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Author: blackcat2003 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120809  
Subject: should I use a tax preparer Date: 1/2/2004 5:41 PM
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I usually do my own taxes using tax prep software. Several things have changed for my tax situation this year and it will be the first time that I itemize. What are the PROs and CONs of using a tax preparation service/cpa?

Would it be worth my money to pay someone else to do my taxes? I think I can probably handle it on my own - with the tax prep software and a little research - however, I have been advised by others to have someone else do my taxes since this will be the first time I itemize.

I don't want to miss out on any deductions or make any mistakes that would be costly - but I don't want to pay someone to tell me what I can figure out on my own. How much does it typically cost for tax prep by a cpa/prep service?

Any suggestions?
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Author: 4inthefamily Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68308 of 120809
Subject: Re: should I use a tax preparer Date: 1/2/2004 6:04 PM
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Disclaimer: I am young and have little tax experience - so don't take my advice too seriously. I'm only on this board because I had asked a question myself.

With that said...someone once told me that even if you use a tax preparer you should do them yourself first as an exercise. I believe that if you are aware of what is deductible and what is not and take the time to become famaliar with the tax law yourself, you will start to naturally make decisions with the tax consequences in mind. It never hurts to be informed.

We itemize and use tax software. I did buy "Taxes for Dummies" last year when we sold a house, bought a house, moved across the country for work, etc. just to make sure we didn't miss anything. I don't know if I would get back a little more with somebody doing it - I would like to think that I catch everything. Either way, I am definitely money ahead because I know how certain laws work and utilize them through the year. YMMV.

Good Luck,

--4

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Author: pills One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68309 of 120809
Subject: Re: should I use a tax preparer Date: 1/2/2004 8:14 PM
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I usually do my own taxes using tax prep software. Several things have changed for my tax situation this year and it will be the first time that I itemize. What are the PROs and CONs of using a tax preparation service/cpa?

Would it be worth my money to pay someone else to do my taxes? I think I can probably handle it on my own - with the tax prep software and a little research - however, I have been advised by others to have someone else do my taxes since this will be the first time I itemize.

I don't want to miss out on any deductions or make any mistakes that would be costly - but I don't want to pay someone to tell me what I can figure out on my own. How much does it typically cost for tax prep by a cpa/prep service?

Any suggestions?


It sounds like your main concern is being sure to itemize on Schedule A correctly and completely. For the most part, the 1040 instructions are pretty helpful. You might also ask IRS for a copy of Pub 17, the "bible" for preparing most tax returns.

If you are a moderate income taxpayer, you can obtain FREE tax preparation help at a volunteer-staffed VITA or TCE site. The IRS supports many of these sites at local libraries in larger cities; if you have a local IRS office call to find a site near you (see the Government listings in your phone book). The AARP Tax-Aide Foundation also staffs TCE sites at neighborhood or senior centers and other organizations all around the country. Just type in your ZIP at www.aarp.org/taxaide to find a site near you, or call 1-888-AARPNOW (227-7669). Many of the sites can e-file your return; all can prepare a paper return for you to mail in.

VITA and Tax-Aide volunteers are trained and required to pass an IRS test to be certified as tax preparers.

The volunteers will direct you to a paid tax-preparer if you have a complicated return (e.g., rental property, royalties, depreciable equipment or buildings).

Karl, a Tax-Aide volunteer

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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68311 of 120809
Subject: Re: should I use a tax preparer Date: 1/2/2004 10:44 PM
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Would it be worth my money to pay someone else to do my taxes?

Probably not.

I don't want to pay someone to tell me what I can figure out on my own.

If you're smart enough to use a computer to get to this board and post a message, you're smart enough to do your own taxes, especially with the help of tax prep software.

Now then, you haven't said what it is that's changed to make you think that itemizing will be useful. For most people, the event that pushes them into itemizing is buying a home, and thus having mortgage interest and real estate taxes for the first time. Even with today's low interest rates, home prices are such that 12 months of interest alone will generally get you over the standard deduction figure.

