Do you really need an accountant to file your taxes? And will an accountant actually save you money versus using an off the shelf tax program like Turbo Tax?
In this post, I discuss my own personal experiences filing my tax returns with 2 different accountants vs using Turbo Tax and Tax Cut.
Specifically, this article will shed some light on…
- Whether an accountant will save you money on your taxes
- Whether an accountant will save you time on your taxes
- Whether an accountant will do a better job than Turbo Tax
2010 was the first year that my wife and I decided to hire an accountant to file our tax return and I remember being very nervous about the decision.
Even though I absolutely hate taxes, I’d been filing my own returns for well over a decade and I avoided accountants because I don’t like sharing my financial data with anyone.
I also like the feeling of control knowing how all of the numbers are calculated in my return. Now that’s not to say that you shouldn’t trust accountants but in the grand scheme of things, no one cares about your money more than you do.
Probably my biggest reservation about using an accountant back then was that I hated the idea of turning over all of my sensitive financial data to a stranger and paying him/her to file a crucial document that could have a significant effect on my finances.
In any case, over the last decade of running my 2 7-figure online businesses, I’ve used an accountant to file our taxes twice. And the other years, I’ve filed my taxes on my own using Turbo Tax.
However both times that I used an accountant, I ALSO used Turbo Tax to compare the results which I’ll share at the end of this article.
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Why We Went With An Accountant In The First Place
Back in 2010 when I used an accountant for the first time, I was running an ecommerce store, writing for my blog, working full time, and helping to take care of a newborn child. As a result, I didn’t have the mental energy to think about anything else.
When I file my own taxes, it typically takes my wife and I a good solid weekend to gather the data. Then, it takes another day to enter everything into TurboTax and then another few days to double and triple check everything.
All told, it takes me about a week to file and I was hoping that the accountant would save me that time.
I was also curious whether my accountant would save me money by finding additional deductions that Turbo Tax didn’t know about.
Sounds reasonable right? Unfortunately, things didn’t exactly pan out how I expected. Here’s what I learned.
What Does An Accountant Buy You Exactly?
Our accountant charges $200 an hour. As a result, having him file our taxes costs approximately $500 which includes our LLC. Compare that to the $75 that we usually spend on Turbo Tax and it costs us an extra $425.
So what does this extra $425 buy us?
The accountant prepares and file all of our taxes for us. All we have to do is provide him with all of the necessary data. Everything sounds pretty straightforward except for one thing.
The accountant typically does not audit the data we provide and we are the ones responsible for any writeoffs we make with our business. While he will alert us of any red flags, by default he will not challenge or check up on our business deductions and will only do so if we ask.
Needless to say at $200/hr, the cost of his time can really add up if we just hand him a bunch of receipts. But that being said, it’s nice to have a tax expert available to ask questions regarding any borderline deductions that could trigger an audit.
I was also under the impression that our accountant was responsible for filing our taxes correctly. In other words, I thought that our accountant would be on the hook if we ever got audited.
While this is true to a certain extent, it turns out that you are ultimately responsible for providing the correct numbers for the tax calculations.
In the event of an audit, the accountant is responsible for only the calculations and not the actual baseline data. For example, even if our accountant advises us to take a borderline tax deduction, we are still responsible for proving that the deduction is legit despite his advice.
In addition, in the event of an audit, it costs extra money for the accountant to respond if he is not at fault.
The good thing about having an accountant is that in theory, he is supposed to file your taxes optimally based on your numbers and your current tax situation.
He may be aware of obscure tax rules that could save you money and you don’t have to lift a finger. If you trust your accountant, everything should be taken care of correctly with no worrying on your part.
What About Turbo Tax?
Good ole Turbo Tax is super cheap. It costs us only $75 because we buy the home business deluxe version which covers single member LLCs. The base version I believe is free for the federal filing.
In theory, Turbo Tax should be aware of all of the latest deductions and ask you the right questions so you can take advantage of all of the tax breaks much like an actual accountant would.
While Turbo Tax is supposed to act like a virtual accountant, I personally find myself always erring on the side of extreme conservativism when it comes to taking deductions with Turbo Tax.
Sometimes the descriptions are obscure and not well explained so I’d rather not take the risk. The thing I hate about Turbo Tax is that I’m always afraid that I’m leaving money on the table by not taking deductions that I’m entitled to because I don’t understand the deduction thoroughly.
That being said, one of the things that I like about Turbo Tax is that they offer this program called Audit Defense. For an extra $40, an accountant or an account representative will take care of dealing with the IRS for you in the event of an audit.
One of my friends was audited last year and “Audit Defense” took care of everything. In the end, they discovered that he made a typo on his filing that was easily correctable and he didn’t have to pay anything extra.
There was no hassle at all because Audit Defense took care of everything.
The other thing that I like about Turbo Tax is that you get to keep an electronic version of all of the worksheets that can easily be imported into Turbo Tax the following year.
You can also try different scenarios to see what effects certain deductions and filing options have on your bottom line. In other words, you have complete visibility over your taxes and it’s dirt cheap.
