CPA versus Turbotax

[retire@40]

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.

 

[cute fuzzy bunny]

You mean we're early retirees?

Ah HAH!

 

[TromboneAl]

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.

 

[Spanky]

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.

 

[bearkeley]

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...

 

[cute fuzzy bunny]

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...

 

[Martha]

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.

 

[Martha]

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.

 

[maddythebeagle]

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.

 

[cute fuzzy bunny]

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....

 

[LOL!]

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.

 

[Martha]

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.

 

[Martha]

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.

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.

 

[cute fuzzy bunny]

Its very relaxing...

 

[Martha]

I find working on tax issues relaxing. Really.

 

[cute fuzzy bunny]

My wife enjoyed the superbowl commercial with all the guys working on their roofs.

I bet I get checked up on the next time I go up there.

 

[Martha]

. . . 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.

Its very relaxing...

My wife enjoyed the superbowl commercial with all the guys working on their roofs.

I bet I get checked up on the next time I go up there.

Don't watch football so don't have a clue about the commercials. I must have been witty without realizing it.

 

[Mr._johngalt]

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.

My CPA only does my small holding corp. Last year he
charged me $485.00, which I refused to pay, so I may need someone else next year.

Doing tax work bored me silly. My own is only slightly
more interesting. Anyway, I will file two (2) single
returns (1040A) plus state. My personal gross income is under
10K, so no fed. taxes are due. I've gotten used to owing -0- and it will be a bitter pill when I have to pay
again. DW pays of course.

JG

 

[LOL!]

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

Presumably almost all paid preparer's are using software anyways.

I will state without any firm evidence that I believe that CPA prepared tax returns have a higher rate of error than the general public.  I base this on two tidbits of info: (1) simple returns should have a lower error rate and CPAs would not be preparing such returns and (2) the old Money magazine article of giving 50 tax preparers the same info and Money getting 50 different answers back from them.

Anyways, CPAs need to get over their self-esteem problems after being replaced by computers. They can work on more complicated things than data entry to tax software and thus charge more.

 

[Cut-Throat]

People here seem to think this is an either or situation. I do my tax return with software and with my Accountant. I don't put my head in a vacuum and turn everything over to him.

I'll give you an example of how my tax accountant paid off. There was in a problem in our State Tax Tables one year that made Married filling separately really pay off on state taxes. I had to pay more for Federal, but the State Tax error more than made up for it. I would never have known about this, but my Tax guy advised me on this. This Paid his way for many years to come!

 

[retire@40]

People here seem to think this is an either or situation. I do my tax return with software and with my Accountant. I don't put my head in a vacuum and turn everything over to him.

I'll give you an example of how my tax accountant paid off. There was in a problem in our State Tax Tables one year that made Married filling separately really pay off on state taxes. I had to pay more for Federal, but the State Tax error more than made up for it. I would never have known about this, but my Tax guy advised me on this. This Paid his way for many years to come!

Great example. 

The next guy that may have done his own return that year may have done everything correctly (in his own mind), but missed out on this opportunity.

It may not happen every year, but it happens enough.

 

[cute fuzzy bunny]

Turbotax lets you 'what-if' the joint and married filing separately in about 2 seconds. I'm not sure if it automatically does it both ways and tells you which is best, I've only had the option for the past year

Don't watch football so don't have a clue about the commercials. I must have been witty without realizing it.

Yes you were. In one of the commercials, a guy goes up on his roof, sets out a chair, opens his toolbox and its full of beer. Guy on the next roof has a barbecue grill going. Then a third guy climbs up and whines that he REALLY has to fix a leaky roof.

Nice view of the Sutter Buttes from my roof top. Pull off a few of the tiles, set down on the tar paper, little sun on it and its pretty dang warm. I forgot to bring beer with me though.

 

[Jarhead*]

People here seem to think this is an either or situation. I do my tax return with software and with my Accountant. I don't put my head in a vacuum and turn everything over to him.

I'll give you an example of how my tax accountant paid off. There was in a problem in our State Tax Tables one year that made Married filling separately really pay off on state taxes. I had to pay more for Federal, but the State Tax error more than made up for it. I would never have known about this, but my Tax guy advised me on this. This Paid his way for many years to come!

Cutthroat: We have the same quirk in our state filing system in Calif.

It's under our "Gigalo" filing seperate section.(#894-249). Glad your Tax guy was sharp enough to pick up on it. 8)

 

[cute fuzzy bunny]

By the way, my brother in law bought a hummer a couple of years ago (yes, they car, you disgusting people). Put his company name on it and uses it exclusively for business.

His CPA/tax guy had never heard of the 'hummer deduction'. Once I made him aware of it, he had the cpa file revised returns for the last two years. I think that saved him about $25k.

I think he has a new CPA this year.

As a marketing executive, I really need to team up with a CPA or go get the dang thing myself so I can credibly write books.

 

[Martha]

Would taxprep software have suggested to Al that he could run his medical expenses through his business and make them fully deductible?

Would it suggest that you might want to front load alimony payments right before you retire?

Would it help you decide whether your "second home" you rent for 14 days, is better off rented more than 14 days so you can get the benefit of a variety of deductions?

Would it raise issues regarding audit risk for efiling?

Would it suggest that you might want a multiple support agreement for a dependency exemption?

Does it help you maximize the amount you can put in retirement plans?

Does it help you minimize your taxes by suggesting alternative investments?

Does it recommend buying a Hummer for the Hummer deduction?



I think both tax prep software and most accountants who are hired to prepare your returns do only that--they prepare your returns based on the information you provide. And if the IRS is to be believed, software prepared returns are "accurate." But if you are interested in minimizing the taxes you pay, then you likely have to educate yourself or use a good professional. Or both.