Tax Preparation Software Vs. Going to a Tax Professional

It's tax time and everyone is trying to wring every last dime out of their tax return. Advertisements from tax professionals give the impression they can get a person a bigger tax refund than if they did it on their own, or if you use tax preparation software you have a bigger chance of being audited.

The truth is there are no secret deductions or tricks to getting a big refund. Your tax refund is based on the amount of money taken out of your paycheck every pay period. At the end of the year, based on your tax bracket, the IRS refunds back to you all or part of the money you paid.

Some unethical tax prepares may try to convince you they can get a bigger refund than if you use tax preparation software. They may come up with creative even incorrect deductions to get you a bigger refund. But if you are audited, you will have to provide documentation to support your deductions. If you are unable to back up your claims, you will have to pay back whatever refund you received, and possibly have to pay penalties and interest on top of that.

I knew one co-worker whose tax preparer who convinced him to deduct his dry cleaning expenses for his work clothes. The truth is, you can only deduct expenses for work clothes if they are uniform clothes that you can not wear off duty, such as a policeman uniform. The IRS sent my co-worker a letter demanding proof for the dry cleaning bills, which, of course, he did not have. So that he did not get in trouble, he told the IRS he did not have the receipts to back up his deduction, and to adjust his refund accordingly. Fortunately, the only thing that happened to him was his refund was smaller than originally expected.

I knew another couple who filed separately even though they were married to avoid the marriage penalty. Later on the year, the IRS found out and fined them. It is one thing to get a smaller refund than originally anticipated. It is another thing to have the IRS come back later in the year and demand their money back when you don't have it anymore.

The lesson: cheating the government never pays. This is not to say tax preparers are all crooks. However, there is no mystery to filing your taxes. The majority of people can file their taxes doing a little research at IRS.gov and using basic tax preparation software. If you feel more comfortable using a tax professional and don't mind paying their higher fees, go ahead. Just don't think the tax professional is going to perform some magic trick to get you a bigger refund.