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Re: CPA versus Turbotax
Old 02-05-2006, 12:09 PM   #21
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Re: CPA versus Turbotax

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Originally Posted by retire@40


I've seen some tax answers on this board that are scary and people stuggling for days over a relatively simple tax issue. People guess at the answer, rely on H&R Block advice, or even worse, call the IRS to get an "answer."

You can't spend 20 minutes a year reviewing the tax laws or plugging some numbers in a tax program and think you know everything you need to know, even in your own situation. You may end up doing things correctly in your own little bubble, but you end up missing more important issues outside the bubble.
If I read a tax form instruction or regulation that is unclear or ambiguous I think about it this way: what reasonable interpretation gives the most favorable result for my particular situation? I fill out my return on that basis. I don't consult a CPA or accountant; I certainly don't call the IRS. I have been doing my taxes this way forever and have never been audited or had any issues with the IRS. If I encounter an unusual situation in a given year I look up the relavent IRS publication and follow the method above. It works for me.

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Re: CPA versus Turbotax
Old 02-05-2006, 12:11 PM   #22
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Re: CPA versus Turbotax

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Originally Posted by retire@40
You just made my point.
I think we're just arguing about the size of my bubble.

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Originally Posted by retire@40
Just because nothing changes (in your bubble) in that you have the same W-2, 1099-R, and rental property, it doesn't mean there isn't a new strategy to follow that could help you outside that bubble. *For example, if you have always filed a schedule E for your rentals (which is perfectly correct within the bubble), have you thought (outside the bubble) of setting up a trust or limited partnership or LLC for those properties and what the tax ramifications are depending on whether it's a grantor trust, QTIP, CRAT, etc?
Absolutely. *And, yes I have. *We've read the books, looked at the websites, and decided that for one property with our current tenants we're fine with Schedule E. *Maybe that'll change someday, but that's why I spend all of 20 minutes a year keeping up with the changes. *If something seems to affect our personal situation then I'll chase it down. *Of course that might take a couple hours instead of 20 minutes. *But I've spent more years of 20 minutes than I have hours of research.

Someday we might be in a situation where we could use a RLT or multiple LLCs for more rental properties or we might actually have enough assets to make it worth the trouble of another TLA or even FLA. *And it's nice to have a family member in the business who's likely to call our attention to an interesting aspect of the tax laws. *

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Originally Posted by retire@40
Sometimes, just doing what you have always been doing may be fine, but there may be a better way that you have not thought of because you are not immersed in the area of taxation as someone who does it day in and day out (and is good at it).
You raise an interesting point about qualifications & continuing education. *But again, I don't think that the average tax filer-- and I include myself in that category-- is the type of client that a CPA sees as worthy of their time, interest, & advice.

Sure, with two or more rental properties or some other business I'd use a CPA. *But the average tax filer doesn't usually have the "it's my business" & questioning attitude that one should have with a CPA, and as uneducated consumers they get about what they're asking for...

You consistently fail to appreciate that the time & labor of an ER is-- worthless!! *(Maybe that has to be experienced to be appreciated.) *It can be used for any purpose. *It's not the same as being an executive whose time is better spent plotting strategy while his minions & contractors execute the tactics. *When you're ER, you have the time to pursue your interests without fretting over whether you should be studying a five-year plan or some other business issue. *I happen to be interested, among many other things, in minimizing our taxes. *Once the learning curve flattens out, I can keep up with that 20 minutes a year. *If it avoids a $400 CPA bill, that 20 minutes does not equate to $1200/hour. *It's still worthless. *However it's $400 savings (plus whatever else I save on a lower tax bill) that I can apply elsewhere.
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Re: CPA versus Turbotax
Old 02-05-2006, 12:15 PM   #23
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Re: CPA versus Turbotax

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Originally Posted by grumpy
If I read a tax form instruction or regulation that is unclear or ambiguous I think about it this way:* what reasonable interpretation gives the most favorable result for my particular situation?
Tisk, tisk.* Common sense does not always a good tax answer make.

Quote:
I fill out my return on that basis.* I don't consult a CPA or accountant; I certainly don't call the IRS.* I have been doing my taxes this way forever and have never been audited or had any issues with the IRS.* If I encounter an unusual situation in a given year I look up the relavent IRS publication and follow the method above.* It works for me.
There's that bubble thing again.* Just because you haven't been audited doesn't mean you are doing everything correctly, nor always in your favor.

But good luck to you and may the force be with you.
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Re: CPA versus Turbotax
Old 02-05-2006, 12:19 PM   #24
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Re: CPA versus Turbotax

Sorry for asking leading questions. The point i was hoping to get to was that you arent going to get comprehensive financial advice for $325.

You're going to spend a couple of grand.

