What happens if I do my own taxes?

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notmyhand
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What happens if I do my own taxes?

Post by notmyhand »

Some background first -
My fiancé and I each run our own small businesses taxed as s-corp. We are the only employees and it is largely consulting work so standard deductions - mileage, hotel travel, meal per diem, home office deduction, health insurance. All substantiated with receipts, mileage logs, etc. We pay ourselves a salary via w2 and take owner distributions as would be expected. We deduct for HSA on our 1040 and have solo 401ks and don't have any additional income (although will probably get a 1099 for savings account interest). I do our payroll and quarterly estimates and do fine. Only odd thing this year is that we have a home sale.

For the past two years, we have used an accountant to prepare our yearly returns to the tune of $500 each. We gave him a summary of everything for the return such as what deductions to take, and all receipts summarized and totaled. Unfortunately, he gave us some wrong advice quite often. For example, no depreciation taken when doing the home office deduction (which means I have to prepare form 3115 now when I recapture depreciation now at the home sale), the first year he told us we didn't need a separate bank account for the business, and last year he deducted our insurance premiums via 1120s without having me put it on my w2 to write off on my 1040 which the IRS is very clear must happen.

Thus, I hope you can see why I would be hesitant to take our taxes to him again this year. He had actually been recommended to us by numerous friends so now I am even not keen on taking suggestions for other accountants. I have used TaxAct today and done a mock tax return and did fine. I am now thinking that I just do our own returns this year via a software.

However, there is something holding me back from doing so. I feel like it would be an expensive mistake to file the returns without someone double checking my work. So I have to ask - what happens if I put something on the wrong line or miss something? I obviously know to make sure to account for all 1099s, w2s, etc that we receive. I am not deducting anything that I shouldn't be or can't substantiate. So should I really be that worried? How many people feel confident in doing their own business and personal returns? For those that use an accountant, do you feel it is money well spent? This forum always has such great advice so I would appreciate your input in this decision.

Thank you!
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Toons
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Re: What happens if I do my own taxes?

Post by Toons »

You CAN do your own taxes ,,millions of Americans file online.Try TaxAct ,no need to pay unless you file.Register with username,password,,fill in the blanks as the interview progresses,,,get comfortable with the program.There is no tax situation that the program can't handle. A home sale is an easy tax situation to handle in the Q&A.Remember tax programs prompt you with easy to answer questions,you just fill in the blanks.Pretty much what your tax preparer was doing ,you just provided all the data for him to use.All tax programs use error checks and alerts to help you along the way as you go through the interview.If you do make a mistake,forget to file a 1099,etc. you can always file an amended return,,,,,the IRS is not looking to throw people in debtors prison :happy
Give it a try,what do you have nothing to lose and a lot to Learn :sharebeer

(not affiliated with TaxAct,,,its just inexpensive and it works) :D

http://www.taxact.com/
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
mikep
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Re: What happens if I do my own taxes?

Post by mikep »

You can do just fine with taxact. I used it for 10 years without a problem. We went to a tax professional based on advice from relatives last year since my wife started a business and he made a bunch of similar mistakes as yours. So... tax professionals make mistakes just like anyone else. Try explaining you're right when he has a lifetime of experience and is the "professional" :?
I will be going back to taxact next year.
We also have issues with missing home office depreciation .. can I just add it this year? Why do you need to file form 3115 and is it only needed when you sell your home?
nordlead
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Re: What happens if I do my own taxes?

Post by nordlead »

A) you save $960.

Is your time (a few hours) worth $960? My guess is yes. I use TaxAct Deluxe Bundle every year, which is cheaper than other options out there and reduces my typing by copying form data over from each year (very convenient). I have a relatively simple return and it takes me maybe 15 minutes to enter the information once I have all of it (and then an hour or two obsessing over it to make sure I got all the deductions and made no mistakes).
pshonore
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Re: What happens if I do my own taxes?

Post by pshonore »

Who's doing your S-Corp return (Form 1120S) and producing the K1's?
tibbitts
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Re: What happens if I do my own taxes?

