Another Tax Question: Can a CPA "Work Magic" compared to TurboTax
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Another Tax Question: Can a CPA "Work Magic" compared to TurboTax
Posted by GaryMyMan on 2/12 at 2:06 pm
I'm self employed and neglected to file quarterly. I ran my numbers through Turbo Tax and came up with a tax liability of about 12K fed & state. If I take my info to a CPA and pay him several hundred dollars, is he likely to save me enough money to make it worthwhile?

I thought Turbotax' discount software was quite detailed and don't see how a CPA could really do much better.

More detailed info:
1 W2
2 1098e's for student loan interest paid
About $4K in medical costs
About $1K in charitable donations
Lots of mileage & vehicle expenses, cell phone expenses, etc.



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Posted by elposter on 2/12 at 2:18 pm to GaryMyMan
Can you take home office deduction (office space, internet, supplies, etc.)? These can add up and reduce your taxable income. Does Turbo Tax look at all of this too?


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Posted by GaryMyMan on 2/12 at 2:21 pm to elposter
quote:

Can you take home office deduction (office space, internet, supplies, etc.)?

Yes - I have a desk in a spare bedroom and pay for internet.
quote:

Does Turbo Tax look at all of this too?


Yes it did. Asked for square footage and many more detailed questions. Problem is I've only been in the house since August.



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Posted by weaglebeagle on 2/12 at 2:26 pm to GaryMyMan
It's hard to say. Do you have any depreciable assets you are claiming? Sometimes that can be a little harder to determine on your own if you aren't familiar with it.

Don't forget that you can also deduct the cost of health insurance if you paid it with post tax dollars. I don't know if you included that in your 4,000 in medical but I'm assuming you have.

Do you have any investment income? Sometimes it's best to go to a cpa for guidance on that.

I'm assuming your penalty for not paying the quarterly estimated taxes is included in that amount you wrote down?

The computer programs are often pretty thorough but without knowing every expense you had it's hard to know if there's something you may have missed. My guess is that you haven't missed anything major.



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Posted by GaryMyMan on 2/12 at 2:31 pm to weaglebeagle
quote:

Do you have any depreciable assets you are claiming?

The vehicle questions were pretty complicated and I'd best sit down and be thorough with my actual expenses in that regard.

quote:

The computer programs are often pretty thorough but without knowing every expense you had it's hard to know if there's something you may have missed. My guess is that you haven't missed anything major.

It seemed very thorough. Last year I ran my numbers through Turbotax but my dad convinced me his CPA could do better. We were within $50 of each other, but with a much smaller income (I had only been on the job a month). I guess the few hundred I'll spend on the CPA will give me some peace of mind, and when we're talking about $10K+ it's probably worth it.


This post was edited on 2/12 at 2:32 pm

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Posted by weaglebeagle on 2/12 at 2:45 pm to GaryMyMan
I can understand why you'd like to have that peace of mind and wouldn't blame you. You probably will come close to what a CPA gets this year too but it's always good to be sure.

I would suggest asking a lot of questions about what he does on your schedule C (the self employment income form). You should be able to see how he calculated everything on that and next year you can do it on your own and make sure things match up.



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Posted by GaryMyMan on 2/12 at 2:55 pm to weaglebeagle
I'll make sure to do that. Thanks for the advice.


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Posted by foshizzle on 2/12 at 3:08 pm to weaglebeagle
quote:

The computer programs are often pretty thorough but without knowing every expense you had it's hard to know if there's something you may have missed.


This. A program will not know to ask you for certain things, help you with planning for future years, etc.

For most working stiffs the program is probably just fine but if you run a business or something of that sort a CPA is probably the way to go.



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Posted by schexyoung on 2/12 at 3:38 pm to GaryMyMan
A CPA is most useful for tax planning during the calendar tax year. He/she can help you make decisions from a timing, amount, etc. position that will positively impact your filing.


After the tax year has ended there is only so much that can be done. Legitimate tax software covers this well for most cases.



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Posted by LSUTIGERS74 on 2/12 at 3:50 pm to foshizzle
I thought the same thing last year as I was self-employed as a consultant for about 3 months and figured with the additional W2 and 1099 in the mix that my taxes were going to be much more complicated. So I went to a CPA here in Houston that my in-laws use.

Ended up costing my $1260 to have CPA do the exact same thing Dad does for me thru Turbotax. Biggest ripoff I think I have ever witnessed.

He didn't really ask questions just asked for us to submit a spreadsheet with our expenses and that was it. I guess I was expecting a bunch of advice...didnt happen.

