Myths About Tax Preparation That Could Be Costing You Money

by Kenneth Hoffman

I've been involved in the tax return preparation process for over 20 years. During those years, I've come across many myths that people believe about tax preparation.

Myth #1: Tax Refunds Are Great News:

You've probably heard some tax preparation firms brag about how many of their customers receive refunds, or the average size of their customers' refunds.

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.

Myth #2: Filing an Extension is Bad:

Many taxpayers are hesitant to file extensions for their business or personal tax returns for fear that there are hidden disadvantages to doing so. This is not true. In fact, extending your tax return can be a great tool in your tax strategy.

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.

Myth #3: Tax Return Preparation is Expensive:

Tax return preparation fees can vary dramatically. This makes it extremely important to look at the big picture rather than just the cost to prepare the tax return.

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 you paying the least amount of taxes?

When is the last time your current accountant, CPA or tax preparer can to you with ideas on how to save money on your taxes. If not you should Contact us.  More often than not, we can save our clients hundreds or even thousands of dollars on their taxes.

Myth #4: Accurate Returns Are All The Same:

When I review a tax return, the basic accuracy of the tax return is generally excellent. It's rare that I find a flagrant error on a tax return.

Does that mean that all firms 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 it would have been prepared at KR Hoffman & co., LLC.

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. Otherwise, great advice may never implemented and you will lose out on great tax savings.

I would be happy to review your last three (3) years tax returns for mistakes and missed-opportunities that may be costing you thousands of $'s at no cost to you. Contact us to find out how to securely send us your prior year tax returns.

Myth #5: The Software Does All The Work:

Whether you do your tax return yourself or hire someone to prepare it, most likely there is tax software involved. Many people make the assumption that the tax software does all the work.

While the tax software performs the calculations (usually quite accurately), it's easy to get into trouble if the data input is incorrect. We know what goes on what line and what form.

The true work and expertise - and resulting tax savings - is in the knowledge of the tax preparer.

Contact us TODAY so that you can start saving hundreds or thousands of dollars.