Today, I’ll share the top 5 myths I hear about tax return preparation and why they are not true.
Isn’t this great news? I’m not so sure it is.
A refund can seem like great news, especially if it isn’t expected, but it usually indicates a lack of tax planning. With proper planning, that refund can be received a whole lot earlier. While most people don’t want to owe tax when they file their return, they also don’t like to part with their money any earlier than they have to and that is exactly what a refund reflects.
Extensions are helpful to avoid having to file amended returns. Sometimes the forms or information you receive from others to complete your tax return may be amended. If you receive an amended form and you’ve already filed your return, then you must amend your tax return.
Other times, the information you need from others to complete your tax return may be late. Filing an extension provides you with the time to gather this information and accurately report it on your tax return.
Remember: An extension does not mean you are off the hook when it comes to gathering your tax information timely. It is still important to gather all of your tax information timely so the extension can be prepared with the best information available.
Also, an extension does not extend the due date of any taxes due with the return. Any tax liability due with the return is due on the original due date.
Let me give you an example. Suppose you have a choice of paying $500 for your tax return to be prepared or $2,000. All things being equal, anyone would choose to pay the lesser amount.
But, what if all things are not equal? What if the $500 gets you an adequate, accurate return but the $2,000 would get you a return where you legally pay $5,000 less in tax? Which is the better deal? In one, you are out $500. In the other, you are ahead a net of $3,000.
Before you have your next tax return prepared, review your own tax situation and the advice you are receiving from your tax preparer. Are you getting the return on investment you want? Are you getting the planning ideas you need? Are your taxes going down or do they continue to increase?
But, does that mean that these firms all produce the same quality of tax return? The clear answer in my experience is a resounding “NO!”
Accuracy in a tax return simply means that the information provided by the client was reflected on the tax return. It does not mean that the tax return was prepared in the best way it could have been prepared. In fact, I rarely see a tax return from a new client that was prepared the way we would prepare it at ProVision.
For example, certain deductions can be classified in different ways. While each way is technically accurate, the tax impact of each can vary dramatically.
It’s not safe to assume your tax preparer (or tax software) knows the difference.
Never use a tax preparer who isn’t also your tax advisor. You may otherwise get great advice that is never used and lose out on great tax savings.
While the tax software performs the calculations (usually quite accurately), it’s easy to get into trouble if the input going in is incorrect.
The true work and expertise – and resulting tax savings – is in the knowledge of the tax preparer.