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Does tax software understand your personal finances?
Money ManagementMonthly financial advice |
NOTE: The following article is provided by the American Institute of CPAs.
If you have a complex return, using a commercial tax software program may not be the best way to maximize your tax savings. For taxpayers with complex deductions or income from a business, investments, rental property, a farm or a trust, using a CPA's services may save you time and money. A CPA will make your return preparation easier, generally help reduce your taxes and keep you in top financial condition.
Unlike tax software, a CPA offers judgment, experience and the ability to explain options. If you have basic financial and tax circumstances, self-help tax software may work just fine. But beware: Not all software programs are easy to use. If you're too conservative, you may pay more taxes than you should. If you're too aggressive, you may be saddled with penalties. To play it safe, engage the services of a CPA who understands the tax law and can help you resolve complicated tax issues. You'll sleep better knowing that you've taken every appropriate deduction and are less likely to have penalties imposed or problems in an IRS audit.
Because of their training, experience and ethics, CPAs do more for clients than a tax software program can. Generally, to become licensed, CPAs must meet a series of stringent requirements known as the "three Es" — education, experience and examination. Most jurisdictions require (1) obtaining a bachelor's degree that includes 150 hours of college credit (30 hours more than the standard undergraduate degree); (2) completing at least one year of work experience supervised by a licensed CPA; and (3) passing a comprehensive national examination which only 25 percent to 35 percent of candidates, on average, pass the first time.
That's just to get into the profession. Once licensed and active, CPAs must stay current by taking continuing professional education in order to maintain their licenses. CPAs also adhere to a strict code of ethics, with violators facing sanctions, including possible expulsion from the profession.
Some software programs give you the option of consulting a tax professional for an additional fee, but be careful about choosing that route. If you do, you may not know who is working on your taxes or if that individual is a CPA. In addition, the virtual adviser may not understand your individual tax circumstances and, as a result, may be unable to answer your questions correctly and efficiently, or provide any recourse for errors.
Conversely, CPAs stand behind their advice. They will represent you in a tax audit and know how to work on your behalf with the IRS.
Additionally, self-help tax software may not include feedback on certain topics, such as the following:
How to avoid the alternative minimum tax (AMT), which is affecting more and more people in the middle class.
Why a "dividend" from some "preferred stock" is really interest and therefore not eligible for the 15 percent tax rate.
Whether you should, on an after-tax basis, pay off your mortgage and invest, or reduce your credit card debt.
The best way to save for your child's college education (529 plan, Education IRA, Uniform Gift to Minors account, etc.).
Advantages and disadvantages of electing accelerated depreciation.
If you qualify for a home office deduction and whether you should claim the deduction.
You may find some explanations of these issues on the software's help screen (generally straight out of the IRS instruction booklet) but the "judgment" and "experience" factors are completely missing.
CPAs are dedicated professionals who understand the business of taxes and finance. Their knowledge and training in tax matters enable CPAs to develop effective techniques that often result in substantial tax savings. Year round, they can help you with tax issues as they arise and develop a plan to minimize your taxes.
But they don't just prepare tax returns. CPAs review your overall financial picture to find ways to help you achieve your goals. Considering the expertise and quality of services they provide, CPAs outshine the virtual competition.
Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.
Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.
For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.
The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.
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