In our post yesterday (Owe Taxes But Can’t Pay?) we mentioned that in the case of simple tax problems it isn’t always necessary to hire a tax lawyer.
But what is a simple tax problem?
And in trying to figure out how difficult your tax problem is, you’re likely to come across a lot of tax advice. But can you spot the good advice from the bad?
- You can talk to friends who may know a little more about tax problems than you do.
- You can research topics on the Internet until your fingers are numb and your eyes hurt.
- You can speak with friends-of-friends who ‘know a lot’ about taxes.
- You can pour over IRS periodicals or the irs.gov website in a coffee fueled daze that reminds you far too much of your high school trigonometry or physics classes.
These are all common ways that people get their tax advice. Are you spotting a problem yet?
In the end, if you’re not dealing with an experienced tax professional who is up-to-speed on your specific kind of tax problem, the ‘advice’ you get is going to be questionable.
On the Freshbooks blog (Freshbooks is an online invoicing service) they have a relevant article written by Gary Porter who was a CPA for 28 years. It’s called 6 rules for recognizing bad tax advice
Here are a couple of excerpts from the tax advice article.
“Tax is a complicated subject. In some ways, it’s something like medicine. I once had a client who put $10,000 in her RRSP (the equivalent of a 401K). Problem was, she was a member of the teachers’ pension plan so her limit was about $2000. When I told her she would have to withdraw the excess funds and pay a penalty, she was shocked. “I thought I was doing the right thing,” she explained, “I got advice from a teacher whose husband is an accountant.” I refrained from asking “if you ever need surgical advice, why not ask a teacher whose spouse is a surgeon?”
Mr. Porter goes on to highlight six rules for recognizing bad tax advice and we’ve highlighted two of them below.
Rule number one: anecdotal tax advice is dangerous at best.
It can result in missed tax planning opportunities, errors and omissions, penalties and interest.
Rule number two: tax advice that you don’t understand is bad advice.
The subject of tax is complicated. But each little tax topic can be understood, if properly explained, by the average taxpayer. Don’t do it unless you understand what you are doing.
-From a 28 year veteran Chartered accountant and Certified Public Accountant
Which leads us to what you can do about all this.
Short answer: Talk to someone who really knows. Even IRS agents can be incorrect.
Start out with a free consultation (if one is offered) to feel out whether the person you’re speaking with is experienced and expert with your specific kind of case. You won’t get this from an email. Pick up the phone.
Keep in mind that a free tax consultation is going to be short and sweet. And don’t expect specific answers to your burning tax questions. You get specific answers and solutions when you hire a professional tax law firm and it’s unrealistic to expect otherwise (I’m making an assumption that you don’t work for free either).
Instead, use your free consultation to narrow down at least one or two people who are expert enough to help you. Then hire them for 1 to 2 hours. Some professionals don’t do business this way so ask if that’s a possibility during your initial call.
Provided they do offer an hourly rate, make it a point to explain to them that you’re not sure you need a professional’s help, and want to understand the severity of your case and your potential options. Ask if they think your case merits professional handling and why.
A reputable and experienced professional tax law firm can tell you what you need to know. As explained in the article referenced above, “The subject of tax is complicated. But each little tax topic can be understood, if properly explained,”
Hiring a tax professional for a limited engagement is a great solution to a tough problem. You’ll either be better prepared to handle your tax case yourself, or ready to engage with the tax professional to begin expertly addressing your tax case.