Post by tibbitts »

I had experience using taxact for business up until a few years ago for a partnership. To me it seemed like much more of a fill-in-the-blank software than was regular taxact for 1040s. In other words, you had to know exactly where everything went on the form yourself, and it then did the math for you. It didn't have the same degree of (at least attempted) helpfulness as taxact 1040 software. But it was the cheapest business tax software, at least at that time.

I'd spend approximately an entire day (spread out over several days) doing the business taxes. And that was for a simple business - just contracting with a half-dozen customers or so, with travel and routine expenses.
sscritic
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Re: What happens if I do my own taxes?

Post by sscritic »

How did you discover that your accountant was making errors? Did the IRS tell you or did you figure it out for yourself by doing some research? If you could figure out the correct way to do your taxes after your accountant did them, then you can do them for yourself.

If you are better at catching the errors of others, let your financé do your taxes, and then you can correct him. :)
dgdevil
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Re: What happens if I do my own taxes?

Post by dgdevil »

I'm pleased to see this thread. My tax preparer for the last decade or so just got busted by the Feds for all sorts of dodgy behavior with his clients' tax returns (including mine, though I was aware of the risks). I think he watched too many episodes of The Sopranos and started to identify a little too closely with his paisanos. While shopping for a replacement in recent days, it occurred to me to do it myself next year -- though the Turbo Tax thread a little lower worried me a little. DIY 2014.
goaties
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Re: What happens if I do my own taxes?

Post by goaties »

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carolinaman
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Re: What happens if I do my own taxes?

Post by carolinaman »

It sounds like you are pretty knowledgeable of taxes. Given your experience with the tax accountant, you are probably best to do your own unless you have some complex situation. If your house sale is straightforward, you should be ok doing your own. OTOH, there are advantages to having a competent tax accountant do your taxes if you can find one. As you said, it is an extra set of eyes and he/she may find ways to reduce your taxes that you are unaware of. Also it should save some of your time which may be worth as much or more than the tax pros fee, especially when you consider the research time you have to do reading IRS pubs. Also, I believe the IRS gives greater credence to a professionally prepared return which might help with gray situations. One way to find a better tax pro might be to ask people you have confidence in and who have similar businesses to yours for recommendations.
marbles100
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Re: What happens if I do my own taxes?

Post by marbles100 »

Ditto for me - TaxAct (Deluxe) has been adequate for me, even for some complex (self-employment, rental property) situations, for years now. I don't know how it compares with TT or other products. Every year I send suggestions/feedback to TaxAct based on my experience - last year their free phone support gave me incorrect advice, but I realized it at the time and will still stay with the product - it's gotten more sophisticated, less clunky, over the years. It seems that none of us can completely rely on the expertise of a tax preparer - human or software - to get it 100% right 100% of the time. So buyer beware no matter what … and for sure we're all better off to do our own close reading of the relevant IRS publications and deconstructing some of the tax forms to see HOW things are calculated. What I've really liked about doing my own taxes is that I've gone from zero knowledge to a much better understanding of how it all works -and this shapes my financial decisions and record-keeping throughout the year. Tax prep software takes you through the steps to error-check and complete your return, but along the way you can see how changing one or more entries and constructing some "what if" scenarios might change your bottom line - great learning opportunities.
Gus
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Re: What happens if I do my own taxes?

Post by Gus »

notmyhand wrote:So I have to ask - what happens if I put something on the wrong line or miss something?
Usually, one of two things will happen if you make a mistake. The most common thing that will happen is nothing. I've read reports that say that nearly every return has mistakes. Most of them go unnoticed. The next most common thing is that you get a letter from the IRS saying that you owe more money with an explanation of the mistake they believe you made. You get the chance to respond so if they are mistaken you can correct them.

The IRS checks your return at least twice. They check it when it first enters their system. At this point they are mainly making sure that the math is right and that nothing obvious is missing (if a number on the 1040 doesn't have the correct form or schedule to support it your return will get kicked out). The acceptance of the return at this point doesn't mean that they will not question it later. Later they will check the return more thoroughly. At this point they do things like making sure that the income stated on the return is at least as much as the total of the W-2s and 1099s which were submitted to the IRS by the companies which paid you. If they find something at this point you get a letter noting the discrepancy and demanding payment. As I said, you can respond to this letter if their findings are incorrect.

