Tell Me What I Did Wrong on TurboTax!

I filed my taxes at the end of January but later received another W2. I have received my federal refund already and state is scheduled for this week according to the website. In any case, I went into TurboTax to amend my return, and it said I now was going to owe close to $4K. This is very alarming since that’s almost all of what I received, so I wonder if I am doing something wrong. Is this something you can assist me with?

The message above is real and a typical example of an increasing number of requests we are receiving. People want help with part of their tax return.  They see a number that looks funny on a particular line or don’t understand how to complete a particular section.  They want to come in for a consultation on that one item.

Our firm is ready to prepare complete tax returns, but our partners are not comfortable dealing with just a portion of a return or helping with a specific line item.  The tax laws are so complex! One line item effects another, and various deductions and credits phase in and out depending on factors recorded in a different part of the form.  We worry about missing some nuance if we gave advice on a portion of a return or reviewed someone else’s calculations.

Frustrated man trying to do his taxes at homeWe also worry about frustrating people who are confident that they’ve nailed their return, but just cannot figure out why they are getting an odd result when they enter one particular number.  When we look at their work, we are liable to uncover that the reason for the numbers they don’t expect is a mistake they made somewhere else.  Fixing the unexpected numbers could involve substantial work, significantly beyond the hour of consultation the person signed up for.

What are we supposed to do?  Not tell the client of our concern?  Explain that their costs to correct the issue are several times what they expected? Neither are good choices.

Besides, accountants tend to be control freaks.  We want to know everything,  just in case there’s a rarely encountered rule that would apply to your return. We are not good putting blinders on and answering Yes/No questions.

Tax FormWe do think that TurboTax and its competitors are good, credible ways for people with relatively simple returns to prepare their own taxes. Hiring a CPA to do your W2-income tax return would be like going to the emergency room for a scraped knee.  The ER doctors would do a great job, but there are excellent, more cost-effective solutions.

We also believe that most people who have asked for our help are bright, computer savvy people who sincerely believe that they just need a small bit of knowledge to complete their own return.

But, really! Our firm — and other accounting firms and tax preparation services — are not good choices for someone looking for help to prepare their own taxes.

What to Do?

TurboTax’s website says it offers tax advice to people using their software.  Other software vendors probably have similar services.  You can try them out.

On the other hand, if your taxes have grown in complexity to the point that you’re spending time researching and worrying about the forms, maybe you’d like us to prepare your taxes for you!

If we can help, please call us at 415.433.4500 or contact us via the web.

How Much Does It Cost…?

Tax Preparation Tools

Potential clients understandably want to know how much our services will cost them. However, most of the work we — or any accountant — does is charged according to the amount of time it takes to do the work. This means that there is no price list I can share with people considering our services.

Your cost will depend on how complex the work you need done is.  And, on how clear the information you give us is!

Tax Preparation ToolsTax preparation is a good example of how costs can vary, even for people in similar circumstances.

You may record all the income and expense information for the year in the tax organizer we give you. In that case, our professionals can efficiently enter the details into the software, and your preparation costs will be minimized.

Another client may be too busy to tally their expenses, charitable gifts, and various sources of miscellaneous income. Instead of filling out an organizer, this client hands over the proverbial shoe box of receipts for our team members to organize and sum up.

We’re happy to accommodate both types of clients.  But, the categorization and summing of the year’s income and expenses — as mundane as the tallying is — is going to take our team members some time to accomplish. This means the other client will pay more for us to prepare their taxes than you do.

Because of your organization and prep work, as partner Charles Sterck says, your fee for the mundane will go down.

You get to decide though.  Is your time worth paying for the mundane?  Let us know!

CPA’s Are Terrible at This

This time of year Certified Public Accountants and other tax preparers are frequently asked to help someone with their tax return.  The person says that they have completed the return themselves, and they just have a few questions — or maybe only one question — about how to handle some income, expense, deduction, or potential credit.

The fact is, CPAs are terrible at helping in this situation.

We do a lot of tax returns, have sophisticated software, and a lot of experience on a full range of tax issues. Our strength is in taking someone’s financial information and preparing a complete tax return.  But, we are lousy at looking at one component of the tax return and reviewing just that isolated slice of information.

Why? Because CPA are cautious, and we want to make sure that there isn’t a odd limitation or gotcha that could apply to the bit you’ve asked us to review.

The tax law is insanely complex, and a lot of deductions and rules depend on other factors of a person’s financial life.  The answer to even a seemingly simple, “Can I deduct the cost of the MBA classses I took for work?” depends on a lot of other parts of your return and professional life.

Asking for help for an isolated tax question
CPA's Prepare Taxes but Are Bad at Helping

When the question becomes more complex such as “How do I record the income I received from what I think is an investment when the company sent me a 10-99 for what they paid me?”, it can be impossible to even think of a reasonable number of questions to ask to understand the situation enough to give an intelligent answer.  A CPA will want to know all the details of the transaction, see all contract documents, and know where all the taxpayer’s income for the year came from.

In fact, CPAs almost always want to know the total financial situation of a tax payer before they pass judgment on a return or part of one.  There are so many arcane rules and special qualifications that we are afraid that we’ll endorse a wrong solution for your situation.  Or worse, we sometimes can give a correct response to what you want looked at, but there’s a huge problem in what you’ve done because of something we don’t know about.

Here’s an example.  Suppose you want a CPA to look over the Schedule C of your tax return to make sure the items are correctly classified as business expenses.  They are.  But, it turns out that this year you incorporated the business and the business needs to file its own return.  A CPA could say the Schedule C looks good, but if you filed it with your personal return you could wind up paying the IRS interest and penalties for underpaying your personal taxes.

CPAs we know all avoid checking a part of a tax return or answering an isolated question about which line is supposed to record this bit of income or that expense.  99% of the time, the tax laws are too weird to allow us to give a simple answer.

So, please ask us to prepare your return.  But, please don’t ask us if you used the correct calculation for Line 27!