offered by a non-profit organization, instead of paying the “exorbitant” fees that licensed tax preparers are apparently charging. After a few years of filing their returns through this organization, they were hit with an IRS notice that they were being audited. Unfortunately, because many of the preparers that this non-profit hires off the street each year changes, the organization could not represent these actual honest individuals during the audit. Because we did not prepare the tax return for them, all we could do was offer some advice. My dear friends now realize the error of their ways after having to pay the IRS and additional $2750.00 in unpaid tax plus penalties and interest and now no longer think that the fees that licensed tax preparers charge are “exorbitant” at all.
A similar organization to the non-profit tax preparation service is the tax preparation company that pops up in the strip mall every January 1st and closes on April 16th. Chances are, you see their commercials on television and their dancing characters along the side of the road trying to get your attention. After vacating one of these strip malls, the “fly by night” tax preparation company left behind several boxes of papers. What did these boxes of paper contain? They contained actual copies of tax returns that they had prepared for individuals with their personal identifying information (aka – social security number) prominently displayed for the world to read or copy and sell on the dark web. Even though the building owner contacted the tax preparation company to pickup the boxes, they did not. Fortunately, the building owner was an honest enough person to shred this information instead of throwing it in an unsecured dumpster where who knows who may have access to lift this information. Licensed tax preparers are required to keep your information secure. There are penalties for failing to do just that.
I have another friend that used the bookkeeper of the company he was working for to prepare his tax return. The bookkeeper was not a licensed tax professional and apparently quite the gossip. My good friend’s personal financial information was well known by several people within, and outside of, the company he was working for. Licensed tax preparers are required to keep a client’s information (all of it) confidential.
If you read our white paper on this same subject, we start off with two terrific case study examples on the problems with unlicensed tax preparers. The first was a retired individual that was hired off the street to prepare tax returns at a local accounting firm. Because of his inexperience the licensed preparers had to spend time with basic training, then correcting errors on tax returns which cost clients more money because the time to prepare had significantly risen. The second example was an actual licensed preparer that only inputted data but did not actually review the information that she was preparing. This example could cause real problems for a client because information may not be entered correctly, and they may be missing out on deductions that they may qualify for.
Not every tax return fits in the same box. A software is not going to capture those dedications unless a trained accountant directs the software to look for them. Someone off the street is not going to have the years of training and experience that a licensed tax preparation professional is going to have. Inexperience is going to cost the tax-payer time and money in having to correct and re-file errors that this unlicensed person is making. It is important to meet with your tax preparer so that you can provide insight on any changes you may have had over the last year which may affect your tax position. For these reasons and many others, hire the licensed tax professional.