My Tax Mess

Most of you know that I use a CPA to do my taxes. But as I've said before, this doesn't mean that I simply turn over my receipts each year and check out. I still need to be an active participant in the process. And good thing I was this year -- it saved me $1,200 or so in over-payment of taxes. Here's the story:

• As usual, I prepared a summary of my taxable activities for my CPA and sent them to her with her 3-page questionnaire and a bunch of receipts.

• Within the packet were a few transactions where I had donated stock or mutual fund shares to a charity to avoid capital gains. I noted these accordingly.

• I submitted all of this to my accountant the first week of March.

• On April 7, I stopped by her office to pick up my returns (federal and state.) I took them home, looked over the 50 or so pages, and found that my CPA had counted one of the mutual fund gifts as if I had sold the shares first and then donated the proceeds to charity. This is NOT what happened. Furthermore, if it had happened this way, I would have owed about $1,200 in capital gains taxes, which is what she had me listed for on my return.

• I called her right away and asked what was up. She told me that the 1099 from Vanguard stated that I had indeed sold the shares first and then donated the proceeds. Thus, it was a taxable event.

• I said it was not. That I donated the shares, not cash. She said that if this was true that I needed to get a new/revised 1099 from Vanguard showing this to be the case. Otherwise, the IRS would expect me to be paying taxes on what appeared to be a sale and donation (versus a donation of shares by me and then a sale by the charity.)

• I then entered the netherworld of last-minute tax help at Vanguard. I won't go into the gory details, but let's just say it wasn't pretty. I had a week to get things solved and at first it appeared that they weren't going to move very quickly. But I pushed them to investigate the transaction and they eventually agreed that they had recorded/reported it incorrectly and that they would revise my 1099.

• I reported this to my CPA, she changed the returns, and on the evening of April 14, I picked them up. The next day I sent in my checks -- and made a payment that was $1,200 lower than originally calculated due to me catching the problem on the original tax return.

There were several things that went wrong to make this situation wose than it had to be including:

1. Vanguard reported the transaction incorrectly. The thing that eventually convinced them that I was right and they were wrong is that I had two other transactions with them where I'd sent out the exact same paperwork and they had reported it correctly. I pointed them to these and showed them they simply messed up on this one.

2. When I received the 1099 early in the year, I should have asked about it instead of simply filing it in my tax folder and going on.

3. My accountant should not have taken so long to do my taxes. It took her over a month before I got them. If I had had them even a week earlier, there wouldn't have been such a last minute rush.

4. Instead of just reporting the transaction as a sale based on the 1099, my CPA should have noticed the discrepency between the 1099 and my instructions. She could have called me as early as mid-March and we could have settled this way in advance.

All this to say -- even if you use a professional to do your taxes, you still need to know what goes into your taxes and be familiar with how they are filled out/calculated. You also need to review the final results before giving your approval. This is what I do, and usually they're fine. But this year, being a bit more diligent saved me $1,200.

Comments

[Paul]

Back when we had a CPA do our taxes, we actually took all the information in and sat with him to get the forms completed. Maybe that would take too long for you or be an inconvenience, but it seems it would've helped resolve this situation faster than what actually happened.

Do most CPA's not schedule a sitdown with you to go through the tax information?

[Curt at PennyJobs.com]

To avoid things like this, I always have a face-to-face meeting with my CPA to go over all major financial decisions for the year. My brother e-mails his papers to his CPA and has struggled with many similar problems for years. I suggest you meet with your CPA.

[Kim]

I also have a face-to-face meeting with our CPA every year. We've avoided many potential problems when paperwork is right in front of him. He asks questions we hadn't considered, or we've brought issues to his attention so he can research it before doing our taxes. I would never simply mail or drop off the receipts and a questionnaire.

Your experience with Vanguard's customer service is interesting. Last month I also had an outrageously awful, two-week long quagmire of nonsense dealing with them. I was simply trying to open an UGMA account for my godson, and received conflicting, inaccurate advice every single time I talked with someone. Managers were incompetent. Supervisors contradicted each other. Thank goodness for recorded lines. The upshot? I closed all my accounts at Vanguard (over $150K total).

[Kevin]

You probably could have just attached a statement to the return stating that the Vanguard 1099 was incorrect and filed anyway, especially if waiting for the form would have pushed you past 4/15. Even if they sent you a compliance/matching notice for the 1099, by then you probably would have received the corrected one.

