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January 16, 2008


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Getting a big tax return is not a good thing. It means you gave the government an interest free loan. What your CPA should be doing is trying to get you as close to 0 come April 15th. For you frugal people, this should be an obvious thing. If your CPA finds enough money to warrant a $500-$600 expense, you are doing something wrong. Fix your exemptions and deductions and shoot for 0.

Buyers beware.

I'm a CPA myself. I'm not on the tax preparation business, except for my own and a couple of family members.
I have friends who own small business, and they've told me the exact stories as portraited here. Tax professionals who hooked them up. Let me tell you, they have stories that give me the chills. Basically, they get audited and they are going down. These "tax professionals" (not all off course) who bring more business to themselves by promising big refunds, they might accomplish this simply by bending the rules.
So you better know where the deductions are coming from and the fact the are legal. I think they have a value, like FMF is saying. Any of us can miss a big one. But we still need to do our homework to know that we are claiming something that we can actually claim.

Yah shouldn't be getting $$ money back.... giving the gov. a interest free loan...

Douglas - Who gets in trouble; the tax professional or the individual?

I don't know. There are a lot of good reasons for having someone prepare your taxes. We had a CPA do our taxes in the past, but two years ago he told us our taxes were so straightforward we should save money and file them ourselves. (Now there is an honest professional!)

OTOH, I would be careful of tax professionals who are getting someone who previously filed a 1040EZ (!) five times the return. Unless we are talking about someone who was getting $50 back and now gets $250, of course.

Maybe I should do a post on the extra deductions my CPA found for me?

I second Beastlike, don't give the government interest free money willingly. If you are getting a huge refund, I would change my W4 the next day.

Beastlike/Aaron --

Of course. I've noted this before. But if someone can't get themselves to the proper level of deductions, a CPA can help.

Reader Beware! I was once "hooked up" with a "tax professional" & went from $300 returns to $5200 returns. & got away with it for 2yrs, until I was AUDITED, and trust me they wont sign the forms, & you will pay back what they gave you plus interest!!

Both get the hook.

Now, I'm not advocating against my own profession. I'm just saying. If it sounds too good to be true, it probably is!
Do your homework, ask questions. Usually small business owners have a lot more deductions available. But you still have to follow the IRS rules on how you can claim those deductions and the kind of support you need to keep with yourself as proof. A lot of those deductions are valid and you might be able to claim them. But if you find out at year end you are a candidate for such deduction. In many cases if you didn't keep track of your expenses, via receipts, notes, etc. You might not be able to legally claim it. The IRS is very specific.
A professional, like in any other field is very valuable. But you still have to be there to look after yourself.

Agree with Douglas, I am also a CPA and do a few hundred returns a year (business and individuals). Most CPAs are reputable, I would look out for the "accounting and bookkeeping" companies that are unregulated and have no continuing education requirements.

Both the preparer and the taxpayer are on the hook for penalties, but the taxpayer is on the hook for all the taxes, since it is their return. So if your tax preparer fudged deductions and you get audited, you are responsible.

beastlike or anyone else,

Can you explain how one might structure things such that they don't give the government a free loan? No matter what I do on my W-4, I still get a $1000 back every year since my spouse does not work.

That's scary stuff... especially for someone that can't understand our ridiculous tax system...
Any of these new presidential candidates for the fairtax system?

Susan -

It's hard to get it exactly to zero, but if you're consistently getting money back, increase your exemptions on your W-4. If you're at 1, go to 2 for example. That will decrease your withholding each paycheck.


You bet our tax system is stupidly complex.

Huckabee is for the FairTax.

FMF, It would be a good idea to discuss the FairTax in your forum.

Douglas --

We've done that a bit. Maybe I need to open up the topic a bit more with a feature post.

Be careful allowing people to lie on your taxes. You both will be held liable, ask Wesley Snipes....

Yes, please let us know what kind of deductions your tax preparer has found. I've always done my own taxes (the regular 1040). Maybe I've been missing something?
I'd also love to learn more about the FairTax! The little I know of it sounds intriguing.

What nobody has mentioned yet in the comments is my "tax accountant in a box" - Turbotax!

