Should you do your own taxes?

You might consider e-filing or using a simple tax program. But remember, you're not hiring a tax pro just to put numbers in boxes.
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By Jeff Schnepper

Should you do your own taxes or hire the job out?

It's not what you know that's important here. It's what you don't know … or, more to the point, what you think you know and really don't.

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If you have a simple return, you might consider e-filing or using a simple tax program. But remember, you're not hiring a tax pro just to put numbers in boxes. Any monkey can do that. Video: Schnepper's advice

Before we get any deeper into this, a disclosure: I have two law degrees, and I'm licensed by the New Jersey Board of Certified Public Accountants. I make a lot of money as a tax preparer. I have a vested interest.

To help you decide whether to do your own taxes, I offer three questions that can help you frame the issue:

1. Are you prepared to give your taxes your time?

According to the IRS, if you filed the regular 1040 last year, itemized your deductions and had some investment income and capital gains, it took you 37.8 hours to do your own return, even if you used tax

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software. That's longer than the year before -- and after implementation of the feds' new "tax simplification" program. Chart: Tax preparation

Filing online through the IRS Web site, or through a tax

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program such as TurboTax or TaxCut, can save you a lot of time filling out the forms. But you still must organize all the materials. And that assumes you have a fairly simple return with a limited number of deductions.

2. Are you prepared to put up cash to hire a preparer?

Getting someone to do your taxes can cost $50 to $100 at the low end -- assuming a simple return -– or up to several thousand dollars for a complicated return. The average for an itemized return is more than $200, although it tends to be cheaper to get a return done in the Midwest and more expensive in the West.

One consideration: Any fee you pay may be deductible on your 2007 return if you itemize next April. Such fees qualify as miscellaneous deductions, the sum of which

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must be more than 2% of your adjusted gross income before you can claim a deduction.

3. Are you prepared to deal with the complexity of the federal code?

Congress has legislated major changes in the nation's tax laws in 40 of the last 43 years.

Because the tax code is so complicated, 60% of Americans have professionals do their tax returns. That's 78 million out of 130 million individual returns.

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A growing number of individuals are filing electronically -- 73 million last year. Much of this growth has come from professionals filing their client's returns electronically. Video: The scoop on e-filing

Even though electronic filing has made mathematical errors less likely, many taxpayers still need or want assistance. So if you've got the money, and lack the time, skills or interest to handle your own IRS paperwork, look for a tax preparer who will give you your money's worth.

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Pay for advice, not typing skills
There are basically four categories of tax preparers: storefront agents such as those at H&R Block, certified public accountants, enrolled agents and lawyers. It's not the title that's important. It's the way the preparer approaches your return.

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If you go to a tax preparer who just takes your numbers and inputs them onto your return, I believe you've wasted your money and time. The key is finding an individual who specializes in taxation and keeps up with tax trends and changes in tax law. Video: Preparer training

What you should pay for is advice and direction. More specifically, here's what to expect:

  • A good tax preparer starts by asking a lot of questions. The only way you'll get your money's worth is if the preparer understands what you do and how you do it -– and then scours for every legitimate deduction.

  • A good tax preparer is a teacher who educates you not only on what's allowable as a deduction but also on how to structure your activities to minimize your tax exposure.

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  • The good preparer should focus not only on your 2006 transactions, but also on how you can reduce your 2007 taxes.

Clearly, a tax attorney is going to be more expensive than an enrolled agent or a storefront tax preparer. But if your income justifies it, the more sophisticated

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advice and direction should more than offset the additional cost.

If you do nothing else, get a checkup
Again, I'm biased. If you choose to do your own taxes, fair enough. But let me make a suggestion: Consult with a good tax professional at least once every three to five years -- just to find out whether you're missing anything. Video: What do you think?

If you're starting your first job, for example, you may not know that you could contribute to a Roth IRA.

You can't successfully play the tax game if you don't know all the rules. That's why I think everyone should -- at least occasionally -- pay a professional. Test how much you know, take the Tax IQ Test.

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