I've done my own taxes my whole life. As I learned more I realized that I made mistakes in previous years. Yet I have only received one letter from the IRS and they were wrong and I was right (in their defense, the 1099 at issue was incorrectly filed by my wife's employer so there was no way for the IRS to know that it shouldn't have been included in her wages).
pshonore
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Re: What happens if I do my own taxes?

Post by pshonore »

Gus wrote:
notmyhand wrote:The IRS checks your return at least twice. They check it when it first enters their system. At this point they are mainly making sure that the math is right and that nothing obvious is missing (if a number on the 1040 doesn't have the correct form or schedule to support it your return will get kicked out). The acceptance of the return at this point doesn't mean that they will not question it later. Later they will check the return more thoroughly. At this point they do things like making sure that the income stated on the return is at least as much as the total of the W-2s and 1099s which were submitted to the IRS by the companies which paid you. If they find something at this point you get a letter noting the discrepancy and demanding payment. As I said, you can respond to this letter if their findings are incorrect.
E-filed returns get very little checking initially. They validate SS# with a rough name match, and that the SS# has not been used on another return. They check that emp id# on W2 forms are valid. They don't have to check math or cross form consistency because the tax software will not let you efile if fails the program checks or if you override fields. Checking for missing info (do W2's and 1099 forms match your return, did you account for HA distributions, etc) usually happens 12 -18 months later.
barnaclebob
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Re: What happens if I do my own taxes?

Post by barnaclebob »

If you know enough to catch errors on your taxes done by someone else then you know enough to do them yourself.
123
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Re: What happens if I do my own taxes?

Post by 123 »

My signature is my recommendation.
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stoptothink
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Re: What happens if I do my own taxes?

Post by stoptothink »

I have done my own taxes since I was 16, never had a single issue. I was even audited recently for the tax year 2011, handled it myself and ended owing nothing. My situation is a little less complicated than it sounds yours is, but it isn't that difficult.
tibbitts
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Re: What happens if I do my own taxes?

Post by tibbitts »

It's not clear to me whether everybody realizes that taxact for 1040s has nothing to do with taxact for business. The OP isn't doing schedule C. Although the taxes may "pass through", you still have to complete both federal and state business returns, in addition to federal and state personal returns. Taxact doesn't even offer a state business edition for every state, or at least didn't the last time I used it a few years ago. It's not horribly difficult, but it's at least double the effort of doing just personal taxes, because the OP has payroll tax filings (federal and state) in addition to income tax. My business is just a partnership with no employees, so no payroll or workers comp or unemployment insurance (probably varies by state) to deal with, but by my standards doing the business taxes is still non-trivial.
JW-Retired
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Re: What happens if I do my own taxes?

Post by JW-Retired »

Gus wrote:
I've done my own taxes my whole life. As I learned more I realized that I made mistakes in previous years. Yet I have only received one letter from the IRS and they were wrong and I was right.
My experience precisely. I've done my own taxes since 1970, first by hand and later using tax software from several vendors. I was audited just one time when there was an estate complicating things a little, but IRS agreed I did it right. Not a peep from IRS any other time I can recall.
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MathWizard
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Re: What happens if I do my own taxes?

Post by MathWizard »

Get somebody really good to do your taxes next year. Be prepared to spend more money, and ask questions to make
sure you understand what is going on. (You are ultimately responsible.) Go ahead and pay them well.

Then if you are comfortable, next year perpare them yourself. Likely the business will not have changed much, and you
can see if yuo are missing any forms.

My wife did this with two businesses she had. She had been a bookkeeper before, but not a tax accountant.
We always had done our own taxes before she had the businesses, but having the first year done by a pro helped
reassure that we had things done properly and were not missing deductions.
Topic Author
notmyhand
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Re: What happens if I do my own taxes?