Ultimately, Turbo Tax is great for control freaks like myself who like to do everything themselves.
Click Here To Sign Up For Turbo Tax And Do Your Taxes For Free
The Experiment
Since I’m a skeptic, I decided to conduct an experiment with our accountant. Even though I paid him $500 to file our taxes, I went ahead and prepared my tax return with Turbo Tax and compared the two to see if there was a difference.
If the accountant saved me more than $425, then it’d be a no brainer to use him again. Here’s what happened.
The Outcome Of Accountant #1
Our accountant fulfilled his promise and delivered our tax return way ahead of the April 15th deadline. The bad news is that our experiences with our first accountant weren’t exactly positive.
Before I continue, I just want to emphasize that the conclusions I’m making in this article should be taken with a grain of salt and are not indicative of accountants in general. There are thousands of CPAs out there and our experiences represent just a single data point.
To provide some context, my wife and I worked with this accountant for over a year to discuss tax strategies prior to using him to file our taxes.
We Got Off On The Wrong Foot
Because our first accountant worked about 40 minutes away by car, it wasn’t very convenient for us to talk face to face or to drop documents off at his office.
Pretty much the only convenient way to send our accountant information was through email or snail mail.
For those of you wondering why we chose an accountant so far away, it’s because he came highly recommended by a coworker of mine.
In any case, since we didn’t want to make the drive up to his office, we decided to scan all of our 1099’s and other tax forms into pdf format and emailed encrypted versions to him for review.
That’s when the trouble started.
Because we emailed him an archive of about a dozen password protected pdf’s, his assistant got fed up because she didn’t feel like opening each pdf up and printing them out. So she called and asked us to mail a physical copy of our tax forms to their office instead.
Personally, I thought this was ridiculous. We wasted more time on the phone than she would have spent printing out the forms. Even though I offered to condense all of the forms into a single pdf, she said that she would have to charge us $200 an hour for her to take the time and print out our pdfs.
Needless to say, this left a bad taste in my mouth from the start. But what could we do? We ended up sending her copies via certified mail, but I was pretty annoyed (mainly by the $200/hr threat).
Our Accountant Was Difficult To Get Ahold Of
Once our accountant received our tax information, things proceeded much more smoothly but what annoyed me was that it was difficult to reach him to ask even the most basic of questions.
Since it was tax season, I understood that he was probably swamped working on many other tax returns outside of ours but it would have been nice to receive quicker responses.
Perhaps it’s because I’m impatient and am used to doing everything on my own, but I like knowing what is going on and I need reassurance that everything is proceeding smoothly.
With our accountant, after dropping off our tax forms, we basically didn’t hear from him again until he was done with our return. Outside of a brief questionnaire in the beginning, there was no feedback loop and no additional questions asked.
The Accountant Made Errors
Not providing us with feedback during the process was all fine and good as long as he did a good job. But as soon as we received our tax return, we immediately noticed some errors thanks to TurboTax.
For one thing, there was a typo and the cost basis for one of our stock transactions was completely off. Granted, it wasn’t a straightforward transaction, but it should have been entered correctly.
To provide some background, the discrepancy was with a stock that I had purchased in several lots which had undergone a reverse split and then finally was acquired by an overseas company.
With Turbo Tax, I simply imported everything in directly from Schwab. But my accountant completely missed one of our buy transactions which resulted in a lower cost basis. In short, even though we took a loss on the stock, his return showed that we had a gain.
The second thing he missed was an energy tax credit provided by the government. Because we recently added insulation and drywall to portions of our house, Turbo Tax said that we were eligible for a 1K tax credit.
However on the return filed by our accountant, this credit was nowhere to be found. Later on when we confronted the accountant, he explained that he could not have possibly known about the work done on our house.
But shouldn’t this question have been covered on the questionnaire? Why did TurboTax ask me the question when he did not?
The final discrepancy that we noticed was that information from one of our 1099’s was not entered at all. We currently leave some of our money in Paypal’s money market fund and there was a minuscule dividend(around 20 bucks) that we were paid during the year.
However, we could not find this amount anywhere in the return.
Most Of The Tax Work Is In The Prep
My wife and I went into all of this thinking that using an accountant was going to save us time in filing our taxes. But instead, we discovered that we had to do most of the prep work.
In fact, we ended up spending many hours collating our business numbers and gathering all of the tax data for the accountant.
One of the reasons we spent extra time was because our accountant wanted our business numbers in a different format than we had them in.
In the end, all of our numbers tied out the same way but massaging them into his format took a good chunk of my wife’s time.
In any case, once all of the data was ready to go, entering all of the numbers into Turbo Tax took hardly any time at all. And this prep work was required whether we used an accountant or not.
Arguably, using our accountant took more time because after finding the initial error, we went through his return line by line to check for additional discrepancies.
The Benefits Of Using Accountant #1
I don’t want to come across as completely negative towards our first accountant because we actually got along really well but we were very disappointed with the results.
That being said, one of the benefits of using an accountant to file our taxes is that we learned the right way to file our LLC paperwork.
