Turbo Tax Does Not Save You Money On Personal Tax Preparation!
Recently, I got a call from a new client requesting that I review their personal tax preparation
. They had completed their personal tax return using Turbo Tax. They wanted me to make sure it was right.
This is not something I would normally do but this client is a real estate investor and I could tell from my personal tax preparation interview with her that their return was not correctly prepared. I began comparing the numbers from their worksheets to the tax return.
It quickly became evident that I was not going to be able to complete the review that way that they wanted me to do it. Why? As a CPA with over 20 years experience in personal tax preparation, I have an intuitive feel for the way the numbers should come out. If something doesn't look right to me, I go back and check the back-up calculations made by the software to see if the calculations make sense.
It turns out you can't do this in Turbo Tax. At least, I couldn't after over an hour of fiddling around with the software trying to figure out why the state tax refund was coming out wrong and why depreciation on their rental properties was not what I expected it to be. My conclusion, Turbo Tax is completely inappropriate for personal tax preparation that includes small businesses reported on Schedule C or rental properties reported on Schedule E or frankly, anything else even remotely complicated (which is basically the entire IRS tax code)
Here's are the major differences between an experienced CPA preparing your personal tax return and using an off-the-shelf personal tax preparation software like Turbo Tax to do it yourself:
1. An experienced CPA uses judgment to determine where maximum deduction is available for expenses. It does matter where you put deductions on a return. Turbo Tax cannot do that.
2. An experienced CPA spends hundreds of hours a year keeping up with and applying new tax laws. A person trying to use Turbo Tax does not.
3. An experienced CPA can tell you if you calculated deductions like depreciation correctly. They know what to look for and can tell if you made an error. Turbo Tax cannot.
4. An experienced CPA knows how to audit-proof your tax return so that you eliminate the "red flags" that cause IRS tax audits. Turbo Tax cannot.
Overall, I found that my new client had made numerous mistakes trying to do their own taxes. They had misapplied a tax law to their benefit, they had doubled up some deductions, and they had calculated the cost basis of their rental property incorrectly. They were an IRS tax audit waiting to happen.
Even with those errors, all of which were to their benefit, I was able to find enough missing deductions and move some existing deductions to other schedules to get them a larger personal tax refund than the Turbo Tax return they had prepared. They netted an additional $1,000 even after my charge for re-doing their personal tax preparation was paid.
The moral of the story: minimizing and audit proofing your taxing Is a job for an experienced CPA and does not come out of a box!
by: Theodore Lanzaro
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