Should I Use an Accountant to File my Taxes?

by M.E. Hansen, All rights reserved. Do not duplicate without permission

You own a small business.

If you can explain what a mid-quarter convention is and when it does and does not apply, you might be able to look over your tax preparer's shoulder while he or she prepares the return. Most other small-business owners should simply hand over their records and do whatever the tax preparer says.

Depreciation schedules, payroll taxes, and Section 179 expense limits are just the start of what an entrepreneur must understand to tackle a small-business return. There are many gray areas of tax law related to business, and returns with Schedule Cs tend to get audited more frequently. A tax preparer who understands your business and has a good relationship with the IRS and the State Franchise Tax Board is an invaluable business asset.

Besides, the expense of preparing your business return is an above-the-line deduction.

(Above the line, by the way, refers to the line on your tax return that discloses your adjusted gross income; it means that these deductions reduce your taxable income dollar for dollar. By contrast, below-the-line deductions such as most itemized deductions reduce your tax bill by a percentage that roughly equals your tax bracket. Below-the-line deductions are inferior, in terms of tax savings, to above-the-line deductions.)

If you have a retirement program that includes your employees, a benefits savvy tax preparer is a must. Any errors could disqualify your plan and make contributions taxable to you and your staff.

Your taxes are otherwise complicated.

How complicated is too complicated, to do it yourself depends on the software and the tax preparation skills of the taxpayer. Generally though, if you have extensive investments, household employees, rental property, foreign income, or if you lived in more than one state or country, you probably could benefit from a professional's advice.

Tax software varies in its ability to guide inexperienced taxpayers through common but difficult areas, such as determining who qualifies as a dependent or whether the earned-income credit applies. TurboTax is probably the best of the batch, but still requires some work on the taxpayer's part.

By the way, just having to file a California return could qualify your tax situation as complicated.

California tax law differs in significant ways from federal tax law, and most professional tax preparers would chew glass or eat dirt before they would try to do a state return by hand. If you do use tax preparation software, make sure that it includes both state and federal programs. Some, like Microsoft's new TaxSaver product, are federal only and thus next to useless to Californians.

You're really, really paranoid.

A glitch in H&R Block's online programming allowed a handful of people to see a part of other filers' returns at its tax preparation Web site; that problem has since been fixed. Such lapses are rare, and most Web sites bend over backward to safeguard financial data. If you're really touchy about your financial data, you might want to stick to the software you can download into your computer or that you buy packaged in a store. (You'll also want to avoid H.D. Vest's tax site, which offers free preparation in exchange for access to your data.) You're probably still safe electronically filing your return, the IRS and the State Franchise Tax Board have set high standards for their E-filing systems and no one has reported any breaches.

Next Page: More Reasons you May Consider Hiring a Tax Professional