In any case, I daresay that for most of us, almost all of the itemized deduction total comes from a few things: taxes (state income tax, real estate taxes, and personal property taxes), interest (meaning both mortgage interest and points paid), and charitable contributions. That's it. Medical expenses rarely figure in, since you have to exceed 7.5% of your AGI before they count. Likewise, many other miscellaneous type deductions count only after they cumulatively exceed 2% of AGI - another pretty big hurdle. So there you have it: taxes, interest, charitable contributions will likely cover it for you. How hard is that? Someone else mentioned getting a copy of IRS Pub 17. Good suggestion. It's a great overview of taxes, and after you've read Part Five, you'll be up with the pros on itemized deductions.

Tax prep guys are certainly invaluable in some situations - small businesses, maybe rental property, and certainly for estate-type returns. They'll be happy to do your return, but believe me, you can handle typical deductions and investment matters by yourself.

With apologies to the tax prep guys on this board,

Lorenzo, TCE Guy

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Author: TMFDj111 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68312 of 120809
Subject: Re: should I use a tax preparer Date: 1/2/2004 11:07 PM
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Would it be worth my money to pay someone else to do my taxes?

I usually draw an analogy between auto maintenance and financial matters. Car owners can do a lot of their own maintenance. They can check and refill fluids, check and adjust tire pressure, and change light bulbs. Owners with more advanced mechanical skills and appropriate tools can change fluids, overhaul transmissions, and replace various engine gaskets. However even the most advanced shadetree mechanic soon will run into problems requiring special tools or rarely used techniques, and at that point the amateur mechanic should turn to a commercial mechanic for help, and for a really difficult problem, the shadetree mechanic should turn the problem over to a commercial mechanic. The trick is to know your limits.

I believe if you have a simple tax return you can do your own tax returns, perhaps with some help from the folks at the Tax Strategies discussion board or from either of two IRS-sponsored programs: Volunteer Income Tax Assitance (VITA) and Tax Counseling for the Elderly (TCE). You have a simple return if you have a few W-2s and maybe a few 1099s, deductions related to your primary residence, and you stick with Schedules A, B, and D.

I think you can prepare you federal income tax returns by hand if you stick with the basic tax forms and Scheduled A and B. I think Schedule D marks the threshold where you have to use tax preparation software.

If you use software to prepare you federal income tax returns, then you should also use software to prepare your state income tax returns. The incremental cost of the state tax add-ons is small, and you've already entered most of the information you need for your state returns when you prepared your federal returns. Additionally, based on my experience filing state tax returns in Ohio, New Mexico, and Virginia, state income tax returns are not as straightforward as federal tax returns, and the aggravation I avoid with the software is well worth the cost of the software.

If you have a complex tax return then the fees you'll pay a tax professional to prepare your tax return are worth the aggravation you'll avoid and the better return you'll file. I think Schedules C and F, the Alternative Minimum Tax, and sale of rental real estate all mark the threshold to complex tax returns.

If you think you may want to find a tax advisor, it's better to find one sooner, rather than later. Good tax advisors will have their calendars filled by the end of the year, and they offer services far beyond simple return preparation services. This TMF article describes a strategy for finding a good tax advisor:
http://www.fool.com/school/taxes/taxes11.htm

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) are IRS-sponsored programs. According to the IRS web site: "Volunteers consist of IRS employees and individuals from the community who volunteer their time and services to provide free tax preparation assistance to individuals who may find it difficult to pay for tax preparation services. The volunteers who provide this valuable service receive training provided by IRS employees and other tax professionals." In theory, VITA and TCE services are limited to invididuals with incomes under $35,000, but in my personal experience VITA volunteers have always been willing and able to help me as long as I respect their time. You can get more information about both programs from these links:
http://www.irs.gov/newsroom/article/0,,id=108104,00.html
http://www.irs.gov/individuals/article/0,,id=107626,00.html

Unfortunately I'm not aware of a single web site that will produce locations of VITA and TCE offices. Some elected representatives and some state, county, and local governments will have this information on their web sites. You can search for your community name and VITA or TCE. Finally you can get information about local sites by calling toll-free 1-800-TAX-1040 (1-800-829-1040).

