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March 17, 2009


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So I tend to be quite tax savy and have no accounting training at all. In fact tons of people in my personal and professional life come to me with rather complicated tax questions.

My taxes include, W2 income, interest, dividends, capital gains, business installment sale income, and business income. It includes child care credit deductions, itemized deductions for interest, real estate tax, personal property tax, charitable contributions, and state tax.

This is not as complicated as some but its probably more complicated than many people have. This year I entered rental real estate investing and this takes the complexity up to a new level. I employed a CPA for the first time just to get a feel for how they would allocate everything since there is a lot of grey area around how to classify capital items that you can expense versus those you must depreciate and how to allocate the depreciation schedules. They expensed a few things I would have depreciated but it is nothing too different than I would have expected. I will probably keep using them for a few years and then see if I think they are still adding value.

Now all of this is not to try to say I think people should do it themselves. I realize that I am a bit unique in my strange facination and rather in depth knowledge of the IRS code. But I do have curiosity into what level of complexity other people have who use a CPA and find that it saves them 1000s of dollars. I literally cannot fathom what kind of mistake I could make that could result in that kind of a difference, especially given the tax software.

So the person who had the comment that started this post, I would like to know what complexities he had that Turbo Tax couldn't get right and cost him thousands of dollars. (By the way you have up to 3 years to file an amended return and fix your error and get the money back. If he used a CPA this year his CPA should definately be telling him to do that. If not, there is a problem there too.)

I have a spreadsheet that I built that takes that tax bracket values and then you enter in your numbers for about 15 different values and it calculates the taxes. It has been accurate to the dollar with the Turbo Tax numbers for the last few years I have ran it and it was also accurate to the dollar with what my CPA came up with this year.

I guess what I am getting at is maybe my taxes are simpler than I thought or than people who say they need a CPA to get them correct so for my own understanding of what level of complexity people find a CPA helpful I would love to hear the items that people have in their taxes for which they are glad they have a CPA to get it correct for them over using the software.


What makes taxes complicated? We do ours ourselves with Turbo Tax but always end up owing, sometimes a lot. Which is better than the alternative, but it would be nicer to come out closer. In fact, I'm almost 30 and have never gotten a refund.

This is why i took a tax class when i did my MBA.

I'd like to know what others have gained from a CPA too. I've heard many times that a CPA saved someone hundreds or thousands. No one can seem to tell me exactly HOW they did this or what deduction it was. I've always done my taxes with Turbo Tax so I tried a CPA one year just to check and make sure I wasn't missing out on anything. Came out exactly the same. CPA brought up the same "tips" we've all read a million times in magazines and websites claiming "new ways to save on taxes". It seems to me that you need to own your own business to get the more creative tax savings.

I hired a CPA last year.

He missed a $2000 very obvious credit and didn't provide any real value over what we could have done ourselves w/tax software or done w/my father-in-law's help (he volunteers for tax prep and has better software than taxcut etc)

This year I just went with Tax Cut. Once my business gets a bit more complicated I'll find a new CPA but am not going to to go back with the one I used last year.

One year, we tried to use a CPA, and I had to explain self-employed 401Ks in detail. There are probably good ones out there, but I also like to know how my taxes and investments fit together. To find someone who's willing to offer educated opinions on both to the point of helping to put together a useful strategy is hugely expensive, and hard to find.

Far too often, I find that tax people stay in their happy tax-filing silos, and investment types refuse to comment on taxes.

I think most people (around 90-95%) don't need an "outsider" preparing their taxes. But for some, these professionals are a necessity. My taxes are complicated by foreign earned income exclusion, investment property overseas, rental income in different states, living overseas but home-of-record in a state with no state income tax along with both a regular 401(k) and a ROTH 401(k), 529s, FSAs, HSAs, both ROTH and traditional IRAs, capital gains, etc, etc, TurboTax, TaxCut and such don't fully address the complexities. I'm in finance and my wife is a CPA but trust me when I say that when we tried to get all this together, it went from "we'll deal" to "oh @&%$" in a matter of hours. Our tax preparer was a god-send. It's not just the matter of saving taxes, but the peace of mind that goes with a good tax planner to ask all the questions.

