DIY Tax Return - Jumping into the deep end of the pool

[Lisa99]

Some of you know me from our escape in August 2010 from Ameriprise. Well, the DIY investing is going great, our portfolio is doing well, I've learned a ton and our investing is pretty much on auto-pilot.

So what's next? Today I'm going to learn how to do our taxes. I did them until about four years ago using TurboTax. When the Ameriprise statements got SO confusing and we added three rental properties I found a tax person to do the work. He does a straight filing, no suggestions on where we could save, no 'planning', so no value add.

His fee is now up to $750. If we DIY through Vanguard it will cost $9.95 since I'll be using TurboTax Premier to help with the rental properties.

I have all our past tax statements so can reconstruct the rental property cost basis, depreciation, etc.

Wish me luck, I'm a bit hesitant, but then I was also scared when I moved our money from Ameriprise to Vanguard...being out of my comfort zone is all about learning so here goes!

And BTW, I didn't put this in "what did you do today, because I'm hoping that if I get stuck that I can ask you guys questions!

 

[ziggy29]

Some of you know me from our escape in August 2010 from Ameriprise.

Yeah, I consider you one of our greatest "success stories" in that regard.

So what's next? Today I'm going to learn how to do our taxes. I did them until about four years ago using TurboTax. When the Ameriprise statements got SO confusing and we added three rental properties I found a tax person to do the work. He does a straight filing, no suggestions on where we could save, no 'planning', so no value add.

His fee is now up to $750. If we DIY through Vanguard it will cost $9.95 since I'll be using TurboTax Premier to help with the rental properties.

I have all our past tax statements so can reconstruct the rental property cost basis, depreciation, etc.

Wish me luck, I'm a bit hesitant, but then I was also scared when I moved our money from Ameriprise to Vanguard...being out of my comfort zone is all about learning so here goes!

And BTW, I didn't put this in "what did you do today, because I'm hoping that if I get stuck that I can ask you guys questions!

Hopefully you can get it all figured out. If not, one more year of their fees is a relatively small price to pay to avoid mistakes and setting off IRS audit flags -- and you'd have plenty of time before 2012 returns are due to know the ins and outs of your tax situation.

Another good thing about getting away from Ameriprise and into DIY investing is that YOU are in total control with respect to how your investments impact the complexity of your taxes in terms of the strategies used in the investments and the number of trades that trigger capital gains or losses.

 

[FIREd]

Good luck, Lisa. I know it's weird, but I do enjoy doing my own taxes. I learn a lot from the process.

 

[Midpack]

For $9.95 you should definitely try it, you can always fall back on your pro. After you've completed your return with TT, unless your circumstances have changed dramatically, I would think comparing last years return to the 2011 return line by line might be instructive. As my returns have gotten a little more complex, comparing to the prior year has reassured me. If lines/boxes are empty/filled differently from year to year or amounts are inexplicably different, I make sure I understand why. I've caught some errors comparing this way.

Good luck, you can do it!

 

[JPatrick]

Perhaps something to watch on Turbo Tax this year.
I started our federal return a week ago, but have not finshed as I'm waiting for some additional info.
So today, I get a notice saying as below.

We are writing to notify you of a price increase for TurboTax

Online products after March 23, 2012. If you haven't completed or filed your return yet, we encourage you to file your taxes before prices go up. If you have already filed, please disregard this notice and thank you for using TurboTax.

Print or e-file your return by March 23 and lock in your savings before prices go up.

So let me get this straight..I selected a service and price through Fidelity and now you say I'd better hurry up and finish or you will raise the price we BOTH agreed to? Plus you don't even say what the new price is? BS Turbo Tax.
I can't wait to write my review.

 

[ziggy29]

I should have mentioned, of course, that filing for an extension is always an option if you don't have it all nailed down by April 15. You need to remit what you think you'll owe and face interest charges on underpayment, but that's still going to be a lot less than $750...

 

[REWahoo]

Print or e-file your return by March 23 and lock in your savings before prices go up.