Tried to get the bill reduced and that was a no-go.



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Posted by Poodlebrain on 2/12 at 3:51 pm to GaryMyMan
TurboTax asks questions that have yes or no answers that lead to specific reporting of information. However, the answers to the questions it asks are often a yes, but... instead of a definitive yes. And following the but... will frequently lead to a better result.

Those yes or no answers also treat the tax code as if everything is a black or white. The complexity of our tax code leave many grey areas where the right answer is open to interpretation, and TurboTax doesn't care about interpretations. A good CPA cares about little else as he looks for opportunities for tax savings. The value of a CPA comes from his knowledge of the tax code and how to apply facts and circumstances favorably for his clients. You get none of that from TurboTax or any other tax return software.



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Posted by Maniac979 on 2/12 at 3:53 pm to GaryMyMan
(no message)

This post was edited on 2/15 at 9:27 am

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Posted by Poodlebrain on 2/12 at 4:46 pm to LSUTIGERS74
quote:

Ended up costing my $1260 to have CPA do the exact same thing Dad does for me thru Turbotax. Biggest ripoff I think I have ever witnessed.
Ouch, you were hosed. Let's assume you were in the 25% tax bracket last year. That $1,260 of CPA fees means the CPA would have had to find $5,000 of deductions that you were unaware of to jusitfy his cost. That is pretty unrealistic. But what if he charged you $250 and found $1,000 of additional deductions? Would you have considered it reasonable to break even?

quote:

He didn't really ask questions just asked for us to submit a spreadsheet with our expenses and that was it. I guess I was expecting a bunch of advice...didnt happen. Tried to get the bill reduced and that was a no-go.
The CPA you used was interested in the facts (the spreadsheet you submitted with expenses you paid), but he ignored the circumstances that influenced why you paid those expenses. And the circumstances are critical for determining whether the expenses were deductible. He should have asked you numerous questions once you gave him the spreadsheet to try and estabish circumstances justifying deductions for your expenses.



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Posted by Tigah in the ATL on 2/12 at 5:02 pm to schexyoung
quote:

A CPA is most useful for tax planning during the calendar tax year.
this - you will be set up better for next year.



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Posted by Projectpat on 2/12 at 9:07 pm to Maniac979
quote:

You need to be careful with the home office deduction. I would get a CPA involved if you plan to try and take this deduction.


This, it's the #1 reason for getting audited.



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Posted by BACONisMEATcandy on 2/12 at 9:40 pm to GaryMyMan
I can recommend the one my family uses if you'd like


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Posted by yellowfin on 2/13 at 7:13 am to GaryMyMan
If you're self employed they may be able to structure your business to avoid most of the self employment tax, TurboTax isn't going to help with that.


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Posted by Poodlebrain on 2/13 at 7:50 am to yellowfin
The common misconception is that CPA's work magic to produce tax returns with unusually low tax liabilities. That can occur, but it is usually due to unusual circumstances, such as a hurricane being declared a disaster triggering special deductions and other relief. The benefit of using a CPA is that the CPA's experience should enable him to prepare the tax return with greater efficiency and confidence in the result.

What do I mean by greater efficiency? I try and quantify the value of time, and compare the relative values. For example say my billing rate for tax return preparation is $150 per hour and I can prepare a tax return in 4 hours. My time should be worth $600 to a potential client without any concern for the quality of the result. The potential client has to prepare his tax return during his leisure time since he does not get paid to prepare his tax return. If that potential client values his leisure time at $100 per hour, then he has to be able to prepare his tax return in less than 6 hours to do it at less cost than paying me to prepare the return. As the potential clients return increases in complexity efficiency trends in my favor.

Then there is the confidence in the result factor to consider. My professional reputation is at stake with every return I prepare, so I have pretty good incentive to get the best possible result for each client. I strive to get the best result for each client given their risk tolerance which is something that software cannot do. So I usually come up with a better result than the client using software because I ask questions different from the yes or no questions that the software asks. And I also save clients any aggravation and frustration they can encounter while preparing their tax returns as an additional benefit.

The lagniappe of my services is my ability to identify planning opportunities for future tax savings. Tax preparation software just doesn't do what if scenarios as well as humans.



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Posted by GaryMyMan on 2/13 at 9:27 am to BACONisMEATcandy
quote:

I can recommend the one my family uses if you'd like

Yeah. Who ya got?



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Posted by BACONisMEATcandy on 2/13 at 12:35 pm to GaryMyMan
John Smith
318-221-7071



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