Three Questions to Ask Yourself about Preparing Your Own Taxes ...

MSN Money gives you three questions you should ask yourself to determine whether or not you should do your own taxes. Their list:

1. Are you prepared to give your taxes your time?

2. Are you prepared to put up cash to hire a preparer?

3. Are you prepared to deal with the complexity of the federal code?

Here's my take on these three questions:

Time

The article says that the IRS estimates the average taxpayer needed 23 hours to do his 2010 tax return -- 32 hours if a Schedule C for business or a Schedule E for rental properties was filed. This assumes you have a fairly simple return with a limited number of deductions.

I don't have a simple return and I have a lot of deductions. So I'm way past the 32 hours estimate.

That said, even if you hire someone to do your taxes, there's still a lot of work to do. I have to get all my files and paperwork together to give to my CPA. I then summarize everything (Quicken helps tremendously with this) and type out specific thoughts for him to consider as he does the taxes. I'm guessing this takes 20 hours. Assuming completing my taxes from start to finish takes 40 hours, I'm saving 20 hours by having a CPA handle them. At $20 per hour (plug value of my personal time), that's $400 in time-savings alone by hiring a CPA.

Cost

Paying a preparer isn't really an issue for me. It's not like we're talking $10,000 or something here. It's a few hundred dollars and can be deducted as a business expense.

Complexity

I am NOT prepared to deal with the complexity of the federal code (not to mention our ever-changing state tax code). In addition to the time noted above, there's the frustration factor. 20 hours lying on a beach, watching TV, enjoying your family, playing video games, etc. is one thing. But 20 hours sorting through the tax code, trying to decipher what number goes where, is more akin to 20 hours of water dripping on your head. Or 20 hours of screaming endlessly into a pillow. Or 20 hours of holding your breath. You get the idea. Those 20 hours I get rid of are very unpleasant hours.

Yes, tax software can help. And I've tried it in the past. But sometime software makes assumptions to make things "easier" for you -- and those assumptions aren't always true. So I found myself checking and re-checking what the software was putting in each box. This, of course, added more time to the entire process.

Other Considerations

Then there's the planning/advice/feedback part of tax planning that you don't get unless you have a preparer. And you have to have the right kind of preparer at that.? My former CPA didn't offer any sort of help, but my new CPA does, and without charging me any extra.

In the end, it all comes down to the same thing every purchase comes down to: is it worth the cost? For me, the time savings, frustration factor, accuracy of the return, knowledge of the code (which can lead to extra savings), and planning issues make using a CPA to do my taxes a no-brainer.

How about you? How do you prepare your taxes and why?

Source: http://www.freemoneyfinance.com/2012/02/three-questions-to-ask-yourself-about-preparing-your-own-taxes.html

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