becoming your own accountant

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rocketb
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becoming your own accountant

Post by rocketb »

hello Bogleheads!
I am considering to file my taxes myself in the future and would like to learn accounting. my guess it is a formidable task and I would be grateful to know your feedback if you done it. My tax situation is probably above average (rental properties, limited liability partnership with trust owning it through LLC) and I am trying to understand the risk/benefit ratio of knowing my taxes in and out. I am not self-employed but who knows, maybe one day I will become one. I am about 20 years before retirement in my early 40s... I think within 2-3 returns learning taxes should be doable. On the other hand, there is always an accountant around who could give me a hand... :)
what software would you use?
any good books out there? maybe good online lectures/courses?
all the opinions are welcome!
Grt2bOutdoors
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Re: becoming your own accountant

Post by Grt2bOutdoors »

Download yourself a copy of Publication 17 - www.irs.gov Have fun reading it.
Obtain a copy of TurboTax Premier - then complete several dummy tax returns using your data, learn the ins and outs of how and why certain calculations are made, then prepare yourself for next year when the tax code may be changed and how those changes could impact your current and future liabilities. Fun, fun, fun.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Toons
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Re: becoming your own accountant

Post by Toons »

I would start a tax return with Taxact online,no need to pay if you aren't filing.
Walk yourself through the interview,,fill in some data ,research topics in the help section. :happy
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BolderBoy
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Re: becoming your own accountant

Post by BolderBoy »

rocketb wrote:hello Bogleheads!
I am considering to file my taxes myself in the future and would like to learn accounting. my guess it is a formidable task and I would be grateful to know your feedback if you done it.
It isn't easy, but it is doable. I took a correspondence tax preparation course in 1980 (when the tax code was simple compared with today, and it wasn't simple then - learned Publication 17 cold each year and studied JKLasser's annual tax publication plus numerous other commerical publications.) Then for two tax seasons I hung out a shingle and did dozens of tax returns for individuals, sole props, partnerships and small corporations. I took introductory business classes put on by CPAs. Started my own businesses (sole props and corps) to learn the lingo. Then bought a copy of DAC Easy Accounting and got some Accounting For Dummies books to do my own accounting.

I've talked with numerous business admin students and they all said that Accounting was the toughest class they took. My father taught college level Accounting for decades. His courses were tough and he was tough.

Yeah, you can become your own accountant, but you are in for a ride...

(PS - I'm not very good at it and I've been doing it for 35 years)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Grt2bOutdoors
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Re: becoming your own accountant

Post by Grt2bOutdoors »

BolderBoy wrote:
rocketb wrote:hello Bogleheads!
I am considering to file my taxes myself in the future and would like to learn accounting. my guess it is a formidable task and I would be grateful to know your feedback if you done it.
It isn't easy, but it is doable. I took a correspondence tax preparation course in 1980 (when the tax code was simple compared with today, and it wasn't simple then - learned Publication 17 cold each year and studied JKLasser's annual tax publication plus numerous other commerical publications.) Then for two tax seasons I hung out a shingle and did dozens of tax returns for individuals, sole props, partnerships and small corporations. I took introductory business classes put on by CPAs. Started my own businesses (sole props and corps) to learn the lingo. Then bought a copy of DAC Easy Accounting and got some Accounting For Dummies books to do my own accounting.

I've talked with numerous business admin students and they all said that Accounting was the toughest class they took. My father taught college level Accounting for decades. His courses were tough and he was tough.

Yeah, you can become your own accountant, but you are in for a ride...

(PS - I'm not very good at it and I've been doing it for 35 years)
He's doing taxes (reading the tax code is even more intensive - pub 17 is like a high level summary compared to the nitty-gritty), not cost accounting or being asked to recreate a balance sheet and income statement from a cash flow statement - now that is fun, fun, fun and worthy of two Advil's. :wink:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Steelersfan
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Re: becoming your own accountant

Post by Steelersfan »

I agree that accounting is tough. I did my taxes by hand for 30 years then went to TaxAct and never looked back. I understand finance, budgeting and investments, but double entry bookkeeping (accounting) is another world. I read basic accounting book and that helped but didn't get me over the hump.

Maybe you can find something that abstracts that up one level so get the job done without the nitty gritty of accounting entries.

In any case, good luck. I share your pain.
ralph124cf
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Re: becoming your own accountant

Post by ralph124cf »

Hi Rocket.

With rental properties, an LLP and an LLC, I think that you are well served by using an accountant.

My situation is similar to yours. I have a BA in finance with many accounting courses, and an MBA. I happily pay a CPA/tax lawyer about $3,000/year to take care of my taxes.

