Tuesday, December 30, 2014

Generally file my own taxes, should I opt for a CPA next year?

Posted on 10:01 AM by L.A. Smith
Over at Reddit we came across the following discussion: Generally file my own taxes, should I opt for a CPA next year?

Generally file my own taxes, should I opt for a CPA next year? (self.personalfinance)
submitted  by am17
I'm in my mid 20's and have always filed my own tax return through tax software. I recently purchased a solar PV system and paid several large medical bills (about 20% of my annual income). I'm trying to make the most of the credits I'll have available but am unsure of whether or not this is something that can easily be accomplished through any available software. If not, where should I begin looking for a tax professional to guide me through the return?
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[–]fergusop 15 points  
CPA here. I generally agree that your situation does not require the use of a CPA, BUT that is not to say that your tax return will not require a significant amount of time for you to competently complete it. If you are going to do it yourself you need to understand what the numbers should be in order to determine if the tax program that you use is calculating things correctly. Ignorance is not an excuse if the IRS comes knocking.
I regularly encounter people who make large errors by preparing returns themselves which would not have been made by a competent professional. If you are going to take it upon yourself to do your taxes, you need to educate yourself and make sure that things are done correctly.
There is a surprising amount of CPA bashing in this thread and, frankly, I'm sure that some of it is warranted. There are tax professionals who are not very good at what they do, just like there are bad financial advisors out there. People on this sub are the type that would do tax returns themselves and likely do a fine job. But most people who have any type of complexity and are not financially savvy would do a very poor job.
Heed the advise contained in this thread at your own risk. Tax oriented CPA's exist for a reason, because our services are important and worth the money. We aren't 'pulling a fast one' on individuals who are coming to us and suggesting that is ridiculous. I have a masters degree and many years of experience. I have yet to meet with a person who I could not give good tax-saving advice to.
[–]finn_und_jake 50 points  
I may be the current lone individual on this, but I would say no. The tax software is actually pretty good about going through items such as you have mentioned.
Your situation is not very complicated (i.e. a small business, lots of rental properties, capital gains, etc.), so there really shouldn't be a whole lot of information you need to compile. Essentially, either you qualify for those deductions or not, there's not a whole lot to calculate or determine.
[–]S30 17 points  
I recently had a little tax snafu and so I thought it was a good idea to hire a CPA. I did my research and found a very well reviewed guy. I go to the appointment and he literally turned to google to answer all of my questions and not surprisingly he found the same answers I did (took him longer even). Not sure what I was expecting, but is that really all a CPA does?
[–]DreadPiratesRobert 40 points  
To be fair, nobody can know the entire tax code. It's similar to how people in IT will Google a problem, or doctors even. I'm an EMT and I will Google an illness I don't know about.
Sure you can get the same Google results, but they are more trained to interpret it.
[–]redwhiteblackandblue 20 points  
Not a competent one.
[–]patssle 5 points  
Even those examples you list can be easily handled by Turbo Tax (and other tax software I'm sure too). I use TT for my side business - you input revenue, expenses, write-offs, and mileage which is pretty straight forward. Capital gains/dividends for investments can be automatically imported direct from the financial institution. TT makes many tax situations very easy.
[–]ctcpa 11 points  
You can use it, but I've had clients with side businesses and rental properties who claimed many expenses not allowed or expensed leasehold improvements that needed to be depreciated (and subsequently subjected to an IRS audit.)
Tax preparation is a lot more than throwing numbers into a form. It's understanding the tax code and how to handle various situations. That's not to say most folks can't attempt to understand it, but it's also a reason many prefer hiring someone as you're paying for their expertise.
Also when you get an IRS notice for a delinquent taxes, the defense of "I relied on the tax software" is not an acceptable defense (it's been used several times, all unsuccessfully).
What you're paying for with a tax professional is their years of experience, their knowledge of the tax code, and for CPA's, at least 40 CPE hours annually many of which will be in tax (for tax professionals) to stay up to date on all current events (many go way above this). Plus they will have a plethora of tax references.
TurboTax can work well for many people and for those with very simple returns I usually recommend it. If you're starting the question certain deductions or how things should be classified or you think you can just "expense everything", those are where people start running into problems down the road.
[–]patssle 3 points  
Absolutely. One has to understand which numbers they can be claiming and inputting into the program. If it's too much to understand it really is best to just go to a CPA as any potential IRS issues aren't worth it.
[–]TruePotential 2 points  
Depreciation is not a hard subject to learn. I have a rental business and can easily depreciate all my assets in an excel file. It does require some reading about beforehand though. You can spend a few hours learning how to do it or several hundred dollars paying someone do it for you. As a landlord, every dollar counts, hence why I do it myself.
[–]Sarudin 2 points  
Depreciation is not a hard subject to learn.
