Updated: Jan 15, 2021
The ubiquitous question about almost everything, especially something as mundane as a tax return. But the question should probably be "How much is it worth to YOU?"
In the last four years there have been FOUR major revisions to the tax forms. As a CPA who consults and prepares tax returns for a living, I have to study the forms each year to decipher where certain items of income, expense and credit should be presented.
How long would it take you?
Now, how long would it take you to complete all the proper forms?
When it comes to the cost of a tax return you have to ask yourself these questions:
How much is my time worth?
What are the consequences of being wrong?
If it takes a CPA four hours to prepare your tax return, it may take you at least 8-12 hours. Let's say your time is worth $50 per hour ... that's $400-$600 right there.
Now, you decide to do it yourself and you complete it in 6 hours ... good for you!! Is it correct? What is a peaceful night's sleep worth? If it is audited, that audit notice will not appear in your mailbox for probably 18 months. Will you remember what you did?
I had a client who was a recent widow whose husband had invested in oil and gas publicly traded partnerships he had no business being invested in. PTPs are incredibly complex investments from a tax perspective - items are spread throughout the return and it is worse when they are sold. She sold them. We reported the annual income and gains from the sale on her tax return. She received a letter from IRS stating she owed almost another $14,000. She panicked and was in tears. I wrote a letter to IRS explaining where all the "missing" income and gain was reported on their forms and she ultimately received a letter from IRS stating she owed nothing. THE IRS DOES NOT EVEN KNOW HOW TO USE/READ THEIR OWN FORMS!!!
If you are a stock or options trader with hundreds or even thousands of trades, can you work through all those or do you simply depend on the brokerage's Form 1099-B?
Most people are smart enough to prepare there own tax return, just like most people are smart enough to perform their own appendectomy ... but they don't, because they are not trained for it.