What kind of tax help should I be getting?
February 19, 2014 5:12 PM   Subscribe

I'm a roughly average taxpayer who doesn't know very much about American tax law or the tax preparation industry. Should I keep ignoring it and filing my taxes by myself, or will I benefit from looking for professional tax advice?

I'm an unmarried 20-something near San Francisco with comfortable but boring finances. I make a salary in the low six digits and I have an investment account with a decent chunk of savings. I've always done my own taxes with the help of one or another piece of e-filing software, and I've basically found it easy and straightforward. I would be happy to just do my taxes again like that this year.

However, I'm always open to easy ways to make my life better, and since I don't know very much about tax law or the tax preparation industry, I figure there might be something I'm missing out on. Specifically, I have three questions:

1) What kinds of tax advice, assistance, and preparation are available? I know of the existence of places like H&R Block, but I don't know what services they offer and which might be helpful to me.

2) If I do pay someone for tax advice or preparation, is it likely that they will find some clever but legal things to recommend me such that I magically owe less money? (Either by saving me money on my current taxes, or by giving good advice that will save me money in the future.)

3) Will I be at substantially less risk of screwing up my taxes and owing a fine later? For example, if I give a tax preparer correct information and then they mis-file my taxes, are they liable instead of me? Is this even a large enough risk to be worth considering?

Thanks in advance for any informed opinions! It's hard to Google for this stuff because there's so much spam and advertising.
posted by value of information to Work & Money (6 answers total) 4 users marked this as a favorite
I am not a money person. Since my father died, however, I have inherited a few money people and I've learned a few things that might be helpful. At the level you're at, you might benefit from a talk (maybe not an ongoing relationship) with a financial planner (fee based, etc) to make sure whatever your goals are (family? house? early retirement?) are in line with your investment strategy. You can take this information and make some adjustments, if you need to. A tax person can help you free up money, possibly, to apply to these goals.

If you feel that you understand the ins and outs of your retirement plan, IRAs, charitable contributions, whatever deductions you are and are not taking, a health savings account, buying vs. renting and that sort of stuff, you are probably okay. A tax person could potentially help you adjust a few of those things to your advantage. My experience, relevant to your questions

1. H&R Block is one thing, a private CPA is another ("a tax guy") which would be a more personalized service, an investment advisor is another and usually they are not tax people but some full service 9and expensive) firms have both kinds of people. You do not need these.
2. Likely, yes. Not a ton of money but likely enough to make paying them worthwhile if there are things you don't really know about the ins and outs of taxes. If you're more savvy, then possibly not.
3. I think so? I got a letter from the IRS that said "Hey you owe us more money than you paid us" and I had bought TurboTax's audit defense and it was well worth it. I don't know the specifics about this one and will defer to someone who is more knowledgeable than I am.
posted by jessamyn at 5:37 PM on February 19, 2014

If you're making six digits and have investments, you should DEFINITELY talk to a CPA or financial advisor or something along those lines.

1. Basically, HR Block hires a bunch of people with some accounting experience around tax time and they walk you through the forms using what on their end is basically a fancier form of Turbotax. Probably a little better than doing it yourself for spotting deductions and stuff you missed but not ideal. It's basically "McDonald's"-level service.

A CPA or "accountant", as in "my accountant", is usually an independent professional or a guy that works at a small financial firm and does nothing but accounting. These are the guys who really know the tax code and law in and out and would be more helpful than somewhere like HR Block. Many of them can also do financial advising and know the ins and outs of investing, too, which could be good for planning your retirement, helping your portfolio, planning a business if you ever get into that, etc.

Even if you're not going to set up an ongoing relationship, I'd say it's worth it to have a chat unless you're super financially-savvy.

2. My accountant always pays for himself with deductions he finds or things he's told me. Like the first time we sat down to do my taxes, he goes "Oh, well, you can deduct this, this, and this" and paid for himself in the first five minutes. He can also help with random questions like, say, a relative dies and you get an inheritance or property and you go "Oh god wait do I owe a bunch of taxes on this shit?" And frankly, paying the guy $200 to do my taxes means I don't have to do it and I consider that a service well-rendered.

