Your Thoughts Pls: Paying for Tax Advice instead of for the Tax Return itself? (LONG)

[Amethyst]

Hello Forum Friends; I know this is long, sorry.

We have always paid a CPA to do our income tax returns. This year, the firm raised their rates significantly (see sample rates below). We are looking at $1400 or more to prepare our state and local returns– including entering 1099’s at $10 a pop. If we get all the info to them by this Friday, there is a 10% discount.

I realize the firm has to pay somebody to enter the data, but still…. we are required to present them with all our 2010 data in a carefully organized form. It’s not like I walk into their office carrying a shoebox full of paper.

I would like to hear your views on how to approach the CPA about my doing the data input (usingTaxAct) , and paying his hourly rates for consultation on aspects that I don’t fully understand, or where I can’t figure out what to enter from last year’s return (we get paper printouts of the worksheets). I’m very in favor of paying professionals for their knowledge – not for data entry that I can do myself. What would be a good way to phrase/frame my approach?

Although it may seem quite straighforward, I feel this is a sensitive matter because a) I have never done our taxes b) our taxes are fairly complex and c) it will be asking the firm to give up quite a bit of $$.

To pin down where I’d need help, I did a mock-up 2010 return in TaxAct, using the step-by-step Q&A option. As it turned out, TaxAct did a good job of calculating refund (small Fed, no State), AMT (yes ) and estimated tax payments.

Things got murkier when it came to rental property, capital losses, and calculating the non-taxable portion of my husband’s pension.

Sometimes, TaxAct asked me to enter information from a line on our 2009 return or a worksheet connected with it, but the corresponding lines from our 2009 return didn’t match up. Other times, TaxAct referred me to IRS pubs. Although I ‘m not a stranger to bureaucratic documents (JCIDS manual, anyone?)– some of the IRS instructions make my head spin. These are the worrisome areas where I’d need the CPA’s advice:

· Capital loss carry-overs for a)rental property and b) other investments sold at a loss
· Pension exclusion (husband has CSRS pension; some portion of it consists of already-taxed money that he paid in, and I cannot figure out what numbers to plug into the “simplified method” in order to calculate the portion that should be tax-free)
· Depreciation – of property, as well as of items purchased for the property

2010 Rates (Sample):

· 1040 long form and state form: $395 (up from $225 in 2009! And people say there’s no inflation)
· Each 1099 (of any kind) $10.00
· Rental & Royalty Income per property $120
· Depreciation & Amortization $50
· AMT $95
· Passive Activity Loss Limitation $80

Any help is appreciated!

Thanks,
Amethyst

 

[chemist]

Amethyst - these rates look fair to me. I also use a CPA as a) I am working and can afford it b) my taxes are complex and c) I have very litttle free time.

When I retire and I have more time, less money and (hopefully) simpler taxes I may change my mind. However, I used to do my own taxes using TurboTax (free from Vanguard for clients with a lot of assets).

My advice - see if you can cut down on the number of 1099's and consider doing your own taxes if and when you don't have AMt, rental property, etc.

If you think you can't afford professional help with a return this complex, consider this - can you afford to make a mistake? Interest and penalties could make any savings short lived.

You could try the "let me do the data entry" tactic - but if your CPA is as busy as mine (not accepting new clients) it may not play well.

 

[powerplay]

To help determine the tax free portion of the CSRS annuity have you read through this reference on the IRS website, Publication 721 (2009), Tax Guide to U.S. Civil Service Retirement Benefits
In reading through the part about 'Recovering your cost tax free' it appears that the tax free amount remains the same each month until the amount you paid in has been exhausted. Maybe you can get it off last year's forms completed by your CPA.
I'll be digging in to this for 2010 taxes next year since I just retired the end of Jan. There is a state component that I will be able to exclude also based on some changes to the tax laws, but I think that is pretty straightforward based on info on the state web site about it.

 

[Lakedog]

I have no thoughts related to the costs of tax prep (have always done my own) but the pension exclusion is usually provided on the 1099R from OPM -- block 2a shows the taxable amount of the pension. OPM uses the simplified method and their calculation was correct in my case (I used the IRS worksheet and came up with the same exclusion). On the IRS worksheet, line 2 is the total employee contribution (from block 9b of 1099R) and the rest should be fairly easy to follow.

