Tax prep cost

[Philliefan33]

Quote:

Originally Posted by LOL! When I asked folks at work whether they did their own taxes or not, most of the less educated said they did not. They feared the IRS and really liked the peace of mind of having someone else do their tax return. Yes, they were the ones who could least afford it, but they were the ones sitting in Walmart at a JacksonHewitt desk.

There are some deductions and credits that are available to low-income taxpayers that I never even knew about until I recently finished a tax prep course in order to volunteer as a tax counselor for AARP. Understanding who qualifies and doing the calculations isn't always easy.

The ACA part of tax returns can also be confusing, as evidenced by the hours we spent going over that in class. And this was for a room full of people with an interest and at least some aptitude for filling out tax forms. I can understand how it can be intimidating to some portion of the population.

(This forum has more financially astute, highly educated members than the general population. For some people, math is hard and instructions written by the IRS are above their reading level)

[Sunset]

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Originally Posted by Lucky-Sperm-Club For years I've had 2 businesses and 4 rental properties. Have always paid an accountant, to insure my return. The fee has typically been under $1,000, and I think the peak was $900, just before I switched. On average I think it has been $500-750. The cost is higher then I like, and I did buy turbo tax 1 year to check the accountant, but wouldn't do it any other way given my present situation. When I eventually transition to all passive income (rentals and distributions), I think it may be expensive, but maybe not. Would be interested in hearing from others with rental income, on how they handle tax preparation, and costs for returns. HCOL area for me.

I do my own, always have, its pretty easy, and you are already doing nearly all the work by giving the acountant the list of expenses, repairs, taxes, rent income, insurance costs you have for each rental.

You are already doing all the hard work, about 90% of the total effort.

The Accountant just plugs those numbers you spent hours gathering together into a field in the program and it's done.

[gerntz]

Quote:

Originally Posted by Philliefan33 (This forum has more financially astute, highly educated members than the general population. For some people, math is hard and instructions written by the IRS are above their reading level)

Agree. That's why the system should be so much simpler.

[target2019]

Part of the self-prepared joy comes from keeping records straight throughout the year. Some are digital, some paper. I've found that digitizing key records, and standardizing filenames helps a lot.

[MichaelB]

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Originally Posted by braumeister Nice Bloomberg article on the cost of preparing your tax return. Brick-and-mortar tax shops now have 57% of the business (down from 60% in 2010). They charge an average fee of $273 for a simple Federal return and one state (up from $229). I thought it was very interesting how the fees varied by region. Average on the west coast was $329 but just $210 in parts of the south. DIY software (like TurboTax and Block) has 40% of the market (up from 30% in 2010). Here's a link to the article that has lots of other interesting tidbits: Are You Paying Too Much for Your Tax Prep?

Very interesting, thanks for the link.

Being able to do our own tax prep is not about smarts or math skills (IMHO), it's about being able to learn. In this case, that's especially difficult because IRS explanations are pretty much mandatory but never clear or simple, and that just frightens some people. It's like learning a foreign language as an adult. Some people can, others might be able to pick up the basics but instead just block themselves out.

[socca]

Quote:

Originally Posted by Sunset I do my own, always have, its pretty easy, and you are already doing nearly all the work by giving the acountant the list of expenses, repairs, taxes, rent income, insurance costs you have for each rental. You are already doing all the hard work, about 90% of the total effort. The Accountant just plugs those numbers you spent hours gathering together into a field in the program and it's done.

This may be the ideal scenario, but I'm sure that any professional tax preparer has horror stories about the crazy things that amateur bookkeepers do - things that make the tax preparer's job much more difficult than just plugging numbers into the tax software.

I'm both the bookkeeper and tax preparer for a small business, which means I can practice 'bookkeeping for taxation'. Success for me is being able to determine 'at a glance' whether the tax return is correct by looking at the company books. This means that I'm continually improving my bookkeeping practices to make the tax prep easier. Some business decisions are also influenced by their impact on tax prep difficulty.

Back when I used to hire a tax preparer, he would just use 'adjustments' to get the books to balance in the tax software. This is understandable, because without access to the raw data there was no way for him to do a root cause analysis to find the real source of the problem. The end result, though, was shabby bookkeeping and fudged tax returns.

[LOL!]

Studies show that the IRS instructions and publications are written at the 8th-grade reading level, so I can see why they are difficult for many people.

[Bruceski44]

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Originally Posted by LOL! Studies show that the IRS instructions and publications are written at the 8th-grade reading level, so I can see why they are difficult for many people.

The vocabulary may be at the 8th grade level, but the writing is so convoluted as to be inscrutable. I could think of many simpler ways to expess a policy. Any confusion engendered by the instructions would work in favor of the IRS.

[LOL!]

Quote:

Originally Posted by Bruceski44 The vocabulary may be at the 8th grade level, but the writing is so convoluted as to be inscrutable. I could think of many simpler ways to expess a policy. Any confusion engendered by the instructions would work in favor of the IRS.

Sorry, it is not vocabulary, but number of words per sentence and number of syllables per word. For instance: https://www.irs.gov/pub/irs-soi/14rp...etaxsystem.pdf

The writing is rather precise since it has to be, but I think many people do not understand the difference between something as simple as the use of "and" and/or "or" in a sentence.

[target2019]

https://www.ntanet.org/wp-content/up...ystem-1991.pdf

At times, this paper (not a study) calls the readability measurements difficult, then fairly difficult. If we add the cross-referencing and other forms knowledge required, it appears to me, at least, that a case could be made for for "very confusing."

I write technical manuals, and have read a great deal of technical engineering material over the years in order to squeeze out words at an 8th grade level. IRS publications are very difficult, because you cannot read one set of instructions and "get it."

