Discussion:Do tax returns "look" better when filed by a CPA

However, I keep remembering how someone said that the IRS seems to give favor to taxes that are filed with a CPA. I'm not suggesting that the IRS just ignores it and moves on. No. Rather, i was told that it just, overall "looks" better and that the IRS seems to not be as weary when a small business uses a CPA versus when they file their own taxes.

Any strength to that argument? Of course, if many of you are CPAs, then i should expect a bias response. But the point did make sense to me.

Just trying to decide if it is worth paying $250 for something that may take an hour or two (max) of my time. Seems like the bulk of that amount is for the comfort of having the cpa do it and hope that prevents an audit. Perhaps wishful thinking.

If you scour the various threads in Tax Almanac you will see people like yourself realizing that their initial questions were not as easy as they thought. (This also happens to tax preparers with either little over-all experience or preparers with many years of experience, but not in the particular area in which they are asking the question. However, in the latter case the experienced preparer usually qualifies the question with, "I'm not sure whether this is a complicated issue or not . . .")

Your return may well be easy, all I am saying is that we don't know. Asking a bunch of people who do not know your capabilities or your business is kind of futile. We already know you only want an answer that is acceptable to you. ("Of course, if many of you are CPAs, then i should expect a bias response.")

All that being said, you should have a good enough relationship with your CPA that you can ask him/her the question and get a straight answer. Presumably a $250 per year client is not worth it to them to lie to you merely to keep your business. (If it is, you need a new CPA anyway.) S/he can go over with you the pros and cons of you self-preparing your return.

Also keep in mind that the time you spend preparing the return can be spent drumming up new business, spending time with your family, etc.

Another point in favour of hiring a CPA - or EA! - is that their job is to stay on top of new tax laws. The fact that "last year's looks easy" may have no bearing at all on whether this year's is easy or not.

Aren't you eligible for the crazy new Domestic Production Activities Deduction? When you buy your next car, which make or model will give you the biggest tax cut? Should you change the ratio of your salary and dividends this year? Do you have the best retirement savings plan possible? If you're not sure, then maybe what you need to do is switch to a CPA or EA who will do tax planning as well as tax prep. This costs more - expect to pay at least double what you're paying now - and expect to save more (in tax) than the extra it's costing you.

If you still want to go it on your own, you may want to do what a number of my clients do: Prepare their own return, and then come to me for review of the paperwork and tax advice. This has the lowest cost to you (and it's more fun for me). You get the maximum benefit of their wisdom and advice, while saving money by doing the donkey work yourself. Plus, if it turns out you're not as adept at tax as you thought you were, the person catching it is someone who likes you rather than the IRS.

For you do-it-yourselfers, it's not merely the filling out the forms that's important, but the ability to distinguish important facts of a given situation and interpret them into compliant tax law - the ability apply knowledge to judge and advise. CPAs and EAs must go to CPE sessions each year to learn the new tax law changes-that costs time and money. Merely by having a CPA signature on the tax return doesn't guarantee anything. Plenty of CPAs make plenty of blunders on returns and really shouldn't be preparing returns. But the risk of not having a compliant tax return would usually be lower than a do-it-yourselfer return. Are you aware that there are special rules for depreciation, entertainment, auto expenses, office-in-home expenses where to prepare the return properly you need to know what facts determine which treatment? So go ahead Mr. do-it-yourselfer, save money - after all, what do you need a knowledgeable person for just to do preparation of returns?

If your return really is that simple, you can probably do it yourself. I don't think you are any more likely to be audited if you do the return yourself all else being equal.

If I were you, I'd prepare my own return for 2006 and take it and my 2005 return to a different CPA. If that CPA gives you a clean bill of health for both years, you're safe to file on your own. If the second CPA, however, finds missed deductions or asks you questions neither you nor the last CPA thought to ask, I'd let the new CPA do your taxes.

If you can really get your business taxes done for $250, that is a heck of a deal and you'd be foolish to pass up the expertise. Penny wise and pound foolish or something along those lines.

(1) $250 seems like a lot to my humble little brain, but you guys are certainly correct in that it indeed is NOT, as after checking around last year, most companies were WAY of $250.

(2) Yes my business taxes are very simple. Mind you, this may be a direct result of the fact that the current CPA does not do a whole lot more than copy my Income Statement and Balance Sheet data over to the appropriate forms. That is why I said mechanical. Perhaps the reason for paying more money is so the cpa can save me a lot more.

(3) However, none of those points answered the main question of this thread. It wasn't about do i have the ability to file on my own. It wasn't about is $250 too much. The question was simply do taxes "LOOK" better when signed and filed by a CPA?

Many of your comments and posts were helpful, and I do appreciate your time in responding.

FTF65, however, was the only user that actually answered the question. Does anyone else have an opinion in this regard? Biased or unbiased...doesn't matter. Just curious as to the overall opinion of the users. It does seem fair to think that the IRS would scrutinize the return of a small business less if they used a cpa, but perhaps i'm way off base on this.

Free legal advice to anyone who want to finance my career change!

As far as the fees, CPAs generally charge much more than tax preparers who are not CPAs. They sometimes have more expenses, such as, building rent, utilities, hired help, etc. I believe that tax preparers who prepare taxes in their home (and have no employees) have less expenses than CPAs, so their fees are generally less than CPAs. In my case, based on what you've told us, my fee would probably be between $150 and $200 to do your return. My average fee in 2006 was about $110. I expect it to be about $120 this year (at about $250 per hour when I'm actually working), but I don't have to pay anyone to type in the data on the returns, and my only expenses are the normal office-in-the home expenses, office supplies, equipment upgrades, and software.

If you should do it or not depends on your acctg ability. If you get financial statements, you need a cpa.

Do you know how to close the books at year end? Do you know aje? The acct may start with your t/b and g/l, but that may not be the end product.

Much easier to quantify than the impact of a paid preparers signature on the overall low likelihood of audit, is the guarantee you are buying that the return will be correct no matter what twists and turns your business takes. It's right there in the engagement letter. You are buying a completed return and a guarantee (at least how I do business). Only you can decide if the guarantee's value to you is worth the price you are being asked to pay for it. Some people don't care how easy it is, or how much time it will take, they use professionals to handle areas of their life where they lack expertise and this gives them piece of mind and more hours to spend on what they enjoy.

William Price, EA | Portland, OR - Talk to me