The basics of depreciation are not hard to learn but you might find the following questions more difficult.
Tell me about the limits and on vehicle depreciation and the luxury auto rules.
Tell me about the differences between section 1245 and section 1250 depreciation recapture. What is depreciation recapture for that matter?
What assets quality for section 179 expense?
What assets quality for bonus deprecation?
How should you allocate section 179 and bonus expense to maximize depreciation in the current year?
As a landlord, every dollar counts, hence why I do it myself.
If you have unlimited time this is probably true. I would question your ability to prepare the return as well as someone who spends all of their time doing it. You wouldn't expect a CPA to jump into managing rentals and do it perfectly would you? They might squeeze by but they are not going to do it as well as you.
[–]TheDingoAte 2 points  
It's crazy to downvote this. TT is fine, but these questions are exactly why some people need a professional.
[–]TruePotential 0 points  
Everything you mentioned can be found in a single book called "Every Landlord's Tax Deduction Guide". No offense, but every landlord should be reading this book unless you don't care about your money. Even if you still hire a CPA to prepare your returns, understanding how you get taxed as a landlord is useful and can save you money.
As for deprecation itself. It's not a hard subject to learn, you are making more complicated than it is. You can use a single type of deprecation method for all your assets if you want. You will just have to look up the depreciation period for that asset (google search).
[–]ctcpa 1 point  
Neither is cooking, personal finance, drafting your own will/estate plan, gardening, and being your own mechanic. It still doesn't mean that everyone wishes to be an "expert" and "do reading" on everything so they have no reliance on anyone else.
Like everything, it depends on how much you value your time and how much "expertise" you want. A jack of all trades is often a master of none.
[–]kbtrpm 1 point  
Tax software can handle complex cases too, but, as you say, it all depends on whether you understand the rules. Correctly interpreting tax code is not always easy. When in doubt, you can ask the IRS directly or ask your software vendor by email.
[–]ctcpa 1 point  
The software vendor usually doesn't provide that assistance directly, but they often do provide communities to ask questions. Some also provide added services such as getting it reviewed by a professional, etc. But the biggest challenge is knowing when to ask the questions or what questions to ask.
[–]TheDingoAte 2 points  
I just want to add that while a CPA is a good choice, there is another credential to look for. My wife is an EA (enrolled agent). That's basically someone who is certified to know the ins and outs of the tax code by the IRS. She runs a tax business and has for about 20 years. As far as I understand CPAs have a broader base of education that includes other accounting needs. EAs are specialized to taxes.
Every year new people come in that used the tax software and had problems. It just isn't as easy as plopping in numbers for everyone. She tells people upfront (and for free) whether they need her services or whether the tax software would suffice. After all these years I still don't know what the criteria is. Point is, she's an EA and she's pro-software but only up to a certain point. After that she explains exactly why one would pay for a professional vs. the software.
Find someone that does that.
[–]The1hangingchad 18 points  
Ever since I had my first "real" job, I did my own takes. One year my wife left the corporate world and became a consultant. I was a little apprehensive about the taxes so we went to a pro. $550 and an hour later, I realized all she did was plug my numbers into a program like TurboTax just not as user friendly. The next year I went and did them on my own again and have ever since.
Even if I really do inherit $2,500,000 from a long lost second cousin in Nigeria, I'd still do them on my own.
[–]bigupurself7 11 points  
I had a first cousin that died in Nigeria and also left me money. Could we be related?
[–]hurtsinsideCanada 5 points  
Could be! Send me your credit card information and I will look into it!
[–]The1hangingchad 4 points  
Maybe. Was your cousin royalty? Mine is a prince.
[–]bigupurself7 4 points  
Mine was just a Count
[–]Sarudin 1 point  
It sucks that you paid $550 to have what sounds like a simple return prepared but when you have a complex situation an accountant will save you more than you spend.
I had a client bring in a prior return prepared by another CPA this month and noticed that they coded their schedule C to the husband instead of the wife and this caused them to incorrectly pay $650 more in self employment tax (subject to the 15.3 instead of the 2.9%). Keep in mid that this was a mistake that another CPA made. If professionals are making mistakes how can people who have no training think they can do it better? Little stuff like this can add up when you are working with big numbers.
[–]TruePotential 18 points  
Those two items are very easy to find in your tax software. The solar panels will be found in energy credits and the medical bills will be found in medical expenses.
There is no magic to hiring a CPA. He will not save you more money if you already know how to do your taxes. A CPA will basically just hire an intern to input all this information into TurboTax and he will review it. These two items you are entering will take an additional 5 minutes tops or cost you $100 several hundred if you go with a CPA.
[–]Answerstaxquestions 15 points  
cost you $100 if you go with a CPA
I agree with your comment, if OP could handle it before he can probably handle it now. But try starting at $300 - $400 for a competent CPA.