 

[Purron]

I would like to hear your views on how to approach the CPA about my doing the data input (usingTaxAct) , and paying his hourly rates for consultation on aspects that I don’t fully understand, or where I can’t figure out what to enter from last year’s return (we get paper printouts of the worksheets).

Your CPA's fees don't seen out of line. Clearly, you do have some complexities and take comfort in knowing the job's done by a trusted professional. One thing to consider with this approach is you would basically be doing your own return with some consultation from your CPA. I doubt he or she would sign the return as preparer and back you up in the event of an audit.

 

[JDARNELL]

My CPA charges so much an hr. He starts the clock and stops when he is finished. Was about $300 for return that include schedule C, E , Etc. CINC House started an S Corp and that adds about $300 more. They also get about $90 a qtr to file all the necessary S- Corp info. I see the CPA maybe once a year face to face. Other times its on the phone or email and pdf.

Tomcat98

 

[Moemg]

When my CPA's rates kept on getting higher I started doing my own . I had done mine for several years when I was younger and my late husband worked for the IRS . You are very intelligent . Taxes are not rocket science . I'd suggest getting a good tax book for reference and give it a shot . The worse that can happen is you return to your CPA . I got tired of doing all the preparation and paying more each year . Try one of the deluxe or you may need premier additions of turbo tax . The program walks you through the whole thing . The program figures out how much of the pension is non taxable . You just need the amount he paid in and when the pension started and TT will figure it out .Good Luck !

 

[jimnjana]

IRS pub 575 has an example of how to compute the taxable amount of pension payments. Also, take a look at last years return, unless the pension started during the 2008 taxable year, the excludable amount should be the same for 2009 tax year.

 

[HpRyder]

I would like to hear your views on how to approach the CPA about my doing the data input (usingTaxAct)

I do my own complex taxes using TurboTax Premier. It encompass everything that you've listed except the pension, and more. Turbo tax works fine for me.

..and paying his hourly rates for consultation on aspects that I don’t fully understand, or where I can’t figure out what to enter from last year’s return

I use a tax attorney for brief voice consultations.

What would be a good way to phrase/frame my approach?

Pretty straight forward. Just tell him what you want to do. If he agrees great, if not, find another CPA.

Things got murkier when it came to rental property,

The tax software makes this pretty straight forward. You can fill in the Sch Es your self from your receipts. A hard part for me is distinguishing between a repair and an improvement. I'd rather do an immediately deductible repair than an improvement requiring depreciation and eventual recapture.

capital losses

Pretty straight forward for Sched D items.

Capital loss carry-overs for a)rental property and b) other investments sold at a loss

Again, this is a straight forward computation for a simple rental property sale if the tax software data base is properly filled out. 1031s with boot will need more specialized knowledge than the software provides, but you can find out the limitations by calling the software hotline with questions on how to properly use the software. Then if you need more help, use a consultation.

Pension exclusion (husband has CSRS pension; some portion of it consists of already-taxed money that he paid in, and I cannot figure out what numbers to plug into the “simplified method” in order to calculate the portion that should be tax-free)

I have not done any of these, so I cannot comment knowledgeable on this. I suspect it depends heavily on the boxes on the form you received as well as the records you've kept. If you have the numbers, I'd call the hot line to see how to use the software to do this.

Depreciation – of property, as well as of items purchased for the property

This is very cut and dry. The only questions are whether the purchased items are to repair (ie. continue functionality) or to improve functionality. This is highly subjective within bounds. You should be able to do this much better than the CPA. If its a capital improvement it gets depreciated over its useful lifetime, which has a range. You get to chose. Just remember, a part of depreciation you'll have to eventually pay back.

AMT & Passive Activity Loss Limitation

These are automatically computed.

 

[Alan]

As Purron says I would not expect the CPA to be prepared to sign the tax return unless he has reviewed the information for accuracy and I would think there would not be much saving on $10 per 1099 for the CPA typing in the figures or the CPA comparing what you typed in against the 1099's for accuracy.

 

[Texas Proud]

Unless he/she is a one person operation, the prices reflect a clerk or someone junior inputting the data.

I would not want to be your CPA... with you calling to interupt me while you input all this data into your program but when you get into a fix, call me and then I have to waste my time trying to figure out what the heck it is you are trying to tell me is wrong... not knowing anything about the program you are using...


