Re: Getting a Tax Professional

hittletsMarch 6, 2008

This is a separate post to the one joyfulguy posted on 3/4/08, but his post made me think of it. I didn't want to sidetrack that conversation so I thought I would start a new one.

When does it make sense to hire a tax professional versus me doing own taxes? I currently do my own taxes through H&R Block online. I pay about $40 for federal and state filing. I take as many deductions as I think I can, and I get a decent refund. But as joyfulguy was talking in his post, a tax professional is moderately intimate with your finances and should be able to recommend ways of paying less taxes.

If a tax professional can save you $100, is that a good use, or should you be saving $1000 to make it worth hiring a professional?

I guess it would be helpful if I knew how much a respectable tax professional cost to make a decision.


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I've wondered along the same line. For a number of years, I've been doing our income taxes using Turbo Tax. We have some interest/dividend income and rental income, so I have to buy more than the basic software. Even so, it's much less expensive than using a professional. I pay attention to deductions, of course, and during the year note in Quicken the things that are tax deductible. But our income is mostly pension/SS so it's pretty straightforward.

If I ran a small business, then I think it would make sense to use a professional, but for our circumstances the ease of use of Turbo Tax combined with the savings seem to make sense to me.

The first time I prepared our taxes with software, I took it to a CPA and asked him to look it over for errors and/or missed deductions. He had nothing to add or correct.

    Bookmark   March 6, 2008 at 8:09PM
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I can't offer a cost/benefit analysis of how to assess an accountant.

We hired one when we began accumulating different investment accounts. And we had a home. There was NO way either one of us would have been willing to do all the legwork required as well as keep track of all the forms that were supposed to have arrived before 4/15.

For us? it's easier to set the "Important Tax Documents" aside, talley the deductible expenditures and submit them. I have to say, in our position, the money we pay our CPA is the one check I actually LIKE paying. Could I learn to do it myself? maybe. Do I want to learn to do it myself? NO.

    Bookmark   March 6, 2008 at 8:10PM
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I was talking advice regarding forward planning.

Quite likely some tax preparers, and even more so, accountants, could show most of us ways that we could arrange our personal financial affairs to reduce our tax load in future years ... at least, with regard to the rules governing the income tax system, at present.

In addition, I've suggested that every senior should have a home-based business, to allow some nice deductions. I think that that works in the U.S. as well as Canada - get the tax book explaining how to do tax on a small business.

Preferably as a consultant rather than peddling goods, with all of the purchase of stuff, ship, store, loss, ship, losing payment hassles so involved.

If you can do it on the internet ...

... all that you have to do is keyboard ... then press "Send".

And if your ideas are useful to a number of people ... perhaps you could press "Send" once ...

... and have the message go to 50 addresses, all at once: no stationery cost. And 50 fee-payers. Plus if some don't get around to paying ... they don't have goods in hand that cost you money to purchase, ship, store, ship.

No postage cost - and your internet connection would be (partially) deductible. Same for computer.

Canadians need to be careful, for if they claim certain aspects of their home-based business, e.g mortgage interest and possibly some other less apparently house-related items, they may jeopardize that precious exemption from income tax liability on capital gain on sale of their home that was owner-occupied throughout (i.e., it was partly used for business, so part of the capital gain exemption might be disallowed).

For example, just today on Yahoo Canada, regarding personal finance and retirement, one planner with 35 years' experience suggested that he'd suggested to quite a few seniors that, in order to make their RRIF (personal tax-deferred retirement plan) payout deductible, they could make a major loan for investment, using their house as collateral, agreeing with the lender to pay (deductible) interest at the amount of their annual RRIF payout. That is, if their RRIF's annual payout were $6,250.00 and they made a loan of $100,000.00 at 6.25%, the RRIF payout would become tax-free, offset by the deductible interest on the investment loan.

He said that he has not had any couple take up that suggestion, everyone being afraid to stick their neck(s) out.

Investing in solid, quality stocks, they would likely earn a substantial amount of dividend income ... which, if it were paid by Canadian corporations, would be taxed at a low rate. And could be used to pay a good deal of the interest cost on the loan, thus making a portion of the RRIF payment available for other uses.