Ralph
carolinaman
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Re: becoming your own accountant

Post by carolinaman »

ralph124cf wrote:Hi Rocket.

With rental properties, an LLP and an LLC, I think that you are well served by using an accountant.

My situation is similar to yours. I have a BA in finance with many accounting courses, and an MBA. I happily pay a CPA/tax lawyer about $3,000/year to take care of my taxes.

Ralph
I agree with this advice. A good tax accountant will likely find deductions you would not find even if you spent lots of time learning tax accounting. He will likely more than earn his fee. I have a degree in accounting, although I have never worked as an accountant. Also, I have always done my taxes. But if I were in your situation, I would definitely use a tax accountant. There are times when DIY does not make sense and this is one of them, IMO, given your lack of knowledge and experience with tax accounting and the complexity of your tax situation.

You may want to study tax accounting so you understand what the accountant is doing for you. If you get comfortable with that, you would be in a position to do your own taxes in the future using TurboTax or one of the other tax software products. It is much easier to file tax returns in the future without the accountant with 2 caveats: your situation is the same in successive years and the tax law does not change.
jebmke
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Re: becoming your own accountant

Post by jebmke »

An option for getting started is the IRS online training system for Vita/TCE(also known as AARP TaxAide).

https://www.linklearncertification.com/d/

As far as I know anyone can use it. It doesn't cover all the topics that you need but it would give you a core base of knowledge with which to go further.
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HueyLD
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Re: becoming your own accountant

Post by HueyLD »

The OP says that he has a LLP with trust owning it thru a LLC.

Pub 17??
TT Premier??
TaxAct??
VITA/TCE??

Has anyone posted above ever done a tax return using the above tools for a LLP with trust owning it thru a LLC?

None of the above will help with that situation.

To the OP, you can try to learn as much about your situation as possible. However, how much is your time and efforts worth? You should focus your efforts on making money and leave the complicated tasks to the professional.
desiderium
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Re: becoming your own accountant

Post by desiderium »

When things get as complicated as your situation, you may become susceptible to self-deception. For example, convincing yourself to take a path that is influenced by your own interest in paying less. Your accountant is a good check on this, and can more clearly consider your interest in both the short-term (paying less) and long term (staying straight with the IRS).
jebmke
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Re: becoming your own accountant

Post by jebmke »

HueyLD wrote:
None of the above will help with that situation.
I agree, but if OP has never done a tax return he has to start somewhere. I wouldn't start from scratch doing the return he described. Nonetheless, I would never recommend filing a return through a professional unless the OP could understand and follow >90% of the return and agree with the correctness. The only time I have ever filed tax returns that I didn't understand completely were corporate tax returns in Turkey (in Turkish). I have vowed never to do that again and as a result, will never set foot in Turkey.
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Watty
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Re: becoming your own accountant

Post by Watty »

ralph124cf wrote:Hi Rocket.

With rental properties, an LLP and an LLC, I think that you are well served by using an accountant.

My situation is similar to yours. I have a BA in finance with many accounting courses, and an MBA. I happily pay a CPA/tax lawyer about $3,000/year to take care of my taxes.

Ralph
+1

You would not only have to learn tax accounting but you would also need to keep up to date on the changes each year.

That doesn't mean that you would just hand your accountant a grocery bags of receipts each year but you could learn enough to have things organized and work with your accountant on how to minimize your taxes in future years.
SouthernCPA
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Re: becoming your own accountant

Post by SouthernCPA »

Watty wrote:
ralph124cf wrote:Hi Rocket.

With rental properties, an LLP and an LLC, I think that you are well served by using an accountant.

My situation is similar to yours. I have a BA in finance with many accounting courses, and an MBA. I happily pay a CPA/tax lawyer about $3,000/year to take care of my taxes.

Ralph
+1

You would not only have to learn tax accounting but you would also need to keep up to date on the changes each year.

That doesn't mean that you would just hand your accountant a grocery bags of receipts each year but you could learn enough to have things organized and work with your accountant on how to minimize your taxes in future years.
+1. It might not hurt you to take a few classes in taxation at a local college, maybe do a lot of reading, etc to get an understanding of the lingo - but I would continue to hire an accountant. It's not impossible to learn and keep up with the changes, obviously, but that sure is a ton of leg work to do to keep up with filing returns for one client each year (you).

