{"id":2884,"date":"2016-01-25T06:00:52","date_gmt":"2016-01-25T14:00:52","guid":{"rendered":"http:\/\/evergreensmallbusiness.com\/?p=2884"},"modified":"2019-07-01T15:32:28","modified_gmt":"2019-07-01T22:32:28","slug":"your-cpa-versus-turbotax","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/your-cpa-versus-turbotax\/","title":{"rendered":"Your CPA versus TurboTax"},"content":{"rendered":"

\"Picture<\/a>Because we\u2019re CPAs, we get people asking us a lot about when someone can and can\u2019t use TurboTax or a similar product to self-prepare a tax return.<\/p>\n

This is a great question.<\/p>\n

Our standard answer? You should try to do your own individual tax return.<\/p>\n

Most people\u2014nearly everyone in fact\u2014can use a product like TurboTax to do their own tax return. (Er, no, we\u2019re not earning some backdoor commission from Intuit for making this statement.)<\/p>\n

Where Things Get Tricky<\/h2>\n

In a handful of special situations, however, you probably want to outsource the project to an expert like a CPA who specializes in taxes or an experienced enrolled agent.<\/p>\n

U.S. tax law is, I\u2019m sorry to have to report, absurdly complicated in many areas.<\/p>\n

Furthermore, in some areas, the penalties for innocently goofing stuff up are astronomical.<\/p>\n

Finally, as a general trend, public policymakers more and more place the burden of this complexity on businesses (and other organizations such as nonprofits and government entities), as opposed to individual taxpayers.<\/p>\n

Where does this leave you? Well, as noted, we think most individuals can probably do their own tax returns with the help of good tax software.<\/p>\n

In contrast, we think most businesses benefit by working with a good, professional adviser so they understand their reporting obligations and so they optimize their tax burden.<\/p>\n

Example:<\/strong> The Form W-2 provides a convenient example of this. Employers need to understand payroll and income tax laws well enough to properly fill these forms out, but the form is cookie-cutter enough that usually all an employee needs to do is copy their W-2 into TurboTax.<\/p>\n

And now let me flesh out this discussion by pointing out a handful of exceptions to our general suggestion.<\/p>\n

Exception #1: You Have Foreign Income or Investments<\/h2>\n

The first exception to our \u201chey, just do it yourself with TurboTax\u201d suggestion concerns people with an international footprint.<\/p>\n

U.S. taxpayers owe tax on worldwide income, not just U.S. income. This means US taxpayers with offshore income need to report that income\u2014or in some cases report that they don\u2019t have offshore income when the IRS might think they should.<\/p>\n

Here\u2019s the rub, though: The IRS doesn\u2019t have the power to force non-U.S. entities to fill out their cookie-cutter forms. So often dealing with this stuff overwhelms a TurboTax user.<\/p>\n

And then let me mention one other danger in all this. Offshore accounts and investments often require rather detailed disclosures by the taxpayer.<\/p>\n

Failing to provide these disclosures may trigger catastrophic penalties. The so-called FBAR comes with big penalties that get assessed in $10,000 increments.<\/p>\n

And the FATCA rules make FBAR look like kindergarten.<\/p>\n

Note:<\/strong> We\u2019ve got more detailed information on the FBAR and FATCA rules here<\/a>.<\/strong><\/p>\n

Exception #2: You Own an Unincorporated Small Business or Rental Property<\/h2>\n

A quick point that goes back to something I said a few paragraphs ago\u2026<\/p>\n

Tax laws, as noted earlier, place the burden of complexity on businesses. This applies to small unincorporated businesses, too. And also to single-member LLCs.<\/p>\n

Accordingly, even rather small-time operations may need outside expert assistance. This can seem unfair, but if there\u2019s good news here, it\u2019s that many solo practitioner CPAs and EAs specialize in serving really small businesses. And so you may be able to find a great local tax accountant.<\/p>\n

Exception #3: You Receive a Schedule K-1<\/h2>\n

On to another exception…<\/p>\n

If you\u2019ve invested in, or in some other way ended up with, an interest in a pass-through entity, you need to call in an expert in many cases.<\/p>\n

Here\u2019s why: With pass-through entities, such as partnerships and S corporations, income and deductions retain their character as they \u201cpass through\u201d the entity to the owners.<\/p>\n

Note:<\/strong> Trusts and estates provide K-1s to their beneficiaries, too. Just FYI\u2026<\/p>\n

What this means for individuals who own an interest in pass-through entities is that the tax complexity of the entity is passed to the owners, too.<\/p>\n

In a way, you can view the situation as being one where the pass-through entity just gives the taxpayer the raw tax accounting data and says, in effect, \u201chey you, taxpayer, you just figure out how to deal with this stuff, okay?\u201d<\/p>\n

Exception #4: The IRS Hasn\u2019t Figured Out How to Cookie-Cutter Your Life Yet<\/h2>\n

Let me share one final situation where our office\u2019s experiences lead me to suggest that the DIY approach is a bad idea: employee stock options.<\/p>\n

Employee stock options often overwhelm amateur tax accountants and DIY aficionados for a couple of reasons.<\/p>\n

First of all, the 1099-B the taxpayer receives doesn\u2019t have a separate column for AMT basis, so someone with incentive stock options simply doesn\u2019t get all the basis information they need from their 1099-B. (Omitting the AMT basis information can be a costly mistake.)<\/p>\n

Second, our experiences suggest that brokers commonly misreport the basis for employee stock options. And note that we\u2019re not talking about smalltime brokers goofing up. We\u2019re talking about the biggest names in the business.<\/p>\n

Therefore, anyone with stock options might want to hire a tax professional to do their return, just so the preparer can check the broker\u2019s basis numbers against what the employer\u2019s payroll department says.<\/p>\n

Note:<\/strong> If you\u2019re interested in transitioning to a situation where you do your own tax return, you might also be interested in our blog post: How to Get a Tax Return Prepared for $100 or Less<\/a><\/em>.<\/strong><\/p>\n

\n

Are You a Small-Business Owner?<\/h2>\n

\"\"<\/a>Small-business owners often don\u2019t do a good job with\u00a0maximizing their legitimate tax deductions. And this can be true even when small-business owners work with a CPA or enrolled agent.<\/p>\n

For example, business owners usually\u00a0don\u2019t go to the effort of structuring their operations to protect legitimate deductions, to create new deductions and to recycle (or double-deduct) the deductions which can be used more than once to save taxes.<\/p>\n

Which is really too bad. Getting disciplined and smart about small-business tax deductions can save businesses and their owners a bundle in taxes.<\/p>\n

If you’re thinking maybe you can do a better job with your tax deductions, maybe especially if you’re doing your taxes yourself, consider\u00a0buying and reading\u00a0our $40 e-book\u00a0Small Businesses Tax Deduction Secrets<\/em>. This 70-page ebook\u00a0provides detailed instructions\u00a0about how business owners can annually save thousands or even tens of thousands of dollars in income and related taxes simply by more effectively using legitimate small-business tax deductions.<\/p>\n