[–]Mehnard 6 points  
15 years ago I used to use a CPA to file my taxes. I was paying $300 to $350 then. I stopped when I noticed small mistakes. Since I've been using a top rated tax prep software program and have been more than satisfied.
[–]TruePotential 2 points  
Even for a simple single person filing? I haven't hired a CPA in about 8 years. I use to pay around $100. He was decent. I can't believe it costs that much now.
[–]flakdozer 5 points  
My CPA charged $540 last year and thats on the low end for my area and I don't live somewhere that expensive. She does however save me the nightmare of trudging through things myself since it far exceeds the scope of simple personal finance.
[–]rplrpl 1 point  
A lot of the work in filing my taxes has always been involved with gathering all of the information required, which I would have to do anyway to hand to a CPA. Turbotax helps with what information to gather, and does the math for me. It also puts the right info on the right forms. If I were a business owner and had a very complicated tax return, i might justify paying a CPA to optimize. As it is, Turbotax seems the better choice.
[–]flakdozer 1 point  
If I was only filing taxes for straight shot personal income, I'd probably be doing the same thing. No reason to get a CPA if you dont need one, thats for sure.
[–]quasifun 1 point  
The last time I shopped for someone to do my taxes, ~ 12 years ago, they charged $100 per form. 1040, Sched A,B,D was $400. I ended up doing it myself with pen and paper.
[–]TruePotential 1 point  
Ouch. I guess I got a really shitty guy. Either way I do them myself now and use tax software.
[–]Answerstaxquestions 1 point  
In my experience most CPAs start at $300-$400 for individual returns. The larger point being that if your taxes are as simple as you describe then you'd be better off buying TurboTax for $50 and knocking it out yourself. Remember you're buying time and experience. If you want to pay my rate for something really simple, so be it. If you're only paying $100 then you really shouldn't expect more than a typist.
[–]StickyRiceLover 1 point  
More, actually. I'm a first year staff at a tax firm and my billable rate is $155 an hour. Not to mention managers and partners to review my work. And I'm not a CPA yet (working on it).
[–]ctcpa 6 points  
One thing you'll eventually learn about is "realization". You can charge $10K to a charge code at your $155/hour rate, but they may not be able to charge all of that time. And first-year associates usually have a lower realization rate than others.
[–]shingdao 3 points  
$100?? Have you ever used the services of a CPA? You'll spend well over $100 at mass market tax preparers like Block. A CPA will run you min $400 for a basic return.
[–]AGuyAndHisCat 12 points  
The reasons I prefer my CPA:
  1. I see the $ he charges as an investment, if Im ever audited he deals with it.
  2. My taxes are scanned and retained by him, while i have a paper copy.
  3. When needed, I can call his office to have them emailed to me (came in handy when submitting for my recent mortgage).
  4. He knows what and what will not trigger an audit, so when i argue with my business partner that we shouldnt claim the home office, he's can set the record straight.
  5. He handles our business and personal returns, so both partners dont get a surprise due to miscommunication.
  6. He knows what expenses can fall into more than 1 category and figure out what works best for us.
  7. I DONT HAVE TO DO IT
[–]colindean 5 points  
Same here. The ~$250 I pay my tax accountant is effectively for insurance and a Sherpa on Mt. Taxerest.
[–]shingdao 4 points  
I see the $ he charges as an investment, if Im ever audited he deals with it.
He may indeed 'help' you navigate an audit but if your signature is on the return you are the one responsible as far as the IRS is concerned.
He knows what and what will not trigger an audit, so when i argue with my business partner that we shouldnt claim the home office, he's can set the record straight.
Nobody really knows this except for the IRS...there are red flags of course but your implication that taking the home office deduction will trigger an IRS audit isn't justified. You have to be reasonable and smart about the deduction.
Source: Small business owner who's been taking the HO deduction for over 10 years now and have not yet been audited.
[–]AGuyAndHisCat 2 points  
He may indeed 'help' you navigate an audit but if your signature is on the return you are the one responsible as far as the IRS is concerned.
My understanding is that since he signs as filer, he is responsible unless I gave him bad information. If not required to, then i know at least in our relationship he will be the one talking to the IRS on my behalf.
Nobody really knows this except for the IRS...there are red flags of course but your implication that taking the home office deduction will trigger an IRS audit isn't justified. You have to be reasonable and smart about the deduction.
My understanding was that HO's are a quick way to be audited, both by general internet knowledge, my CPA, and a family member who worked for the IRS.
[–]shingdao 3 points  
My understanding is that since he signs as filer, he is responsible unless I gave him bad information. If not required to, then i know at least in our relationship he will be the one talking to the IRS on my behalf.
Your CPA is the tax return preparer, you are the filer. Your CPA can represent you in the event of an audit as long as they prepared your return, however, and this is directly from the IRS's webpage,: No matter who prepares your tax return, you, the taxpayer, are ultimately responsible for all of the information on your tax return.
