TurboTax, HRBlock, and Others: Friend or Foe?

You can do almost anything from the comfort of your own home these days, and filing your income tax forms is no different. With the rise of third-party tax filing software it is essential that you ask yourself: is this the most effective way to file my taxes? 

Tax season can be one of the most stressful times of year if you are not prepared and ready to hand over every document Uncle Sam asks for. On the other hand, if you go into this tax season prepped and ready to hit the ground running, so to speak, you an avoid all of that undue stress. 

One of the most common tactics that many people use to prepare for tax season is to pull up their H&R Block or TurboTax account and start filling out the basic identifying information so they don’t have to worry about that part when it comes time to add in things like W-2’s and Income Adjustments. For some tax filers, these types of applications are huge time savers and can help them find deductibles that they did not know they qualified for. For others, they are more of an inconvenience than anything else. Unfortunately, electronic filing systems can only get you so far in both tax prep and tax compliance and they can’t compete with a licensed tax professional when circumstances get a bit more complicated. 

How Do Electronic Preparation & Filing Systems Work?

Programs like TurboTax and H&R Block use a pre-programmed algorithm to appropriately fill out your annual tax return. These algorithms are typically extremely user-friendly and easy to navigate. They rely on targeted questions asked in every-day terms to gain answers to questions that might be difficult for the average person to understand on their tax forms. 

These programs are designed to help people navigate the tax preparation process as seamlessly as possible and can even help users find common tax deductions such as active student and student loan deductions. They cover basic assets and liabilities like purchasing or selling a home, car, or boat. Unfortunately, these programs work best for individuals who do not have many extenuating circumstances. People who are simply filing a W-2 income tax return with no work-related expenses or deductions typically find these types of programs very helpful whereas users who, for example, own a business and have to report business expenses and profit line item by line item might be better off seeking outside assistance. 

Costs

One of the most obvious benefits associated with e-filing is the lower cost. Many electronic filing systems offer free or extremely low prices for their basic filing system. The difference between filing with H&R Block, TurboTax, or a similar program and using a CPA can be hundreds of dollars. 

When Is It Okay To Use Them?

This is a complicated question because the most accurate answer is: whenever you feel comfortable using them. While nearly all of these systems are meant for a fairly straightforward tax filing experience, most are also programmed with the capabilities to file more complex returns. In fact, many include special packages for these kinds of exceptions to the rule. 

Whether they offer free digital assistants to walk you through some of the more complicated parts of your tax return or a premium account programmed to ask you more questions targeted specifically to your circumstances, there are plenty of fully digital options that can save you a ton of time and money. 

That being said, many people leave money on the table when they go this route. Sure, you can probably file successfully and avoid a stressful IRS audit by using an electronic filing system, but professional accountants know a good deal more about potential tax breaks and deductions that you can use. People still use CPAs during tax season for a reason: they are almost always worth the cost. 

Circumstances That Might Require Professional Assistance

What do we mean by ‘complicated’ anyway? When taxes are involved, it is easy to find yourself in a complicated situation with the IRS. There are thousands of potential deductions that you might or might not qualify for but there are just as many income variants and earnings that you might be required to report. 

Some common circumstances that many people prefer to see a professional accountant about include:

Owning a business 

There are many costs associated with owning a business and reporting all of these costs accurately can make or break you this tax season. This is especially true for business owners who are either reporting a loss for their business, reporting a large change in profit from one year to another, or reporting over a million dollars in profit. All three of these situations are common audit triggers, so you want to make sure that everything is reported correctly and that all of your documentation is in order. 

Claiming A Home Office

This is another common audit trigger and there are a ton of criteria that you have to meet to have your claim accepted by the IRS and you are going to need plenty of documentation to back up your claim. 

If you are able to successfully claim a home office, it can make a huge difference in your income tax return, but having a professional walk you through the process is important with a claim that involves so much paperwork and specifications. 

In fact, you might benefit from a pre-tax consultation with a CPA before time to file to go over a list of documents that you will need before it’s time to file. 

Using or Trading Crypto or e-Currency

As far as the IRS is concerned, cryptocurrencies are taxable just like any other investment. It is treated as an asset, similar to stocks and bonds and must be reported in the same way. If you sell cryptocurrency, you are obligated to claim it like you would any capital gain or loss. 

It is important to note that many cryptocurrencies are exceptionally simple to track because of the digital footprint they leave. This makes it easier for both you and the IRS to keep up with what you should be reporting on your annual tax return. Your CPA can help you find exactly what documentation you will need to complete your tax return. 

Benefits of Hiring a CPA

A CPA, or Certified Public Accountant, is an individual who has finished a degree and certification program focused largely on how to effectively file taxes adn track income. CPA’s can do a variety of finance-related jobs but tax season is most CPA’s bread and butter. 

Filing taxes can be quite complicated and having a professional accountant at your side to walk you through the process can make a huge difference. A few key benefits to hiring a CPA over using electronic filing software include:

1. Ensure that you are getting every available deduction and credit
2. Offer professional experience, knowledge, and advise 
3. Correct any input errors
4. Teach you about tax prep for coming years
5. Connect you with a tax resolution attorney in case of an audit
6. Assist you with multiple returns
7. Help you determine what documents are needed 

Common Tax Mistakes

One of the most important benefits that you can see from working with a tax professional instead of filing a DIY tax return is identifying mistakes before they make it to the IRS. But what are some of the most common mistakes that professionals know to look out for? 

Tax forms are some of the most complex legal documents many of us will ever have to fill out and we have to do so every single year. Things that should be simple to add, like name, address, adn other identification information can be easy to fill out incorrectly. Making sure that all the proper boxes are completed is the first thing your CPA is going to look for. 

Next they will need to check your income verification against your W-2, I-9, or other official document to ensure that each number is added into the correct space. There are several different numbers and boxes to fill in this part of your tax form and it can be confusing to match them all up correctly. Your tax professional is going to look to confirm that everythign is in the right place and all of your numbers are reported correctly. Remember: never round up or down when reporting your income. If you do not have proof of whatever you have to report in front of you to get the exact number, find whatever paperwork is necessary and finish your report later. 

What is a Tax Resolution Attorney?

If the day comes when you get that dreaded audit letter from the IRS, you are going to want to have the most knowledgeable and informed tax expert on your side. Tax resolution attorneys are lawyers who specialize in helping you get IRS compliant as swiftly as possible. 

It is always in your best interest to get professional assistance when dealing with problems with the IRS. Even if you know that you have done nothing wrong, never meet with an IRS representative alone. Their primary objective is always going to be to get Uncle Sam as much money back as possible. Small mistakes can be used against you and you could end up paying fines that could have been easily avoided. If you have a skilled attorney helping you, it will communicate to the IRS that you are taking it seriously, and that they will have to be at their very best to try and prove the case against you.

Call Steven Klitzner Today!

For your free consultation with Steven Klitzner, Miami’s premier IRS resolution attorney, give us a call today at (305) 682-1118 or visit us online.