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Re: Capital gain tax questions
Old 10-21-2004, 04:25 PM   #21
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Re: Capital gain tax questions

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I also had my taxes done by a H&R Block about 15 years ago. *When I got home and reviewed the paperwork I found a couple of deductions they hadnt taken, and a mistake on one calculation series.
ROFL!!! Expecting good tax service from H&R Block is like expecting McDonalds to serve you filet mignon medium rare.

Not to say CPAs don't make mistakes, but you generally get a much higher standard and quality product from a CPA.

I agree that you should understand the general points when it comes to taxes and I commend you for being a do-it-yourselfer, but don't think that turbo tax makes you an expert in taxation and accounting. For simple returns it's a great product and maybe when you hit the print button it has helped you arrive at your most efficient tax. But unless you REALLY understand the nature of the tax system which changes with the wind, I don't believe any tax product can be a substitute for human knowledge and analysis.
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Re: Capital gain tax questions
Old 10-21-2004, 04:25 PM   #22
 
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Re: Capital gain tax questions

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Silly question for y'all. *Why do we read books, go through a lot of trouble and invest our own money in index funds when there are perfectly good financial planners willing to offload all that hard work for just a percent or two of our money every year. *Seems cheap to avoid learning all that investing stuff... *:P

If the statistics for Financial Planners were as good as Tax Preparers, I'd employ one immediately. They aren't!

Index funds are also easy and 90% of Financial Planners can't beat them.

I would not go to HR Block, I use the same CPA as I have for over 20 years. He's good! Better than me!
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Re: Capital gain tax questions
Old 10-21-2004, 04:36 PM   #23
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Re: Capital gain tax questions

A dangerous statement TH - you know how many number crunchers post here - I can almost hear the computers humming - lets see - tax prep fees - compounded over thirty years of retirement at X rates of return.

Scott Burns has mined this well many a time with various examples of trusty long term compounding - Bogle usually sticks with fund expenses.

Boy oh boy - anybody run thirty years do your own taxes and invest the money saved at 8% or ?

Seriously - playing with long term compounding effects - both positive and negative is a worthwhile exercise - IMHO.
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Re: Capital gain tax questions
Old 10-21-2004, 07:55 PM   #24
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Re: Capital gain tax questions

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If the statistics for Financial Planners were as good as Tax Preparers, I'd employ one immediately. They aren't!

Index funds are also easy and 90% of Financial Planners can't beat them.

I would not go to HR Block, I use the same CPA as I have for over 20 years. He's good! Better than me!
Again, I agree 100%. Financial planners are great for those who know nothing and don't care about learning anything about investments. Financial planning involves concepts that don't change (like the future value of money), make more common sense, and is generally more "fun" than taxation and tax compliance. What's more fun, figuring out how much you will have in 10 years if you invest $1000 a month at 6% or trying to figure out how to apply short-term losses against long-term gains, applying wash-sale rules, and calculating net operating losses?
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Re: Capital gain tax questions
Old 10-21-2004, 11:21 PM   #25
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Re: Capital gain tax questions

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If the statistics for Financial Planners were as good as Tax Preparers, I'd employ one immediately. They aren't!

. . .
What tax preparer statistics are you referring to? Every year I read at least a couple of articles where a journalist takes a fairly standard set of tax records to a half dozen different tax preparers and ends up with 6 very different answers -- none of which is optimum and usually with about half of them being wrong. Everything I've read and seen on tax preparers indicates that as a group they are bumbling fools.

Tax law just isn't that complex -- even though my tax situation is far more complex than the typical filer. Over the years my DW and I have both worked -- often at multiple jobs and sometimes in multiple states. Between the two of us, we've owned a cattle ranch, a publishing company, a consulting firm, an education company and are both published authors with royalty earnings. I've had as many as 5 W-2s and 4 schedule C forms in a single year. It takes a few days each year to understand the updates and complete the forms. I've spoken with tax preparers about doing my taxes for me. They either don't want the business at all, or they want a small fortune for the work. I can't imagine how someone could take my records at the end of the year and understand my tax situation and file my taxes more effectively than I could.
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Re: Capital gain tax questions
Old 10-22-2004, 06:29 AM   #26
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Re: Capital gain tax questions

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Tax law just isn't that complex -- even though my tax situation is far more complex than the typical filer.
You must be smarter than Albert Einstein who said "The hardest thing in the world to understand is the income tax."