One of our motivations for using an accountant in 2010 was that we converted our business to an LLC midway through the year and it was unclear how to indicate this properly in our tax return. Because we used an accountant, we learned how to do this ourselves.
The other benefit is that our accountant helped us perform a more accurate assessment of our estimated tax payments. In the past, I had done a poor job of under paying my taxes which resulted in penalties.
In any case, our first accountant taught us how to file our LLC taxes the right way. As a result, we decided to file on our own returns for the next 6 years until something major occurred in 2016.
We Got Audited By The IRS – Enter Accountant #2
What happened in 2016? We got audited by the IRS and it was terrifying:)
In the grand scheme of things, the dollar amount in question was minuscule and simply paying the penalty would have been a drop in the bucket. But the problem is that if you admit any sort of guilt, then your chances of getting audited again go up exponentially.
Because, we wanted to respond to the audit the correct way on the first try, we decided to consult a tax accountant that was highly recommended by a friend in the ecommerce space.
Accountant #2 was significantly more expensive at $350/hr but they ended up being worth every penny. They helped us fight the audit and we ended up clearing everything up without any penalties.
As a result, we decided to use them to file our tax return that year as well. Once again, my anal retentive nature forced me to run the same numbers using Turbo Tax and compare the results:)
Here’s what happened.
The Outcome Of Accountant #2
First off, unlike accountant #1, accountant #2 was always available to answer questions throughout the entire process so the tax filing process was a much better experience.
However once again, we found discrepancies in their work vs ours. In other words, they made a pretty big mistake that significantly impacted our return.
Here are the details.
2016 was the first year that I held my conference, The Sellers Summit. And as part of running an event, I spend a lot of money on food and beverage to feed the attendees.
Typically, food and beverage can only be deducted at 50% when you are traveling for business. However in the case of running a large event like a conference, it should be deducted at 100%.
In any case, the accountant only deducted our meals and entertainment at 50% which grossly reduced our deductions.
If we did not run our own numbers with Turbo Tax, we may not have found this discrepancy.
However despite this mistake, accountant #2 did manage to find a few additional deductions that Turbo Tax did not find. In addition, they advised us to open up a SEP IRA which ultimately saved us a ton of cash.
All told, accountant #2 ended up saving us a significant amount of money because of his advice which made it worthwhile overall. However, it was upsetting that they made a careless mistake even though we were paying them $350/hr.
Conclusion
So what conclusions can we draw from my 2 experiences with using an accountant vs Turbo Tax?
- No one cares about your money more than you – Accountants make mistakes and it’s up to you to double check their work. Is it a coincidence that we found discrepancies with both accountants? Maybe. But it pays to be super anal.
- An accountant can’t change the past – Using an accountant is probably not going to save you much money versus Turbo Tax for just filing a tax return. In general, Turbo Tax does a pretty good job of finding deductions.
- Hire an accountant when your tax situation has changed – If you need hand holding throughout the tax filing process, then it makes sense to hire an accountant. For example, accountant #1 helped us learn how to file taxes as a single member LLC
- An accountant can help you improve your future tax situation – The SEP IRA was a great suggestion from accountant #2 that we might not otherwise have considered.
Overall, I don’t think that an accountant makes a huge difference when filing your tax return and Turbo Tax does a pretty good job. In addition, if you are super anal like I am, you’ll end up double checking your accountant regardless which means you probably won’t save that much time either:)
The true value of having an accountant on board is to provide future guidance and answer your tax questions going forward.
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Steve carries both a bachelors and a masters degree in electrical engineering from Stanford University. Despite majoring in electrical engineering, he spent a good portion of his graduate education studying entrepreneurship and the mechanics of running small businesses.
I stopped filing my own taxes when I started the business and had way to many documents to file every year including my W-2s from my employer and at least 10 other misc documents. I need someone who knows tax laws etc, especially now since I am filing for two states for ’09 (California and Oregon). I do my own business bookkeeping to save money and keep tracking of my expenses, income, etc, but an accountant does everything else.
I honestly don’t know if an accountant has helped me saved money in the past or not since I’ve never really taken the time (hours and hours I suspect) to really learn about business tax laws, and not risk getting audited; especially while working full-time and running the business. In my case, it was a time factor.
@Carla
It sounds like your tax situation is more complicated than mine. I just have a W2, a bunch of 1099’s and the Schedule C to worry about. My wife takes care of the books so it’s not a big deal. The knowledge I have of taxes is from books but as you probably know, there are a lot of gray areas in the tax law that books just don’t do justice.
Thanks for joining the ranks in overcrowding Oregon!
We have also used Turbotax for years and I have had many of the same questions you have. I would love to know, after the accountant finishes for you if you see any significant difference in what you owe/don’t owe. Will you write a follow up? I hope so!
@Carmen
There will definitely be a follow up. I’m secretly hoping that my accountant will come out better to justify the costs.
@Julie
You got it! I’ve been using Turbo Tax for years. It’s a great piece of software
Julie from TurboTax. We LOVE a challenge! Will check back to see how the comparison goes.
I think that handing my taxes over to an accountant has been — long-term — one of the better decisions I’ve made. I’ve got plenty of borderline deductions and having someone who can advise me on the specifics of my business has been incredibly helpful.