David Jacobs
TMFDj111

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Author: blackcat2003 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68368 of 120809
Subject: Re: should I use a tax preparer Date: 1/6/2004 10:24 AM
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Thanks everyone for your advice. I will stick with the tax software - it sounds like I have a pretty simple return. :-)

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Author: cslutes Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68439 of 120809
Subject: Re: should I use a tax preparer Date: 1/8/2004 1:46 PM
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As a retired tax accountant, I will say that your analogy relating mechanical abilities with tax preparation is excellent!

That being said, I would like to give a few other thoughts:




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Author: cslutes Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68441 of 120809
Subject: Re: should I use a tax preparer Date: 1/8/2004 2:04 PM
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Sorry about that - apparently I hit a button before finishing my previous reply.
To finish:
David, one has to be VERY careful about using the IRS-sponsored VITA. Very careful. Example: I had a tax client who knew little if anything about income taxes. He told me that he volunteered for VITA just to find out if he could do his own taxes and to find out what the government was doing! He stated that he was astonished and dismayed to find out how much money the government gave away with the earned income credit, and was floored by how complicated it was to compute.
I would NOT have wanted this person to prepare ANYBODY'S tax return . . .shudder. Needless to say, he continued to come to me for his income tax preparation.

Another thing that is important in deciding what type of tax practitioner to use is to consider using an EA (Enrolled Agent). An EA is licensed by the U S Treasury Department, after passing an extremely difficult test; and must maintain high ethical standards plus attend several hours of intensive tax seminars each and every year. EAs are very savvy in knowing how to "push the envelope" in exploring new ways to save taxes while strictly maintaining the letter of the law. They are also trained in representing the taxpayer before the IRS and can do so without the taxpayer being present. I have found that IRS employees respect the credentials of the Enrolled Agent, and they should: the EA knows IRS law and regulations and is fiercely on the side of the taxpayer.

Good luck with the new tax changes this year - we investors have been given lots of tax breaks (for a few years only!), so better take advantage of them!

Remember to pay the correct tax and not a penny more!
Carolyn S Lutes, EA
"retired somewhat"



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Author: carolsmithcfp Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68500 of 120809
Subject: Re: should I use a tax preparer Date: 1/9/2004 7:28 PM
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Hello everyone. I am one of the volunteers for the TCE program. The TCE program is really for the elderly but what does that mean anymore? Also many elserly people are cared for by their adult children so we end up doing taxes for seniors and non-seniors as well. As the above post says, there is an 800 number that you can use to be directed to TCE or VITA programs -- both which are free and are funded by IRS and AARP. There is supposedly a limit to the income for which we will prepare taxes, but we really don't enforce it. Returns that have 1040, Sch A and Sch B and even D are within our training. Things like rental income or any K-1s are not. These types of complex returns should be working with a paid advisor, not a free service. If your return is simple, there is no need to use a paid preparer for something truly straightforward. I encourage you to try to find a location near you. Carol Smith

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Author: LAGoodandBad Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68725 of 120809
Subject: Re: should I use a tax preparer Date: 1/20/2004 7:19 PM
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Would it be worth my money to pay someone else to do my taxes?<i/>


I have to agree with David. I use to file my own taxes when life was simply. I stopped filing my own taxes when I realized gains on ISOs(incentive stock options) with my latest job, purchased 50% of a duplex with a friend and formed a partnership and realized that I might be subject to AMT. All of the above occured last year and that was my threshhold for beginning a search for a tax professional.
-Nate


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