If you're doing a good job of tracking your income and spending in Quicken (or whatever) then completing your taxes should be a breeze. I spend maybe 8 hours every year doing my taxes - most of which is tracking down and consolidating all my tax documents into a tax folder. Turbotax guides you through the process step by step. People who are financially savvy enough to be reading this blog should have no problem using Turbotax to do their own taxes. And, unlike the tax accountants described in the posts above, Turbotax guarantees their calculations are correct.

Best of all - I pay c. $60/year for the software instead of hundreds for a CPA.

Brian - any good accountant will guarantee their calculations are correct, because most, if not all, are using much more sophisticated software than Turbotax. The problem arises in interpreting what is deductible and what isn't, which Turbotax won't tell you.

I'm not saying Turbotax isn't fine for some situations, but for more complicated returns a CPA is your best bet.

What software are these CPAs using?

I think the best reason to use a tax preparer or a CPA is for their expertise.

As to accurate withholdings, you can skip the W-4 exemptions and request your employer withhold a fixed amount per paycheck. Use extreme caution with this, as you'll need to make sure that you calculate correctly. With no extreme changes in pay or other financial conditions year-vs-year, the calculation for withholdings per pay perioed is simple: total taxes paid last year divided by total pay periods per year. I've used this method successfully for 7 years, but again, I would advise caution and double-checking calculations.

OK first off, I already claim several exemptions. What's the max you can claim? I still get a hefty amount in my tax return (not including the $1k per child tax credit, btw). I don't want to increase exemptions and find out that I'm overexempting and end up getting audited! :p

As far as audits go, though, Turbotax and H&R Block both have guarantees on their products. My taxes have been simple enough (and my taxable income low enough) to free file for 6 of the last 7 years. And I supposedly make "median" income for Americans, so most of us can do as I do. It takes a couple hours a year, and you get good at it real fast b/c the programs are pretty decent. I only use a tax preparer if a lot of big changes happened (like I might this year....)

For people getting big refunds.
Form W-4 has a second page with a table showing you how to increase your withholdings. It is fairly simple. Besides increasing exemptions, there is another line to request a fixed amount to be withheld every paycheck. So if you're consistently getting $1,000 back, and you have 24 paychecks. File a new W-4 asking for an extra $40 a paycheck to be deducted, which will make your year's withholding $960 higher. If you're doing this at midyear, just calculate how many paychecks are left, and divide the regular check you get from the IRS among the number of paychecks.
Be aware that this simplistic way of doing it, only works with people on a steady salary income, and deductions situation. In other words, if your tax situation has changed from year to year, then you'll have to go more into details.
This post should not be constructed as professional advise. Should you have any questions, please consult your tax professional.

Suze -

CPAs use various software programs, you've probably not heard of any of them. CCH, Lacerte, GoSystem Tax are a few. We're talking about systems that can do returns for all 50 states if necessary.

Ryuko -

I'm not aware that there is a max # of exemptions. If you are still getting money back and don't want to, increase the exemption another 1 or 2.

And yes, I'm sure H&R Block and TurboTax "guarantee" their products, but like I said earlier that is for the calculations. It's basically a fancy way of saying "we guarantee when our program adds 2 + 2 it will equal 4". Try getting H&R or TurboTax to represent you in an audit, now that is a scary thought. The CPA can protect you by knowing what to deduct and how agressive to be.

LaCerte is an Intuit program, right?

I believe it is, I have not personally used it however.

Whoops, forgot to add that if I remember correctly, they purchased it a few years back.

With regards to adjusting your exemptions/increasing withholding:

If I remember correctly, there is a warning on the W-4 stating that you must provide some kind of documentation to your HR dept if you claim more than 10 exemptions.

You need to be careful about withholding too much. If you end up owing too much at the end of the year, you can be penalized.

Go to,,id=96196,00.html for help

If you have a single-income household,as a rule-of-thumb, you can divide your refund by your tax-bracket (not tax-rate). Divide that number by 3,300 (exemption deduction value) and round up to the nearest whole number. This is the number of exemptions you need to ADD to eliminate the refund. You will probably owe money, instead.

Please note: The number of exemptions you claim on the W-4 has no bearing on what you claim on your tax return. W-4 exemptions are used as a bookkeeping number to adjust your paycheck tax withholding.

If I had to file taxes in multiple jurisdictions, was a member of a partnership, or ran a business I owned, worked from a home office, etc., I'd probably use a CPA.

