Ladies, we have a bit more than a month before (dunh dunh dunh) Tax Day. Are you done with filing taxes? (And, who is doing them?) Are you stressed about them? Are you looking forward to a refund? Are you nervous about how much you’re going to have to pay?
For my $.02, I’m just starting to get stressed. I’ve used an accountant for as long as I can remember, but this is the first year I’m trying to use a bookkeeper as well. (I’ve never actually used TurboTax or similar software for filing taxes — my father may have used that when he “helped” / did my taxes for me my first year or two out of college.) But after law school, a friend recommended an accountant to me — this wonderful, older gentleman who I really liked. I had a simple tax situation at the time, and his services were, perhaps accordingly, pretty affordable.
When we bought the apartment in 2009, though, he nearly missed a major tax credit; thankfully we caught the mistake before we signed our taxes. When we started looking for a new accountant, we knew income from Corporette was making our tax situation more complicated, so we were ok to sign on with a fancier accountant who cost 4-5 times what my former accountant charged.
(Something else I learned when I switched accountants: estimated taxes aren’t optional for business owners, which was something I understood after talking with my first accountant. Fortunately it wasn’t a big problem since the extra income was so small back then, but it really drove home how much the first guy was hurting more than helping.)
Every year since signing on with my new accountant, he’s sent us a huge “Tax Planner” PDF as part of filing taxes. It’s about 50 pages long in tiny print and asks a zillion questions, and it’s always taken me hours and hours to complete. This is the first year I’m trying to outsource the tax planner to a bookkeeper; my hope is that my reviewing it will take a lot less time than my doing it. (Gotta delegate, right?)
In terms of actual taxes, April 15 is usually pretty rough as a self-employed business owner because my retirement savings are due, to be invested in one huge chunk, usually; final taxes for 2015 will be due, which may be higher than what I paid the previous year in estimated taxes; and the first chunk of estimated taxes for 2016 will be due, using new numbers based on my 2015 taxes.
Those are three unknown numbers — and in the past we’ve had some nasty surprises where I needed a lot more in cash on April 15 than I had set aside. (Hooray for the emergency fund!) Now, after paying work-related bills, I earmark about 40¢ of every dollar I earn for month-to-month living expenses, and save the rest in Ally accounts that get 1% interest for taxes and retirement. I’ll breathe a happy sigh of relief should April 15 come and go without too many surprises.
Ladies, how about you — do you do your taxes by yourself? Do you consider them complicated or easy? How did you find your accountant?
- Tips for Filing Your 2015 Taxes [Wall Street Journal]
- 12 Questions to Ask When Choosing Your Tax Preparer [Forbes] (may have an autoplay video)
- Get Organized for the IRS [The Motley Fool]
- Tax Tips for Those Who Make Money in the Gig Economy [The New York Times]
- Personal Tax Prep Checklist [H&R Block]
- Tax Tips After January 1, 2016 [TurboTax]
We already filed and I received my federal refund and paid the state. I always file as early as I can because I’m usually getting a refund and I want it asap and I’m worried about someone filing a fraudulent return. Refunds get processed really quickly when you file early.
We use TurboTax so it was easy to be in control of when we filed though. It might be different using a cpa but I don’t really know.
Sidney, you are VERY smart to file early. Thank goodness you and your HUSBAND are up on things like this.
I leave it all to my dad, who still knows people at the IRS. DAD told me I did NOT even have to sign my return any more. Yay!!!
I also like to file as early as possible to stave off a fraudulent return, and less so for the refund (I figure my withholding so my refund or payment is never more than $1000 in either direction, with a preference toward paying in, so it’s never like a payday come refund time).
It’s harder to file early if you use a CPA–some of that is that unless you’re really on the ball, the early appointments go fast so you may not even be able to meet with them until mid-February. But I think the bigger driver is that people who use a CPA do so because they have more complicated returns with K-1s and other forms coming in from multiple sources. They have to wait to get these before the CPA can get started, and unlike W-2s, there is no deadline in the tax code that those forms be provided to you by Jan. 31 (it’s often a provision in the partnership/LLC agreement that they be provided by Feb. 15 or 90 days after close of partnership’s tax year, but clients with a lot of investments will have a lot of these to wait for and organize).
Filed the end of January and received our refunds the week after. I’m with Sydney Bristow – I always file as early as possible. I use TurboTax as well and normally fill in all the information when we receive it, so when I get the last form (usually my HSA stuff) I just do a quick once-over and hit send.
