The Tax Man Cometh

Question of the week:I'm debating this year about whether to do my taxes myself on my computer or hiring a tax return preparer. Which do you think is best? --Sarah S.

Dear Sarah,

The time alone required to complete a Form 1040 these days can be daunting, not to mention the amount of anxiety and stress that a lot of people go through when preparing their returns. So you're wise to think before choosing a tax preparation path.

When we asked members of the Armchair Millionaire community recently about the ups and downs of tax prep, we heard a range of responses:

Do it yourself. "I prepare my own taxes using TurboTax, which walks me through everything and then flags anything that might make the IRS audit. It's a lot easier than people think--you just have to focus and take the time to do it." --Kristi

Go with a pro. "It's a full time job trying to keep up with all the changes in tax law, so I've always turned to professionals." --Ryan

In general, I think it's a good idea for most people with relatively simple tax situations to prepare their own returns. It keeps them in touch with their situations, and with the range of tax prep software now available, it can be a snap.

For taxpayers with more complex situations--for example, anyone who is self-employed, going through a divorce, or facing the alternative minimum tax--I believe that a professional can be invaluable. If you chose this route, my checklist will help you get the most from it.

The Armchair Millionaire Checklist for Getting Professional Tax Help

• Choose the right type of preparer. There are many different kinds of preparers, each with a different level of expertise (and accompanying cost). These are the major types:
  • Return preparers at national chains or local outlets. While convenient and fairly inexpensive, the knowledge and experience from one preparer to the next may vary widely. I would recommend this option only if you have a fairly simple tax situation.
  • Enrolled agents. These folks must pass a rigorous IRS exam, pass a background check and complete continuing education requirements every year. If needed, an enrolled agent can represent you with the IRS if it questions your return.
  • Certified Public Accountants. CPAs must undergo rigorous training and licensing requirements and are highly skilled in accounting matters. However, not all handle tax matters, so be sure to ask. CPAs may also represent you before the IRS.
  • Tax attorneys. An attorney specializing in taxation may be appropriate if you have a highly complex or specific situation on which you need expert guidance in completing your return.

• Check them out. Before you work with any preparer, ask them about their training and qualifications, continuing education, experience dealing with your type of tax situation, and if they would represent you in case of an audit.

• Organize your stuff. Your preparer can do a better job (and will charge you less) if you don't dump a shoebox full of unorganized tax records on their desk. Provide copies of previous years' tax returns, but make sure you send copies, not originals. And don't wait until April 10 before making an appointment with your preparer.

• Check your return carefully. Don't sign your return without reading it through carefully to ensure you understand it and that there are no glaring inaccuracies or omissions.

THE BOTTOM LINE: The old cliché says, taxes are one of two things you can be certain to face. But you can certainly make them less painful by choosing the right path for your tax preparation needs.