But for the vast majority of common folk who are employees of a company that pay them a wage/salary with nothing fancy and who aren't in any other business, it isn't that complicated to do on one's own. I've not paid more than $20 in any year to file my taxes.

I am sure that there might be a deduction here or there that I am missing because I go straight by the book. But I've never been audited and would like to keep it that way. The IRS can be nasty if they come after you.

As for the H&R Block type places, it always unnerves me to think about handing them my return when they get penalized for failing to do their corporate returns correctly.

Bottom line: I highly doubt that most people are in the position where they are missing tons of legitimate deductions that they could be claiming.

Finally, one note on the notion of getting a tax return. I don't buy the argument many make about it is a tax free loan to the government. Well, of course it is. But that doesn't mean it can't have value to you. If you are far more likely to be disciplined and prudent in how you handle that tax return, it could be a savings vehicle. I'm not saying it's an ideal one. All I know is that if I tried to monkey with the W-5 exemption claims too much, I'd probably find myself underpaying my taxes, spending too much during the year, and then get hit with a tax bill that I've got no money to pay come April.

Not sure why I typed w-5. w-4. oops

TurboTax is fine if your taxes are simple, you don't have more than one or two income streams, and you don't work out of a home office. But the tax laws are so complicated that a normal person can't begin to understand them, and so if your situation is very complicated, you don't even know what questions to ask, much less how to enter data in one of those tax preparer programs.

I have a tax lawyer prepare my returns, because of the complexity of my income & investments. Believe it or not, she charges less than the CPA used to charge me and she does a better job. Though she's savvy and conservative -- no reckless claims about bringing in some huge tax refund -- she has saved me a lot on my tax bills. And because she's a business lawyer, she can advise me on other issues, too.

The IRS is a piece of S&*%! Don't pay taxes. I am a former employee of the IRS and you are NOT BY LAW reuired to pay any taxes. FIND ME THE LAW THAT STATES SO! I havent paid taxes in 8 years since I left the IRS in 2000. Its nothing but a huge fraud/scam!

The tax law is found in Title 26 of the United States Code. Section 6012 of the Code makes clear that only individuals whose income falls below a specified level do not have to file returns.

While our tax system is based on self-assessment and reporting, compliance with tax laws is mandatory.

State citizenship does not negate the applicability of the IRC on individuals working and residing in the United States

Okay, so I've just come to realize that I totally screwed myself on my taxes. In some sort of crazy scheme of things when I got my new Job in January of 2007 I set myself up for claiming Single 2.... the problem is I should have been claiming Single 0. I'm not sure what I was thinking when I filled out the form, but I now have to pay in quite a bit. Is there any way to correct this now or do I just have to eat the payment I have to make?
I'd appreciate some help!

If their excluded combat pay is at least 3,000, they must file a tax return to receive a stimulus payment. The excluded combat pay would be reported on Line 40b of Form 1040A. This treats the combat pay as earned income under the earned income tax credit, which may help provide tax refunds on the original return filing for some combat soldiers.

I like getting an income tax back..that helps me afford to buy a car ect..I cant seem to keep any in free loan ...whatever..I would be very sad not to get anything

I am a young professional who made his first 6 figure year...only to find out that the government is raping me something fierce! I paid over 37K in taxes this past year and my refund is only a thousand dollars? WTF? I walked out of my CPA's office today f*%$ing pissed! Half of the $111,000 I made was in bonus money taxed at 40%!!! I guess I should have been more prepared for what was going to happen this afternoon, but to see 34% of my money gone to a government which is completely backwards, in the worst economy (where I am not even secure in my job), is a little heart wrenching to say the least! I got back well over 5K last year and made half as much! It's just hard to fathom that after literally killing myself to earn a good living this past year, I only get to see 66% of what I busted my ass for. And on top of all that, my mother can't even have heath insurance after paying figures like these into the same system for over 40 years! Doesnt give much incentive to be too honest does it?


Doesnt make much since to me that people that work very hard, alot harder than most of the people sitting on the couch collecting unemployement, are pentalized by the IRS for their success. Since this is the case than most folks should just be lazy as [email protected]#$ and not pay [email protected]#. Just like half of the population.

