Steve for Evergreen Small Business writes: I had a couple of people challenge me this tax season on our pricing. One guy called on the telephone asking if we’re actually serious that our minimum price equals $500. (We are.)
Another person, after getting a quote from me of over a thousand
dollars, just shook his head and said he couldn’t understand why a tax
return didn’t cost something more along the lines of $150.
I’ve pondered all this off and on over the weeks since these
comments. And the more I ponder, the more these two taxpayers seem
right. Somebody absolutely should be able to get a great tax return
prepared for a decent price. A price far less than what firms like ours
charge.
After brainstorming about this quite a bit, therefore, I’ve got three
tips for people who want a high quality tax return prepared for less
than $100.
You can, I truly believe, get such a tax return if you follow three simple tips…
Tip #1: Simplify Your Finances
Most of the cost of preparing a tax return flows either directly or indirectly from the complexity of the taxpayer’s finances. Accordingly, your first step to reduce tax return preparation costs
is simplification. You want to strip all the complicated stuff from your
return.
For example, you must eliminate any foreign investments. These easily
produce complexities related to foreign tax credits. And these foreign
investments may (if your account balances grow) trigger requirements for
massive amounts of complicated, risky disclosures. Yikes.
Similarly, you should avoid any investments that mean you need to
allocate your income among multiple states. For example, don’t invest in
out of state real estate. And, for goodness sake, don’t become a
co-owner in an S corporation or partnership that operates across state
lines.
Filing tax returns in multiple jurisdictions represents a sure way to
jack the costs of return preparation. You don’t get to go international
or multistate and keep your costs low. No way.
But filing a stack of tax returns isn’t the only way that people
complicate their tax returns and then jack up the expense of
preparation. Becoming an active investor who owns or operates sideline
businesses or investments (including rental properties) jacks the
complexity and costs of a return. So does trading shares of stock and
mutual funds.
You also want to avoid all these complications. Seriously.
If you keep your income sources simple and straight forward enough
that they can be reported on a W-2 or on a 1099 statement from a mutual
fund company like Vanguard or Fidelity, you make your tax return a walk
in the park. And easy means cheap.
Note: If you want to trade mutual funds or stocks
and you do so inside of a retirement account, you won’t create
complexity for your tax return. I am not saying, by the way, that it’s a
good idea to actively invest and attempt to trade stocks. In my
opinion, you ought to use a passive approach based on a handful of
low-cost index funds. I’m just saying if you are going to, for example,
day trade; don’t create a situation where you need to report this
activity on your tax return if you’re interested in keeping your tax
return preparation costs low.
Tip #2: Do Out-of-tax-season Tax Planning
Okay, so here’s another tip: I think if you’re trying to save costs that you may as well do your own tax planning.
Good tax planning gets too expensive–especially if you’re dealing with complicated tax returns.
But if you simplify your situation, you can pretty easily do your own
planning. And here’s how I’d go about that: Sometime mid-year, get one
of the popular tax preparation guides and read through it.
You can skim the parts that deal with the complicated stuff you’re dropping out of. But do closely read all the other stuff.
I bet you can do your skimming and reading in less than a couple of hours. For sure less than four hours.
The big tax planning gambits available to regular folk, for example,
revolve around retirement account choices like Individual Retirement
Accounts and 401(k) options and around tax credits and deductions for
education and children. So really dig into these topics.
A caution: You’re not with a do-it-yourself approach trying to
identify some complicated strategy that might work or some gambit that’s
safe but requires a bunch of accounting. Rather, you simply want to
make sure you aren’t missing some big tax savings gambit that’ll save
you several hundred or several thousand dollars a year.
By the way, I have a couple of short tax planning ebooks for small
business owners and real estate investors. But if you’re really trying
to grind down your tax return preparation costs, you probably won’t have
a business or real estate. (That makes sense, right? You’re looking
for ways to keep your stuff really simple.) So I’m not thinking that
super-cost-conscious people buy and read those titles.
I’m suggesting something more along the lines of the J.K. Lasser or
the Ernst & Young tax guide. You can purchase these books and pay
around $20 (including shipping and sales tax.)
Tip #3: Use TurboTax or TaxCut
Here’s my last tip… Don’t go to some paid preparer for a return. Do it yourself.
In other words, go out and buy a copy of a TurboTax or H&R Block Tax Cut.
For $30 to $50, you’ll be able to download good software you can use
to easily do a simplified tax return. I bet the process will only take
an hour or two. Even if you’re not really a computer person.
Yes, you’ll have to deal with Schedule A’s itemized deductions stuff
on your own. But if you’ve kept your finances simple in all other ways,
the itemized deductions stuff will be easy.
Let me point out here that if you have simplified your finances to
the point where you can do your own planning using a $20-ish book like
J.K. Lasser’s annual tax guide and to the point where you can do your
own preparation using $40 software like TurboTax, you should easily be
able to spend less than $100. Even after accounting for any other
nickel-and-dime items like paper, postage and paperclips.
Furthermore, you may not have much more than half a Saturday’s work.
A practical how-to blog for Washington small businesses by a Seattle CPA, Stephen L Nelson, click here to visit his firm.
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