On top of my taxes, having an accountant has helped me to both grow my business and handle personal matters more effectively. For instance, when my husband and I bought our house, having the accountant prepare a letter setting out how much income my business produced and how much I could easily put towards the mortgage each month helped make the mortgage process a lot easier to manage.
@Thursday
We’ve had an accountant as an advisor for quite some time so it will be interesting if he can give more specific advice once the numbers are all in front of him. I hadn’t really considered having an accountant for other purposes like with your mortgage as I like figuring out and planning our finances myself. If this goes well, perhaps I will use him for other purposes as well.
Hi Steve,
My first response was that the accountant is worth it because he is going to save you way more than $500. But when I saw you are going to do the challenge, that is just brilliant! Can’t wait to see the results!
@George
Thanks! I’ll keep you posted.
@Kamal
Sounds like you made the right decision. If taxes and bookkeeping aren’t your core competency, then you should outsource. Our situation is a bit different since my wife worked in finance for some Fortune 500 companies for over a decade. She knows what she’s doing when it comes to bookkeeping and I know a good deal about taxes from reading as well. Even still, having someone who does this for a living should make a difference. At least we’ll find out:)
I started using a CPA for my taxes several years ago and I’ll never try to do mine again. I do tech consulting and I’m about as lost when it comes to taxes as are most of my clients when it comes to software. Since I’m a consultant I have no problem paying another to do something I myself am horrible at. Also, I just wouldn’t even do my taxes because I literally hated it. My CPA saved me! $500 is a decent price, mine is about the same. Also, after getting my taxes in check I work with a Bookkeeper/Quickbooks Consultant and meet with her every month to balance the books. She charges around $70/mo and I find this invaluable! Believe me I will rack up so many late fees if I didn’t have this help so it pays for itself in dollars but more in peace of mind. I allow my bookkeeper to remotely access my computer so that we work over the phone and neither her nor I need to leave our houses which is nice.
One of my favorite books “Think and Grow Rich” has a chapter on creating a “Master Mind” of business colleagues as your team to help propel you to success. I feel knowing your own weaknesses and limitations and allowing others more talented in these areas do this for you is the best way to move forward, and the only way to go beyond personal limitations. The best leaders are those that surround themselves with people that are more talented than they are 🙂 And my CPA kicks my but when it comes to taxes
We used to go to a CPA. I thought it was too complicated for me to do. After twice checking it over and making him do our return over because he included EE bond interest in my state income tax form I decided to do the taxes my self. The CPA said you are going to make me do it over for less than $100 more in your refund. I said that is what you get paid for. I would ask for you to do it over for $1. I am paying for your ability to do taxes and if you can’t do it correctly you should not be in business. I never went back.
My sister and husband goes to an accountant. He made a mistake by combining her inherited IRA distribution with her traditonal IRA with a basis in figuring out her taxable amount on that distribution. That also is incorrect. When I went back to him with her he said after about 30 minutes looking up the information you are right but it is not worth my time doing it over.
We are now retired with a lot of investments, rent our land out for corn and my biggest problem, is finding Schedule E on Turbo Tax. I trust myself, Turbo Tax, Publication 17 and 1-800-829-1040 to answer any questions I might have. Received letters twice from IRS. Had to contact the taxpayer advocate. It had to do with Social Security checks from the 1970’s and 1980’s that my in-laws had not cashed for years. After they passed and we found the checks while cleaning out the house we took them to the SS office got receipts and waited for 2 years to get them replaced for probate. The SS office also lost about 30 of the checks. They said they did not and then we show them our receipts. Well SS sent a 1099R that the 3 children owed income tax on those funds. Income tax was not owed on SS during those years and even if it was owed the parents would have paid the tax whether they cashed the checks or not. The taxpayer advocate showed me how to find the law in the internet and print it out to bring to SS to get them to change the 1099R’s and Mr. Payne said “I said you are going to pay tax on those funds so live with it. IRS is not our boss.” Well I went to my congressman and he sent all of our information to Chicago and the next day we had a letter from SS that no taxes were owed. IRS is always very helpful. I retired in 2008 and when I called and gave a date that I wanted my tradional 401K rolled over and my Roth 401K rolled over they said you called today and today I have to put thru the paper work. I said forget that I called that I want the interest that will post to my account in 2 weeks. She said no. It is too late once I answered the phone. Well I was in an account like a high interest money market and they closed the account on a Friday 2 weeks after I called and before the Monday when interest would have been posted. I called them and they said that I could not have the interest cuz the account was closed. Well I contacted Washington and 1 year later the interest was in my account and I received the money 2 months later. But then the 1099’s started to come. So far I have received 2. Both are incorect. Now I have 4 and only 1 is correct and when I called this BIG BANK that I used to work for the girl says just write void on 3 of them and check the corrected box yourself on the one you want to use. I called IRS and she gave me her badge number and said if you don’t get this fixed in 48 hours you call me and I will make a few phone calls. I trust myself and Turbo Tax, Publication 17 and 1-800-829-1040 anytime over a CPA or bookkeeper.