Just wanted to bottom out that the trades are "free or ten bucks for software to fill out forms for you and interpret the tax rules in one manner, or $325 for someone to fill out forms for you and interpret the tax law in possibly a different manner" and "Free to do your own research, learn about investing and the tax implications, and self direct or a thousand or two for someone to give you a likely rubber stamped spiel about taxes and investing, and maybe you'll be lucky and find someone who notices your situation is a bit different and does something a little custom".

Just to illustrate the differences of not putting this decision in a fishbowl:

I could have invested all our money in a typical balanced fund and paid someone $325 to do our tax forms, and paid no interest to the mechanics. The guy that did the tax forms might have done a roth or 401k/403b analysis and suggested we contribute to both. That would sound like a good idea and I might have funded roths and/or stuck 10-15% of the wifes pay into the 403b. By mainly luck and happenstance we'd have some nice medium sized roths and 403b accounts by the time we go into our 60's. My tax burden, by back of the envelope method, would be about $15k-17k a year.

By keying our investments into ones producing less unqualified dividends and ordinary income/dividends and more qualified dividends, maxing the 403b, and maxing the roths, reducing withdrawals from the portfolio by using my wifes income to pay the bills, we end up with max sized roths and 403b's in 20 years, and my tax burden this year was under $1500.

For $325 a tax guy doesnt tell me to do this. For a couple of grand he might. For free I figured it out myself.

But different strokes for different folks. If math and logic arent my bag, or if I had four or five million, maybe I let someone else change my oil.
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Re: CPA versus Turbotax
Old 02-05-2006, 12:20 PM   #25
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Re: CPA versus Turbotax

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Originally Posted by Nords
I think we're just arguing about the size of my bubble.
Hey. This is a family forum, mister.

Someone call a moderator...
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Re: CPA versus Turbotax
Old 02-05-2006, 12:31 PM   #26
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Re: CPA versus Turbotax

Nords and the rabbit,

You two are different than most people in that you have more free time than most people to "take care of yourselves" in many respects, pay attention to details, and have the ambition and ability to learn and take on a wide variety of tasks (that are not defined as work).

The VAST majority of people do not have all that time and all those qualities.* So you may be right in arguing about your own points regarding tax preparation and even financial planning, so that is why the VAST majority of people need help.

I also predict that Nords and the Rabbit will be a Disney production some time in the future.
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Re: CPA versus Turbotax
Old 02-05-2006, 12:37 PM   #27
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Re: CPA versus Turbotax

You mean we're early retirees?

Ah HAH!
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Re: CPA versus Turbotax
Old 02-05-2006, 03:41 PM   #28
 
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Re: CPA versus Turbotax

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Quote:
3. It has only cost $325 a year
Wow!* Can I have your accountant's phone #? :-)
Hey, guys I just had an epiphany. Yes, my accountant only costs $325 for a 1040 with three schedule C's (software business, jazz business, and DW's knitting business), business use of home, investment income forms, etc.

Once when I lived in Oakland, CA, the return cost about $900.

So why is my accountant so cheap? Because I live in a small town backwater place.

Here's my epiphany: In this Internet age, your accountant doesn't have to live in your town. So why not hire a cheaper accountant from a small town?

I rarely see my accountant. I send him all my data in PDF files and occasionally talk on the phone.

Now, I was going to give you his email and phone, but, if you guys all use him, he'll probably raise his rates.
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Re: CPA versus Turbotax
Old 02-05-2006, 05:24 PM   #29
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Re: CPA versus Turbotax

My wife is an accountant (no CPA). May be it is a good idea to get one so that she can start a part-time online tax service.
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Re: CPA versus Turbotax
Old 02-05-2006, 08:55 PM   #30
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Re: CPA versus Turbotax

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Here's my epiphany: In this Internet age, your accountant doesn't have to live in your town. So why not hire a cheaper accountant from a small town?
That's exactly what the BIG accounting firms are doing...they ship off the tax returns to India...


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Re: CPA versus Turbotax
Old 02-06-2006, 10:08 AM   #31
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Re: CPA versus Turbotax

Al - While I was snooping around, I found a guy in budapest that does US tax returns. Will deliver them to you in person if you happen to be in budapest. I wonder if you could take a trip there, have your taxes done, and write the trip off as a tax preparation expense...
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Re: CPA versus Turbotax
Old 02-06-2006, 10:20 AM   #32
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Re: CPA versus Turbotax

Quote:
Originally Posted by retire@40
For example, if you have always filed a schedule E for your rentals (which is perfectly correct within the bubble), have you thought (outside the bubble) of setting up a trust or limited partnership or LLC for those properties and what the tax ramifications are depending on whether it's a grantor trust, QTIP, CRAT, etc?

And then you better make a trip to the lawyer to find out the various other consquences of an LLC, limited partnership, QTIP, GRAT, etc. And then to form the entity. Getting pretty pricey fast.

And what do you do when the lawyer and the CPA disagree? As retire@40 and I have done on occasion.