My understanding was that HO's are a quick way to be audited, both by general internet knowledge, my CPA, and a family member who worked for the IRS.
I think this is largely exaggerated and is just not in line with my experience. If you indeed have a HO and legitimate HO expenses, I don't understand why your tax professional would advise you not to take the deduction despite any real or imagined audit threat. Don't you hire a CPA in part to help you minimize your tax liability? Your CPA may be in breach of his fidiciary duty in this respect. FYI, the IRS introduced a new Simplified Option for HO deductions in 2013. I encourage you to check it out.
[–]ohmyashleyy 1 point  
I always print to pdf a copy of my tax return from turbo tax and save it in google docs. It was actually faster for my to pull up my tax returns than for my husband to reach out to his CPA when we bought a place.
We're married now and he's pretty insistent we continue to use his guy. I'll allow it this year since it's our first time filing jointly and with the house, but I'd rather just do it myself than take the time to drive 40 minutes for the guy to do the same thing I'm doing.
[–]UmbrellaCo 4 points  
I'd be wary of keeping my tax returns on Google Docs. If your Google account isn't properly secured there goes a lot of information. At the very least you should encrypt your tax documents and have two factor authentication on the Google account.
[–]blindShame 11 points  
I used to work at a large accounting firm (Big Four). They pooled their purchasing power at year-end in order to get a volume purchase on TurboTax for their own personal taxes. Additionally, all of the individual client tax returns (the firm was mostly business-oriented so individual returns were a smaller percentage) were done with TurboTax as well.
That said, there is value in a CPA if you have a complex return. But this is mostly tax planning (i.e. - optimizing your taxes over 20 years). So I would say that, unless you are 1 percent, then a CPA won't do you any good. Any good software will accommodate energy tax credits.
[–]ITLady 1 point  
What would you define as a complex return? My husband and I got married last year and did our 2013 taxes jointly. However, we make literally within a few thousand dollars of one another and we're pretty sure we're being bumped into a higher tax bracket. As for other complexities, we just own a home, have student loans (that don't even help us tax wise now -_-), have some charitable donations and HSA accounts. No capital gains or anything else funky.
Would a CPA be better to help us figure out if we should switch to married filing separately vs jointly or can we do that with turbo tax as well?
[–]Sydopolis 10 points  
I'm a CPA who worked in taxes and that is not a complex structure you've laid out. I tell everyone I know to use Turbo Tax. I use it myself! CPAs are great for high income, complex investments, tax planning, etc. just never go to an HR Block. The people who work there are not even accountants!
Also- married filing separately is almost never a good idea. A MFJ couple's limits usually double or more. So the standard deduction for MFJ will be better than two single people. This works with all the other deductions you want to take as well. MFS shouldn't really be thought of as a tax strategy. Think about all the gay marriages activists fighting for that distinction. They want it for a reason!
[–]kbtrpm -1 points  
MFJ is usually not a good idea if you only consider federal taxes. For us, state taxes changed everything. You should always check both.
[–]ITLady -1 points  
Hmm, I'll probably play around with turbo tax then and try MFS and MFJ. With our incomes being so close this article indicates we might be one of the few situations that it'd help. Thanks!
[–]kotoku 3 points  
Are you itemizing? If not it wont help really. The situation is just to beat out AGI requirements for deductible items.
[–]ITLady 1 point  
Yes, we currently itemize as we have deductions for our home, student loans, and a decent chunk of charitable giving. Though, we're really close to a lot of them being phased out or gone entirely due to our income going up. :/
[–]pumpkin123 4 points  
A CPA or EA can help you with those questions fairly easily. One thing you can do is just have someone review your return every couple of years or when something changes. After April most offices switch to tax planning appointments.
[–]WalpigrsNM 4 points  
What would you define as a complex return?
I work for a very small family consortium with only 3 owners that generates 10 million in revenue that's passed through half a dozen different LLCs, some with payroll, some without, and taxes involves those companies, half a dozen different trusts, and 3 different personal returns. The owners also do a large amount of personal investing with real estate, art, and donate nearly 7 figures. My boss and I are the only accountants on staff all year so while we pull all the ledgers, balance sheets, and P&Ls for everything, we contract a tax attorney firm to not only to make the final filing (and take legal responsibility for any errors) but devise an efficient tax strategy for our mess.
I personally file my own state and federal taxes and help 3 other people every year without any tax software. Even with one of those being a complicated self employed home business involving inventory, it's seriously no sweat.
My dad and stepmom have stupidly lucrative careers as consultants with a ton of business expenses. And all he's ever used is Turbo Tax.
As for married filing separately I can think of just one situation that may be in your favor and that is only if youDO NOT live in a community property state, both of your work, and there's a favorable disparity in incomes between you two. Ask /r/tax for more info.
