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Can you handle taxes?
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February 23, 1999: 10:09 a.m. ET
There may be a time when you must admit you need help...from an accountant
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NEW YORK (CNNfn) - You're probably someone who likes to think of yourself as intelligent, thorough and capable of handling life's difficulties. Then tax season arrives.
Suddenly, nothing is the same again.
The image you had of yourself as a dashing CPA able to balance dependents with one hand while snatching deductions with the other is revealed as a lie. You don't know what the Earned Income Credit is. You vaguely remember where you put your W-2 form.
And so, a beaten, stoop-shouldered taxpayer, you pile your tax records into a folder -- or possibly a beat-up shoebox -- and head off to a real professional.
Going it alone
If you're the type of person who needs help with taxes, you'll probably know it fairly quickly. But not everyone needs the assistance of a tax pro.
"If you're a single individual and understand most common itemized deductions, even the basic long form, you probably don't need a tax professional," said Randy Isakson, education manager at the National Association of Tax Practitioners.
Since people's levels of financial knowledge and tax savvy vary, there's no hard and fast rule about when you should take your returns in to a certified public accountant or other preparer.
However, most people who are eligible to use the 1040EZ, a non-itemized return for those making under $50,000 (among other restrictions), can probably handle doing their own taxes.
At the very least, they can probably find a family member or friend who can help them through the process as a free alternative to paid advice.
Moving up to the 1040, which is the tax form used by those who are itemizing, claiming dependents or capital gains or losses, Isakson said this is probably within the reach of many individual taxpayers.
Adding to the "I can do it myself" ethic among taxpayers has been the rise of tax software programs, which include Intuit's Turbo Tax and H&R Block's Kiplinger TaxCut.
Tax preparation software, said Isakson, can indeed make up for some shortcomings in a taxpayers' knowledge but it would be a mistake to assume it can transform the tax neophyte into a pro.
Users are asked for specific information, such as how much they make in dividends, whether they received unemployment assistance during the year and whether they're eligible for certain credits.
But Isakson cautioned that all software is not alike. "Not all software companies are going to ask the same questions," he said.
Software packages do have the advantage of being able to get updated tax information over the Internet. Downloading it is usually automatic while hunting down tax changes on your own can be a little more trying.
In addition, filing your forms electronically is becoming more and more common. The U.S. Internal Revenue Service said 15 million taxpayers "e-filed" their Federal income tax returns last year.
While e-filing must currently be done through an accountant, getting to know the ins and outs of the electronic tax system may help you out in the future, so it's worth looking into.
Calling for help
If you've decided that all the software and advice from well-meaning friends isn't going to get it done for you, you might have to admit you need help.
Individuals with more complex tax returns and small business people may find the help of a professional tax preparer to be worth the additional cost, according to Michael Mitchell, a certified public accountant in Fayetteville, N.C.
"Good accountants try to do more than just tax preparation," said Mitchell. "They try to help them with their future tax issues. That's really the only way to reduce taxes effectively."
Additionally, good accountants will discuss thoroughly with you your finances, he said.
"Your accountant should not be a drop-off and pick-up person. If that's the case, he's not doing his job right."
Your accountant, he said, should always be available to bounce ideas off of throughout the year so that you don't reach tax time having made a lot of bad tax choices throughout the year.
Your decision to choose an accountant to help you out with your taxes is a big one, but picking out the right one is made difficult by the hazy nature of accounting in the United States.
Simply put, anybody can call themselves an accountant and put up a shingle declaring himself open for business, regardless of whether he's had any training or education in accounting procedures.
Shopping around is vital when choosing an accountant for tax preparation, and approach it the way you'd approach any other business transaction.
Ask about their fees up front and what they include. Some tax preparers charge a flat fee for setting up a certain form. Others may charge by the hour. Be sure of these costs before you bring over your records.
Next, you'll want to look into their credentials. Certified public accountants must, in addition to passing the CPA exam, participate in ongoing education.
However, even the CPA designation doesn't mean he or she is an income tax law hot shot.
According to the National Association of Tax Practitioners, CPAs can specialize in a variety of fields that have little to do with ordinary individual income tax law, such as corporate taxes, etc. Instead, tax preparation for them may be a sideline to pick up some extra money.
You can ask if the CPA has "Enrolled Agent" status in your initial interview. This means that the CPA has taken an extensive exam administered by the IRS. Also, if you should run into trouble with that agency, the Enrolled Agent can represent you before the IRS.
Accountants without the Enrolled Agent or CPA designation can still be perfectly capable of handling your needs. Indeed, if you are merely filing a 1040 exam or some other more common tax form, a CPA may be more than you need.
You'll also want to query prospective accountants about their oversight procedures. Even the most eagle-eyed accountants can make mistakes on very complex tax preparation.
If this is a major concern of yours, you may want to choose an accountant from at least a small tax firm where there may be another person to take a second look.
Finally, you'll want to find out something about the accountant's stability. Ask how long they've been in accountancy and how long they've practiced in the state. If they've moved around a lot and you're uncomfortable with that, find another accountant.
Choosing the right person first is important because regardless of who has prepared your tax forms, you are ultimately responsible for any errors.
-- by staff writer Randall J. Schultz
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