As far as waiting for a month to get your return complete, that is the problem with trying to cram so much into a short period of time. If your CPA is like my firm, we try to get all the corporate returns out first since they are due 3/15, which usually means all the individual returns that come in between 3/1 and 3/15 (like yours did) usually sit there for awhile. The good news is your CPA is busy - which probably means she knows her stuff.

To respond to the other commenters - a face to face meeting might help, but the fact that he had a couple other transactions like this and specifically mentioned it in his notes - the CPA should have caught that and asked the question up front rather than completing the returns and then fixing it.

[Curious J.]

And this saved you time and money over doing them yourself, how?

[fathersez]

Wow, 50 pages!

Thank God, we have a simpler, a much simpler system.

Otherwise we would need a CPA and a therapist each tax time.

Regards

[rwh]

I'm glad you were able to work it out. I'm curious, did your CPA bill you extra for having to re-calculate your return?

Kim: Are you certain you helped your bottom line by switching from Vanguard? I've had issues with them too, but in general I think they're a great company. If you switch to another company how do you know they're any better? I've had experiences similar to yours at Fidelity, Price and Schwab, as well as my local banks......and hospitals, insurance companies and retailers. I think ignorance, miscommunication and misunderstandings are a way of life. My wife will tell you how clueless I am:)

[FMF]

RWH --

"Did your CPA bill you extra for having to re-calculate your return?"

She did, but we're currently "discussing" the amount since the main fault was hers.

Curious --

Starting to ask myself the same question...

[rwh]

FMF: If you don't mind, let us know if you get anywhere in those "discussions".

I'll put in another plug for TurboTax. If you keep good records, it's a snap.

[FMF]

RWH --

I will. It's already at the point where I may do it myself -- the cost is getting to be too high as my firm raises prices 10-15% per year.

[Kevin]

No way she should have billed you for their mistake. I could see billing for additional professional time if they called Vanguard and requested the corrected 1099, but since it seems you did all the legwork, they should eat the cost for the re-run.

[Duane]

I have high regard to CPAs and used them for years, but for the past three years I have done it myself with TurboTax. I've felt a bit more engaged and informed about tax decisions throughout the whole year as a consequence. It is also considerably cheaper, but the big surprise is that it doesn't take more time. I spend the same amount of time answering the thorough questions in the software that I would spend with the CPA. Any time required to get amended 1099s and such is immaterial to whether a CPA or software tool runs the calculation.

Try what I did... one year I decided I would take a chance on spending $80 for TurboTax and bail if it was too hard. Heck, with the online service you can effectively do your taxes and pay at the end. You might be surprised.

[Jane]

I received a letter from the IRS this past year telling me that we owed money from our 2005 return. When I changed companies in 2004, I had a pension plan that I rolled over to an IRA. Vanguard reported it like I got cash and then opened an IRA. I called Vanguard and they researched it, told me yes, they had misreported it, and they would send me a letter within the week. Of course I had a deadline to pay the IRS, so I was a little anxious. Several phone calls later, I still had no letter, so I called the IRS only to find Vanguard had sent it to them and all was well. Wish I had known! It would have saved me lots of worry.

I still have my accounts with Vanguard. All in all, I think they're a good company.

[Gypsie]

i have always done my own taxes with Tubro Tax and then when I got married they got a little more complicated so i switched to TaxCut by H&R Block. The reason for the switch was I knew I could go down the street to an office with people if i needed help. And the first time i filed taxes being married, I needed help. (we were newly married, both military, retirement accounts, self employed side business for myself, etc) When I got to the office we even had to get out the large book of tax code to figure it out. H&R block was terrific about it. They didn't charge me to file our returns and they finished my taxes in the office with me there and the big book of Tax Code. the couple of years, i haven't needed their help but it is nice to know that they are there.

[JK]

Maybe you have the wrong CPA???

Mine worked to be proactive to save me from paying $3000 in taxes, and instead, I received a refund of $650.

GOOD CPA's are worth a dime for every penny you pay them. If yours isn't, find another one!

[Bronco]

This is a good example of why you should do your own taxes. No one else will put the care and diligence into doing it right.

[fivecentnickel.com]

Wow, sounds like paying someone else to do this for you really reduced your stress. ;)

This is why I do my own taxes. That way I can screw up for free...

[MITBeta @ Don't Feed The Alligators]

Well, you've at least inspired me to follow up with Vanguard to correct what I believe is also a mistake on a 1099R. I do my own taxes and have not filed yet (I'm getting a modest refund...), but this mistake is worth $1100 in taxes...