Maybe have certificates issued, at probably $35.00 - 50.00 each, as extra collateral in case the value of the house goes below the collateral limit and the bank makes a margin call - I have never received one, but always have extra asset available - I don't like a hassle.

My bank told me yesterday that my interest rate on Line of Credit loan used for investment would now be at prime, i.e. 5.25% - it was 6.25%, a couple of months ago.

I said that, at the earlier rate, I could borrow for almost no net cost. So at the 5.25% rate, I would be ahead on the game, even if I made no capital gain. And I think that the rate of inflation is somewhat higher, lately, which would help all the more!

That makes more sense to me than borrowing some of the value of the house ... and spending the money on consumption.

I think that some tough days are coming when we'll be glad for every dollar of asset and income that we possess.

Good wishes for skillful money management, everyone. Including tax-avoidance plans (but not evasions: jail bait).

ole joyful

    Bookmark   March 6, 2008 at 11:45PM
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I believe that many people are very capable of doing their own tax returns if they want to do the research and remember to check their returns to be sure the numbers are accurate and flowing onto the proper forms on the proper lines.

Based on my clientele, many people don't want to spend the time to do the research to be sure they do their tax returns correctly. Some are intimidated by the IRS. Some want a person to be there if they ever get a letter from the IRS. Some have complex issues (like kind exchange) and need a tax return done for that year only and then go back to doing their own return.

I can typically do a tax return faster than an individual because I know my software (use it every day rather than once a year) and know tax law better since I have being doing taxes for several years. I take classes every year to stay current on new tax laws and increase my knowledge. I also have coworkers who know tax law that I can consult with.

Be very very careful using non-tax professionals as a resource. We get too many people who come in with letters from the IRS telling them that their sister's coworker's uncle always handles something in a certain way which unfortunately isn't the right way.

I understand what Joyful is saying about home based businesses, but be aware that the IRS focusing audits on returns containing Schedule C because of the "creative" accounting issues which appear on many of these schedules

    Bookmark   March 7, 2008 at 7:29AM
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Our taxes are complicated... and I would not WANT to do it myself.

I do not want to keep track of every tax law change...
I do not want to keep track of depreciation for medical equipment, cars, office furnishings...
I do not want to keep track of capital gains...

The money we pay our tax preparer may not save much more in taxes than if we did the returns ourselves...

but he saves us DAYS of research that we would have to do ourselves, and he saves us HOURS of tax prep paperwork.

And our time is worth plenty to us.

He is worth every dollar!

    Bookmark   March 7, 2008 at 8:23AM
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Are most taxpayers going to save money by getting a profession to do their taxes... probably not.

As a CPA and part time preparer I do a number of returns each over the years, varying from 5-50 each year. Currently 5 as I'm too busy at work to really do any paying clients.

The average return is generally cut and dry with very little wiggle room for any tax saving ideas, or advantagious treatments.

What I can do for you, is do the return correctly with the appropriate deductions, quickly, and answer any questions you might have. And if you have a more complicated return I can do that too, which you may not be able to do.

For the most part its the same reason people take their cars to get fixed as opposed to doing it themselves. its not that they really can't fix the problem, its that they don't want to go through the hassle and they know someone can do it 3 times as fast and do it right the first time.

    Bookmark   March 10, 2008 at 3:15PM
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I can't give specifics, because my eyes just glaze over this time of year with DH getting corporate returns out the door this week. He doesn't have clients with just W-2's who work 8-5. His client's returns tend to be pretty complex and his they use him all year long to make decisions. They don't wait until April and hand him stuff. In fact, most don't even file by April-October is his busiest month for taxes.

As luann discussed, those clients are out making money. It wouldn't be in their best interest to spend their time doing what DH does. We all pay for professional services in which we find value. Someone with a simple return doesn't need a tax preparer. Those with complex financial situations find it money well spent. Thank goodness for us!


    Bookmark   March 11, 2008 at 8:35PM
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