Some people were born to crunch numbers, others get sweaty palms at the thought.
A few weeks back, a reader emailed me to comment on an article about saving money. She saved around $1200 last year by sacking her accountant and learning how to do it herself.
There are arguments for and against doing your own taxes. My accountant, for the record, is worth her fee several times over.
For anyone with the remotest amount of complexity to their tax position, trying to cut corners on tax preparation isn't always a good idea. It's often what you don't know that is the problem.
Chartered accountant Mark Withers of Withers Tsang asks investment property-owning clients questions to focus their minds on such things as:
* Can you name the three-step test to determine if a fit-out item is depreciable?
* Do you understand the deductibility issues associated with a break penalty in a mortgage?
Many don't know the answers.
Relatively simple issues can trip up salary- and wage-earners, says Murray Brewer, tax partner at Grant Thornton New Zealand. He cites the example of employees who participate in complex employee share schemes who often don't realise that the tax on these shares isn't paid through PAYE.
Kiwis who have worked overseas can have financial lives that straddle two or more countries. Their tax position may be complex if they have left behind foreign superannuation/pensions, large cash deposits, investments, or mortgaged property, says Brewer.
They may be hit for an unexpected tax bill as a result of foreign exchange swings resulting in "capital gains" on their foreign holdings. An accountant can deal with this type of issue by recommending clients use tax pooling (factoring), says Brewer. This is a service that allows taxpayers to reduce the impact of money interest costs.
Although some people don't get value for money from the accountants, others do in buckets and spades. A classic example of the latter was a Withers Tsang client. The client, a property trader who filed his own GST returns, ran into trouble with the new compulsory zero rating rules on a block of apartments he bought, says Withers.
Not only did the IRD refuse to give the client the large GST refund he was expecting on the purchase, it threatened him with shortfall penalties as well. By investigating the situation thoroughly, Withers established that the deal was GST-exempt despite the vendor being GST-registered. That resulted in the refund being paid out after all and the penalties avoided.
"If he had taken some advice in the first instance, he could have avoided the drama of the audit and penalties," says Withers.
Being an intermediary between the client and the IRD is a very important role for an accountant, says Deloitte partner Stephen Nicholas.
While accountants can't make guarantees to clients facing audits, they can negotiate arrangements with the taxman that might reduce penalties and interest. This is particularly the case where it can be shown that the taxpayer had no malicious intent.
It's difficult for the layperson to keep abreast of complex and constantly changing laws, as the Withers Tsang case above showed. The New Zealand Institute of Chartered Accountants' own chief executive, Terry McLaughlin, employs another chartered accountant to handle his personal taxes because his role isn't at the coalface of tax law.
There are people who don't need an accountant. Aucklander Charlotte Brebner used to pay between $900 and $1200 a year to her accountant to file her very simple tax returns. Some years she recouped the fees, others she didn't. Over a latte, Brebner's trustee recommended she do the process online for free. "A few weeks later, I took the bull by the horns and - armed with an A4 page of questions - rang the IRD and got my answers.
"I was very naive and needed to ask all sorts of questions, including how to actually keep a mileage record, what exactly I could claim against, how long I had to keep receipts for, and so on.
"I had a refund of $750, the whole process was free, and I learned such a lot along the way."
Plenty of Kiwis opt for getting refunds via tax return agencies of the type that have popped up in shopping malls. These companies offer tax refunds on a "no refund, no fee" basis, but take a large chunk of whatever they recover.
Ironically, these agencies specialise in only the simplest of returns for PAYE earnings only. Anyone with half a brain could do it themselves at ird.govt.nz. The process involves getting a summary of earnings and then a personal tax summary calculation, both of which only take a few minutes if you're armed with the same information that the tax agencies will ask for.
As one poster on the GPForums. co.nz website said: "The effort put into being with a stupid agency that takes a cut is the same effort to sign up on the IRD site that takes no cut."
One of the problems with using a tax refund agency is that they make clients sign an agreement so that they become your tax agent.
Sometimes the people who use them get themselves in a pickle because the agency only deals with their personal tax return.
Chartered accountancy firm HWI warned its clients about these agencies after it saw a number of instances of children over the age of 16 who are beneficiaries of trusts visiting tax agencies in malls without realising that their actions affected the trust tax. That meant that they needed reassessments, which cost money.
"Not allocating income to beneficiaries results in the trust facing a larger than necessary tax cost," HWI warned its clients. It meant that tax on the trusts' income had to be paid at 33 per cent instead of the lower marginal rate that the beneficiaries might have paid otherwise.
One of the arguments against using an accountant is cost. Some accountants do charge like wounded bulls. I could go round and round in circles on this one, because Nicholas points out that, until recently, he owned a small accountancy firm and his clients pay little more since he sold his business to Deloitte.
One advantage of a medium- or large-sized accountancy firm, says Brewer, is that they have hundreds or thousands of experts to call on around the world that a one-man band wouldn't.
McLaughlin says sometimes businesses outgrow their accountants, or smaller firms without a specialisation may refer a client to a specialist, as a GP would a patient.
On the accountant versus chartered accountant argument, Nicholas argues that the latter have a lot more to lose than the former. "If I was to be censured or barred membership of the NZICA, my income-earning ability would be terminated."
Conversely, Michael McCook, of AccountabilityNet, says: "For most small businesses, a chartered accountant is a bit like going to the dairy in a Kenworth truck to buy a packet of cigarettes - often the mini would do the job much better."
Accountants should either charge a fixed fee for their work or be upfront about the hourly rate, with an estimate of the overall cost, says McLaughlin.
The chartered accountant should also approach the client as soon as it becomes apparent that the estimate is likely to be breached so that they can talk about it.
One way of saving money is to do some of book-keeping yourself. Software such as MYOB and Xero can make the accountant's job easier, freeing him or her up to provide business and structuring advice.
One small business cut its accountancy fee from $5000 to $1500 a year by using Xero, which costs just under $600 a year, letting its accountant focus on opportunities to save money.