PS The taxpayer advocate called me at 10:30 at night. I am a late night person. She said she could not sleep and went to the office and read my note and was fascinated by it she had to call. A very dedicated person.
Steve, the advantage of an accountant probably won’t show on this year’s taxes. The advantage of an accountant is that he / she can tell you where to make changes that will save you taxes and other headaches next year.
I think you’re right not to take anything questionable. But using an accountant might make some of those corner cases more understandable. It might make one or two deductions less questionable.
In other words, don’t expect a big savings this year on the accountant. Expect to work with the accountant over the next year to change the way things run so that you qualify for more deductions and are more certain about the ones you do take.
@W^L
Actually just spoke with our accountant, told him about this challenge and he’s up for it. Hope he doesn’t get me audited though. Overall, I think you are right. Having an accountant makes future tax planning much easier and is one of the value adds.
@Tyler
Secretly, I hope our accountant wins as well. We’ve been fairly conservative over the years so we’ll just have to see what happens.
steve, how did your comparison go? turbo tax vs accountant?
Steve, personally I’m really hoping that your accountant pulls it off and saves you some money! Don’t forget that your time spent preparing your taxes is time that you are not making income on other projects. Also, your accountant spends loads of time learning about tax law, tax planning, and tax compliance, stuff that you probably don’t really care to learn.
My personal experience is that we save some first time clients money when we prepare their taxes, some break even, and some even pay more in the short run. Pay more?! you ask. Yes, they find out that they were doing it wrong or just plain not doing it and come to us to get on track. Often this happens after an IRS agent gently lets them know that they are over their heads.
I’ll keep watching for the results (and cheering on your accountant!).
An accountant will pay for themselves 100 times over if you have a complex return at all. I do a better job than Turbo Tax without all of the annoying questions.
Interesting blog!
I have been using Turbotax for 2 years -this will be my 3rd.
I have used an accountant for the last 9 years and I think he’s great. The last 2 years I paid him and turbotax to do the same experiment (although my life and taxes are much simpler than yours 🙂
I found that I have gotten more back with turbotax and I like it, but I am very cautious of turbotax. I worry about them being a huge company and getting too big to care.
This year I had a MAJOR problem and it turns out it is a MAJOR problem for MANY other people.. and still hasn’t been fixed by turbotax or the IRS (whoevers prob it is) so major, in fact, that turbo tax has an entire page devoted to the issue- Rejection Code 1132 or 1133: Schedule M – Economic Recovery Payments Received does not match IRS records
So, this year it turns out I have to file by paper. which is frustrating and I still don’t understand what the problem is.
The only way to talk to a turbo tax person is to google: turbotax customer service phone number and then you get this fantastic site
I also found this website with so many negative things about turbotax it will freak you out, but I realize everyone has a critic. (but it seems esp this year there is a lot of negative feedback. I wonder if turbo tax has made some changes lately?)
And finally, whenever submitting your sensitive data online, here is an old, but good reminder and well written article: “Putting too much trust in TurboTax” http://blogs.computerworld.com/node/5358
I am also a control freak too and I think I will cont to do both, because I like my accountant and I like knowing there is a professional I can talk to.
(I will cont to do both unless I get screwed bigtime by turbotax or my accountant retires! 🙂
Can’t wait to hear more about the experiment! -Sophia
@Sophia
I feel exactly the same way about Turbo Tax. I’m always a little skeptical when it comes time to take some of the more obscure deductions. I’m also wary that the software may have bugs from time to time. The good thing though is that the IRS and Intuit seem to work together. If TurboTax has bugs, then the IRS provides a bit of leeway as well. I remember a few years back, Intuit was having server problems so the IRS gave the affected people more time to file and pay their taxes.
I took a look at some of those anti-Turbo Tax websites. I think with any software there will always be problems. Many of the complaints seem to be installation issues which doesn’t concern me as much.
Thanks for sharing your story. I will definitely be posting the follow up whenever my accountant finishes up.
The IRS and Intuit in no way shape or form work together. They are not lenient because you used turbotax and it calculated your taxes wrong. Are you an intuit employee?
sophia, last year I paid my accountant 700.00 and then did turbo tax too. I think I will do the same this year, go through the turbo tax first, and then do the accountant and see what the difference is. It helps me learn to compare the two. I’m not sure why my CPA charged me $700.00 last year as years prior it was only $200.00. I will ask her why this year. Are you going to continue to do both? Do you file with your CPA or with turbo tax?
absolutely LOVE your site and all the great info… extremely helpful, well laid out and nice to know there is a real person behind it all! thank you!
Hi Steve,
Thanks for taking this topic. When do you think you will have the result of the comparison? I completed my taxes with turbotax this year. I have IRA, investments, rental property, real estate professional and a full time job. I felt that TurboTax made it pretty simple and optimized my return quite well given the number of possible deduction options it provided. However, I have no basis of comparison with anything else.
I should ask TurboTax to see if they do these kinds of analysis regularly to ensure that they are at the top of their game.
sri
Hello,
I was curious when you might post the results of your experiment. I find myself in the same predicament and have been using accountants the past 4-5 years but was thinking about switching to Turbotax to save $500.
