Should You Prepare Taxes by Yourself or Seek A Professional Tax Preparer
A newly decided case, Maxfield v. Commissioner, T.C., illustrates why you should seek professional help when you do not understand what you are doing.
Here are several points I learned from the case: a) you cannot practice law if you do not have a license; b) you should not claim that you are running a business when you did not properly document its setup and expenses; c) you should not deduct personal expenses; d) you should not assert tax software as your defense when get caught.
Maxfield claimed that he did some legal works to help others. Yet, he is not licensed to practice law, and he did not perform any legal works. What he did is to help others preparing some standard forms.
Maxfield claimed that he was running two businesses. However, he could not distinguish personal and business expenses. For example, clothes usually are personal expense unless you consider them as uniform which you could not wear for non business purposes. He also did not substantiate his claims, such as business mileage. If you intend to deduct business mileage, then you should keep a mileage log to document where and when you conduct his business and mileage of each trip.
Maxfield claimed he relied on Turbo Tax software to prepare his tax return. Nevertheless, the tax software only takes whatever you input, even if you inflate numbers or cannot substantiate your claims. When you do use tax software to prepare your return, you should ask for help if you do not understand whether or what kind number you should put into the software.
On the other hand, when seeking help, you should not rely on answers post in blogs to totally eliminate your risk that certain deductions are allowed, unless you pay a professional for advice. In that case, the risk would transfer to the paid professional. (Please keep in mind that a professional usually disclaim his opinion per Circular 230, unless he studies the case, finds probable cause, and gets paid to render an opinion.)
A rough analogy to the case is just like keeps your car running. If you understand mechanics and are excited to play with your car, then you may invest time and money to do it. Otherwise, you should go to an auto shop asking for help. In the latter case, you rely on professional to reduce your risk that your car may break down on a highway.