You might have a lot more common sense than the average person, but tax laws don't involve much common sense. *Understanding the tax laws involves knowledge of the system and what the tax laws are trying to accomplish. *Maybe you are really good as you say you are, but I'm curious as to how you became such a genious in taxation. *What kind of education do you have in accounting and taxes? *Have you prepared your own corporate tax returns as well? *I've just never met anyone in the field of taxation and accounting that has said that tax laws are not that complex.

Are you sure you are operating your businesses using the best entity? *Do you know how to make special allocations properly or if they are even allowed? *Did you make proper use of Sec. 179? *Do you fully understand the AMT? *Do you know what minimum interest rate to impute on officer loans? *Do you know how to keep track of stockholder basis also accounting for variances on the state level? *Do you know how to account for deferred taxes? Do you understand the top-heavy rules? *Do you understand all the safe harbor rules? *I could go on and on, but my point is that the tax laws ARE complex and just because you may not know the full scope of them it doesn't mean they are not there.
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Blissfully ignorant
Old 10-22-2004, 12:06 PM   #27
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Blissfully ignorant

C'mon, Cut-Throat, I don't do everyone's taxes-- just my own. I've done our own returns since 1977... well, technically my dad helped with that one. I've been using TurboTax for 10 years.

It's much easier to become an expert on your own taxes than it is for your CPA to become an expert on your taxes. You can optimize with very little effort. CPAs don't get paid enough to become as well-informed on your taxes.

How do you know your CPA is catching all your deductions? Do you know enough to spot omissions or even mistakes? Have you ever shopped around for a second opinion? Do you two discuss tax-avoidance investing strategies? Do you know how to watch out for charitable-deduction info or when taxes make a situation a better deal? Who's handling your estate planning, and can you answer their questions? Or do you have your CPA on speed-dial for all of this?

True, I don't tie my own flies or slaughter my own cows, either, but I think that knowing how to chug through TurboTax or look up questions in J.K. Lasser's makes me a better manager of our retirement portfolio. I choose to do it because it interests me and it eliminates a nagging sense of worry that my CPA might be sluffing off. What about you?

Here's another "blissful ignorance" story, and my only experience with a real live CPA. Last year I was elected Treasurer of my kid's horse-riding association. Our taxes were being completed by "our" CPA, also the CPA for the previous Treasurer's business. We were already near the end of the four-month extension so there was some urgency to mailing in the returns. After a couple phone calls he gave us the returns, we signed them, and we sent them off. Then I formally took over the Treasurer job.

A month later the IRS asked for $600 in late-filing penalties. The CPA shrugged it off and said that we'd waited too long to send in the returns-- until I pointed out that his signature was dated four days AFTER the extension's expiration (he'd filed the extension, too). We paid $400 for the tax prep and this followup "service".

When I suggested that he was responsible for fixing the problem he said that we should write a letter to the IRS. I asked for a template and he e-mailed a TIFF of a letter with spelling errors and grammar mistakes. I thanked him for his "help", looked up the subject on the Internet, and crafted a letter with the "abate" keyword. The IRS agreed to forgive the penalty. (It's routinely forgiven for small, ignorant non-profits, but the CPA didn't even bother to share that info.)

As I read up on non-profits I realized that we should be collecting W-9s and filing 1099-MISCs on show judges and various managers. I looked it up on the IRS website, ordered the forms, and figured out how to make Quickbooks do the formatting. No problem. Good thing, too, because our little non-profit had never done them before. Our CPA certainly hadn't asked about it or volunteered to handle the requirement.

None of our 100+ members managed to find a CPA interested in doing our taxes this year, let alone at a reasonable fee, so once again I was back to the IRS website. Form 990 can be filled out right on the website (a PDF form) and it took about an hour. The state form took another 30 minutes. We didn't need an extension this year.

You know my background is non-financial. My Treasurer knowledge is almost entirely self-taught. Yet at board meetings, I find that I've learned more about accrual accounting, tax strategies, and basic Quickbooks operations than several of the board's small-business owners. I hope they're hellacious at sales & marketing.

$150?!? I hope you have a really good CPA, because blind trust is not enough. You might be amazed at what you'll discover if you read a little and ask as many probing questions of your CPA as you've asked of us.
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Re: Blissfully ignorant
Old 10-22-2004, 01:08 PM   #28
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Re: Blissfully ignorant

Why do I do my own? because there are probably just as many good cpa's out there as there are bad cpa's...and if I have to spend time checking up on his/her work, I might as well do it myself...