An additional reason I won't use the online version of any tax software. Can't charge me now for the free version I downloaded in January.

 

[scrabbler1]

I have been doing my own taxes with pen, paper, (and spreadsheet since the mid-1990s) for more than 25 years and have never, ever considered paying someone else to do them. And for the last 8 years or so, I have doing the taxes of my best (male) friend and my ladyfriend.

 

[Lisa99]

Yeah, I consider you one of our greatest "success stories" in that regard.

Thanks Ziggy!

And thank you for everyone's suggestions.
Midpack, I'm actually doing this year's taxes with last year's return by my computer. I'm going line by line to make sure as I go that I'm not missing anything. I also have all of the completed forms that the tax guy filed so I'll be able to compare that as well.

As for filing by the 15th, I don't think we've ever filed 'on time'. I'll have enough information today to know if we owe, but I'll file the return on October 14...so plenty of time to learn.

The one thing I know I'm going to need help with is how to put in the rental properties that we've owned for three years. Turbo tax has a help line and I'm quite sure they'll get several calls from me.

 

[samclem]

Lisa,
Good for you. I learn something every time I do my taxes. With your investments under your own control you'll probably be doing less trading (which simplifies things). You may also want to fine-tune future sales in your taxable accounts to minimize your taxes. If so, consider the advantages (and complexities) that come with using the "specific shares" method of computing cost basis. Once you sell shares in any mutual fund you are "locked in", so give this some thought.

I sprung for the desktop version of TurboTax. It hurt to pay, but I feel more comfortable owning the software.

 

[Midpack]

Yeah, I consider you one of our greatest "success stories" in that regard.

Thanks Ziggy!

And thank you for everyone's suggestions.
Midpack, I'm actually doing this year's taxes with last year's return by my computer. I'm going line by line to make sure as I go that I'm not missing anything. I also have all of the completed forms that the tax guy filed so I'll be able to compare that as well.

As for filing by the 15th, I don't think we've ever filed 'on time'. I'll have enough information today to know if we owe, but I'll file the return on October 14...so plenty of time to learn.

The one thing I know I'm going to need help with is how to put in the rental properties that we've owned for three years. Turbo tax has a help line and I'm quite sure they'll get several calls from me.

I've found the interview questions that TurboTax asks to be very helpful, but not 100% of the time. I have not dealt with rental properties though, so I don't know if the interview approach in TurboTax works as well there. Again, best of luck...

 

[donheff]

If you start out and get nervous you can always go back to your pro and then carefully try to match his/her results using TT. That is what I did last year. This year I am filing on my own.

 

[frayne]

Good for you and go for it, taxes ain't hard, just a tad confusing now and then. Have done my own taxes since 74, retired six years ago and work for H&RB as a seasonal tax pro during tax season. Schedule Es for rental income are pretty straight forward and no big deal. Double check what your tax dude did before and don't be afraid to amend prior year returns, as many tax pros don't dig deep enough for legit deductions. Just my two cents.

 

[nwsteve]

Another transition option is to prepare your return yourself with Turbo Tax and before you file, take your return to you tax accountant and pay his/her hourly rate to do a "review". Do not expect him/her to sign it but they should answer your questions and point out any other issues you may not have addressed. I believe TT actually provides for a review option as well at the end of the process.
Should be a whole cheaper than paying accountant rates for data entry.
Nwsteve

 

[MichaelB]

Lisa, good luck. If you can replace ameriprise you can also do your taxes. There are many advantages to doing your own. One is it leads you to become more aware of taxes when making investment decisions and doing financial planning, and this might help you become more tax efficient.

 

[youbet]

There are many advantages to doing your own. One is it leads you to become more aware of taxes when making investment decisions and doing financial planning, and this might help you become more tax efficient.

Absolutely! Doing my taxes makes me grouchy and even more unpleasant for DW to be around, but it's worth it. (I haven't actually checked with her on this......) And by involving DW in some of the record keeping and plugging in the resulting numbers, she becomes aware of why we keep a running tab of medical expenses, etc.

