Number 213 - February 2001

Do-It-Yourself Tax Prep
by Robert Preston, CPA, dacs.doc electric Jan 1998 1998? -- Still Applies to today's taxes - ed
Do you use Home Depot for do-it-yourself projects because you know you can do it better and cheaper? And what about your taxes? Do you prepare them on the PC? If not, you're probably losing money, both in professional fees and in tax overpayments.     But I've got an accountant, you say, and I can't handle the complexities of preparing my own return. Bunk! The tax software now available for doing your own taxes is superb--powerful, easy to use, and has lots of built-in expert help and reference material. All you need to do is get your data (even if it's in shoebox format), sit down, rev up the computer, and you're off. The program will take you, step by step, through everything you need to prepare the return, including such exotic areas as depreciation and the alternative minimum tax.     Have any tax-related, IRS-oriented questions? Think you need a tax professional for the answers? Maybe not. The programs offer lots of online help, including complete instructions for all the forms, full text of the most common IRS taxpayer publications, and the advice and experience of professional gurus like Mary Spouse (former IRS group audit manager) and Jane Bryant Quinn, resource pros that may offer you the experience and ability equal or exceeding that of your current professional advisors.     Here are two more reasons to go it yourself: the time constraints accountant's face and electronic filing , both explained below.     Let's face it. The tax laws are complex in spite of Congress' "simplification" pitch. And each situation (yours in this case) is unique. Every taxpayer's situation has its own little subtleties and intricate questions to resolve. How can any accountant know all that has to be known about your situation and spend the necessary time on your account analyzing the various methodologies to minimize your taxes, (especially when most of the data for tax returns comes into an accountant's office during the same six-week period every year--late February through early April), and make a decent living? It's difficult. Take it from a CPA.     So, what happens. The accountant gets your data, puts it in a computer program, and does the best possible job given the restricted amount of time that can be allocated to each return. That amount of time is limited by two factors:     (1) the number of returns the professional has to complete and     (2) how much the return can absorb in billing (fees).     Most accountants know any return will justify only so much in fees and know they must be careful not to	run up too much time that can't be billed. Otherwise, the income from the practice will not justify the work performed, and the accountant might as well pump gas or flip hamburgers for a living. (This is why most attorneys don't do tax returns--not enough money in them.)     So how do you get around this problem? Do the tax return yourself (at least the initial draft), and spend enough time in its preparation to cover most of the angles and possible combinations of laws as they affect you. You can look at many more permutations than your accountant might have time for, and you'll reduce your professional fees significantly. Want the return signed or checked by a CPA? No problem. Finish the return the best you can, copy the data file to a disk, and send the disk, via modem or snail mail, to your accountant for a final review. This way you're getting maximum not using his time for low-level data organization or putting together the basic return), and you'll discover if you missed any key tax principles. Have your accountant finalize the return, sign it, and zap it to the IRS electronically.     Why electronically? First, you'll get an e-mail acknowledgment from the IRS it was received; second, you'll eliminate one of the primary factors that triggers a preliminary audit, i.e., data errors, and third, you'll get your refund in two to three weeks, directly deposited into your account. Electronically filed returns can't have data errors, as they are proofed several ways before the IRS accepts them.     While some CPAs will accommodate this approach, others may not want to review your draft return, maybe saying it's too much trouble, or there's not enough money in it. What to do? Simple. Get a CPA who's into technology and thinking about the future--and you!     If you want to get a firsthand feel of how to do your own tax return before the current year's programs are released, most of the major vendors have specials on the prior year's software for minimal rates. The '97 releases should have excellent recaps of the recent tax law changes, in particular the ramifications involving IRAs and planning for educational expenses. Two leading programs to consider are TurboTax (Intuit) and TaxCut (Kiplinger). Both should have '97 releases arriving around the end of December or early January. Consider the CD-ROM versions to obtain the maximum online help and research capabilities.     Happy tax prepping!     ROBERT PRESTON is a regular contributor to dacs.doc on financial issues and software. Contact him at rpreston@compuserve.com.
Number 213 - February 2001