Tax questions after ER

[David1961]

I have several questions and a little story. I'll start by asking the basic questions I have, then for those who want more background, I'll write the story.

Questions:
1. When you pay someone (a professional accountant) to fill out your tax forms, do they look for ways to save you money, or do they just basically complete the forms?
2. Do these businesses use a software program like Turbo Tax?
3. Do most businesses consider the "Qualified Dividends and Capital Gain Tax Worksheet"? - was on page 41 of 2012 instruction book
4. For ERs, do you find it is easier and/or more accurate to fill out the tax forms yourself OR pay someone to do it for you?


Here's the story. I ERd last year and called up my accountant this week and discussed the estimated taxes I should pay each quarter for 2013. Over the phone, it sounded like she was number crunching the changes on my tax return from last year (when I worked) and this upcoming year 2013 (when I will be retired). My estimated payments (she said) should be very similar to those when I worked last year. (A reason was that I had more withheld from my paycheck and did not pay much estimated taxes last year). I heard from someone on this site about the table on pg 41 of the 2012 1040 instructions. I filled out that worksheet and came up with a tax total that is about one-third less than what my accountant told me. I did not notice this until I got off the phone with her. I don't want to sound like I know more than her, but if I'm right, I'd like to know why our estimates are so far off. And if this business does not consider this worksheet, why should I give them my business next year? But maybe she just uses a standard software package and maybe this information is not in there - I don't know.

If anyone knows of a good accounting/tax business in the Baltimore / Washington DC area that helps early retirees take advantage of all tax breaks they are entitled to, I'm open to referrals. But right now, I'm trying to make sense of all this. I apologize if this post is fragmented and is not written the best way, but hopefully, you understand my concerns.

 

[pb4uski]

1. While the main focus is typically on getting the returns done if they note opportunities for tax savings they will bring them to your attention.

2. They use tax software.

3. The tax software should consider the worksheet.

4. I have always done my return (and a handful of others - Mom, aunt, friend, etc). I do my own because I want to understand my tax situation and to save the cost of an accountant. I'm a CPA but my background was in corporate financial reporting and consulting, not personal taxes.

TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator would be a good place to start if you don't have access to TurboTax.

If I were in your situation, I would do a return based on your current situation in 2013 and use the tax shown on that return for your estimated payments.

Why don't you either ask her for her calculations of your estimated taxes so you can see if she captured all the changes correctly or share with her your calculations and diagnose the differences?

 

[RunningBum]

I can only address #4 but I do it myself with Turbo tax and look at the forms closely, especially things like that Div and Cap Gains worksheet. It helps me understand how much to withhold and also strategies to optimize my tax situations with respect to things like Roth conversions. I also like to run "what if" situations and I can do that in a few minutes on my own, whereas it would take me longer to explain it to a tax pro, not to mention the probable extra cost to have them do it, and the turnaround time to get it back, and wondering if they really did it right.

It's also possible I'm missing some things that a good pro would catch.

 

[rbmrtn]

I've done my own ever since I started working. I can't see your estimated taxes being similar to what it was when working, you have no W-2 income to report.

I assume they use software. The software is only as good as the input. If you put in the info from the 1099s it will know your qualified div and CGs and use the most appropriate tax worksheet and it tells you which was used.

 

[Texas Proud]

The answer is they use a tax software.... but if they are good are using a more expensive software..

The program takes into account everything...

Looking for savings.... a tough one... if all you do is give them a pile of papers, probably not... most programs will spit out a question booklet that you are to fill out which will give them info for tax savings.... if you do not get a booklet to fill out, you are probably not getting any saving recommendations that do not jump out at them...

Estimating taxes for the next year is really tough..... I do it for my boss and have been over $25K wrong... when you are doing it quickly, you forget about this or that and it could be big.... with my boss, it was his depreciation that went way down and AMT kicked in...

I would not be hard on someone who is trying to give you an off the cuff estimate without spending much time on it....

 

[Mulligan]

Only my personal experience, but no one cares about your money more than you. Even if you do not know the particulars you should be knowledgable to know the general questions to confirm they have checked into them. Just last year, I saved a friend of mine thousands of dollars.I told him to ask his CPA if she had written off his health insurance premiums and pension income exclusion from the state taxes. He called her and of course she hadn't. He had to file amended taxes from previous years to claim this money. If I hadn't insisted that he call, he not only wouldn't have received the money, he wouldn't have for the coming years. He just trusted that the CPA new what she was doing and didn't put any thought into it.

 

[Animorph]

Same deal as using an FA. You have to know quite a bit to be sure your tax return is at least close to correct. Once you know that much, you can DIY and save your money. Turbo Tax can walk you through all the major points.

 

[pb4uski]

....I would not be hard on someone who is trying to give you an off the cuff estimate without spending much time on it....

+1

 

[jebmke]

I prepare or review probably 200-250 returns a year for TaxAide; I transmit close to 500 returns a year. Most paid preparers use software. Surprisingly, I have had people come in with hand prepared returns that were done by a local accountant. The software and good screening tools will help a preparer optimize your tax situation. Neither are a substitute for thorough and regular (annual) training. If you do look for a professional for assistance, make sure you ask him/her what kind of training they get.

 

[seraphim]

Usually do my own with TaxAct online. Last year got complicated so I went to a tax professional. He checked the numbers several different ways and came up with some savings. I think Ill let him continue.

 

[GrayHare]

By DIY you learn why your tax bill is a particular amount. Knowing what causes that amount to increase and what causes it to decrease is IMO more valuable than most savings an accountant can find. An accountant works mostly after the fact, you, equipped with knowledge, can all year long be proactive tax-wise in advance of filing.

 

[Which Roger]

By DIY you learn why your tax bill is a particular amount. Knowing what causes that amount to increase and what causes it to decrease is IMO more valuable than most savings an accountant can find. An accountant works mostly after the fact, you, equipped with knowledge, can all year long be proactive tax-wise in advance of filing.

I just read the Piper book that was mentioned on the free ebooks thread (http://www.early-retirement.org/forums/f28/two-free-er-e-books-66952.html) and this was my main takeaway. When we're earning a paycheck, we have relatively little flexibility in controlling our income and therefore how much we pay in income taxes. But in ER, there are myriad ways of spending from our portfolio, which gives us a lot more control of our income in any given year. So the best time to save on taxes is throughout the year, not when it's time to fill out the tax form.

 

[W2R]

I have done my own taxes for the past 50 years, first by hand and eventually with TurboTax.

Now that I am retired, it is amazing how much simpler my taxes are. Because of this, I wouldn't dream of having someone else do them - - that would be like an early Christmas for a tax preparer. The total of my federal PLUS state taxes has been 9%-10% of my income ever since I retired.

 

[Meadbh]

So the best time to save on taxes is throughout the year, not when it's time to fill out the tax form.

I agree completely with this statement. I have been using an accountant for the past 20+ years (four different accountants as I moved) and I have always found that they have delivered excellent value for money. They do far more than complete the returns. They advise me on tax effective strategies that I can use (stuff that I simply would not be able to figure out on my own with a corporation) and we check in with each other two or three times between tax returns to make sure that my corporation and I are on the right path. As a result, I am paying a very reasonable amount of taxes. I think that if I shut down my corporation I will do fine on my own, but for now, I am sticking with my accountant.