Lisa, believe me if this retired factory worker, educated in the Chicago Public Schools, can do it, so can you!

 

[Lisa99]

Thanks for the encouragement everyone! Donheff, you've hit on exactly what I'm going to do this year. I'm going to finish the TT-based exercise but not file. Then I'll package it all up and send to the tax guy. I'll consider the $750 for this year's taxes as tuition.

Three hours later and I've just finished with wages and investments. We sold stock options, ESPPs and RSUs. Thank goodness we have good records, but my brain is in protest!

I'm not going to try to tackle the rental properties today because honestly I don't know where to start.

We've owned one property since 2006, bought one in 2008 and one in 2009. So I can't answer the TT question, did you buy properties in 2011, but the data on the houses has never been in Turbo Tax. I have to figure out how to start now but reconsturct where we are financially. We make too much to deduct rental losses, so have significant paper losses that I have to reconstruct.

Anyway, I think I've earned a cold one or three so bye for now!

 

[Peter]

Lisa, I found it helpful to look at last year's CPA-filed return to get the details on rental properties. This was just for one property (first time filing joint) but I seem to remember that TT asked if there were more to enter after I'd finished the details.

I started the rental section with some trepidation, but in the end found it quite straightforward. This was with the standard TT package as well; not sure how the more expensive Premier version would have helped.

 

[Sirka]

Higher Tax Rates

I have been doing my own taxes with pen, paper, (and spreadsheet since the mid-1990s) for more than 25 years and have never, ever considered paying someone else to do them.

Can you get the same (lower) tax rates, that software uses vs table look up?

 

[Texas Proud]

The other thing that I would suggest is to make sure you answer ALL their questions....

At the end of my return (using H&R whatever they name it)... I thought there was something wrong... I used to do takes way back when and I was thinking that a credit should be higher... I kept looking for what was wrong and FINALLY saw I did not answer a single question... it made a $900 difference when I finally found where it was...

Most have help screens that you can use to look... do not hesitate to use them... and as other say, compare it to last year's return. You should be able to determine why there is a difference between last year and this year if you do it right.... like, I had $X more expenses on my rental, so I have less of a loss... if you can not determine the deltas in your numbers, then you might be making mistakes...

 

[Nords]

I have all our past tax statements so can reconstruct the rental property cost basis, depreciation, etc.
And BTW, I didn't put this in "what did you do today, because I'm hoping that if I get stuck that I can ask you guys questions!

Tedious, boring, but not difficult.

The tax returns, not the discussion-board posters.

And thank you for everyone's suggestions.
Midpack, I'm actually doing this year's taxes with last year's return by my computer. I'm going line by line to make sure as I go that I'm not missing anything. I also have all of the completed forms that the tax guy filed so I'll be able to compare that as well.
The one thing I know I'm going to need help with is how to put in the rental properties that we've owned for three years. Turbo tax has a help line and I'm quite sure they'll get several calls from me.

I found that Fairmark's forums were pretty good for tax questions, and TurboTax might have a good forum as well. (When you pop up a help box and click on the "More help" button, they have a link to their forums.) Calling TT on the phone is just going to annoy you, especially this time of year.

Thanks for the encouragement everyone! Donheff, you've hit on exactly what I'm going to do this year. I'm going to finish the TT-based exercise but not file. Then I'll package it all up and send to the tax guy. I'll consider the $750 for this year's taxes as tuition.
Three hours later and I've just finished with wages and investments. We sold stock options, ESPPs and RSUs. Thank goodness we have good records, but my brain is in protest!
I'm not going to try to tackle the rental properties today because honestly I don't know where to start.
We've owned one property since 2006, bought one in 2008 and one in 2009. So I can't answer the TT question, did you buy properties in 2011, but the data on the houses has never been in Turbo Tax. I have to figure out how to start now but reconsturct where we are financially. We make too much to deduct rental losses, so have significant paper losses that I have to reconstruct.
Anyway, I think I've earned a cold one or three so bye for now!

