A friend of mine told me the other day how he’d hired H&R Block to do his 2012 tax returns. He is a regular W2 employee, married, and owns a house. No Schedule C, no rental property, no kids, and nothing else that would seem complicated.
“Every previous year I’ve done my own taxes, but the regulations and laws have gotten so complex that it is now finally beyond my comprehension so I’m paying about $600 to H&R Block. There is no way that I could conceivably keep up with all of the changes that Congress and the IRS make from year to year.”
What’s my friend’s job? He’s an attorney working for the federal government.
No wander why unemployment edges down: http://www.usnews.com/news/articles/2013/03/08/economy-adds-236k-jobs-unemployment-edges-down 🙂
I hope your friend does get a refund to make up the $600 he is paying to H&R Block.
OK, look — it’s bad, but it’s not *that* bad. My wife and I did our taxes last week. We have a slightly more complicated situation than your friend. We keep very good records, and I’d say it took us a total of about 3 hours. (2 of these were her filling out Turbo Tax, and 1 was a joint review)
There are indeed a lot of questions, but the software is reasonably idiot proof as long as you keep good records. (Even if you don’t a lot of them are online these days)
Unless you value your time well over $100/hour at home, it’s probably worth it to do them yourself.
Besides, for individuals, most of the complication comes with ways you can get deductions. If you want to do it quick and easy, you’ll pay more than you strictly have to, but it can be as simple as 2 pages of the 1040.
I have TWO Schedule C’s, own a home and have a reasonable level of deductions,
but no taxable investments. It took me less than 3 hours with TurboTax last weekend to do my taxes. I’ll spend another half hour after I adjust the results for an IRA contribution and printing off file copies.
One year when I was self-employed and I sold a home (that had a home office, so there were capital gains against the business income) and had a bunch of Schedule D income it took me about 20 hours (and the return was about 60 printed pages). That’s the only time I ever contemplated hiring a professional.
I think your friend is either innumerate, computer-phobic or trying to suppress his OCD if he felt he had to go to H&R Block.
I would rather trust Turbo Tax than an H&R Block part-time income tax preparer. I have found it to ask about 500 more questions than I would consider, including whether or not I am a principle of a foreign bank. IT seems to cover the bases from people with almost no income and getting earned income tax credit all the way up to people paying AMT, rental income, 401K early withdrawal penalties, business interests, etc. For me, it’s just earned income, some interest income, local tax deductions, and it certainly does that fine.
TurboTax fans: I think that all of your responses can be boiled down to “I used TurboTax and it worked for me and therefore anyone who does not use TurboTax is an idiot”. I’m not exactly sure what the complication was for my friend but it might have had to do with a small inheritance. Anyway, as soon as you have one question that goes beyond what TurboTax can answer you will by definition have to do a lot of reading and/or talk to a human expert. I’m not surprised that my friend wasn’t able to use a fully automated system.
“Anyone who does not use TurboTax is an idiot.” That’s not quite it. Rather, the message is: if you have a simple problem and you can’t solve it using one of any number of ubiquitous tools, then you are indeed an idiot. My tax situation is more complicated than your friend’s, and I used TaxACT.com ($19.95, way cheaper than TurboTax!) and it took all of 2 hours. Your comment about having “one question that goes beyond what [tool X] can answer” is a red herring; you said your friend’s problem was simple. Obviously there are tax cases that are very complicated. But most are simple, and in my experience of using TurboTax, TaxACT, and paid preparers in the past is, these tools handle 99% of the tax situations out there. Short answer, your friend is an idiot for paying $600.
Isn’t that an oxymoron? If your friend’s taxes were indeed uncomplicated, he would be able to use TurboTax. The very fact that his situation is not covered means that it is not simple.
Intuit(or any other online tax preparer) is likely a very business-savvy organization (see, for example, opposing free tax preparation in California in 2005) and is targeting any large group of tax payers with customization to it’s software.
As a separate anecdote, I have been preparing taxes as a volunteer as a part of VITA program, and this year they haven’t even changed their online education software; there simply haven’t been a lot of changes introduced in 2011 or 2012 that affect 2012 tax year tax returns.