TL;DR: Unless your taxes involve some serious estate planing, reputable tax software should do you fine. Married Filing Separately is rarely the way to go.
[–]ITLady 1 point  
Ah, we're in Texas so that definitely answers that question. It won't help us any if the itemizations get divided evenly.
Thanks!
[–]WalpigrsNM 2 points  
Not just the itemizations but the income as well will be divided evenly.
[–]ninjacereal 1 point  
Tax brackets are marginal and the buckets basically doublr for MFJ vs. Single. Regardless, understand you want to be in the highest tax bracket always.
[–]-4d3d3d3- 6 points  
The worst part about the PV credit is that you may have some of the credit carry forward to next year or so, you'll need to keep records from one year to the next. Depending on the cost of your system and your income deductions it's pretty straightforward. I purchased a PV system a couple of years ago and TurboTax deluxe got it right. But it all comes down to how comfortable you feel using it/doing your own taxes.
[–]cranekickfalconpunch 3 points  
This is correct. I did a water heater that qualified a few years back and then had some other work and I didn't qualify because of the carry forward. Well, I did but it was for less than I expected.
The wildcard is the medical bills, but again, TurboTax should have all of this in there. Actually the wildcard is how knowledgeable you are about taxes in general and what's deductible and what isn't. I also find CPA's are generally much more aggressive with deduction strategy. I had an issue about 5 years ago where I had filed a return and got a refund early, but then had corrected tax packages come from my investment group. I refiled, before April 15th and paid the difference. Well, it started getting messy with back and forths and I had a CPA here write what I was saying under letterhead and the issue just went away. I'm not saying the IRS is going to argue less with a CPA but that definitely seemed to be the case here.
One last thing, a lot of tax professionals are former IRS employees so they know what's up.
[–]hopedcarrot 4 points  
The value a CPA would bring you is building a relationship so he knows your personal financial status and goals and helps you work towards that from a tax stand point. Also if you have some question while filing by yourself you can call and ask, if you had a good relationship. I work in a CPA firm and have done taxes from individuals to massive private equity firms. If you think you can do them yourself go for it. My firm actually turns down individual tax returns if they're too simple and we tell them to do it themselves on TT
[–]kevstev 2 points  
Here is a data point for you- A few years ago my wife and I used turbo tax and it said we owed about $5500 with us owing about $9000 to the feds, and getting a $4500 refund from the state. This seemed not right to me, so I finally decided to a "tax off" and we asked around for recommendations and were referred to an accountant.
$500 and an hour of our time later, in which I just gave him the same numbers I plugged into turbo tax, the end results were within $50 of each other.
I am a bit more complicated than most as I do have rental properties, but I have also over time read up on tax issues and understand what I can and cannot do.
So after that experience, I have continued to use Turbo Tax.
[–]barnopss 2 points  
Stick with software, I prefer Taxact to turbotax
[–]kbtrpm 2 points  
So do I. It's a lot cheaper. It may be a bit less user-friendly but does the same thing.
[–]kingofbigmac 2 points  
Just do it yourself with Turbo Tax or the like. I went to a friend of a friend that is a CPA and his friend fee was $60. I watched him put all my numbers into a tax software that is years old. I can't remember the name. I did get my money and $60 went to the CPA. I did my taxes on my own the next year and it was the same amount and I got to keep the $60.
[–]shingdao 2 points  
There should be no need for a CPA for the transactions mentioned in your post as these are typically adequately accounted for in the majority of tax software programs or you could use a tax preparer such as HR Block, et. al. If you own a business or have rental properties then you could make a case for justifying the services (and expense) of a CPA.
[–]Whitwashere 2 points  
You should use your CPA for tax planning, not just filing your return. There is only so much that can be done after the tax year closes. The size of your return means nothing about the quality of your CPA, especially if you are just using them to file your returns.
My advice would be to find a small firm or sole practitioner (where you can more personalized service) and meet with at least once outside of tax season to make sure you're making all the right moves during the year. That's where you will see the real value of a CPA.
[–]jake_barnes 1 point  
Yes. A good cpa will save you more than you pay him.
[–]cg037 2 points  
He's got energy credits and medical expenses. He probably won't need to take the itemized deduction for medical expenses in excess of 7.5% of his AGI because taking the standard deduction will be more than his itemized anyway.
A CPA wouldn't even do his taxes, an associate or an intern would. And he'd pay $350-400 for that associate to input his info into a program that is probably slightly more professional and less user-friendly than TurboTax.
This answer is wrong OP, don't pay attention to it. You're not saving any money hiring a CPA. Turbo Tax handles your situation frequently and efficiently.
Source: Accountant who worked at a CPA firm and knows from the inside that a CPA won't be doing your taxes. An associate just out of college with 1 tax class under his belt will. And he might make a few mistakes anyway.
