Understanding Tax Preparation

Brian Fricke, CFP®Asset Protection, Taxes

Understanding Tax Preparation

You’ve all heard that old saying that you can’t avoid death and taxes. Unfortunately, this adage is true. Since I believe you should spend as much of your time as possible doing only what brings you immense joy and satisfaction, I doubt that filling out your tax return is one of these activities! That’s why I urge you to use a tax professional to prepare your taxes.

Here’s some guidance on who you should go to for tax preparation, from the tax expert we recommend to all of our clients:

The single biggest mistake most people make when they prepare their own tax return is inverting their numbers. This includes copying down a wrong number or putting a number in the wrong box on the tax return. And I should know since for the last twenty years, I’ve prepared over 1,200 individual tax returns annually! So, if it’s not you, who qualifies as an expert in tax preparation? There are three categories of professionals who prepare income taxes:

  1. Accountants: An accountant may have an education or background in accounting and may also take some tax courses. Accountants are generally experienced at accounting and business tax returns. They can do individual tax returns but their primary focus is on tax issues for businesses.
  1. Enrolled Agents: Enrolled Agents are focused on tax return preparation, not accounting. They can also represent you if the IRS audits you.
  1. Certified Public Accountants (CPAs): CPAs can prepare personal tax returns but their primary interest is working with larger businesses, which have ongoing year round accounting and tax issues, including payroll, financial statements, etc.

For personal and small business tax returns, I recommend you use either an Enrolled Agent or a CPA.

For more advice from experts in areas of financial planning, check out Brian Fricke’s book, Worry Free Retirement.