Should I file my own tax return?
With e-filing being such a wonderful, fast and efficient system, many people ask whether they should file their own returns. This article is designed to provide the benefits and disadvantages of using a tax practitioner to file your income tax return and you filing your own tax return.
The biggest disadvantage of using a tax consultant is obvious. The cost! In recent times cost of living has increased and the temptation is always there to save where we can. This is of course, wise if you are familiar with tax legislation and know how SARS operates. This is especially so since the introduction of the tax administration act. The benefit of using a tax consultant is his or her familiarity of changes in tax laws. In the past SARS corrected a mistake by an individual filing their tax return. Under the tax administration act, this is no longer the case. SARS has a table of offences which, if guilty, a penalty is imposed. Therefore, a taxpayer can no longer afford to take a chance if they are not certain. The penalty ranges from 5% up to 125% The amount depends on each case and the attitude of the taxpayer. Should a taxpayer, for example, not be aware of an audit and fail to submit their supporting documents, this might be seen as obstructive behavior and warrant a minimum penalty of 50% of the amount understated. This means if the medical aid section is completed incorrectly and the system calculates a refund of R10 000 when the return should be zero then R10 000 has been understated on the individual tax return. Failing to submit the documents quickly makes the penalty R5 000. It might be cheaper to pay a tax consultant. Should a taxpayer cooperate fully, it is still recorded and the same error within a period of 5 years will warrant same higher penalty as this would be considered a repeat case.
Another disadvantage when using a tax consultant is many of them are in it simply for the money. They do not care about the client and taking recourse against a tax consultant is tedious and has greater cost than it yields a benefit. Therefore, ensure that you deal with a reputable tax consultant. Personally, I have heard the situation too many times where a client has paid a tax consultant and they never filed the income tax return. A good tax consultant should file your return within 48 hours once he or she has all the relevant documents and your income tax return is not too sophisticated. Also, make sure your tax consultant is registered with SARS and a professional body as required by the tax administration act. This is law as of 1 April 2013 and any tax consultant not so registered is in breach of this act and should not be considered. If your tax consultant is not able to comply with the laws then they may not be adequately qualified and will probably give a taxpayer incorrect advice and file the taxpayer’s income tax return incorrectly.
The biggest advantage of using a proper tax consultant is that they do the same work over and over. Therefore, they become experts in the field and know exactly how to deal with a taxpayer’s individual tax return since they have done the same work many times. They know how SARS works and what information to provide to SARS so as to avoid any complications, delays and unnecessary audits. Should there be an audit, your tax consultant will also know exactly how to deal with the audit and should the tax audit have any unfavorable outcome, the tax consultant should deal with such outcome. This may lead to objections being raised which also need to be done in the correct format as SARS simply calls an objection invalid when not captured 100% correctly. SARS also starts asking explanations where an objection is raised later than 30 days. Therefore, as the tax consultant is aware of this and knows how to deal with these situations, this might put you in a good position.
Tax consultants are usually trained in tax legislation and are fully aware of how to treat certain transactions which the general person will not be aware of. Please remember that filing an income tax return incorrectly leads to penalties whether done intentionally or unintentionally. Simple but important concepts are that of accrual, capital versus revenue and valuation of a car for travel allowance purposes. Take the sale of a house for example, when should the capital gain be disclosed? When you receive the money or when you become entitled to the money? When do you become entitled to the money? Should you pay a capital gain on your primary residence? These and other questions like these.
If you prefer using a tax consultant, contact FMJ Financial Services as we have extensive, specialised experience working on individual tax returns. We work fast and we always make recommendations to structure your income package to your best advantage. Contact Monique or Jacques on 079 969 9250 or 082 858 5199