True story: the last cpa I used was doing my 1120's for my small corp...before signing them I was going thru checking everything and noticed he was only taking 22 cents a mile deduction when the deduction at the time was something like 26 cents...didn't amount to a whole lot, but when I question him (and I swear to god this is true) he replies: "Well I like only taking the 22cents a mile instead of the 26 cents just in case we ever get audited...them we'll have something to work with".

That was the last time I used someone else to do my taxes...like I said, if I need to check up on someone to see they are doing it right, I might as well do it myself and save the hassle and expense.

I don't need to be an expert on all tax issues; just mine. Its not nearly as hard or complex as most people think, unless you have some unique circumstances.



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Re: Capital gain tax questions
Old 10-22-2004, 01:40 PM   #29
 
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Re: Capital gain tax questions

Yes I used to do my own taxes. But refreshing myself on the new tax laws was a PITA every year.

I only do things I want to do now. Tying my Trout Flies is something that I enjoy.

I do not enjoy fiddling with taxes. My CPA ask me questions every year that I would have missed. it's well worth it to me. I don't like reading and filling out tax forms.

I am an expert at changing Oil in Cars. I used to do this as a job once - I am a professional. I would not consider doing this myself now either. It's messy. I don't mind paying $15 for an oil change (Yes Oil and Filter included).

People are different. Do your own taxes if you want, I have an 'aggressive' CPA that I know has saved me money.
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Re: Capital gain tax questions
Old 10-22-2004, 02:29 PM   #30
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Re: Capital gain tax questions

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I pay my accountant about $150 a year to answer my questions and file my returns every year. He has saved me more money than his fees over the last 20 years. Plus I don't have to think about it and can go fishing.
Cut-Throat, I hope you buy that guy a nice bottle of Jack Daniels at Holiday Time, becaue he is one hell of a bargain .

Mikey
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Re: Capital gain tax questions
Old 10-22-2004, 02:32 PM   #31
 
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Re: Capital gain tax questions

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Cut-Throat, I hope you buy that guy a nice bottle of Jack Daniels at Holiday Time, becaue he is one hell of a bargain .

Mikey

Even Better for him - I have referred him plenty of clients. And they all thank me for it.

My returns are getting very simple since I quit working and most of my investments are in tax deferred accounts.
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Re: Capital gain tax questions
Old 10-25-2004, 01:42 PM   #32
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Re: Capital gain tax questions

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You must be smarter than Albert Einstein who said "The hardest thing in the world to understand is the income tax."

You might have a lot more common sense than the average person, but tax laws don't involve much common sense. *Understanding the tax laws involves knowledge of the system and what the tax laws are trying to accomplish. *Maybe you are really good as you say you are, but I'm curious as to how you became such a genious in taxation. *What kind of education do you have in accounting and taxes? *Have you prepared your own corporate tax returns as well? *I've just never met anyone in the field of taxation and accounting that has said that tax laws are not that complex.

Are you sure you are operating your businesses using the best entity? *Do you know how to make special allocations properly or if they are even allowed? *Did you make proper use of Sec. 179? *Do you fully understand the AMT? *Do you know what minimum interest rate to impute on officer loans? *Do you know how to keep track of stockholder basis also accounting for variances on the state level? *Do you know how to account for deferred taxes? Do you understand the top-heavy rules? *Do you understand all the safe harbor rules? *I could go on and on, but my point is that the tax laws ARE complex and just because you may not know the full scope of them it doesn't mean they are not there.
I don't have to understand the whole tax code, just the part that applies to me. This allows me to focus on a very small part of the tax code. If you think that I could go to any ole CPA and they would be more likely to understand the tax code as it applies to the questions you ask, I think you are being naive. You can look at all the questions you asked and ask the further question, "How do you know the CPA you chose knows the answers to those questions?"

I do not believe that it is possible to know that you are going to the right CPA unless you are pretty darn familiar with the tax code as it applies to you. Once you've accomplished the familiarity required to find a good CPA, you might as well do your own taxes.