[–]Reweez 1 point  
He probably won't need to take the itemized deduction for medical expenses in excess of 7.5% of his AGI
its 10% now fyi
[–]mzackler 1 point  
Age dependent. If you or your spouse are over the age of 65 you are good to go.
[–]Reweez 1 point  
this is true i typically dont think about those over 65 in reddit discussions =)
[–]cg037 1 point  
True, someone just pointed this out to me.. but not if he's over 65.
[–]Mybabyciv 2 points  
So true! I'm a small biz and only pay $300 to cpa and I pay state/fed minimums, so about $5-600 for everything. I would pay waaay more than that to the gment otherwise.
[–]girl_of_bat 3 points  
A CPA isn't your only option. You can also choose an Enrolled Agent.
The way I like to explain it is CPAs are accounting experts that sometimes do taxes and Enrolled Agents are tax experts that sometimes do accounting.
But yes, you will usually have the best results with a professional.
[–]Answerstaxquestions 7 points  
Your totally trying to be helpful, I get that. And you're right, an enrolled agent would probably be cheaper for OP while also getting the job done.
Remember though that a good tax CPA also does taxes exclusively. So the more correct analogy is that an EA is like a nurse and a CPA is like a doctor. Don't pay the doctors rate if you have the sniffles and don't get a nurse to do your surgery. Know the level of service you need.
[–]Cammywhiteface 2 points  
I dont think Thats an apt analogy at all. Most of the EAs I know sometimes do taxes as well. They work (very hard I might add) from mid jan to mid April. Then have other jobs in the off season generally un related to taxes. CPAs generally do the same but their other job is accounting auditing advisory etc.
[–]Pitt87 2 points  
Those items on their own are not all that complex. The reason you need a CPA is for a more comprehensive filing for your expenses. You might end up paying $250 for money you would have gotten back anyway.
Try one of the online/software tax preps first. Most of them don't make you pay to prepare, just to file.
[–]FreshDougy 1 point  
I've always done my own taxes. TurboTax is easy to use and has never done me wrong. However, after owning my rental properties for a couple of years, I had a CPA do them for me to see if I would get a different result. Seems I had been doing a pretty good job.
I don't think it is a bad idea to consult a professional when you have a bunch of moving targets.
[–]FORGIVEN-DEBT 1 point  
I used a CPA for many years when we owned a house and had a lot of deductions but now that our taxes are much simpler, I very happily used Turbo Tax last year. This year, we settled credit card debt for less than the full amount owed and will receive a 1099-C. I believe that we will qualify to exclude this as income and have to do IRS form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). Does anyone know if TT does a good job with this? Everything else in our taxes will be simple.
[–]TheFakeTomTelesco 1 point  
Might need a little more of a picture here - have you traded any stock, etc.? Are you married? Are you a student and/or passing down a house? My wife and I compared our returns one year between TurboTax and going through a tax guy at H and R Blockhead. The tax guy found us more than enough in writeoffs and tax credits to pay for himself and then some. We ended up with more than a grand than we thought we would. I'm never going back, but then again, my return is never going to be all that simple again. If you have a complicated form - multiple incomes, stock, school, mortgage, I would definitely recommend seeing someone.
[–]KnodiChunks 1 point  
I thought hiring a CPA is something I should just do once. I tried it in the year when I had a baby, cashed out some stock options, and built a home office. He didn't save me any more than turbotax. I'll just stick with the software from now on.
[–]CanIBeRobot 1 point  
A good CPA will find deductions you would never even think of. I used to be a consultant who was 1099ed. I used turbo tax to do my taxes and it said I owed over five grand. A friend of mine suggested I talk to his CPA. The CPA said he would only charge me if he could actually save me money. I went from owing over 5k to just under 1k. With his advice, the next year I actually got a return.
[–]BoBoZoBo 1 point  
If you are focused on the billed cost of a CPA. you are doing it wrong. I use to do it on my own and got a good CPA, never looked back. Sure, my CPA may cost me something where a piece of software may not, but in the long-run he saves me tones of money. The ability to have a real person who understands the intricacies of the ridiculously complex tax code as well as financial planning cannot be underestimated. He also helps me avoid taking credits I think I can take, but really should not be. I would say, find a good one for a decent price and try them out for a year. Stay away from the data entry "Tax Preppers" and find a real CPA who understands personal finances, especially if you have a lot of deductions, like medical. My guy charges my wife and I only $400, more than worth it.
[–]CircularJerkuler 2 points  
Hello, NYS CPA here!
This question is all about weighing the cost/benefit of paying for a CPA. There can be a specific dollar value if you don't feel confident you are getting the most out of your deductions (Especially the Solar PV Credit). If you think you should be getting 30%, but it's only showing up 10%, that difference alone might pay for the CPA.