The software you use, especially for business returns, is 5% of the issue. The other 95% is getting the numbers correct before you even open the software. You'll need to understand how to tie down all your balance sheet accounts each year, ensure your retained earnings/equity are correct, track basis for distributions and taking losses, etc. These are just things you get good at by doing hundreds of returns for clients. You'll also need to thoroughly understand how to setup depreciation schedules, gain/loss calculations on the sale of business assets, depreciation recapture, etc. Tax software is truly Garbage in, Garbage out. If you don't know what the output is supposed to be, the forms could be filled out incorrectly and you'd never know. Tax returns are one of those tricky things where you don't know if they're wrong just by looking at them if you aren't experienced.

I've got confidence you can do it, you just have to decide how much saving the CPA fees are worth it. I'm sure I could teach myself how to do any service that I hire a professional for, but at some point the time to learn their trade is not worth the savings. If you want to learn as a hobby, all I have to say is after doing this for a living, I can't imagine anyone wanting to learn Tax accounting/accounting as a hobby! :shock:
SQRT
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Re: becoming your own accountant

Post by SQRT »

Agree with what has already been said. I am a CPA, also have MBA and CFA. I dont hire financial professionals for either investment management or tax prep. But I would certainly hire a tax professional if I was in your position. You have a much more complicated scenario than I do. I rather enjoy investment/tax prep but I've been doing it for 40 years and understand it very well. Tax/accounting as a hobby from scratch? You're kidding right?
ge1
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Re: becoming your own accountant

Post by ge1 »

SQRT wrote:Agree with what has already been said. I am a CPA, also have MBA and CFA. I dont hire financial professionals for either investment management or tax prep. But I would certainly hire a tax professional if I was in your position. You have a much more complicated scenario than I do. I rather enjoy investment/tax prep but I've been doing it for 40 years and understand it very well. Tax/accounting as a hobby from scratch? You're kidding right?

Completely agree. CPA here, I usually do my own taxes in TurboTax which are fairly straightforward with investments and one rental property, however this year I hired a tax professional as we sold another rental which had several tax consequences. There is no way I would try and do it yourself in your situation.
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quantAndHold
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Re: becoming your own accountant

Post by quantAndHold »

My taxes are as complicated as yours and I do them myself. My return was 64 pages this year.

If you have the time and desire to learn, you can certainly do it yourself. But every additional item...the rentals, the LLC, the partnership...each one of them adds complexity and several hours of reading, researching, asking questions, and scratching your head to figure out if you got it right. And sometimes you make a stupid mistake that generates a letter from the IRS, and more reading, research, asking questions, and head scratching. And occasionally money. Although I think all of the letters I've gotten from the IRS were about stupid typos, not misunderstanding of the tax code.

I started with the 1040 EZ when I was 20 years old, continued to do my own taxes, adding a bit of complexity and extra reading and research every year as my life got more complicated. Eventually I got to here, with a 64 page tax return. Yeesh. If I had to start from scratch learning the tax code with my financial life now, I'd hire an accountant.
ShenziNation

Re: becoming your own accountant

Post by ShenziNation »

Every fall, H&R Block offers tax preparer classes. I paid about $100 a few years back. When you're done with the class and pass the exam, they have an additional 2 day class. At the end of the second class, they offer you to work in a retail location of your choice, according to your schedule. You get a base salary (minimum wage) plus commissions. I worked one tax season, Saturdays only to get experience. My CPA wife did the same to gain a practical understanding of the US tax code; as she was an accountant in a western European country. You get paid to learn a new skill.

At the locations my wife and I worked, we met several accountants who used it as a source of secondary income. One lady had a full-time job at the local electric co-op, owned rentals, and used the tax season income to generate cash flow for acquiring additional properties. Quite a collection of savvy folks.
SouthernCPA
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Re: becoming your own accountant

Post by SouthernCPA »

quantAndHold wrote: Although I think all of the letters I've gotten from the IRS were about stupid typos, not misunderstanding of the tax code.

I feel like I need to point out that not receiving an IRS letter about a deduction you took or the way you reported something does not mean the returns were prepared correctly. You can have incorrect returns filed for years and years and never know or hear anything from the IRS otherwise. Then all of a sudden you get audited and that item you expensed years ago that should have been capitalized results in income tax due plus interest through the current date for all of the years it went unnoticed.

The IRS doesn't know by looking at your return if things were recorded correctly on your books in the first place. You don't typically receive letters other than for matching issues (W2 doesn't match employers W3 transmittal, wrong EIN, etc.) But loss deductions from partnerships, pass through, carry forwards, etc - the government doesn't send notices on these items other than to inquire on them (correspondence audits). Not receiving a notice is not confirmation you did them correctly (or at all).
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