My original question was about statistics that would show whether the performance of CPAs on taxes was consistently better than the performance of fund managers. I am only aware and anecdotal data that seems to contradict this, but would be interested in any data out there.
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Re: Capital gain tax questions
Old 10-25-2004, 02:14 PM   #33
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Re: Capital gain tax questions

We use a CPA to do our taxes and have used the same guy for about 20 years. We used the CPA because of the complications of owning rental property, partnership "k-1" income, and the usual gains and losses from investments. I meet with the accountant each year. We discuss issues like AMT, section 179 property, recapture of depreciation, accelerated depreciation, etc. I do my homework and we can have some pretty animated discussions. I like having both our eyes working on our taxes. I has cost more than Cut-throats $150 per year, but I think the cost has been worthwhile because I have been working full time and my husband doesn't have a head for taxes. Now we are nearly out of the rental property business. Next year when I work part time I may do our own taxes. I certainly will do our own taxes when I fully retire.
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Re: Capital gain tax questions
Old 10-25-2004, 02:31 PM   #34
 
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Re: Capital gain tax questions

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I do not believe that it is possible to know that you are going to the right CPA unless you are pretty darn familiar with the tax code as it applies to you. Once you've accomplished the familiarity required to find a good CPA, you might as well do your own taxes.
SG,

I participate with my CPA when doing taxes. I plug my numbers into Quicken and verify his results. He is there to act as my 'consultant'. He asks me questions and explains the new tax laws each year to me. He keeps from even having to read the tax booklets.

One year there was a bug in the state tax tables. He explained to me that if my wife and I filed separtely we would save over $1800 that year. That one tip alone payed for years of his service.

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Re: Capital gain tax questions
Old 10-25-2004, 03:31 PM   #35
 
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Re: Capital gain tax questions

I tend to agree with Cut-Throat. I made a living for a long time as an accountant/financial guy. Now, I do our personal taxes and my CPA since 1990 does my small
holding company. It has worked out well. We have developed a level of trust and I like to have someone
else pulling together my numbers. Could I do it myself?
Sure. Don't want to and like Cut-Throat I'm pretty
sure this guy has paid for himself over the years.
I only use him for the corp. tax returns.

John Galt
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Re: Capital gain tax questions
Old 10-25-2004, 07:24 PM   #36
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Re: Capital gain tax questions

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I don't have to understand the whole tax code, just the part that applies to me.
How are you supposed to understand what applies to you if you don't understand the whole tax code? There could be something out there that could lower your taxes, but because you don't know about it, you don't know it may apply to you.

For example, in your other post, you said that you had many small businesses and then you mentioned you did your own schedule C. Just from that piece of information alone it tells me that you may have overpaid your taxes by hundreds or thousands of dollars each year since you may have been better off by incorporating as an S corporation. Or that you could have paid your kids to avoid all taxes on the first few thousand dollars that you paid them. Maybe you did everything correctly in your own world, but you may have failed to realize the opportunities to save more tax money than it would have cost you for the services of a CPA.
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Re: Capital gain tax questions
Old 10-26-2004, 07:18 AM   #37
 
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Re: Capital gain tax questions

retire@40 has a good point. I'm a pretty smart guy,
but my current CPA has come up with stuff I never heard of. The effort required of me to dig all this out
makes the CPA fee look insignificant.

John Galt
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Re: Capital gain tax questions
Old 10-30-2004, 03:30 PM   #38
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Re: Capital gain tax questions

Trust your CPA to understand the entire tax code for every possible situation on the planet better than you could learn to understand your own tax situation if you want, guys. And if it makes you feel better, you can even decide that I have lost hundreds of thousands of dollars in taxes for having the audacity to figure my own taxes. But to me, this sounds a whole lot like the people who trust a broker to know more about investing their money than they could possibly know themselves. And those people who trust the broker often say things like:

"My broker gave me a tip one time that helped me earn $XXX. That one tip alone has paid for his services."

or

"My broker works full time at investing. How could I possibly find the kinds of deals he finds when I only do this part time?"

I would love to hand over my taxes to someone else I could trust. As I mentioned before, I've even spent some time trying to find someone. But of the handfull of tax professionals I've spoken to, they fall clearly into two camps: 1) less familiar with the particular tax code that applies to me than I am, or 2) uninterested in my particular tax situation for short of several hundred dollars.

I'm guessing that you guys are just lucky to have found the right CPA. And my guess is that not everyone does.
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Re: Capital gain tax questions
Old 10-31-2004, 03:31 AM   #39
 
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Re: Capital gain tax questions

In my experience, finding the right professional
anything (lawyer, CPA, doctor, broker) who can be relied on and trusted pretty completely is not easy.
Right now I have a couple of really good medical
specialists and a good CPA for my tax work. The other
categories leave something to be desired. On the other
hand, I am not looking for their replacements so I must
have seen worse.

John Galt
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