The Cost/Benefit really comes down to: $ Cost of a CPA = ($ Saved in taxes + $ Time Saved in Self Prep) X % Peace of Mind (Usually 1.2-1.5)
Assume a CPA charges $250 per schedule on your return (1040, A, C, E. The more complicated your return, the time it takes, and the more it costs. The better your documentation and recordkeeping, the less time it takes)
I recommend a small CPA over any H&R Block or Tax Preparer. There is a huge difference. Tax preparers only speak the language of taxes. CPAs speak the language of money.
The bottom line, if you feel comfortable, you probably are. If you are sure you are losing money, a CPA will only help.
[–]Infection 1 point  
Sorry to hijack your thread with a question for the others (instead of creating a new thread for a similar question). I moved to the US a few months ago, got married, but I still can't find a full-time job here. However, I'm still working remotely for a company in my home country full time and I'm being taxed in my home country. Should I hire a CPA to figure whether I should declare this income, so I don't get taxed twice?
[–]quickhelponUStax 1 point  
This is one of the few times i would not recommend turbo tax so please find a tax preparer that specializes or at least has a background in US taxation for foreign nationals entering the US. This is a very difficult area for most tax accounts/professionals (CPAs or EA's) to complete correctly (i doubt an HR Block person has a prayer of getting it right)... There are multiple ways to file your return (assuming you are not a US citizen or greencard holder) non-resident, dual-status, or full-year resident with potential elections and treaties to consider. These considerations determine how much income/deductions are recognized based on your situation and applicable treaty.
If you are a US citizen or GC holder, then it sounds like you haven't been filing and should find a CPA (I'm biased) to work through your situation and potentially delinquent filings.
also, if you have non-us bank/brokerage accounts with a combined value exceeding USD $10,000 at any point during a calendar year and you are filing your 2014 US return as anything but a nonresident (Form 1040NR), you should research FinCEN Form 114 and expect to complete this informational filing as well. penalties are scary and expect these returns to be expensive if prepared by a professional..
[–]Infection 1 point  
Thanks for taking the time to explain that to me!
I don't have a green card yet; my application is still pending but assuming that everything goes well (I don't see why it wouldn't), I'll be getting the GC by mid-2015. So I'm in a weird kind of limbo right now...
Also, my foreign income is only about $12k/year, so paying for a tax preparer for this comparably tiny income doesn't seem at all worth it for me. :( I do acknowledge that this is a very complicated tax area though.
I do happen to have substantial non-US bank accounts/investments so I'll research about FinCEN Form 114. Thanks for the reminder!
[–]IMustBeRich 1 point  
People often forget to figure in the knowledge they gain from doing and understanding their tax situation.
This information can be used to help make future financial decisions and aid in understanding some of the financial shenanigans in DC.
I recommend doing your own for awhile until you have a grasp on what is involved. In the future, you can hire someone if your time is better spent making the money.
[–]UmbrellaCo 1 point  
The easiest way to put it is would you be better off taking the standard deduction or itemizing. Look up the standard deduction for your scenario (married/single, number of dependents, etc..) and that'll give you the first guess.
If it's better to itemize, look up the IRS document relevant for the deductions you would take. Do you understand the wording sufficiently that you could enter the number into a tax prep software (e.g what's eligible and what's not. How much is eligible). If so use tax software. If not use standard deduction or accountant (depending on the cost of accountant services).
Most tax situations including buying a home, energy rebates are relatively simple to do with tax software. What an accountant provides is another eye, familiarity with modern tax law, and interpretation of IRS lingo.
I have several family members in accounting (most have their CPAs). In most cases they just have their spouse use the tax software and then they take a quick look to make sure they don't miss anything. We do the same. Use the software and have a family member review it.
The only time we had to redo our taxes is when we didn't use the tax software (e.g tried to use IRS forms). The forms are great for straight W-2s but a pain once your life gets complicated.
Edit: On a side note are there any other CPAs in the room that hate doing their own taxes? Or is it just time spent doing "work" that could be otherwise enjoyed? Kinda like IT hating doing IT for their family.
[–]TaxTech 1 point  
As I person with a small tax business your situation is not that complicated. You can do yourself, or pay someone for the service of doing it yourself. This year Intuit has a service to refer people to an EA or CPA, or you can simply google one for your location. Ask your friends or family as well. I myself am not an EA yet (have not passed all of the tests), but it does not neccesarily take an EA or CPA to do ones taxes. The order of cost to you is probably going to be Unlicensed Preparer<EA<CPA. Your mileage may vary on who actually does the tax return the best of the three. CPA's and EA's can represent you in cases of audits. Why do they charge money for this service? Software is not free. They have other overhead too. Some packages can cost many thousands of dollars. It is a business,and they need to make money just like everyone else.