Nice blog btw!
I used to have my taxes done by the accountants and often time I found mistakes. They do the taxes based on what I provide them and if something is missing or does not look right, they would not know or even ask. So, I started to do my own taxes using TT in the past 8 yrs. I did the same experiment like you are doing and went to H&R Block to see if they can get a different result after I have already done my taxes in TT. I also did not understand ISO stock option and HSA account contributions and deductions. It turned out that tax preparer did not know the answer either but she said she will ask and get back to me. In the end, her result turned out exactly like what I had in TT, off by $3. This year, however, I have an issue with TT that I did not understand, needed help and thinking of going to an accountant but I wish I can figure out on my own and cont to do my taxes. The issue is with rental passive losses. At the beginning I have passive losses on my rentals and I did not manage my properties so the losses cannot be deducted against income. However, in the last year, I started to manage my property so the passive losses now become active and I should be able to deduct it against my income according to the IRS to a certain amount based on my income. The problem is, I don’t know how to make that change (from passive to active) in TT. With TT, you put in what they asked and you either get it or not get it. I don’t know where in TT that I can make that change.
We always have done our taxes with TT and never had any problems. They have always been fairly simple and straightforward. Not much has changed this year, except that we purchased our first house. I decided to to our taxes online with TT and it basically came back with the same refund as last year. I was worried I was doing something wrong, so I decided to go to a CPA to do our taxes and see what he came up with. Well, long story short, he is getting us back 150$ less and charging us 240$.
I’m not sure what to do from here. Do I have to file them with our CPA? or can I just file them on TT since that would get us more money? Any info would be helpful!
Most likely the CPA did it right and you are making a mistake that will cost you more in the future than what he charges. CPA’s aren’t paid to get you the biggest refund, they are paid to do your taxes correctly according to the law. It always makes me laugh when someone bases their decision off the size of their refund (which has no relation to level of skill). Do you understand that you might be entering numbers in the wrong boxes and might have done that on your prior year return, which is what you used for comparison? Your starting point assumes that you have already been doing it correctly in the past.
An example of where DIY software fails: You see a box for auto expenses and determine that you have spent $4,000 in auto expenses this year, however, you don’t know which auto expenses qualify and what percentage of those expenses would apply. Your accountant determines that only $3,200 qualify and you only used your vehicle 50% for business, resulting in a deductible auto expense of $1,600. The correct deduction in this case would lose you money compared to the version you prepared yourself, but cost you thousands if you ever got audited. Your reason “I spent $4,000 on auto and the category said auto expenses” won’t fly with the IRS. Of course, sometimes it goes the other way and you end up getting a larger refund because of a deduction the accountant found. Just remember, the result says nothing about the skill level of the accountant. Your tax return results aren’t going to be the same every year, just like your life events aren’t the same every year. Also, I hope people understand that using an accountant provides the most benefit over years, not one year. Accountants don’t create benefits for you, they only determine if you qualify and prepare you for next year.
Hey Mike,
In this case, I showed my CPA what Turbo Tax was telling me and he acknowledged his mistake. He missed a deduction that Turbo Tax found and made an egregious error in one of the stock transactions.
My husband and I first had a CPA do our taxes the year we got married. We’d sold two houses that year and bought a third, plus his two sons were living with us a little more than part-time, so we figured a little extra help would be a good idea. That was five years ago, and we are still going to the same CPA each year for our taxes. Why? Because I HATE doing them, because my free time is limited (and thereby very precious), and because I like supporting local businesses.
People who go to accountants for simple returns are being robbed. If you have something complex then it’s understandable…
I paid $700.00 to have a CPA do my taxes for me, I also did my own on turbo tax.. I was very pleased with the prompts from turbo tax even for my complicated taxes. Turbo tax came up with $2,000.00 more of a refund for me . The CPA made 2 major errors- I reported as “interest” the dividends on my life insurance , and Roths, which she reported as “income” , which I did not spend and did not generate a tax document, and the company says i do not owe any taxes on this money until I withdraw it. It was useful to work with the CPA who has been doing our taxes for years so that I could be prompted to organize all my paperwork. But i will be using Turbo Tax next year.
Good topic. I think about the same thing every year – collect and store receipts better, start taxes in February, but like many, I spend the last 48 hours before the deadline, literally, trying to get through the maze. Collecting the data all year requires discipline, but there is nothing you can do to avoid the confusion of the easy-step maze of questions that the layman mostly will not understand.
A serious accountant tax preparer deals with tax authorities on a regular basis and therefore (potentially) adds a layer of real world knowledge and interpretation based on practice. You would be surprised to find out what some vague official filing guide info translates to in the real world, including, no, you don’t need to do that etc. although is says to do that on paper.
Tax preparers have similar auditing software as TT, but I would guess that to have someone actually sit down with you and advise on right and wrong methods, you are looking at 1500-2000 a year if you have any kind of business income.
Here is the review of TT I submitted to intuit
A few years ago, you went from poor to slightly better with the interview and guidance, I was hopeful.