TT asks about buying properties in 2011 so that it can help you deduct closing costs and handle other buy/sell transactions. You get another chance on rentals.

When you click on "Guide Me", TT will take you through the 10 or so income areas-- or else at some point it'll display all of those areas before moving on to the next. One of those areas will be rental properties.

Your previous Schedule Es will show depreciation on block 20. I don't think that either one of us wants to look up the IRS Pub, but the annual depreciation on your rental properties is taken over roughly 27.5 years or ~3.6%/year. In other words, it's going to be the same number every year on Sched E block 20 for quite a few years.

The other rookie mistake to watch out for is the amount of the depreciation. You can depreciate your rental structure, but land does not depreciate. Your accountant did this correctly or you would've heard from the IRS long ago. So from now on your Sched E is just going to reflect the current income & expenses with the same ol' depreciation.

Although you may not be able to deduct losses, you should carefully consider your answers to the questions about active involvement in the management of your properties. I believe you can also roll most of the losses forward to future years when your income is lower. I'd like to help you more with that subject but... well... it's been quite a few years since we've been able to lose money on our rental.

 

[Lisa99]

Thanks Nords for the very thorough guidance. Not at all unexpected from you!

I should have known I wouldn't be able to stop for the day. Took a quick break, had an adult beverage and am continuing on.

I have last year's two-inch paper return from the tax guy. I'm matching up line by line and am seeing the loss carryover and depreciation (and yes, the depreciation # is the same year to year and he did not include land).

I also use a property management company, so I have their year end report which includes income and expenses by category. This may not be so hard after all.

What is so fascinating about all this is that until I started managing our investments I didn't have a clue what half of this stuff meant much less how to translate it to our income taxes.

One tiny step for Lisa, one giant leap toward a confident and self-reliant FIRE!

 

[M Paquette]

One tiny step for Lisa, one giant leap toward a confident and self-reliant FIRE!

See? It's not so bad.

I used to do my returns by hand, augmented with a big ole spreadsheet. Then I tried MacInTax (now TurboTax). Luxury!

What's really nice is that with the combination of the software making everything easy, plus the ability to peek at the actual forms, much of this stuff is less cryptic to me now, and I can actually do some effective tax planning. That is, I have a better feel for how different kinds of income and spending tweak my taxes, and a better idea of exactly what I need to keep track of for next year.

 

[Nords]

What is so fascinating about all this is that until I started managing our investments I didn't have a clue what half of this stuff meant much less how to translate it to our income taxes.

I'm a big fan of DIY finances. CPAs and CFPs have to be experts on everything, but we only have to be experts on ourselves.

I wrote a post a couple days ago about the "benefits" of doing your own tax returns, and how to be even more organized for next year. It's mainly oriented toward servicemembers & veterans but with another couple adult beverages it'll seem funny to civilians, too...

Tax returns | Military Retirement & Financial Independence

 

[scrabbler1]

Can you get the same (lower) tax rates, that software uses vs table look up?

Not sure what you mean. In my spreadsheet, I programmed the tax calculation to match the taxes shown on those tax tables. Is that what you meant?

Even more important now than when I was working, I am able to closely monitor my projected income as I go through the year so I can pay a reasonably correct amount of estimated taxes for a given quarter. I have my checkbook register spreadsheet linked to my skeleton tax forms spreadsheet so it will automatically adjust itself as I make various payments (i.e. medical expenses, co-op maintenance payments) and receive irregular investment inflows such as cap gain distributions.

When I was working, I also had a non-resident state income tax form linked into the worksheet so I could keep track of that, too. In 2008, the toughest year for doing my own taxes because I had that huge company stock payout, I had the AMT calculation I had to program in. There, I was able to do sensitivity analysis to enable me to make certain estimated tax payments for the best amounts so I would not get surprised later.