3. Less risk of screwing up? Very likely. I don't know the ins and outs of liability but you can sue them if they screw something up for negligence. Usually you'd just have to file a corrected return if it's something like them transposing digits. I mean, if they REALLY screwed things up then you'd sue them anyway. Usually, they can also provide representation (think of them as a lawyer for money) if the IRS does come after you and help with negotiations there. They also know what the IRS is looking out for and what the audit traps are so you know where to mind your Ps and Qs.

My taxes are pretty complicated but the $200 or so I pay a year makes me significantly more money in refunds than $200.
posted by Ghostride The Whip at 5:44 PM on February 19, 2014

To your last question: you're always liable for your return. A paid preparer is also liable, though (both to you and the IRS).
posted by jpe at 4:20 AM on February 20, 2014

1) Do not go to H&R Block or similar. You will probably just get someone who's typing the numbers into a computer and is not as smart as you.

2) If you are maxing out your 401k, it's unlikely that a tax professional will be able to save you much if any money. (One lesser-known option that might help you: the back-door IRA.)

3) If you are not trying to cheat, it is extremely unlikely that you will owe a fine. Tax software is designed for typical finances. You have typical finances. Thus, tax software is designed for you. (Even if you are trying to cheat, you're still extremely unlikely to get caught. The IRS has very little money to conduct audits.)

If I were you, I'd stop worrying. If you are still worrying, ask around and find a tax professional who will be willing to let you pay for an hour of time and will sit down with you and look over last year's return. If your situation is pretty simple, this should actually take about 10 minutes.

And if I were you, I'd spend a few hours reading about personal finance (start with this or this), as it's something you'll be dealing with periodically for the next 50 years or so. If you'd prefer not to do this, you could hire a fee-only financial advisor for a few hours.
posted by Mr.Know-it-some at 6:11 AM on February 20, 2014

I recommend a CPA. The CPA I use always finds some very interesting (legal!) deductions for me that I was unaware of. (Example: one year I got new garage doors for my house - I didn't know when I had the work done that I would be able to deduct something like that.) I don't know your situation but it sounds to me like you might not save much. I still recommend going with a CPA. But get reviews and recommendations for CPAs in your area, first.

I have used a CPA for many years. After four or five years of doing my own taxes, I decided to hire the accountant my family used. He is in New York, though I have lived in many other states (none of them New York) and had no problems -- you might prefer to hire a CPA in your state. The reasons that I decided to go with this particular CPA were:

1. The first year that I lived on my own, I hired a CPA who ripped me off compared to the CPA I use now. (Regardless of the complexity of my taxes in any given year, my CPA charged me a flat $200 fee when I was single and charges me a flat $350 fee for tax prep now that I am married. This other CPA charged me close to a $500 fee when I was single. Yeah. That's a 150% difference.)
2. TurboTax always always ALWAYS screwed up my Massachusetts state income taxes in some way, usually because I lived in an apartment in New Hampshire and thus TurboTax wouldn't let me take the rent deduction I was entitled to.
3. My family had trusted him with their (often complex) taxes for as long as I could remember, as well as with other accounting services he provided for the company that my father owned/ran.

A fourth reason that reassured me it was the right decision: My wife moved in with me (this involved a change of resident state for her) before we were married, and though I used my accountant for me, I took her to H&R Blockhead to do her taxes and we had a HORRIBLE experience there. I suspect Jackson Hewitt and other national tax prep chains would also be staffed with similarly idiotic people who don't know what they are doing.

Even when my tax situation has been simple (it's usually not), I've preferred my accountant.

My salary is probably similar to yours, however, I'm married, own a home, and have usually had some interesting complications like:

* One year, I lived in two different states and sold my house in a third state. (Had to file in all three states that year.)
* Several years I have had stock transactions (capital losses or gains).
* One year, my wife both started and dissolved her own business.

Form a relationship with a CPA now. That way if your tax situation ever DOES get more complicated, you'll have someone you've been dealing with for many years.
posted by tckma at 9:51 AM on February 20, 2014

OK, I'll definitely eschew H&R Block and the like. I'll probably keep doing my taxes personally for now; if there is ever the slightest hint of complication then I'll look for a CPA.

Thanks to everyone for the useful information and anecdotes!
posted by value of information at 5:13 PM on February 20, 2014

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