I’ve done my own taxes since I was 15 and got my first job. There was one year when my ex-h wanted to use an accountant; we did, he screwed something up, and we had to pay penalties.
This year (my first as a partner) I’m using an accountant (because filing all the state returns plus figuring out the quarterly estimated is not worth my time), and I’m glad not to have to handle it. Although the amount of the quarterly tax payment is a bit of a sucker punch. That said, I wish everyone had to pay their taxes out of pocket, instead of having them withheld, because it makes you VERY conscious of how much money the government is taking from you (which is important from a citizenship perspective, in my view).
Agree. We pay out of pocket (instead of having them withheld) because we’d rather have the money to invest, etc. and budget for this payment each year. You’re keenly aware of how much money you owe when you write that check to the government.
We also opt to set money aside rather than add additional withholdings to our paychecks.
We’ve owed every year since we got married, but somehow the penalties keep getting larger. Last year we owed $19,000, which was a complete shock and we had to dip into our emergency fund. I believe this is due to my husband’s deferred compensation because on his W-2 he looks like he makes double what he actually makes in cash in a given year. I took a much lower paying job this year and I’m really stressed that we’re going to have a similarly large payment and will need to take it out of our savings but don’t have the high income to pay ourselves back.
Oh, and we also pay an accountant who is a friend of a friend. We just don’t feel qualified to do our taxes because of the deferred comp. He’s okay, but I feel like he spends very little time on us.
You need more than ‘ok.’ Get referrals, go to someone who’s great and really takes care of you. You need that. You shouldn’t be paying penalties and there should be no surprises.
Wait – OP are you owing actual penalties (like for underpayment of estimated payments), or you just owe more than you had withheld?
Sorry, owing more than was withheld from our paychecks. I shouldn’t have used the word penalties.
Don’t you incur an underpayment penalty? My understanding from the IRS website is that if you owe more than $1,000 in taxes, then you have to pay a penalty, which can be waived in certain circumstances.
We had a complicated situation last year and used an accountant for the first time AND got penalties. Ugh. I just sent off the last check for those today. Back to Turbo Tax for me this year.
It sounds like your penalty was due to underwithholding, which you would’ve had with TurboTax too. It’s not the accountant’s fault nor does she have any ability to fix underwithholding during the year when you see her 1-4 months after the end of said year. However, if you’d gone to the CPA during the complicated year instead of after it, you could’ve adjusted your withholding to avoid penalty. By going back to Turbotax, you’re losing the benefit of that prospective advice.
Yeah, besides, if those were under-withholding penalties, an accountant could help calculate your safe harbor amount for next year. That way even if you owe additional taxes, you at least would not pay a penalty.
Are underwitholding penalties a thing? Or is it just underpayment of estimated taxes or failure to pay? I thought as long as you were withholding from a paycheck (W-2) you were fine, even if you had a balance to pay on April 15.
Technically, it is an underpayment of taxes penalty. But can apply whether you pay in your tax via withholding or estimates – you still can’t be underpaid.
Speaking of taxes, I have a question: We bought a house this year but borrowed money from family rather than going through a bank. We are repaying the loan with interest, but it’s not secured to the house, it’s just a personal loan that we happened to use for a house purchase. Based on my reading of the IRS regs, the interest we pay is not deductible because it’s not secured with the property – can anyone confirm?
Yes, it’s not mortgage interest, so not deductible.
+1. It has to be secured by the house.
Ugh, this is my project for this weekend. I took the February bar so I put it off until now, even though I normally like to file early. I plan to use TurboTax even though we moved mid-year and will have to file in two states. I’m expecting a huge refund because I spent only half the year at a Big Law salary and am now making much less. I’m hoping for at least $30 or $40K so we can make a huge dent in the mortgage.
Be very careful if you chose to go the Turbotax route. My ex did that when he moved, and ended up with some pieces of income that were reported federally but not to any state (takes special coding in the software to make it work correctly). When the state caught on 2 years later, the penalties and interest were pretty ugly.
Ugh. Thanks for the heads up. Was it some special income or just his normal salary that was unreported? We have no income besides 4 W-2s (one for each of us from each state). Was he successful in getting any of the interest and penalties covered by TurboTax? I am so reluctant to use an accountant because I don’t know anyone good in my new area and the last time I found one online he screwed everything up really badly (I’m still dealing with a 2012 state return mistake he made).