I did use TurboTax quite a bit, but I’m not a big fan. The functionality is certainly incomplete and I think their steady increase in prices is a bunch of hooey given their market share and economies of scale. That said, it is often good enough to do the job. In fact a couple years ago my accountant actually recommended I use it rather than pay him.
I use Turbo Tax but I would not recommend it for everyone. I feel if you have a good fundamental understating of the various schedules and other intricacies of our tax code it’s fine. Turbo Tax seems to basically be one big questionnaire and it puts things in the appropriate parts of the return. I usually have to go through my actual return then make changes in turbo tax which sometimes isn’t so easy, because they would not call their section schedule C they would call it “business income” or some such thing.
I have a feeling basically only morons work at H and R block but I have no evidence to support this, just basically a general distrust for people in general especially those that work at large companies.
I have a long tradition of doing my taxes the weekend before they are due. I’m somewhat notorious for taking a vacation day from work on April 15 – another part of a long standing tradition.
I used to do my taxes by hand on paper, but a couple of years back, the whole thing got too cumbersome to do it that way. Now, I use whatever program I get cheapest.
I do tend to ‘imagine’ my taxes by glossing over the really bizarre parts of the tax code. My philosophy is that if I get it mostly right, given my tax bracket, the government is highly unlikely to bother checking my math and I am unlikely to pay too little or too much – in my own self interest, I lean toward ensuring that I’m not paying too much.
It is a stupid system and a horrible waste of time for everyone. Such a shame that it is unlikely to change any time soon.
As a federal attorney, your friend understands the extreme value of H&R Block’s ~$30 “audit insurance” – seriously, those part-time H&R block tax preparers will suggest every dirty lie and scheme you could imagine to cheat the government…
… why not give them a try if they’re willing to handle the first $50k of liability?
I used H&R Block once, a long time ago, back when you could do income averaging, and I had to tell THEM to do income averaging.
I’d be interested to know what changes your friend is having difficulty with. One difficult thing is the Alternative Minimum Tax. It’s complicated, and you have to go through all the calculations just to find out whether you have to go through all the calculations or not. But the tax programs can do that for you.
If he’s been fixing up his house, H&R Block isn’t going to help him keep the cost basis up-to-date year after year. He’ll need an accountant for that.
Doing your taxes is a work of law, science and art. It’s “art” because the law of taxes is written so you can game the system to your benefit. TurboTax or other electronic forms will not help you with the “art” part. H&R or a CPA will — assuming you are dealing with someone who knows the game AND you are aware of the game.
Develop a long relationship with a CPA, and it won’t cost you $600 to do your taxes. Furthermore, you both will be better at the “art” of taxes when filling day comes. I have been using my current CPA for over 15 years now and last year it cost me $200 to do my taxes (and yes, I have a complex schedule that includes shared property investments (beside my day job)).
I’m a unmarried cubicle slave with one paid off house. Easy taxes with a small return. As soon as I get my W2 I go ahead and download TurboTax from Amazon and do them that night. It’s just about the only thing I never procrastinate at.
Until 5 years ago I did the taxes using the manual mode – I filled in the forms after reading the instructions for them. It wasn’t hard at all, just time consuming. One year the tax situation got a little more complicated than usual, due to some equity compensation income, but that too could be figured out by reading the instructions for the forms.
After our son was born I switched to using Turbo Tax (TT) purely for time saving reasons. TT has its own limitations, like any automated system, but you can figure those out too. For example, I knew that some of our income was not subject to tax (foreign country tax treaty) but TT didn’t ask that question. A short web search provided the right answer (this part of the income was to be listed under the “Other” section …).
Keep in mind that all this comes from somebody who used to be completely unfamiliar with the US tax code and the various terms used there, both by trade (I’m a sw engineer) and by knowledge of the language (English is my second language).
At the other end, my American cousin was a graduate student with a small income (his grad student stipend) and a very straightforward tax situation and yet he was paying $400 to a tax accountant. He thought that that was a good deal because he got a tax refund of $800. I didn’t have the heart to tell him he could have kept a lot more of that refund, had he done the taxes by himself or used TT …
I have never used this, but according to the ad I just got from TT: “If you have tax questions or need some guidance while you’re preparing your return, our team of experts (CPAs, EAs and tax attorneys) are available now to help.”