Tax prep cost

[socca]

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]

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!]

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/14rpreadabilityfederalincometaxsystem.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/u...rauss-toor-readability-us-tax-system-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]

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]

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]

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]

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]

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.

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]

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.

 

[scrabbler1]

Sometimes, tax simplification and tax fairness work in opposite directions. Making tax returns easier to prepare, which would reduce their cost and perhaps put H&R Block our of business (or at lease put a dent in their income) might be a consequence of making the tax code less fair. Conversely, making the tax code fairer would make completing one's tax returns more difficult. I am often wary of claims to make the tax code simpler when it only worsens any existing unfairness.


I agree with samclem that the complexity in the tax code is in the determination of one's income, not in determining taxes due based on that income. I remember watching a debate on William F. Buckley's "Firing Line" show back in 1995 about the Flat Tax and how it was brought out that this was the case.

 

[samclem]

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)

The share of taxpayers who take the standard deduction is already close to 50% (it was considerably more than 50% a few years ago, I couldn't readily find more current numbers). But one problem is that many folks are "close to the line", so they'd be saving those receipts and crunching the numbers anyway.

 

[meierlde]

The share of taxpayers who take the standard deduction is already close to 50% (it was considerably more than 50% a few years ago, I couldn't readily find more current numbers). But one problem is that many folks are "close to the line", so they'd be saving those receipts and crunching the numbers anyway.

The numbers I have heard suggested is 15k/30k single/Married filing jointly. Which would also mean most homeowners in the center of the country would not benefit by itemizing.

 

[meierlde]

Sometimes, tax simplification and tax fairness work in opposite directions. Making tax returns easier to prepare, which would reduce their cost and perhaps put H&R Block our of business (or at lease put a dent in their income) might be a consequence of making the tax code less fair. Conversely, making the tax code fairer would make completing one's tax returns more difficult. I am often wary of claims to make the tax code simpler when it only worsens any existing unfairness.


I agree with samclem that the complexity in the tax code is in the determination of one's income, not in determining taxes due based on that income. I remember watching a debate on William F. Buckley's "Firing Line" show back in 1995 about the Flat Tax and how it was brought out that this was the case.

Which suggests the issue is not with those who are employees with a few 1099s but small business people, landlords and the like, not the employee with a few 1099s which have already for all practical purposes determined you income on those items.

 

[pjigar]

I have always done my tax return since first one with just two pages to now crossing 40 pages. It doesn't feel complex at all because complexity grew over the years and I learned everything incrementally. All my friends think it is crazy that I do my own tax return!

 

[RobbieB]

I used to do mine with a pen and paper and a calculator. Hand written, not even typed.

No more, I'll gladly pay the hundred bucks for TT and the efiles, I consider it a bargain.

 

[braumeister]

We are certainly not alone in having complexity here, but do you really want to move to the Maldives?

An interesting study done a few years ago:

To determine the relative arduousness of various taxation systems, researchers from the World Bank and PricewaterhouseCoopers dreamt up a hypothetical, but very specific, company—a ceramic flowerpot manufacturer that owns one building, two plots of land, and one truck; has 60 employees; and pays 50 percent of its net profits to its owners, among other assumptions—and brought it through the taxation process of 183 nations and territories.

It would take the imaginary flowerpot manufacturer's accountant less than an hour to comply with the Maldives' tax code.

Compare that with Brazil, the lowest-ranking country, where the company would have to spend 2,600 person-hours—about 108 days of nonstop work, or 325 eight-hour shifts—to meet the requirements.

That makes filing taxes in Belarus, the second lowest, seem like a cakewalk—at 1,080 hours.

The United States, where it would take the flowerpot company 187 hours to comply, ranks 66th from the top by this measure.

Which country has the simplest taxation system?

 

[audreyh1]

Sure - doing your own taxes lets you know "how things work" and plan better to reduce taxes.

We've been doing our own taxes forever, with software support.

I can easily see a day when we decide we'll hire a professional to do the taxes for us. They had better make it easy on us. That's why we'll pay them the big $$.

I'm becoming a lot less patient about dealing with some of this financial stuff. I can set up investments to more or less manage themselves. That's not too hard. But dealing with taxes is a pain and I think we'll give ourselves a break before too long and hire someone to handle it for us on a regular basis.

 

[Gumby]

Sure - doing your own taxes lets you know "how things work" and plan better to reduce taxes.

We've been doing our own taxes forever, with software support.

I can easily see a day when we decide we'll hire a professional to do the taxes for us. They had better make it easy on us. That's why we'll pay them the big $$.

I'm becoming a lot less patient about dealing with some of this financial stuff. I can set up investments to more or less manage themselves. That's not too hard. But dealing with taxes is a pain and I think we'll give ourselves a break before too long and hire someone to handle it for us on a regular basis.

I can certainly see the logic in this. The young wife and I could easily swab floors and clean the toilets and tub in our house, but we still have a cleaning lady.