Tax Season Challenge Update

Earlier this year, I went to go see the accountant and decided on the way down that I’d see if she earned her fee, basically.  What I wanted to find out is if I could get the same amount of money back if I used a program like turbo tax instead of her firm.  While I think some professional services are worth it (like lawyers or doctors in most cases) there are some that can be easily replaced by computer programs – like accountants.  What I was wondering was if my accountant was worth the cost.

Earlier this week, I got an email from her saying my taxes were ready, and the amount of refund she said H and I would get was much less than my (admittedly shoddy and probably wrong) back of the envelope math.  Unfortunately, my back of the envelope math was way off – I think I missed a number somewhere or got something mixed up in my head as I was trying to do it without the papers in front of me.  I had initially calculated we’d get over 5k back, but that was not to be.

Our Tax Situation

H and I each had a w2 from a day job, we had a few 1099 INT forms and 1099 MISC, and some tuition (for H) and some student loan interest for me.  We also had some home interest as well.  I also have a side business that generates a small amount of income every year.  Obviously, our tax situation isnt totally straightforward like we have 2 w2’s and some Interest and some home mortgage/student loan interest, but its pretty close.  My side business did less than 8k in business, and made less than 4k in overall profit in 2012.  I do have it incorporated, but it’s all taxed as pass through income so there’s nothing super special about the forms that are needed for it or anything like that.

In the first corner, we have the accountant.  It’s the same firm that I used last year, and I went back this year even though my taxes were not complicated, I/we had a lot of changes: we got married, bought a house and I incorporated my side income.  I wasnt sure what effect all of this would have on my taxes.  There were no promises of huge deductions (and they didnt even know they were in a competition to be honest) but I just wanted to see if they were worth what they charge.

I went down and talked with her for about 20 minutes, dropped off all of my tax forms, chatted a bit about the business expenses, H’s tuition and then I went and met up with an old co-worker.  All told, I probably spent about 2 hours commuting to the accountant, meeting with her and driving back.  I didnt hear anything for a few weeks, and I got an email from her saying that she’d finished up my tax return and that I was getting a refund.  It wasnt the 5k that I had hoped, but it was better than owing like I had the last few years.

In the other corner, we have Turbo Tax.  Before last year, I used turbo tax religiously because it was free for simple returns like mine, and easy to use.  Using it typically ment for me tossing some numbers in there, spending about an hour and then waiting for the feds to deposit a check into my account.  This year when I ran through it, I had to upgrade 2 times and filed with the turbo tax deluxe edition, which costs $30.  It took me about 3 hours to get everything entered into the system, so the time spent with each is about the same.  Turbo tax asked all the questions, but seemed to have difficulty with some of my business expenses, and wanted me to upgrade to the one that costs $79.  I demurred on that, and continued my return.  I watched the needle estimating my refund/amount owed bounce up and down, and by the time that I had finished it was comparison time.

The accountant was able to get me a return of 1,129, while turbo tax could muster barely less than half that, at $525.  Honestly, I didnt expect it to be anywhere near that big of a gap.  I didnt really expect the software to win, but I didnt expect them to get their butts kicked that bad either.  While the accountants fee was kind of high, even after subtracting her fee I’d still come out ahead – a total no brainer for this year.

Readers: What do you typically do during tax season?  Do you file yourself, or use an accountant?  For those of you who typically do one or the other, what do you think about the results?  Who did you think would win?  Do you think this is affected by the fact that I live in a part of the country with a lower cost of living?

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13 thoughts on “Tax Season Challenge Update

  1. I don’t think your comparison was fair. Different versions of Turbotaxare designed to handle different financial circumstances. There is a handy dandy chart on their website. The Deluxe version is designed for relatively simple returns, Premier includes investments and rental properties, the one we use because we have investments. The Home and Business version is for people like you, with self employment income. I assume your accountant charges more for complicated returns than simpler ones. So does Turbotax. You refused to purchase the correct software, and then complained because it did a poor job. It’s like having a car washed and waxed by hand and having one go through an automatic car wash, refusing to pay for wax, and then complaining because it’s not as shiny as the first one.

    • Hi Sue,
      I may not have been clear in my article, but I was using the proper version of turbo tax. The way the online returns work is that you enter all of your information, and keep going as a “free” user until your return starts getting complicated. Onces that happend (it did to me, 2 times) they port all of your information over as a paid customer, and you keep filling out your tax forms and entering information, but you dont pay until you’re ready to send your return. I was using the home and business version when I got to the quitting point – All I needed to do was confirm my ssn and pay turbo tax, and then they would have completed my return and sent it in.

      Jeff

  2. This was absolutely fascinating! I have an accountant (ugh, my dad, but he’s a certified preparer!) and sometimes I do wonder if a program could do a better job. Then my dad reminds me that most preparers these days use TurboTax or something like it, they just have a better idea of how to navigate it.

  3. I’ve always used a CPA. I have moderately complicated returns: pensions, stocks/bonds, inherited IRA distributions, rental expenses/income, etc. etc.

    I listen to a financial radio show and this time of year they get callers with lots of tax questions. It’s easy to see how people can get led astray by computer programs if they don’t understand terminology. For example, an IRA “conversion” is a different thing with different tax consequences than “re-characterizing” an IRA . If you use the wrong term with your accountanthe can ask questions and do it correctly. If you tell the computer its you did a “conversion” it will likely take your word for it.

  4. I have considering using an accountant, but I’m worried that I don’t keep good enough records from my side businesses for them to fully get the maximum benefit I would be entitled to. I should probably look into it with the documentation I have, but I’m just afraid they can’t do much for me.

  5. We did our taxes on our own with the help of my accountant cousin until last year when it got more complicated thanks to my online business (and my cousin got too busy). While it is expensive, I’ll gladly pay to have them do all the work.

  6. I have always had an accountant do my taxes, because I never trusted myself to be up to date on all the new tax laws that continuously change. I always want to be sure I am taking full advantage of all the tax breaks available. I am Canadian, and our tax laws vary quite a bit with new things being added every year that could result in a greater refund. I think the hassle and cost of an accountant is well worth it in my case at least.

  7. We always use Turbo Tax. I don’t know which version, but our situation is pretty complicated. Luckily my husband is very astute financially, and he works really hard to get as many deductions is legally available. I’d be curious to see if a CPA could do better, but I have to say I doubt it. I know this isn’t a typical situation. I liked your post and I’m glad you came out ahead this year.

  8. I used to do it all myself, but, like you, as things got a bit more complicated, I upgraded to an accountant. Not only does the accountant do a better job than I do (in my opinion), but it takes far less time.

  9. Years ago, I did our taxes, but after the first year, when my husband was willing to sign whatever I put in front in him, rather than even checking my math (pre Turbo tax days), I decided I wanted to share the responsibility. I found a tax preparer and we’ve used one ever since. Some years are more complicated, some are simpler but the money spent is worth it to me to have it prepared and then double checked before submission.

    I’m pretty good about the preparation so my appointments are generally pretty quick, or I do by mail. I don’t think in the tax terms on some subjects but I have everything labeled and ready to go. I like the appointments as we also discuss what might be coming up the next year, changes in tax law and such.

    But if my husband had only agreed to get his calculator out and double check my math, I would probably still be doing them myself.

  10. Don’t really think this is a fair comparison. Maybe (just maybe) your accountant is more aggressive than you are with certain fungible numbers?

    I use a CPA, but mainly because I want someone to contact if shit hits the fan lol

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