I would tell you "sure, I will answer any of your questions at $225 (or $350, whatever the current rates are) per hour, with one half hour minimum". So, give me a call, we talk 5 minutes... you pay $112. You call 10 minutes later, you pay another $112.... and 20 minutes later, another $112. See, you are getting him out of his flow so you should pay him for it.

 

[LOL!]

Presumably you have your previous year's tax return for 2008. You can buy a copy of TurboTax for 2008 for $6.50 online and re-do your own 2008 tax return. You will probably find mistakes that your CPA made. This will be a little different from doing a mock-up 2010 return (How can you do that anyways without waiting until the end of 2010? ) This exercise will help you for the rest of your taxable lives.

So I ask you, which is better $6.50 and some of your time, or $1400?

Then you can use your 2008 return as a guide for the 2009 return. You can also start answering all the tax questions on this forum with extreme confidence.

If you don't break the cycle now, you will be forever stuck paying.

Another alternative would be to shop around for a different tax preparer.

 

[easysurfer]

I used to have a paid prepare do my tax returns. But each year not only would I know the raise would seem to increase much, but I would find mistakes. So I decided to just do my own with Turbo Tax. Haven't regretted that move yet. Not only do I feel that now I'm sure they are done right, but it's educational too as now I have to scrutinize my data more than just handing that over to the preparer.

 

[Bestwifeever]

I too wonder if the Premier edition of TurboTax would be able to handle the complexities of your return. It would seem to be worth the investment to try it this year, since all of your documentation is gathered already, and also pay to have the CPA do them, and then compare them.

We have always done our own taxes, however, so I don't know what the value added is from having a CPA do them.

 

[Texas Proud]

I used to have a paid prepare do my tax returns. But each year not only would I know the raise would seem to increase much, but I would find mistakes. So I decided to just do my own with Turbo Tax. Haven't regretted that move yet. Not only do I feel that now I'm sure they are done right, but it's educational too as now I have to scrutinize my data more than just handing that over to the preparer.

When I was overseas, the company paid for my tax return prep... cost around $5k... and they made mistakes even though I had to fill out this huge book with everything you could think ever related to taxes...

One of the usual mistakes is they 'guess' on a lot of items if they do not have it right there... because it takes to long to call and get the 'real' answer. OR, you answered the question they asked not knowing why and if you knew, you would answer it a different way.

Taxes are not rocket science.... and the programs take you through the vast majority of items... be even they have checks and balances that just don't apply that you can not get around. As an example, we have real estate overseas that we rent.... but Tax Act (or whatever H&R calls it now) will NOT allow you to put in an overseas address.... no way to get it there. So I have to put it in a state and then white out the wrong address.

 

[Moemg]

If I did not want to pay a CPA but wanted tax advice I'd look for an enrolled agent . They are basically former IRS agents who are retired and doing it part time .

 

[SecondCor521]

Amethyst,

I did exactly as you describe once -- the first year we had a Schedule C business. Basically I hadn't done that before and there were some questions I wanted answered. I found a CPA who was willing to let me fill out the forms and then just consult on my questions. It worked out pretty well; I think I paid her for about half an hour or an hour of her time. I ended up not having to make any changes to the return based on that consultation, but it was worth the money just to get my questions answered.

I have had CPAs do all of my tax prep on a couple of occasions in the past. They were highly recommended and came well recommended, but what I found is that they were about 2-3 times as expensive as what I thought they ought to be, and they still made mistakes.

Except those three years, I've been doing mine on my own for most of my life. YMMV.

2Cor521

 

[Rambler]

Amethyst, $1400 may be a bargain, depending on how you look at it. My preparer (Deloitte) charges seven times what yours charges you, AND they make me enter the data myself. I know, I know, my situation is different. It is, really. They have to do Japan taxes, then US taxes, then state taxes, then equalization calculations (so I only pay the amount of tax I would have had I not been sent to JP), extension filings, JP quarterly payment exemption calcs and filings, etc. Lucky for me, megacorp picks up the tab for this. Also note that Deloitte is extremely expensive and knows that they can charge this because there are few alternatives for expats (can't use the same firm as your company's SEC auditor, for example). The locals and tiny places are not really all that trustworthy (Dewey, Cheatham, & Howe, LLP...). I do intend to give them an ear-full about how they make me do my own data entry...on an extremely slow server, and charge so much.

