Why You Need to Know About Taxes Even If Someone Else Does Your Taxes

From the Wall Street Journal:

In a limited study of tax returns completed by unlicensed paid preparers, 17 out of 28 -- or 61% -- were prepared incorrectly, including one that showed the taxpayer owing $4,903 more than he really did, according to a study by the Treasury Inspector General for Tax Administration (TIGTA), which provides independent oversight of IRS activities.

While most of the mistakes resulted in an underpayment of taxes or a too-big refund, sometimes it was the taxpayer, not the government, who would have paid for the mistake, according to the study in which TIGTA auditors posed as regular taxpayers and visited tax preparation offices in a single metropolitan area.

Given the study's small sample size, the findings cannot be generalized to all paid preparers.

Ok, so it's not scientific, but this piece does illustrate a key point: you need to know about taxes even if you have someone prepare your taxes for you. Why? Because preparers make mistakes. Or (more common) you don't give them all the facts they need to lower your taxes like they can. Why would you not give them needed facts? Many fail to provide adequate information because they simply don't know it's needed/valuable information.

I use a CPA to do my taxes, but I still keep on top of the tax laws so I know what information to give her, how to check her work once she's done, etc. This paid off for me big-time this year when I caught a mistake my CPA made (which was eventually resolved.) Because I was educated on the issues, I didn't over-pay my taxes. If I had looked the return over and didn't see the mistake because I didn't understand the issues, I would have lost a good amount of money.

One other tip if you use a preparer: get one that asks some questions upfront. My CPA sends me a three-page questionnaire each year that helps me identify tax issues I'm not aware of. This in itself is a great educational tool that helps me keep on top of the latest tax changes.

So even if you use a planner you still need to be up-to-date on current tax laws. You also need to keep good records, but that's for a different post. ;-)

For those of you looking for more information on this topic, see these posts:

• When to Hire a Tax Professional

• How to Hire a Good Tax Professional

• How to Get More Out of Your Accountant

Comments

[Rick]

To each his own, but in my opinion, if you have to know enough to be able to check your tax preparer's work and make corrections, you know enough to just do it yourself and save the $700 fee. Or at least just pay $80 for Quicken. That's my opinion anyway.

[Steven]

It just goes to show you that our tax system is way overly complex.
www.fairtax.org

-- Steven

I've been preparing my own tax returns for decades and it has never taken me more than 10-15 minutes to prepare federal, state, and local returns combined.

[billy]

$700? I've never paid my guy more than $100 and he's always gotten me more back than what he cost.