I think these posts confirm my suspicion. ks99 describes a series of very complicated tax messes. I am not sure I would want to dig through all the rules around those issues and be sure I got the 100% correct the first time through either. But I expect he is not only in the 5-10% minority but more like the 1-3% minority.

I do think that many people are just so financially illiterate that they would have trouble doing the 1040EZ correctly but for people who understand finance, it seems rare to hear of instances like ks99 with enough complexity to demand a CPA. Peace of mind and not having to deal with the headache are certainly good reasons. But if you don't have crazy complicated situations and are even reasonably financially literate, I cannot see how a CPA can save you any money really.

I would still like to hear the story of the person who started this post to understand what a CPA found that he missed for 2 grand?

When I owned a business, the first year I went to H&R Block to do my taxes. We got about a $3000 refund, which was about $1000 more than normal, well worth the $200 to get them done. The next year we were referred to a CPA and he has made it so every year for the past three years we get everything we payed in back, which was between $5-6000. The great thing is, he only charges $150. He has lots of deductions that we didn't know about, and whenever there's a new tax law that applies to us, he tells us in advance so we can have the reciepts ready for him.

I've never used tax software, but I hear that H&R Block results are similar to software because they're too scared to deduct the maximum you can deduct.

We've cut our withholding as much as is legally possible, but we always get a nice refund thanks to our tax guy.

Hey FMF!

I found out from a local volunteering program that anyone can become a tax preparer if they pass the exam for it. So if you want to use a CPA with lots of experience, that's fine. But a real DIY option might be to become a tax preparer yourself and double check it with a CPA.

I've always been disappointed with Turbo Tax and certain treatments of my accounts within Quicken so I always prefer to do my own taxes.

I'm just putting that idea out there since there are a dearth of volunteers for this particular organization in DC. They could really use the help. :-)


I would like to second Apex in that I want to know the details of what was missed. I often hear people say "oh the CPA saved me $X by finding some deductions. I'd like to hear the details. Not only will it be educational for those of us who do our own taxes, and it may even convince us to use the accountant..., but I believe people for whom the accountant saved money need to understand what the deductions are just in case.

I've done my own tax return for years. Initially I did it by hand using a calculator, but when I sold my rental property, I had too many worksheets to do - for both federal and state - mainly because of income being to high, and because my calculator had a tendency to enter duplicate digits occasionally, I kept getting different results. So I used Turbo Tax to double check my numbers. I used Turbo Tax since then. If I am unclear of how Turbo Tax came up with some numbers, I double check the forms.

I have W2 income, interest, dividends, dividend reinvestment on some stock I sold this year, capital gains and losses, and K-1 for a stock in a limited partnership (MMP). The distributions from the latter is something I am going to double check Turbo Tax handling of. When I was renting out I had depreciation as well as schedule E. When I was renting out, I did my homework - I read IRS publications on residential rental property as well as referenced publications. This took time, but I only need to do it once. When I sold, there was some reading too. Giving that I have no business and most of my income comes from my employer, I am fairly confident I didn't miss any deductions. Most of things come from miscellaneous deduction, and there is no way I can have enough of those to get above the required percentage of income. Similarly, my income is too high for most credits. The only exception was the energy credit in 2007 for installing new windows, and Turbo Tax had that.

One thing to keep in mind is that when you do your own taxes - assuming you are thorough - you learn things that may be useful for you in future. This way you can plan your withholdings, expenses, sale of stock, or - if I ever get those - ISO. When people normally go to an accountant at the time of taxes, it may be a bit too late. Sure, the accountant can advise about what to do the following year - based on what he or she knows about you. However, unplanned for things can happen during the year, and you may just not realize that there are any tax implications and not even think there is anything to ask an accountant about. So it's always useful to have some understanding of the tax code, even if you use an accountant.

Seriously - find a good CPA. Software is like a car - it is only as good as the driver. Unless you've taken about 40 or more hours of highly specialized tax classes each year for several years AFTER passing the CPA exam, you have no idea whether you are overpaying or not. You pay a CPA for judgement and expertise that a non-CPA just doesn't possess - unless they have the same training and experience as a good CPA.

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