Don’t Do Your Own Tax Return

Some indies do their own tax returns. By far the most common reason is to avoid paying a tax preparation fee. The least common reason is for the pure fun of it.

As most of you who have read my work or heard me speak know: I believe indies should do their best to develop an indie business mindset. They need to understand the business side of their indie ventures. That doesn't mean they need to do or perform, on their own, every aspect of their business.

I've always advised self-employeds against preparing their own returns. Not because they will make some ghastly mistake that will cost thousands of dollars -- although it could -- but because any tax pro/accountant/CPA worth her hire will provide advice on taxes, pensions, income and deductions that’s worth far more than the amount of the fee.

IRS laws and regulations are complicated and completing a tax return in a way most advantageous to the indie takes a lot of training and experience. Preparing a tax return is not just about finding the correct line to put an entry on.

As I wrote in an earlier post encouraging indies to file after April 15:

Most taxpayers think there is only one way to prepare a tax return. Tax pros know that income and deductions can be treated in a variety of ways. If your tax preparer understands the self-employed life, she is equipped to make choices to your tax advantage. And many of her choices for your 2007 return may depend upon your income and expenses in 2008. The later into 2008 the more you’ll know about 2008. For instance, a substantially higher income in 2008 than in 2007 may warrant a fuller deduction in 2008 for equipment purchased in 2007. Or, with a high 2007 income you may want to make a hefty contribution to your self-employed pension. If you don’t have the money right now to put into that pension, an extension gives you until October 2008 to come up with your 2007 pension contribution.

When I get a new client, I customarily ask to see his previous years' tax returns, so in the course of 25 years I have been able to see a number of returns that clients did on their own. My clients one and all are uncommonly bright, highly talented, vigorously entrepreneurial, capable of levels of creativity and accomplishments that I could never hope to match. But I have never seen a single tax return prepared by a client that could not have been more advantageously prepared by me or another tax pro who understands indie business.

Whatever skills and imagination indies have, they have not studied the IRS Tax Code (currently 67,000 pages in length) as I have, and they don’t have a clue about the many, many procedures, all of them completely aboveboard, that would reduce their taxes to Uncle Sam and to the 41 states that levy a personal income tax.

One recent Amazon reviewer of Self-employed Tax Solutions has quite the opposite opinion. As part of a review that was almost grudgingly positive – he had earlier emailed comments to me that were considerably more positive -- he contends that when you read my book you’re 95% of the way to being ready to prepare your tax return so why not go all the way and do it yourself?

To me that’s like saying, you've put a lot of research time into the design of your new kitchen cabinets – why not go the rest of the way and build your own?

The research time is necessary to ensure that the outcome will be the best possible – and part of that research time should be spent finding the craftsperson with the expertise to do the best job for you.

Recordkeeping and taxes are indispensable elements of an indie business and the entrepreneur is a partner in that process, but not the partner with tax expertise. To have that depth of expertise you would have to put your time into learning the intricacies of tax regulations rather than into developing your business. Self-employed Tax Solutions is written with the aim of saving indies time, not of imposing more burdens upon them – to free them by means of learning recordkeeping and tax basics (the word basics pops up in the subtitle) so that they can pursue their talents without worrying about the IRS.

As savvy indies know: delegate whenever possible. Do the research on who is the best to handle what you need but don’t waste your time doing it yourself. If you are a master plumber hire someone to design your website. If you are a graphic artist don’t try to fix your own furnace.

As you may know I have a background in science and math. I really understand computers. But right now, I gotta run. My computer guru is here to fix my computer.

... June

PS be sure to read the later post Two Parts to Finding the Tax Professional Right for You