In any event, you won't get anywhere outside the bubble for $325 in my neck of the woods.

I do miss our old CPA that retired. He and I had a good give and take and I think we learned from each other. The new CPA just sticks my numbers into her computer program. Not worth the $1000 it costs us.


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Re: CPA versus Turbotax
Old 02-06-2006, 10:46 AM   #33
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Re: CPA versus Turbotax

Another thought. Nords and the Rabbit are do it yourselfers. They repair roof leaks. They install solar panels. They become, as they said, experts on their own tax situation. And will look for anything to save themselves money. Doing their own taxes fit well within this "lifestyle."

Cut Throat on the other hand doesn't mow his own lawn or reroof his own house. He hires someone to do these sorts of jobs. What do you think a checkbook is for? Of course he has an accountant. And I bet he picked a good one too.





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Re: CPA versus Turbotax
Old 02-06-2006, 11:10 AM   #34
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Re: CPA versus Turbotax

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Another thought. Nords and the Rabbit are do it yourselfers. They repair roof leaks. They install solar panels. They become, as they said, experts on their own tax situation. And will look for anything to save themselves money. Doing their own taxes fit well within this "lifestyle."

Cut Throat on the other hand doesn't mow his own lawn or reroof his own house. He hires someone to do these sorts of jobs. What do you think a checkbook is for? Of course he has an accountant. And I bet he picked a good one too.
Yes, but T-AL rotates his own tires (on his car), sweeps his chimney (on his wood stove) --and tries not to fall off but has someone help with his taxes.
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Re: CPA versus Turbotax
Old 02-06-2006, 11:40 AM   #35
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Re: CPA versus Turbotax

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Another thought. Nords and the Rabbit are do it yourselfers. They repair roof leaks. They install solar panels. They become, as they said, experts on their own tax situation. And will look for anything to save themselves money. Doing their own taxes fit well within this "lifestyle."

Cut Throat on the other hand doesn't mow his own lawn or reroof his own house. He hires someone to do these sorts of jobs. What do you think a checkbook is for? Of course he has an accountant. And I bet he picked a good one too.
Very good point Martha. Note that at one time I paid someone to do everything for me. When I had time to learn and do it myself, I learned the appreciation for not paying someone else to do a crappy job when I could do a crappy job on my own. And learn from that and do a better job of it after that.

But I guess if you have a lot of money and a lot of hobbies, and tend to accidentally stab yourself with screwdrivers and #2 pencils, then paying someone to do a cookie cutter, possibly half assed job, might be a good idea....
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Re: CPA versus Turbotax
Old 02-06-2006, 01:15 PM   #36
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Re: CPA versus Turbotax

I would be interested in the following information:

1. Percent of returns filled out by paid preparers.
2. Percent of returns filled out with use of Turbotax or Taxcut.
3. Percent of returns self-prepared without software.
4. Error rates in all those returns broken down by who prepared them.
5. Error rates broken down by what forms and schedules were used.

I think that paid preparer guild members and the guild officers would be reluctant to have this information made generally available. I would imagine that the TaxCut and TurboTax folks would be reluctant as well.

My guess is that we would not see a relationship between the cost to get return filed and the error rate.
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Re: CPA versus Turbotax
Old 02-06-2006, 01:34 PM   #37
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Re: CPA versus Turbotax

http://www.irs.gov/taxpros/article/0,,id=99032,00.html

This is the IRS's list of top errors by paid preparers for paper returns.

Paid preparers are still having trouble with earned income credit.

EDIT: Another interesting tidbit, for what it is worth. The IRS reports that using software to calculate taxes reduces the error rate on returns to less than 1%. http://www.irs.com/tax-software/info.htm

Of course, there is a difference between "errors" and doing everything you can to minimize taxes.

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Re: CPA versus Turbotax
Old 02-06-2006, 01:38 PM   #38
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Re: CPA versus Turbotax

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Very good point Martha. Note that at one time I paid someone to do everything for me. When I had time to learn and do it myself, I learned the appreciation for not paying someone else to do a crappy job when I could do a crappy job on my own. And learn from that and do a better job of it after that.
Yes, you do have human capital.

Quote:
But I guess if you have a lot of money and a lot of hobbies, and tend to accidentally stab yourself with screwdrivers and #2 pencils, then paying someone to do a cookie cutter, possibly half assed job, might be a good idea....
. . . or you don't have the inclination or talent, so you hire someone good to do the work. I don't want to reroof my house. I wouldn't do a good job and probably would fall off the roof. And I don't want to learn how. So I spend some money by hiring a roofer.


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Re: CPA versus Turbotax
Old 02-06-2006, 01:56 PM   #39
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Re: CPA versus Turbotax

Its very relaxing...
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Re: CPA versus Turbotax
Old 02-06-2006, 01:57 PM   #40
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Re: CPA versus Turbotax

I find working on tax issues relaxing. Really.
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