This time of year Certified Public Accountants and other tax preparers are frequently asked to help someone with their tax return. The person says that they have completed the return themselves, and they just have a few questions — or maybe only one question — about how to handle some income, expense, deduction, or potential credit.
The fact is, CPAs are terrible at helping in this situation.
We do a lot of tax returns, have sophisticated software, and a lot of experience on a full range of tax issues. Our strength is in taking someone’s financial information and preparing a complete tax return. But, we are lousy at looking at one component of the tax return and reviewing just that isolated slice of information.
Why? Because CPA are cautious, and we want to make sure that there isn’t a odd limitation or gotcha that could apply to the bit you’ve asked us to review.
The tax law is insanely complex, and a lot of deductions and rules depend on other factors of a person’s financial life. The answer to even a seemingly simple, “Can I deduct the cost of the MBA classses I took for work?” depends on a lot of other parts of your return and professional life.
When the question becomes more complex such as “How do I record the income I received from what I think is an investment when the company sent me a 10-99 for what they paid me?”, it can be impossible to even think of a reasonable number of questions to ask to understand the situation enough to give an intelligent answer. A CPA will want to know all the details of the transaction, see all contract documents, and know where all the taxpayer’s income for the year came from.
In fact, CPAs almost always want to know the total financial situation of a tax payer before they pass judgment on a return or part of one. There are so many arcane rules and special qualifications that we are afraid that we’ll endorse a wrong solution for your situation. Or worse, we sometimes can give a correct response to what you want looked at, but there’s a huge problem in what you’ve done because of something we don’t know about.
Here’s an example. Suppose you want a CPA to look over the Schedule C of your tax return to make sure the items are correctly classified as business expenses. They are. But, it turns out that this year you incorporated the business and the business needs to file its own return. A CPA could say the Schedule C looks good, but if you filed it with your personal return you could wind up paying the IRS interest and penalties for underpaying your personal taxes.
CPAs we know all avoid checking a part of a tax return or answering an isolated question about which line is supposed to record this bit of income or that expense. 99% of the time, the tax laws are too weird to allow us to give a simple answer.
So, please ask us to prepare your return. But, please don’t ask us if you used the correct calculation for Line 27!