[–]eta_carinae_311 1 point  
The only time I've used a CPA was when I was out of the country and we got confused on how foreign earnings get taxed in the US. Did it one year, then were able to do it on our own in TurboTax after that.
[–]xfdnxdgh3 0 points  
Every tax software will ask you about energy credits and medical expenses. Previously, you just probably skipped it because it didn't apply to you.
There are reasons to use a CPA, but yours are not it.
[–]RedditGilder -1 points  
My father used to pay a CPA (with two decades of "experience"), one day I decided I was going to do the taxes for him... used turbo tax and ended claiming 3 times more than the CPA... He was happy but mad at the same time... lost a lot of money during the previous years.
[–]Roger_Mexico_ 6 points  
But were those 3x more deductions actually legal?
[–]kotoku 3 points  
And a real accountant would have let you know to file amended returns....I've never heard of someone that can't do an individual tax return well in a CPA firm. I've done multi-million dollar corporate returns spot on...the individual returns are more the pain of a million little items than anything complicated.
[–]discipline_motivated 1 point  
You can amend previous years returns. I recommend my financial planning clients use a CPA instead of the CPU and they usually find savings. One thing he does is looks at previous years (I think two) returns and if it makes sense to fix them he does.
For some reason the people who I interact with end up saving more on taxes than by using Turbo.
[–]phoenixjet -3 points  
Getting your taxes done by a professional is a MUST, regardless of whether your situation is complicated or not. I had an employee that used to get their taxes done at H&R Block; I convinced her to use an independent and he caught things H&R Block straight up missed. She paid him $150 and got back additional $1k on top of what she had got back the year before. On the negative end of things, my own mother is currently dealing with a big mistake that she made on her taxes for last year because she didn't use a CPA.
Not having your taxes done by a professional is a mistake that can cost you serious money, either when you make a mistake you have to answer for, you end up paying in too much, OR you don't get back what you should.
You're not a professional and you do not know the laws. Would you go into a court room without a lawyer to defend yourself? If your neighbor's house is on fire, are you going to go over there with a water hose to try and put it out?
Get a CPA. They're not expensive and they're worth every single penny.
As far as the other people here talking about TurboTax... you using TurboTax is not the same thing as a tax professional using TurboTax.
[–]PartOfIt 0 points  
I have hired a CPA on two separate occasions, different firms, different states. I usually do my taxes myself (by hand or with software) and chose to hire a professional since I had income in two states both of those years. Both made major mistakes on my state forms that required extra work and expense, including 3 nasty grams from the State Revenue Service on the second occasion. The CPA forgot to list any state income in either state and the firms mistake-checker didn't notice. I paid $550 for that 'service' as well. I don't recommend a CPA if you can handle it alone. If you get one, meet in person and make sure the person you meet with is the one completing the forms.
[–]creatureshockUnited States -1 points  
I use TaxCut for my returns. Don't see any reasons not to.
[–]hec187 -1 points  
ELI5: Why the hell do people who prepare taxes for you want to charge $250 and up??? That's an insane amount and I don't get why they would charge that amount to punch numbers in a program I can probably use myself for 10X less. I still remember being a young Lance Corporal in the Marine Corps, not making much money. I went to H&R Block to file my taxes. After all was said and done, I was only going to receive $365.00 being a young, single guy with no dependents, minus the $250.00 filing fee, I was looking to receive a grand total of $115 from the IRS. I literally laughed my ass off at the tax preparer and asked how this made sense. Their only response was "you don't want to get audited do you? You could go to jail and pay up to $2500 in fines". "I'll take my chances" was my reply as I walked out of their cubicle. I've done them on TaxSlayer every year since then and have had nothing but good returns and no audits.
[–]Answerstaxquestions 2 points  
ELI5 is that you're not a typical CPAs target demographic. Most tax preparers will do simple work if you're willing to pay the fee... And if you're willing to pay why should they lower their rates? My rate is just just north of $300 an hour and I make my day job living on a very specific niche of corporate tax. But if you're willing to pay my rate (or even 50% of it for your one W-2 1040EZ) then I'll happily take your money on my side gig.
[–]hec187 1 point  
So have you come across someone with a similar tax return that coughed up that much money for your services? This world is full of gullible people that I'm sure they'd pay. I'm a mechanic and have had people offer me $100 to change their brake pads. It's an easy one hour job, but if they're willing to pay...
[–]Answerstaxquestions 2 points  
All the time.
When I was first starting out friends and acquaintances would ask me to do their returns and they'd think I was pushing them off when I'd suggest TurboTax. So I started charging as a defense mechanism. If you want to pay then it's really solid beer money for me for a few months, if you don't want to pay then that's ok too. I tell them I'll help them move for beer or pizza but when it's how I make my living I charge. Otherwise I'm devaluing my services.
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