March 11, 2009

Tax Time: Going to use a CPA this year

This is the first year that I'm not doing my own taxes.

In previous years I would do my taxes the old fashioned way: with a #2 pencil and a calculator. Doing my taxes on my own had mixed results. Initially my return was very simple with just a 1040EZ and standard deductions. That part is simple enough I had no problems doing it myself without aid of a CPA or buying tax software. As things got more complicated in recent years doing the return got more tricky. I've made a couple mistakes in the past 2-3 years that drew some IRS attention. Thankfully there wasn't anything serious enough to warrant an audit. One year I just added wrong and they notified me of the mistake and automatically adjusted my return. Another year I forgot to account for a stock sale so I had to amend the return, but I actually lost money on that sale so it didn't cause my bill to increase. Because of this I'd been thinking of getting tax software at least to help me do the taxes and help catch any errors.

This past year I got married and so that complicated our tax situation even further. We decided to get the taxes done by a professional. We'll have to pay them to do so of course. I don't have the bill yet but I expect it to be $300-400 range. Our CPA isn't especially cheap and I'm sure I could shop around and get it done a bit cheaper. We do have a lot of forms to handle though. Theres the Schedule A for itemization, Schedule D for stock sales, Schedule E for rental income, a form for charitable donations and potentially other forms as well. The reason we're using the CPA we are is that she came very highly recommended from a close friend of mine. He also said specifically that she's good about finding deductions that you wouldn't know about otherwise.

When I found out that the bill would be $300-$400 range I wondered if I shouldn't just tackle doing it on my own. Doing the taxes on my own isn't a big problem and is well worth my time if I can save $300 or more by doing it. But the big question is whether or not the professional CPA will save us more in the way of deductions and justify that $300+ cost.

To tell if spending the money for a CPA is worth it or not I'm going to run the figures myself by doing my own figuring and then estimate the return I would have gotten if I did it all on my own. If our CPA can save us more than what I'd get on my own that then I think the cost of paying them is well justified.

There are other good reasons to have a CPA do the return. If we screw up then it gives us a little measure of protection from the IRS. Also it will of course save me the time and hassle of having to do it on my own.

Don't forget that the tax preparation bill is also deductible. So we can deduct the $300-$400 fee and only end up paying about 66% of that after the tax break. Our actual cost will be more like $200-$300.

See also:

Free Money Finances explanation for why he does it : Why I Use a CPA to Do My Taxes

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