Do I really need a Certified Public Accountant (CPA)?

People frequently ask me if they should use a CPA to handle their accounting and bookkeeping needs.  This post will attempt to answer that question.

The current United States Federal income tax code consists of approximately three point seven million words.  The tax code is extremely complicated and Congress makes large changes to the tax code each and every year.  Some of these changes are permenant; however, the majority of them are temporary and last just for a specified length of time.  Sometimes these temporary provisions expire and other times these provisions are extended.   Worse yet Congress often makes these changes at the ”last minute.”  In fact Congress made a lot of very large changes to the 2010 tax code on December 17th, 2010.  The IRS has not even finalized a great deal of the 2010 forms at this point; in fact the IRS is now stating that those taxpayers who itemize their deductions likely will be unable to file their tax returns until mid to late February of 2011.

Most Americans now use software or a third party preparer to prepare their tax returns.   CPA firms have several inherent advantages over the large National Chains including:

  1. We have less overhead which allows us to charge lower fees.
  2. The National Chain stores are largely closed during the off season so it is difficult to get advice or even contact the person who prepares your tax returns during the off season.  Most CPA firms (Like ours) are open year around.
  3. The large National Chains often hire people who have absolutely no experience in preparing tax returns.  The tax code is so complicated that this business model amazes me.
  4. CPAs are required to have a minimum level of education and further are required to continually update their skills and knowledge each year in order to maintain their license to practice.

I personally feel that people should strongly consider filing their own tax returns using purchased software if their taxes are relatively simple.  I especially feel that people should consider their filing their own tax returns if their taxes are simple and they are willing to dedicate 2-4 hours of their own time in order to prepare their own tax return.  I feel the following people should consider using a CPA to prepare their taxes:

  1. If you own a business you should use a CPA.
  2. If you have to file a tax return for multiple states (For example maybe you moved from Ohio to Indiana in 2010) you may want to use a CPA.
  3. If you own rental properties you may want to use a CPA.
  4. If you have foreign investments you may want to use a CPA.

There are a fair number of tax preparation firms in Fort Wayne, Indiana.  Since the cost of living in Fort Wayne is so low the prices for tax return preparation are low in relation to more expensive portions of the United States. 

I cannot tell you how many “horror stories” I have personally witnessed in Fort Wayne due to people filing their own tax returns, using an unqualified person or firm to file their tax returns, or using a large National Chain to prepare a large and complicated tax return (I think the Large National Chains are more than qualified to handle simple individual tax returns and some of the Large National Chains also have certain offices or locations that are also  capable of handling more complicated tax returns).  Below I have listed a couple:

  1. I have a new client that has hired a person to prepare their tax returns for the last several years.  This person would never sign the returns (Always a red flag; you should never use a person who is unwilling to sign the return as the preparer in my opinion).  The client had given a couple of relatives large cash gifts in prior years.  The unqualified preparer listed these as charitable donations on schedule A and took them as itemized deductions.  The client is now paying the back taxes on this as well as penalties and interest for multiple years.  These years are now under IRS review.
  2. I have a client who started a new company.  He filed a tax return several years ago and improperly reported the income on Schedule C of his personal tax return rather than on a corporate tax return.  Eventually he got some notices from the IRS and brought them to me.  I have been working with the IRS to fix this and it has cost this client thousands of dollars in accounting fees, interest, and penalties to date.  This client made an honest error; however, corporate tax returns are complicated and should be left to someone who truly understands them.

I want to finish this post by saying that CPAs are not perfect.  As with any profession their are CPAs who prepare taxes and do a horrible job.  Every profession has some “bad apples.”  There is one Fort Wayne CPA who violated numerous laws and was eventually arrested and prosecuted for their crimes.  This person did a horrible job preparing tax returns and actually committed fraud by fabricating tax deductions because they did not want their clients to pay income taxes.

I feel that you should do some research when choosing a tax preparer and I feel that in many cases you should choose a CPA to prepare your taxes.  If you are located in the greater Fort Wayne area please give me a call at 260-338-0833!   I do also prepare tax returns for people who are not in the Fort Wayne area.  In fact I have clients in Alaska, Georgia, New York, Texas, California, and more. 

Mike Sylvester, CPA/ABV “accredited in business valuation”

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