Now, 3 or 4 years on, you have not reached an acceptable level of confusion avoidance.
– The help info on any topic or line provides closed to zero guidance or useful explanation
– Through the pages of “easy-step” questions at every step, I have no idea how to answer the questions, TT provides no Guidance on 95% of them (besides the sparse “Guide Me” icons once every 100 pages, yet answering all these questions and understanding if they apply to you is crucial for TT to use the right forms.
You really NEED to step up your game as tax filing gets more and more confusing, on the pages where you list 15 cryptic questions and “click all that apply to me, you need GUIDE ME on every single one of those questions.
I have worked in finance, and I am comfortable with numbers, and I pull my hair out every year, so I cannot imagine what someone with no understanding of these accounting and the poorly formulated language of the easy-step questions does…
Unless you can hire more tax professionals to give real world added-value explanations and interpretations of all these questions, we might as well hire an accountant because 9 times out of 10, repeating the information in the official tax guides is of little or no use the layman.
accountants will usually tell you “NO, that’s not what that means, and they you realize you have to know the ins and outs of what tax accountant standard approach is to all these things.
If you do not understand the questions in TT, how can you be sure you are doing it right.
PROVIDE MORE GUIDANCE, ALSO ON QC QUESTIONS SO WE CAN FIGURE OUT WHAT THEY MEAN IN THE REAL WORLD
Signed: Confused more and more every year.
Turbotax is great for the 80% of tax situations out there. For the complex situations, you shouldnt be using TurboTax and you should use a tax professional. Thats the bottom line. THis is true with anything. I have used TT for 5 years now and my situation is pretty typical and I find TT quite intuitive to use. Is it better than a tax accountant ? I dont know but I cant imagine it being a lot better. If my situation was complicated, I am certain a tax accountant would be able to find those hidden deductions but its not.
For rather complex businesses, hiring a tax accountant will be cost effective. Thanks for coming up with this type of article!
Accountants are a great help not only for filing income tax but for tax planning as well. Well, I am quite curious and a bit excited on the results of your experiment. Looking forward to reading that here!
Ok from 2004-2009 I filed online with Turbo Tax. I too did not want a stranger to have any of my sensitive information. But it bit me in the butt. I was audidted. And bcs I messed up my taxes I had to pay nearly 6000 back in taxes. I’m right at the edge of poverty line. I only make 35,000 a year as a single mother, so I didn’t see the point of having an accountant. Boy was I wrong. Once your on their list you will get audited again, I have been audited every year since. Having an accountant file for you gives you a safety net of having any blame put on you. (If the accountant messes up, they take responsibility and pay any back taxes from their mistakes, its a nice stress reliever if your on IRS radar) I know websites say that your chances of audit are 1 in every 104 some say 1 in 250 but once your on their radar you can never get off. I was on their radar because I had a huge return that a coworker was jealous of and called their tip line. (The IRS even pays whistle blowers for tips on tax cheaters) Now I pay the little fee and have a safety net of not getting blamed for any wrong doing. Plus bonus I keep all my gas receipts, food receipts, phone bill, utilities bills, and work clothes receipts which gives me huge deductions. Plus I do not have to do all the paperwork. Paying a CPA is way worth it. I cut down trees this year and got a huge deduction for that. I refuse to trust a computer anymore. Good luck!!
TurboTax makes you “feel safe.” In reality you have no idea if you answered the questions properly or if you forgot to put info somewhere you didn’t know it needed to go. One of my clients messed up so bad they owed $13,000 until I reviewed their return, amended it by putting numbers in the proper places. They haven’t gone back to turbotax since.
Another problem is you really don’t have any idea if your doing it correctly. If you have an LLC, a Corp, an S-Corp and your doing your own accounting and taxes and not paying a CPA to do them you are flat out crazy! I guarantee your doing your accounting and taxes wrong.
Don’t want to share personal info? A CPA cannot tell ANYONE about your personal info or they will lose their license. A little knowledge goes a long way. Not to mention they know way more about accounting, insurance and investments that would be far more valuable than the $400 you think your saving by going to turbo tax. We have many clients in many different industries. We see what works and what doesn’t. We have networks of Lawyers, IT and other professionals at our disposal that can help you. So your not just paying $400 for a tax return. Your paying $400 for a professional. Unfortunately this in no way applies to HR Block, Liberty Tax or Jackson Hewitt. These places are complete nightmares. I haven’t gotten a return yet that was 100% correct from clients of these places.
I am an accountant. Worst case, next year you’d rather do your own again, you can always itemize the $500 you paid and get back some of that. Hope you’ve been doing that with the $75 you paid toward turbo tax.
Thanks for providing basic information about Taxes Vs Using Turbo Tax Or Tax Cut.
I cannot find when this article is dated? are the results in yet??