When I return home, I intend to do my own (once I get the JP tax situation unwound...the credits will take several years to unwind as I understand it), and intend to use Turbo Tax (probably Premier). If I cannot do my own due to the complexity (which I do not foresee) I will take it to a CPA and happily pay the $1400...a bargain after 7x that.

As with all things, YMMV.

R

 

[target2019]

If I did not want to pay a CPA but wanted tax advice I'd look for an enrolled agent . They are basically former IRS agents who are retired and doing it part time .

False. An ER is a person who has passed the IRS tests.

 

[target2019]

This is the software I use. It does everything.

You already know what some of the problem areas are, such as the pension. Even with last year's return, some things will be difficult to figure, unless you have the supporting worksheets the preparer used.

Only you can decide whether it is worth saving over $1000 each year. In most cases, if you make an error, the IRS fixes the error.

Next year the preparation will take far less time. 95% of what you must enter is picked up from last years return which is saved on your computer.

 

[Moemg]

False. An ER is a person who has passed the IRS tests.

I think you will find that most enrolled agents are former IRS agents .

 

[Nords]

Tax accountants have to be experts on everything, and it's pretty difficult to keep up with all the new changes as well as the old rules. (Spouse and I are still carrying over cap gains from the 1989 sale of a house.) I wouldn't be surprised to learn that most of the accountant's rate increases are going to pay their liability insurance premiums. OTOH my BIL, a tax CPA for stinkin' rich people, says that some years they raise their rates just to drive off the less-expensive customers so that they can earn even more from their high rollers.

But the $1400 is buying you more than stuffing numbers in blocks-- it's the confidence that someone else may be on the hook for mistakes, and that you don't have to suck up all of their knowledge to be able to fill out your forms.

But as has already been mentioned, it's not rocket science. Once you learn how to do it for yourself then you could continue to be an expert on just those aspects that you need to know-- an inch wide and a mile deep. IIRC, a financial magazine used to get a great annual article by having 25 tax accountants do their sample family's returns each year, and every year they'd get 25 different answers. So even if your work might not be "perfect", it could still be "good enough".

What you might really want is someone to teach you how to do your tax returns. I don't know where you'd find someone like that. But what you could do this year is pay the $1400 ("tuition at the School of Experience") and also do your own set of returns on tax software. Compare the two and see where you differed.

Pension exclusion (husband has CSRS pension; some portion of it consists of already-taxed money that he paid in, and I cannot figure out what numbers to plug into the “simplified method” in order to calculate the portion that should be tax-free)

TurboTax Premiere will handle everything else on the list. As for this item, it's always asking us if we want to track the basis on our Roth IRAs. So you may be able to use it for your CSRS pension accounting.

 

[RonBoyd]

Any help is appreciated!

I don't know. But if all you need is a little direction and/or "moral support," the Internet seems an ideal solution to that end. I am not that familiar with all of the "tax advice" blogs there are but here is one I am familiar with:

June Walker: Tax & Financial Advisor to the Self-employed since 1979

(I read her because I like her style of writing and not so much for the tax advice. However, her advice does seem to be well-grounded and valuable.)

 

[W2R]

I'm not sure if it has always been this way, or if it is different for CSRS (though I can't see why it would be), but when I retired on a FERS pension I received a personalized booklet from OPM entitled "Your Federal Retirement Benefits".

The booklet says,

Your retirement benefit is subject to federal income tax. Because you already paid Federal income tax on your retirement contributions, you are entitled to receive an amount equal to these contributions as tax-free income. Under the IR Simplified General Rule, a portion of each monthly payment is tax-free, and represents the recovery of your previously taxed contributions. The remaining portion of each monthly payment is fully taxable. You continue to claim this tax-free amount until the total tax-free amounts claimed equal your retirement contributions. At that time, all of your benefit becomes taxable.

Then it specifies in dollars and cents how much of each monthly payment is tax-free. It also tells me in dollars and cents what my retirement contribution total was. Dividing the latter by the former, it looks like it will take me 21-22 years, until I am 83 or so before my pension is fully taxable (in other words the amount that isn't, is small).

So, probably your DH has something in his retirement paperwork like this, too, explaining everything. But if you can't find it, I am sure it is in the IRS publication. Also, there are a lot of federal retirees over at the FederalSoup.com message board that know the ins and outs of CSRS retirement and where to find definitive answers better than I do.

 

[kaneohe]

If you opt to go the DIY route:
Fairmark Forum