No, Turbotax covered nothing because it was his error. I believe it was one W-2 and a pension distribution. If your income is really that simple (and you don’t have itemized deductions either) you’ll be ok doing it yourself, just check the results REALLY carefully.
If all your income is W-2, you should be fine using tax prep software yourself.
Just make sure that you enter *everything* from the W-2. The W-2 has a line at the bottom listing the state and amount of income allocated to that state. Some people tend to ignore this part or think they don’t need to enter it because their address is in the boxes at the top. But that’s how the software knows which state return to carry the W-2 info over to.
Right – and if you are in a state with income taxes, it also has your tax withholdings for the state.
I have a question about Roth IRAs – on the IRS website (http://www.rothira.com/roth-ira-limits), it says that if a single person makes $116,001 to $131,000 their Roth limit is “Begin to phase out.” It links to a page that does not exist (a 404 error). Is anyone familiar with what this means? How do you calculate what your adjusted limit is? Weirdly, I cannot find this info anywhere online. Also, what happens if you over contribute? I got an unexpected bonus last year and I’m somewhere in the weird gray area, having already maxed it out at the beginning of the year. Clearly I need to sit down and look this over this weekend.
Thanks for the rude reply, but that is the page that does not actually include the limits. Not helpful.
Rothira.com is so not even close to the IRS website.
Also, See Publication 590-A, Contributions to Individual Retirement Accounts (IRAs), for a worksheet to figure your reduced contribution.
If you over contribute you have to pay taxes and potentially penalties on the excess, you can recharacterize to a traditional IRA, or you can try a backdoor Roth. Talk to a tax pro.
+1 talk to a tax pro!
My husband and I are on the threshold where one promotion or bigger than anticipated bonus could push us in the gray area. I am trying to figure out if I should just stop contributing to my Roth or keep up until we actually reach it.
Ya’ll. Please remember there are professionals who deal in this stuff daily. I don’t trust Google to answer legal questions for me, and you shouldn’t trust the comments section of a fashion blog for financial planning advice.
The IRS website is typically pretty helpful, though.
score one for the U.S. Government!
+1 Although I’ll say that the conversations on this s!te have motivated me to seek a CPA for the first time this year to prep my taxes and get some real tax advice.
I’ll +1 to this and I’m a CPA who deals in this stuff daily. It’s not possible to get the full picture of someone’s situation based on the snippet they post here. People are trying to remain anon so understandably skimp on details, and also don’t know how other facts that they didn’t deem relevant enough to share might affect the answer.
This was to Bob Loblaw.
How do you fire a CPA? My CPA has poor communication skills and does not return our calls in a timely manner or acknowledge our emails. I no longer trust her and have to go get our original paperwork. Advice please.
Call and talk to her. Say you are going to have a different preparer complete your return for the year. Just be aware that since you’ve already dropped off your paperwork, the firm/CPA has likely already started working on it, and you will owe her for that time.
CPA here. I always caution people from using web based preparation software simply due to the fact that the internet cannot answer all questions. Often a client will be sitting in front of me and during our conversation, I learn something about them that will affect their tax situation. I am relatively new the the profession (right at 5 years public accounting experience), and I have no problem telling a client that I am not sure of a situation. The right CPA will be honest with you about not knowing how to handle something and will do research to find the correct treatment. Think of CPAs like you would think of any professional. You will often “get what you pay for”.
My husband does our taxes on TurboTax (one of the deluxe versions with all the extra stuff for rental properties and whatnot, our taxes aren’t super complicated). It’s great, he deals with all the financial drudgery of taxes and bills and stuff for us and I do all the big picture, long term financial planning.
We have rental properties plus my husband runs his own business and has a side job that is W-2 income. We go to a CPA every 5 years or so, and use the most comprehensive TurboTax package the other years.
However, we are in a LCOL area and only make around the median income for our area, so after answering every single one of TurboTax’s questions (or the CPA’s questions) we have wound up with only the standard deduction every year but 1 – and that year I think we got $100 over the standard.
We also live in an area with city and school district taxes in addition to state, and those forms don’t play nice with Turbo Tax, so I wind up doing them by hand or online each year. And the only version have gone down every year around April 12th, so I am trying not to be in that boat this year.
You are really missing out – by working with a good CPA every year, you’ll learn all kind of benefits and strategies that you’ll never get if you see someone every five years – you need to be around DURING the year to plan.