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.

Don’t Be [a] Delinquent

Shady businessman
Don’t be a delinquent like this shady guy!

Thursday is the deadline to file 2014 personal income taxes. The almost-automatic extension of the April 15th due date to October 15th is up!

Our firm is still getting calls from people wanting to know if we can do their returns for them. We are happy to talk with potential new clients and see if we can do a quick turn-around… but, really!

We, like most CPA’s, want to be comfortable that we genuinely know the client’s financial situation so that we can prepare an accurate return that results in the lowest legal tax bill.  We want to be able to look over the financial information, think, and ask questions that might uncover a deduction or better approach.  Preparing your taxes is more than just taking the information you have and retyping it into our computer screens.

It’s unlikely during a busy deadline week that any CPA can meet a potential client with a complex financial situation, review the materials, and prepare a return. Still, you have to file a return or you’ll be “delinquent”, and may be assessed significant penalties and interest.

Don’t panic! What you have to do is simple:

  1. File the best possible return you can yourself.  You’ll probably save time and angst if you use a personal computer tax program like TurboTax or a program from H&R Block.  (We don’t have a favorite or recommend an specific program.)  If you have a complex return like most of our clients, you may find yourself making estimates or best guesses at what you’re supposed to do.  Try as best as you can and make notes about the questions you had so you can go over the problem areas with a CPA later.
  2. Pay what you owe!  Niceties aside, the income tax system is meant to deliver money to the government, and that cash is really what the IRS and state care about.  For this last-minute return, don’t make aggressive decisions about deductions or other rule interpretations, You could be penalized and charged interest if the IRS decides that your optimistic assumptions don’t fly.
  3. Make an appointment NOW to see a tax professional next week to file an amended, 100% complete return.  If you made a mistake in filling out the forms and you underpaid, filing an amended return quickly will minimize penalties and interest you’ll owe.  If you overpaid, you’ll get your money back sooner.

Point 4, of course, is swear you won’t wait so long next year!  Pulling together information for your tax return can give you insight into your overall financial situation.  If you bring your financial data to a CPA when it’s not a deadline crunch moment, you can also have a conversation that may lead you to take tax-smart steps for the future.