Taxes – Too Complicated for DIY

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Some friends I play softball with in the summer got together for our ‘Winter Meeting’ the other night.  We don’t talk too much softball, but enjoy a few beers and catch up on what’s happened in our lives since last August when we played our last game.

This year, we started chatting about getting our income taxes pulled together.  Some guys had already filed their 1040 forms, others like me are still ‘in process’.  Everyone in our group has a different approach to filing the paperwork from using software like TurboTax, store front tax preparation places like H&R Block, to having an ongoing accountant.

Most Americans (56%) use professional tax preparers, rather than a software/DIY approach. Average costs run from $175 for a simple 1040 form with no itemized deductions to $450 for self-employed filers with a schedule C.

While these options are pretty expensive, studies have shown that having forms professionally prepared generally pay for themselves in terms of tax savings.  It’s estimated that Americans overpay their taxes by about $1B a year and people that use professional tax preparers save about $800 on average.

Our taxes are pretty complicated, so we’ve used an accountant for the last 15 years or so.  I can’t even remember the last time I did my own taxes (with TurboTax), but I know that I missed some things that our accountant found later.  Even when we switched accountants a few years back, our new accountant found additional tax savings which we captured by amending our filings from earlier years.

I would say if you have a six-figure income, have a meaningful investment portfolio, own your own business, have significant capital gains (or use tax-loss harvesting), or fiddle a lot with real estate, you should definitely be getting a professional tax preparer on your side. 

Unfortunately, we are all stuck with a tax code that is over 15,000 pages long and there are a lot of places where things can go wrong.  I can’t imagine anyone that is on a path to FIRE wouldn’t want to use a professional to help them with this important activity each year, but when I talk to people I know, sometimes I am surprised.

How are you tackling your taxes?  Do-it-yourself, or use an accountant?

Image Credit Pixabay

11 thoughts on “Taxes – Too Complicated for DIY

  1. I used to enjoy TurobTax, for my own returns, and my children’s! But 20 years ago, ours became far too complex to do on my own anymore. Found a great accountant. Our kids had to learn how to do their own. Everyone grows up. And taxes always increase. Especially in blue states.

    Liked by 1 person

    1. Taxes increase especially in your state, from what I read. Yikes. We have our accountant do our son’s taxes, but eventually he will need to start doing them himself. Probably should make the switch before next Election Day!

      Liked by 1 person

  2. Hi, I’m curious about what your accountants found that resulted in additional tax savings that you or TurboTax missed?

    I am a DIYer and have been for many years. Contrary to your situation, I’ve found many errors that accountants have made on my tax return and my relatives’. For example, my uncle has his tax returns prepared professionally. The two years of returns I reviewed to understand his situation both had major errors that we amended and got refunds for, even though one of the returns was amended past the 3 year limit. One return had him paying AMT of $4,000 when I knew his income was too low to trigger AMT. The accountant had just made a wrong entry. The other return had the wrong cost basis on a capital gain and had him incorrectly paying an additional $2,000 in taxes. I also helped my nephew out on a tax issue once and in 5 minutes saw that his accountant made an error of a few thousand in his favor on Schedule A, but told him I’d just pretend I didn’t see it.

    As for why I stopped using an accountant for myself, the last accountant I used made a major miscalculation on estimated taxes which I relied on for tax planning, a mistake that cost me $300k. I didn’t check her work and never made that mistake again.

    These mistakes were made by 4 different accountants. I felt in some cases they just plugged in numbers without questioning if the entries made any sense.

    Another fun story is that my ex-girlfriend is a CPA who worked on corporate returns and once was on a team who did Larry Ellison’s return. I don’t know if she was just playing with me or what, but she was clueless (or pretended to be) about her own return, so I used to fill hers out for her when I did my own.

    My tax return is complicated, includes LLCs, K-1s, private loans, rental properties, capital gains, stock options of every variety, ESPP, charitable donations, etc, so the bonus is saving a few thousand in accountant costs every year. I feel that understanding my tax return helps with tax planning.

    Liked by 1 person

    1. That has to be quite a ‘part time’ job for you to do your own returns. I spend hours & hours on my own – even with the help of our accountant.

      We had to straighten out the cost basis on a bunch of stock grant sales that got messed up – like you. My old MegaCorp contracted with a bank to run their stock grant program and the online portal did a poor job of ID-ing exactly which shares were being sold when you executed a trade.

      Since I worked there a long time and they had several ways to be granted or buy stock each year, it became a record keeping mess.

      Like

      1. In recent years I spend about 4-5 workdays on doing the tax return. But if I were to use an accountant, I’d have to spend 3 days collecting and organizing all the data for them anyway. I worked at eliminating investments that complicated the tax return (e.g. ones that generated K-1s), I used to spend almost 10 days on completing the tax return. That was back in the day when downloads weren’t available for 1099-Bs.

        Liked by 1 person

  3. Believe or not I use Turbo Tax even though I am an accountant. I know what I need to include already and I really don’t need to rely on software, but I buy it because I like the streamlined approach TurboTax offers, plus the ability to send it to the IRS electronically. I guess you could say I’m like that mechanic that doesn’t like to work on their own car. 🙂

    Liked by 1 person

  4. We have used an accountant for about ten years now, ever since we started buying rental properties and selling off company stock options. Our taxes are pretty straight forward now that we’ve retired, but it’s worth the preparation costs to have someone current on the latest IRS changes. The QBI deduction for the rental businesses alone is worth a professional this year. The term “simpler” taxes obviously doesn’t mean it’s less confusing…only smaller!

    Liked by 1 person

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