I agree! Basically, the more you make, the more you pay! We all might as well live off of unemployment, food stamps, child support...etc. Those of us who work our [email protected]# are barely able to pay rent, bills, food...etc because we work basically!

@ WJT & ALEX..what you all are saying using right. I am a young mother of 2 girls and have worked since I was 16..had gr8 jobs and lived on my own. I moved to another state and can't find work the good work to save my life. I currently just statrted to get child support no financial help by the state just unemployment and that helps none. So you both can save those non sense words for someone who has always had a good job never lost work or staying with their parents. It's crap!

There is NO law that requires people to pay the income tax and that is because the income tax is an DIRECT tax and not proportional, like the constitution demands.
You fools need to do some REAL research and take back your goverment from those corporate bankers.
"Income" is that which you get BACK when you invest money in the, lets say, stock exchange, THAT is what "income" means, and NOTHING else.
So WHY are you people still paying income tax?

@WJT & Alex sounds to me if you 2 can barely make it then get another job.. I work from April to Nov. in the laborers union I make great money when Im workin an in the winter months collect unemp. so alot of us on unemp.arent bums why dont u 2 get off ur a%$e* an get another job an quit complaining about others an worry about ur own families

When I see the word UNION, I vomit in my mouth.

@AJK maybe you should consider finding a stable job. Cause from my understanding WJT&Alex do they are complaining because they work hard and get taxed to much. You on the other hand act as if your better, be a real man and work all year round then come and say something once you know what it means to see your paycheck be stripped down to shit from taxes. @crazi4 learn to write/type/read in english for the love of god if you even want to be acknowlegde like an adult. You have children and your a single mother I get it. It's diffcult. Don't make your situation worse by writing like a 9yr old. Do it for your children they'll appreciate it.

@AJK You sir are the trash that brings the system down

@dislike simple minded people
Because* Cause. Too much* to much. You're better* your better. acknowledge* acknowlegde also WITH D indicating past tense.
And about 10 other grammatical errors that I won't take the time to point out (mostly punctuation).
I'm just saying.

So I'm confused... Is it the people who work their behinds off with little pay need to pay more in taxes.. So they barely make ends and grow debt. So the folk working just as hard making big pay can pay little and grow theirs while others just as hard working have nothing. WOW I just realized I'm asking two people something they were talking about 1-2 yrs ago. Just figures this conversation will continue forever. Yes I don't like the people using the governments help when its not needed and not trying to work. BUT for the people who do work you know the small and middle class. Why should we be pentaliced for working our butts off and just not getting the pay we deserve. Not saying the rich should lose all their riches but if I made all that money.. I would gladly pay higher taxes because in the end I'd still be ahead. Not growing debt. Yes I'm slowly getting out of debt but emergancies did happen. Where theres no cushion there is debt. Even when I could get aid I did not because we made it without. Yes in other times couldn't make it and took little aid to make it.. could have had more aid but didn't need it all to make it. Aids need limits. Just because you can get one doesn't mean they should let you get all, but how do we figure who needs what? I was on WIC and the MED card during pregnancy we really needed that help. I could have got link as well BUT WIC gives more food then what is needed to begin with..So why give link too? I didn't take the link. People are to Greedy period. We all need to spend a day with the older folks and REALLY LISTEN to the back in the day.

After 11 years in the United States I wonder:
1) Why no one in the government is willing to talk about a third party auditing government spending on disability, unemployment and other so called social services provided. First that will provide more employment opportunities and surely will save the money given to the wrong recipients. Don't get me wrong lots of the recipients are eligible for this aid but many more aren't and are abusing the system at my and your expense because of their greed and laziness.
2)No one questioned why politicians can earn a salary for a lifetime... when we have huge deficits and the only solution is increasing taxes and spend more on wars.
3) Why do we pay income tax and then pay tax for the products we purchase? why do we pay property tax for our house when the money used for its purchase is what we net after tax? isn't it double taxing?
3)As middle class, or a small business (in its true sense not the ones employing 500 people and making millions as the government thinks), I am not eligible for any assistance from the government unless I decide to stop aiming for a better living. What am I getting in return? health benefits? no I cover my own insurance. Good school system not really the standards are way below what it should be that I have to enroll my kids in additional educational programs.

I have a serious question if i put that i earned alot more than what i really did for taxes will the irs give it to me or what

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