Post by notmyhand »

mikep wrote:You can do just fine with taxact. I used it for 10 years without a problem. We went to a tax professional based on advice from relatives last year since my wife started a business and he made a bunch of similar mistakes as yours. So... tax professionals make mistakes just like anyone else. Try explaining you're right when he has a lifetime of experience and is the "professional" :?
I will be going back to taxact next year.
We also have issues with missing home office depreciation .. can I just add it this year? Why do you need to file form 3115 and is it only needed when you sell your home?
Form 3115 can be used to go back and depreciate my missed prior years. I need to file it because even though I have not depreciated it in the past, I have to recapture the depreciation and thus pay taxes on a deduction I did not take since I sold the house. You don't have to file it this year if you don't want to but if you ever sell you will have to pay taxes on all depreciation, even the depreciation that was never taken.
pshonore wrote:Who's doing your S-Corp return (Form 1120S) and producing the K1's?
I will be. I did a mock and it didn't seem terrible. Lines 1a, 1c, 3, 6, 7, 12, 17, 19, 20, 21, 23a, 23d, 26, 27, yes to 10b in Schedule B, line 1 on Schedule K, then just schedule M-2 for 1120s and then K-1 which is simple since I have nothing affecting shareholder basis. Hope that sounds right...
tibbitts wrote:I had experience using taxact for business up until a few years ago for a partnership. To me it seemed like much more of a fill-in-the-blank software than was regular taxact for 1040s. In other words, you had to know exactly where everything went on the form yourself, and it then did the math for you. It didn't have the same degree of (at least attempted) helpfulness as taxact 1040 software. But it was the cheapest business tax software, at least at that time.

I'd spend approximately an entire day (spread out over several days) doing the business taxes. And that was for a simple business - just contracting with a half-dozen customers or so, with travel and routine expenses.
I worked with taxact for business the other day and yes, it did not do much walking through but using that and the irs website, I was able to get through it, hopefully correctly.
sscritic wrote:How did you discover that your accountant was making errors? Did the IRS tell you or did you figure it out for yourself by doing some research? If you could figure out the correct way to do your taxes after your accountant did them, then you can do them for yourself.

If you are better at catching the errors of others, let your financé do your taxes, and then you can correct him. :)
I caught them throughout the year, some before the returns got filed, some after. I started doing research on different topics and then started double checking the returns.
goaties wrote:I've used Taxact successfully for many years for some rather complex situations, but I echo a previous poster: you really need to get the IRS pubs which apply to your situations and read up on them. The Q&A in Taxact sometimes doesn't quite capture your situation in ways that I'm finding hard to explain right now. I took to keeping printed copies of the relevant sections of the IRS pubs along with my copy of my tax returns. In case I was ever audited, I would have at my fingertips the justifications for filing what I did. It can be hard to find older pubs online years later...although maybe the IRS website is getting better at making them available now. Don't forget to do the same for your state return too.
That is a great idea. I have been looking things up but I will start printing and keeping them.

Thank you everyone for the comments. Lots of things to consider! I will be sitting down this weekend to finalize some of our numbers and run another mock tax return and see how I do.
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InvestorNewb
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Re: What happens if I do my own taxes?

Post by InvestorNewb »

Paying an accountant 500 each is very reasonable. I play 4x that amount.
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markfaix
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Re: What happens if I do my own taxes?

Post by markfaix »

1- you definitely appear to have the knowledge to file your own 1040. I've done so for over 20 years. I tried accountants a few times, and they always screwed things up, so I went back to DIY.

2- For S corp, I would recommend trying a different accountant. The 1120S is more complicated, and the available software to DIY is horrible. Read reviews on Turbo Tax Business. If you find good 1120s software, let me know.
Draak
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Re: What happens if I do my own taxes?

Post by Draak »

The best use of the accountant is one that you see throughout the year that provides you the insights/advice you need to advantage yourself. If they see based on projected income/expenses that you should push more money towards SEPs or such they tell you that. If they see it would be a good position year to make capital investments in the business assets (vehicles/equipment) they tell you to do it once you hit certain income level. They should also give guidance on deferring or pulling in income based on where you are going into 4th quarter of your tax year.

If that is not how you are using an accountant, then you are not getting the best use of an expert. Just doing your taxes does not give you value.

