Tax Professionals
Knowing What to Expect
By Daniel Muniz

An acquaintance of mine once went to a Certified Public Accountant expecting that such a professional could unearth new tax deductions to give him a bigger tax refund than the previous year. Instead, all he got was an expensive bill from the CPA for a return and a refund that wasn’t much different than what he did himself the year before.

His experience reminded me what my professor of my tax law class was often fond of saying:

You can teach a monkey to prepare a tax return.

That has been the case for decades. Unless you have a truly esoteric situation, just about anybody, including yourself, can prepare a tax return, especially today with low cost tax software. An authorized tax preparer working in his living room or a CPA in a fancy office have been using these tax programs to prepare returns for years. And such software is actually pretty good and usually quite accurate.

But what miffed my friend was that he was expecting to get a much different outcome by using an expensive CPA.

His unrealistic expectation, which is shared by a lot of people, is actually the result of a misunderstanding of what tax professionals really are and what they can do.

Again, my tax law professor drilled down to us that he was teaching the concepts of tax planning instead of tax preparation. The best way to minimize a tax bill is to be cognizant of all of the activities of your assets and liabilities so that they can be properly utilized or withheld for the tax year.

Tax planning is entirely different than tax preparation. And I don’t mean to degrade tax preparers in implying that all of them are monkeys, although it is still up to them to clear up the confusion to what they can really do. And that includes the big chains like H&R Block as well as the predatory anticipation refund loan companies.

Tax planning helps you plan out the future possible impact of taxes in regards to your financial decisions, such as selling stocks, rental property, etc. This planning helps you make the most of your decisions so that you can avoid unnecessary tax expenditures.

Hiring a tax professional for this purpose is done primarily “before” the tax year ends while hiring a tax preparer is done “after” the tax year has ended.
 

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And once the tax year is over, then it literally is “game over” because with extremely rare exceptions, the moment December 31 ends, so do your options. Consequently, it is already too late to make any tax decisions while you are preparing your taxes because the tax year has already ended. The only thing that a tax preparer can really do is just prepare your return and ensure that it is done correctly. They really cannot do anything extraordinary, outside of breaking the law, to save you additional money or find hidden deductions that everybody else has missed particularly when they are using the exact same tax software.

As a result, the real role of a true tax professional is to help you with planning so that you can make an informed financial decision for the tax year “before” it ends. In other words, you have to see such a professional before the tax year ends so that you can make any appropriate changes in time. And waiting until the last month of the year may be too late to making all the right financial judgment calls.

If you think you might have a complicated tax situation that could involve large tax expenditures, then perhaps it is best to see a tax professional as soon as possible. Planning for your taxes requires quite a bit of forethought so that all of your options can be explored and weighed. And certain purchases and sales may take a lot longer than expected, especially when they involve real property.

Anything more complex may require legal tax advice that is outside the scope of a tax planner. As a result, the services of a tax attorney may be needed. And only attorneys can give legal advice.

Is there a difference between a CPA and an independent authorized tax preparer working out of his living room?

The simple answer is no.

For the most part, the independent tax preparer will do just fine and charge you a heck of a lot less. A few people have concerns that a guy working out of his living room may not be up to snuff in dealing with investments and other peculiar tax issues. But more often than not, most of them have the experience and background but always ask questions if you are uncertain. You still have to have confidence in whoever you decide to do your taxes.

And somewhere down the road, if your tax situation becomes more esoteric, then definitely seek out the services of a CPA, especially someone that has the expertise in certain specialized areas.

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