FAQ – Should you do your own taxes?

YOU wouldn’t think twice about letting a professional handle your root canal surgery or kidney stones, so when it comes to something that can actually inflict real pain – completing your tax return – outsourcing seems a no-brainer.

But this may not always be the case.

While many tax practitioners are superb and conduct their business with integrity, there have also been quite a few instances of taxpayers being hurt by getting someone else to do their returns, says Mark Kingon, SA Revenue Service (Sars) group executive for business systems.

Practitioners often promise clients refunds – and then use fictitious claims, for example for travel kilometres and healthcare costs, as well as deducting disallowable expenses (life insurance, for instance) to get payouts from the taxman.

Taxpayers will be held responsible for the information on their tax returns – and must be very careful about who represents them, says Kingon. Many have also made payments to fly-by-night practitioners, who have not paid the money over to Sars.

He says Sars often also sees tax practitioners who make mistakes – particularly when it comes to capital gains tax on property – which could cost their clients dearly.

Some also claim that having a tax practitioner with a bad track record could affect the way Sars views your affairs. There has been talk for some time that Sars plans to rate practitioners according to their “riskiness”. If your practitioner has a number of delinquent clients, it may affect whether Sars will give you the benefit of the doubt if your affairs are under scrutiny.

However, Kingon says that such a system is not on the cards yet.

The electronic tax return service eFiling, now used by an estimated two million South Africans, has made it much easier to do your own taxes – particularly since many of the fields, including your salary, are now prepopulated.

Doing your own taxes can also give you a deeper grasp of your own financial situation, helping you see how your investments are performing and understanding how you can minimise your tax burden.

Saving on the practitioner fee for completing a tax return – usually a couple of hundred rands – could also be a consideration in these straitened times.

But when you go it alone, the cost of getting it wrong may be much greater, warns Wayne Twigg, managing partner and co-founder of financial advisory firm Twigg.

One of the biggest mistakes people make when filling in returns is not disclosing information in the right fields, he says. Often taxpayers fill in their after-tax income in a field requiring income before tax, which means that Sars will levy tax on their income again.

“While it may cost as little as R600 to have your income tax done by a tax practitioner, the price of getting a practitioner in to fix the error may amount to more than R1 000 an hour,” says Twigg. Also, in some instances – particularly if you have a large interest income – you may be able to deduct the cost of having tax advice.

Another advantage of having tax practitioners represent you is that they speak the same language as Sars, Twigg adds. He often finds that entrepreneurs confuse their sales with their profit. “A Sars clerk will take that at face value.”

Taxpayers also often do not claim for expenses they can deduct – this is particularly the case with medical expenses and the correct completion of all relevant fields for the medical claim to be correctly activated, says Cheryl Tydeman, a registered tax practitioner.

“Travel claims are also an area where the taxpayer may need assistance, as the default method on the eFiled return is that of actual expenditure, the very method which usually results in a poor claim. The fixed cost method almost always results in an improved claim.” She advises taxpayers to keep a logbook.

“The taxpayer may also not be aware that a claim can be activated for the use of a company car which can also be very valuable – a simple logbook is also required. Tedious, but the gain is sometimes phenomenal – a point which may be lost on the taxpayer doing the return himself,” says Tydeman.

Some issues when considering whether to go it alone this year:

1. How complicated is your financial situation?

If you can fill in a form and do basic maths, you probably won’t have any problems completing your return through eFiling – particularly if you earn a “straight” salary with no other sources of income.
But if you earn fringe benefits (like travel expenses) or own more than one property, things get more complicated and professional advice may be needed, says Twigg.

Particularly if the income or expense in question is material, you should consult with a reputable tax consultant to confirm that the tax treatment is correct or defendable in terms of the law, says Charles de Wet, tax partner at PricewaterhouseCoopers.

2. Have there been big changes?

If there have been some changes in your financial situation since the last tax year, including retrenchment, a retirement annuity that has paid out or even if you switched to a new medical scheme, this will add to the complexity of your return, says Twigg.

3. How much time do you have?

A US study showed that it took the average taxpayer about 21 hours to prepare a tax return. A good practitioner, who knows his IRP5(A) from his IT3(A), will find his way through a return much faster than you.

But having someone else doing your taxes could save less time than you may think. You will still need to sort out all the relevant documents and paperwork for the practitioner, and perhaps take time off work to meet with him or her or deliver documents. With eFiling, you can upload the information when it suits you.

4. Non-persons

Generally, if you have to complete a tax return on behalf of any entity that is not a person – for example a closed corporation, trust or company – you should always call in an expert, says Twigg.

But Kingon thinks small companies that have a relatively uncomplicated income should be able to do their taxes themselves.

5. The stress factor
 
If dealing with the taxman or finances in general stresses you out, getting a tax practitioner may be worth it.

“When you get a cryptic letter from Sars claiming that you owe thousands, getting someone else to fix it could have a priceless effect on your stress levels,” says Twigg.

If you do decide to go with a practitioner, finding someone who will only complete your return is not what you should be after. Ideally, the person should give you advice and ideas to minimise your tax burden within the framework of the law.

You should form a trusting relationship with your practitioner, says Kingon. 

How to choose a tax practitioner

Your tax practitioner needs to be registered with Sars. People who accept money for tax services and are not on the Sars register will be prosecuted.

However, being registered with Sars will not tell you much about the practitioner’s credentials. There is no vetting involved.

As far as he is aware, there is no independent body you could consult to provide assurance that a tax adviser is reputable and knowledgeable to provide the correct advice, says De Wet.

“In the case of a registered chartered accountant, you could approach the SA Institute of Chartered Accountants (Saica), although it is possible that Saica may only be able to confirm that the person is a registered member.

“The best approach would probably be to ask the adviser for references or qualifications, or to limit the search for an adviser to a reputable firm of attorneys or accountants.”

Kingon says word of mouth is proba

bly one of the best ways to get a good tax practitioner. He says the person should set you up with joint access to your eFiling account.

“Because in the end, the full responsibility of providing the right information still lies with the taxpayer.”

 – Fin24

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