I did my taxes both ways this year. Used Turbotax and an accountant. Turbotax had me owing net $3,800 between federal and state. My account had me owing net $700 between federal and state. Verdict: Its worth the extra $200 ($125 after the cost of Turbotax) to use an accountant. BTW, I lived in two states last year (part New York and Part New Jersey). Turbotax totally screwed up the NYS return and had me owing when I had money coming back. I know this because I manually did the NYS and NJ tax forms myself. My numbers were exactly what my account got but varied widely from Turbotax. Turbotax just isn’t worth it.
I have a similar situation, but my taxes were already filed. I want to know if it flags the IRS if I get a new accountant to do my taxes, in hopes that I owe less…?
You will not be flagged by the IRS by getting an accountant. If you think you did your taxes wrong and your accountant agrees, he/she will have to amend the return for you. Just be prepared that most professionals will likely charge you the cost of doing an actual return PLUS the amendment. When it doubt, use a live body….not TurboTax. Fixing things is always more expensive.
thanks for sharing, Hiring an accountant to do your taxes vs using turbo tax-cut
An accountant can help you handle growth transitions, such as hiring employees or taking on more office space. They’ll look after the detail (payroll, employee tax management, property tax, utility payments and so on), leaving you free to look at the bigger picture of the way your business is growing.
Not sure how old this article is and my apologies if I missed the answer to my question in one of the comments. After you were done with all the corrections was the return the same in turbo tax and the account? Was the accountant’s refund any better? I think about this every year. I hate to waste the money when we have a small refund every year.
Thanks!
I have used turbo tax for many years. Now when I use it the figures are changed somewhere. They have been changing my figures since 2013. I will not be using turbo tax any longer!
i had serious tax issues back in 2014, but a friend introduced me to Keith, he kind of sorted out my tax issues i even had to pay less than what i owed in taxes… how he did it, i don’t know but he is good…. you can contact him on elaghav@gmail.com
Your Article is Wonderful! A lot of Great Tips and Very nicely written. I have learned a lot from your article Thank you for sharing with us.
Let me first say that I have worked in tax office. Here is the deal: the only real advantage of hiring someone to do your taxes is for them to represent you if IRS contacts you. You can simply hire professional for one year and study how they did the return. The following year you can do it yourself. I would only recommend a company/person get their taxes done every year by tax service only if they operate in grey areas of tax code. If your personal or business return are 100% legal without much fluctuations in what forms you will use you will save yourself $300-$400 dollars a year doing it yourself. That’s whole bunch of Facebook advertising to grow your company.
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TurboTax is junk. Also, their audit defense is worthless if you are audited. You need to use an Enrolled Agent Accountant when it comes to taxes. They are well versed in tax rules and can actually represent you in regards to the IRS.
Coming from someone who has a family member working for the IRS.
Thanks for this post. This so relevant for me right now because I’m similar to you- anal and I don’t trust people with my info. Plus, I have a hard time trusting people to do diligent work. Any tips for getting over this? I haven’t found an accountant that I like yet, but I know I will need to in the near future.
This is fascinating. I have ALWAYS done my own taxes, even in the years when I had multiple K-1s I had to juggle. This is the first year I have engaged an accountant (like you, we are transitioning to a LLC for the first time), and I’m already chomping at the bit to take control back. I figure we will learn all we can from what happens this year and then I will go back to trusty Turbo Tax the next. Thanks to this article, I will also buy a copy of Turbo Tax this year to double-check!
It seems like hiring an accountant is a good idea. Like you said, hiring one would save you a ton of time, in the long run. If I owned a business, I wouldn’t ever do my own taxes.
I used TurboTax last week for the 7th year in a row. I think it’s the best for investors and very easy to use.
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I’m glad to know that you are super anal… I guess with some lube, everything works just fine.
Good on you for checking over your returns (you should), but you sound like a hellish client. For one thing, if we are chatting with you every day during tax season, nobody’s return is getting done. It’s the busiest time of year, and while you are important, no, you’re not going to hear from us as much during this time. Provide good, clear records, give us time and space to do our jobs, don’t complain about our fees (do you work for free?), and you’ll have a great experience. Respect the preparer and the process.
-Frustrated and salty CPA
Professional and helpful blog. Thanks for sharing.
Professional and helpful blog. Thanks for sharing.
Hi,
Amazing article And you defined very clearly about taxes and need of an accountant to handle tax transactions. I have learned a lot of useful information through your blog. Thank you for sharing such a valuable blog.
thanks for sharing
I wish you would have put me in your ‘experiment’ so I could write a nice blog about what a pain in the ass client you are. The main reason people like you get diminished services from accountants (and very likely everyone else you deal with) is because you walk in thinking you know more than they do. Why is that? Is it because you’ve managed to trick-fXXk lots of people out of money with your ridiculous, thin-gruel, error filled advertising website. Is that why you know tax law so well? Because you ‘experiment’ with Turbotax?
Tell you what, genius-with-a-website-to-steal-money -from-innocents – I’m going top start an experiment on your services and write up the results on my blog.
PS: I recommend your wife start looking for a job.
I just like to do my due diligence and learn as much as I can about what I outsource:)
No one is perfect and people make mistakes which is why TurboTax found some things that first accountant did not. On the flip side, my second accountant found a few gross deductions that Turbo Tax did not.
Best of luck to you