[gerntz]

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Originally Posted by target2019 I write technical manuals, and have read a great deal of technical engineering material over the years in order to squeeze out words at an 8th grade level. IRS publications are very difficult, because you cannot read one set of instructions and "get it."

Once more making the case for taxes simplification.

[Sunset]

Quote:

Originally Posted by gerntz Once more making the case for taxes simplification.

I totally agree, I would love something simple like: total Income / 10 = your taxes.

Remove all the social engineering they continually layer on top of the existing structure and it would be a lot more simple, and people would stop trying to take advantage of the system.

I read once a long time ago in Canada, to encourage house construction for rentals, they gave out giant grants to builders for every house started prior to a certain date. Later in the news paper it was revealed some builders stopped building the houses and just kept pouring foundations as each foundation counted as starting a house construction.

[ChicagoGal]

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Originally Posted by GrayHare The overwhelming cost of paying someone to prep tax forms is the loss of learning oneself how things are taxed and at what rates. For anyone who has investments, not knowing how to optimize them tax-wise costs far more annually than the typical tax prep fee.

So true. I'm embarrassed to say that, despite working with numbers my whole career, I have never prepared my own taxes. When I started working, my brother-in-law was a CPA who did a lot of tax work, so he offered to do mine (for free, of course). I know it took him about 15 minutes to do them, because I watched him! But I also worked for him part time when I was going through grad school and had to file the constant tax code updates in his many many volumes of tax books, so was intimidated from the start.

Several years ago, his business was growing, and he partnered with another company (actually in another state), and they took on most of the tax work while he focused on financial planning. He started sending my stuff to them, and they did the taxes. Eventually, they started charging me (as they should). It started at about $250, but has crept up over the years to $400 as of last year.

My taxes are fairly straight-forward, and I've often thought I should just do them myself. But there have been some things over the years that I didn't know how to account for - buying/selling a house, small inheritances from trusts, Canadian tax credits (I work for a Canadian company), etc. When I have tried to mirror my tax return using TT or some such, I am WAY off (by thousands) of what the tax prep people come up with. So I keep paying them.

Ugh.

[Carpediem]

I did my own taxes for a number of years but used a CPA the last couple due to us acquiring vacation rental properties and due to an ugly 72t situation. I'm thinking about going back to doing my own but I'm wondering what version of TT I should get if I have vacation rental properties. Do I need the Home & Business version?

[RobbieB]

Tax laws are written to encourage behaviors the government thinks are good for the country.

1) The government thinks home ownership is a good thing so they help with the mortgage in the form of interest deductions.

2) The government wants you to invest in American companies, so you get a nice break on qualified dividends and capitol gains.

3) The government wants it's states, counties and cities to get financing at reduced rates so muni bond interest is tax free.

4) The government wants to encourage energy efficiency and renewable sources so you get tax credits for high efficiency appliances and solar from time to time.

All this stuff makes taxes complicated, but I think it's worth it.

[haha]

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Originally Posted by Sunset WOW..... I always thought maybe it was outrageous at $100 The people who do it must be too ashamed to admit it, or are criminals who are afraid of attracting official attention ? This makes me feel so much better about doing it myself and saving money, I think I'll take twice as long as normal because it's worth it !!

[samclem]

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Originally Posted by Sunset I totally agree, I would love something simple like: total Income / 10 = your taxes.

That would be simpler, and (I think) preferable. But still not simple. Determining "total income" is about 50% of the work of doing the typical tax return, especially if one has a small business (vehicle miles, depreciation, etc).

Cutting the number of brackets wouldn't seem to reduce the burden of computing taxes appreciably (though it would make the system conceptually simpler, and that is a plus).

Getting rid of the thousands of "good idea" niche incentives (credits/deductions), special treatments, etc would help a lot. The thing is so complex that most Americans correctly view the setup with suspicion, and as virtually impossible to game/win if you don't have special help and lots of money. It undermines faith in the government.

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Originally Posted by RobbieB Tax laws are written to encourage behaviors the government thinks are good for the country. . . . . All this stuff makes taxes complicated, but I think it's worth it.

I disagree. Let the market decide where capital should go, and we'll come closest to putting every dollar to most efficient use. The government does not and cannot know what is best for us. How did their steps to "encourage home ownership" (with tax deductions, reduction/elimination of lender's risks and need to screen borrowers, etc) turn out? Nearly drove us over the cliff. A little less "help," please. Federal tax breaks for state/local taxes serve as a federal subsidy to places with the highest taxes. To the degree that state taxes are "progressive," then allowing people to deduct them from their federal taxes is "regressive," since it increases the federal taxes of lower income people compared to higher income people. I'm not sure why residents of Alabama (low overall state tax burden) should be subsidizing residents of New York (high state tax burden). Nope, when Uncle Sam gets his thumb off the scale, things work better.

[Just_Steve]

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Originally Posted by samclem I'm not sure why residents of Alabama (low overall state tax burden) should be subsidizing residents of New York (high state tax burden). Nope, when Uncle Sam gets his thumb off the scale, things work better.

That's a joke right?
AL gets back $3 for every $1 they pay while NY gets back less then $1 for every $1 they pay, who is subsidizing who?

[MichaelB]

The original thread topic is interesting and there's lots more to talk about along those lines - no need to get sidetracked, appreciate the efforts to stay on topic.

[meierlde]

One idea that has been discussed is to take the standard deduction up to where most folks don't need to itemize which which make filing for most not much of an issue. (No need to save reciepts etc) I have heard 15k/30k suggested single/mfj. Then the issue for a wage earner(w-2) with a few 1099s from banks and a brokerage account with index funds would be simple, with at most a Schedule B which in most cases is just a listing of amounts from 1099s.