Tax planning

I’m hoping to get some comments and opinions on this post. I’m trying to decide if I should file my taxes next year using a product like Turbo Tax or continue to use a tax professional. What works for you? Why do you choose to prepare your own taxes? Or, why do you choose to use a professional?

I used to handle my own tax returns until I got married. I can’t recall exactly why my ex-husband and I started to go to a CPA/tax professional during our first year of marriage, but I do recall that my mother-in-law recommended the person to us. Throughout my marriage and even after I was divorced I continued to use his services.

I always thought a tax professional was there to advise and help you figure out the intricacies of the tax code, and since I also liked the guy I didn’t see a reason to stop. Shortly after my divorce I consulted with him about my plan to rent rooms in my house because I wanted to understand the pros and cons from a tax perspective. His advice was encouraging and I was glad I had talked to him first as it guided my approach to tracking expenses related to renting rooms.

My last year in Chicago was the last year he prepared my taxes. Sadly, he died unexpectedly on April 15th of that year. It seemed oddly poignant that his last days were spent working long hours for his clients.

By that time, though, he had started working closely with some other professionals who were able to step in quickly and take over his clients. I met with one of them before I left Chicago so I could explore whether he could continue to help me after my move, and to make sure I was adequately prepared from a tax perspective for the big financial change that would happen when I sold my house and moved over 2,000 miles away. Based on that meeting, I decided to keep working with him.

When I received the tax package from him early this year, I briefly considered doing my own taxes. I had an investment loss in 2015, however, and I wasn’t confident about how to handle it, so I decided it would be best to continue working with him. For the 2016 tax year I’ll be back on familiar ground with mortgage and property tax deductions, as well as following the same steps as in 2015 for the investment loss.

From a preparation perspective, I doubt there would be much difference between working with a CPA/tax professional and preparing the tax forms myself. I’m responsible for providing the data and for keeping receipts and documentation. Filling out the worksheets I’m provided every year and pulling all the data together takes me several hours. Inputting it shouldn’t take much longer, so I think with a good tax program I should be able to complete the tax returns myself and not miss any credits or deductions. I’m just not 100% sure.

Last month I decided to take steps to find a local tax professional by setting up an appointment with a person highly recommended on Nextdoor.com. While I liked her and we had a good conversations, she informed me that her minimum fees were twice what I was paying the CPA back in Illinois. She gave me the names of two other local firms I could look into that would likely have lower fees, but when I looked them up online and saw their range of services I started questioning my need for working with a professional at all.

So, should I go it alone for the 2016 tax year? Or should I continue working with a professional? What do you do and why?

 

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11 thoughts on “Tax planning

  1. I do my own taxes but I’m an accountant. If you have investments, rental income, etc. I would recommend using a tax professional b/c our tax code is pretty complicated. However, if you just have W-2 income and basic deductions, you can handle it yourself as it’s pretty straightforward.

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  2. After my mom passed away and I inherited her estate (retirement accounts and a rental property) I continued using her CPA. I was/am young (25 at the time) and previously only had a W2 and tuition statement. I still use a CPA because now I rent part of my primary residence on AirBnb and still have the rental income. Before I send him my info I always plug it into Turbotax and my CPA’s figures are always better than what I come up with on my own. I want to learn to my own taxes but have felt that what I pay is well worth what I get out of the CPA.

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    • If I could still claim a passive loss from renting out 50% of my house, I wouldn’t even be thinking about doing my own taxes. But, since my MAGI is now above the maximum threshold, my taxes will be simplified.

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  3. My taxes are probably not as complicated as they were years ago when I had to file in multiple states all the time, but accounting and investing are not my areas of expertise, so I seek to work with an accountant and a financial advisor because those areas ARE their respective fortes. I think only you will know if you feel confident that you are covering everything you need to cover, particular in the area of truly knowing the tax code (it’s massive). Cost is certainly a consideration – and if you’re happy with the person you used here and if they know CA tax law, then I would think you could stay with them.

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    • Yes, I can stay with the professional I was using in IL. I was just hoping that since I’m now living in a place where a drive to meet face to face with the tax professional would only take 10 minutes or less I could find someone local. It sounds like I would really be paying for the convenience, though, if it costs twice as much!

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  4. I did my taxes once. Followed the instructions. Was horribly confused — had no idea what I was doing or whether it was right. Never got in trouble, so apparently the result raised no flags down at the IRS. After that, my husband (a lawyer) did them or we had them done by a tax lawyer. After I escaped the marriage, one of his former law partners did my taxes until she retired; now I have a freelance accountant doing them; she also does the business’s bookkeeping, which keeps the cost of tax prep down, paradoxically.

    The tax laws are SO complex and SO incomprehensibly bizarre that even if I were competent with numbers I would still hire an accountant. SDXB uses TurboTax every year, but IMHO it’s garbage in/garbage out. Who knows whether he’s getting it right? IMHO, if you have anything even vaguely non-plain-vanilla — moving costs associated with a job, a renter, a home office, freelance income, crafts income, whatEVER — you should have an accountant between you and the IRS.

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    • I was thinking I could skip a professional this year because my taxes should be fairly simple and straightforward, in fact. Itemizing for the mortgage deduction and property tax deduction shouldn’t be difficult using a good tax program. And one thing the CPA I met with did alert me to was the fact that I am no longer eligible to deduct the passive income loss of renting a room in my house due to my current income. It’s a mixed blessing that my annual salary and bonus would now put me above the maximum threshold MAGI for claiming the loss, especially now that I’m truly renting 50% of the house. I don’t have a home office, just a desk in my large living room, so I don’t get into the intricacies associated with that deduction. I do usually claim a portion of my internet cost as an unreimbursed business expense, and will definitely be doing so since my deductions are falling away with my income increase. (I guess I’m sort of falling into a “doughnut hole” of increasing personal wealth, but decreasing deductions.) None of this is very complicated, and I have years of professionally prepared returns to reference in case I have any doubts. I’m sure the tax code hasn’t changed dramatically in just a year or two. I’m still not fully decided about my course of action, though.

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      • I kinda like the idea of preparing your own in TurboTax and then running the results past a tax accountant to see how it works. On the one hand, that seems like “double-paying” for the job — paying with your time, effort, and hassle; but then also paying an accountant. On the other, if you discover that TT actually works without putting you at risk of an audit and also doesn’t miss opportunities to keep your taxes down, that “extra” cost might be worth it.

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