This person you are using just for taxes does not appear to be used for guidance and makes errors or does not ask/advise as part of the role. If you are paying a quarterly fee, you should be getting much more. If you are just paying them to collect your receipts and process a tax return (which is what $500 fee sounds like) then that is all you will get & I would ask: why bother? Tax programs will guide you properly if that is the only service you actually need.
turboguy
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Re: What happens if I do my own taxes?

Post by turboguy »

InvestorNewb wrote:Paying an accountant 500 each is very reasonable. I play 4x that amount.
Yours is reasonable too. I pay twice what you do. Of course my return is about 1 1/2" thick and runs maybe 150 pages (I never counted)

The best comment in this thread was the one that said if you are smart enough to catch their errors you are smart enough to do it yourself. I have done some pretty complicated returns myself including corp returns. It isn't that hard. I wouldn't do mine myself now but my wife wants to start doing it. She is planning to be a CPA and probably could do it. Once you have had one done you can just look at what forms they did and how they did it and do it yourself easily.
snowman
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Re: What happens if I do my own taxes?

Post by snowman »

OP,

I am in a similar position as you are - an S-Corp owner with my wife as the only employee, plus I hand work over to subcontractors whenever necessary. Just like you, I take salary and distributions, contribute to solo 401k, take deduction for medical insurance, take 1040 deduction for HSA contribution. Here is what I have learned over the years.

I used to have CPA prepare my business taxes, as well as personal return. His charges were not huge, but I did not see any value added on a personal side - it actually required more work on my part to collect information, receipts, etc. So I started using TT about 10 years ago, and never looked back. Over the years, I became much more knowledgeable about taxes, to the point where I feel I am better at it than an average CPA preparing personal returns. Maybe it's because of my background in finance, or me being very familiar with my personal situation, or the combination of the two, not sure. I just find it easier to do my personal tax return using TT, and I check where I am throughout the year.

Having said all that, I was never confident enough to prepare my own business tax return. Just like you, I thought to myself - how hard can it really be? I tried 2-3 different software trial packages, and, as another poster noted, they were absolutely DIY horrible. Plus, it is not as simple as fill in the blanks afterwards. My CPA definitely adds value, knowing nuances of the tax code as it relates to depreciation, loans, and stuff I would not have thought of. He provides guidance (if necessary) throughout the year, especially heading into the 4th quarter, and than in December again. As Draak noted, if I waited until January, than there is no value in having a CPA, unless he charges less to prepare my taxes than the DIY software costs.

You need to find really good CPA for your business and work with him/her throughout the year. I think you will find that approach an incredible value worth every penny.
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HawaiiBrewer
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Re: What happens if I do my own taxes?

Post by HawaiiBrewer »

My simple return costs me $275/yr and I get a chance to ask questions about the coming year and get advice. I always assume he saves me more than his fee...but that may be wrong. After spending more time in the Forum, I'll be asking a lot more questions of my tax guy. However, I now see the benefits of understanding the tax situation to make better informed investment moves so I may be trying to do my own next year, using the prior year forms/return as a guide. Seems Taxact is popular with many. I'll look at the TurboTax thread too...

Paul :beer
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Artsdoctor
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Re: What happens if I do my own taxes?

Post by Artsdoctor »

Notmyhand,

You had a bad accountant, and it sounds as if he was fraudulent at that. Don't throw the baby out with the bathwater; there are excellent accountants out there.

Personal and business returns are different in their complexity. I'm an S Corp and I agree with the comments above; I talk to my accountant throughout the year. Although the fees are not insignificant, I've made many major decisions based on my consultations with my accountant so I think he adds value.

You can try both. Use software so you can become familiar but use him for the real thing. You'll get a better understanding of tax law, but he'll go to bat for you if you're audited (and S Corps are high on the list for audits).
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Culture
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Re: What happens if I do my own taxes?

Post by Culture »

I have a similar situation. I suggest you do just what you have been doing, which is the same as what I do: I have my accountant prepare a return, I prepare my own independently, then we go over all the differences. Inevitably, I find a mistake that he made that links to him not knowing by business and personal finance's as well as I do. Inevitably, I find a mistake that I made that links to me not understanding the subtleties of taxes, and crazy year-to-year changes in the law. This is a pain in the ass, but I suspect that my returns are as close to error free as possible. I also have a great understanding of my tax situation.
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