Do I need a CPA for my taxes?

[Laeno]

So, I'm a new grad in a W2 position with some 1099 income left over from moonlighting, who moved from California to Texas.  I'll likely wind up with a scattering of 1099 income again next year.  My wife is part of a few LLCs (one in Louisiana and one in Mississippi, though the later doesn't produce much), due to some death and inheritances, and so gets a couple of K1s a year.  She's also a full time student set to graduate next fall.

Do I need a CPA?  Last year we paid someone (it wasn't a bad price, and they're really only around during tax time, but I'd also prefer someone I could meet with face to face), and I kind of felt like they just plugged my data into some tax software, and that was it.  If I don't need a CPA, should I just Turbo Tax or H&R Block software it?

If I do need a CPA, anyone have a recommendation in the DFW area, preferably the northern Dallas suburbs?

Thanks!

[jfoxcpacfp]

Yes, you need a CPA. No, I don't know of anyone around DFW but I can check around for you. I am traveling today so it may be a day or so.

[VagabondMD]

When I first joined my group, I asked a senior partner for a recommendation for an accountant, and he told me that I did not need one. For the first ten plus years or so in practice, I did my own taxes. I learned about Schedule H (household employees), managed my wife's then independent contractor job (Schedule C) and my own consulting (1099) income, did the kids' taxes, added a couple K-1s later on, did some Roth conversions, etc., all using TurboTax. Finally, when I purchased state tax credits at the advice of my then financial advisor, the software could no longer accommodate it, and I started using an accountant.

Personally, I have mixed feelings about it. I understood the tax code better, and specifically how various additions of income or deductions affected the dollar amount of tax paid, when I did the taxes on my own. Every year, the accountant finds one or two things that I miss, and I find one or two things that he misses. I do not get the sense that having the accountant do my taxes is a significant money saver or time saver for me, but given my current level of complexity, it is probably worthwhile.

When my complexity decreases (I hope it will!), I will go back to doing taxes on my own.

[DarrVao777]

I wasn't too thrilled with my CPA either but my wife and I are both plain old W2s with no other complicating factors. We've since switched to Turbotax

I think you have enough intricacies where it may be worth meeting with a new CPA

[Son of a Doctor]

A good accounting firm has checks and balances in place beyond just a fancy software system, and while it costs more than HR Block, you are more likely to have a more accurate return. Also, the accountant can help with ongoing advice to reduce your taxes for future years. When I prepare returns for someone who previously used TurboTax or HR Block, I usually find something they missed in previous years. It is usually small enough to not be worth amending the return, but it is still money left on the table and sometimes it is large enough alone to justify the incremental cost of an accountant versus the alternatives.

For more complicated returns, another benefit of relying on a CPA, tax attorney, or even HR Block, is that you now have a reasonable reliance defense to certain penalties if a mistake is made.  This is most likely to occur in situations in which some discretion is involved in determining what is deductible or reportable, but if you provided all relevant information to your return preparer and reasonably relied on the preparer's advice, then you have a good chance of getting out of the penalty.

[jfoxcpacfp]

DarrVao777 wrote:

I wasn’t too thrilled with my CPA either but my wife and I are both plain old W2s with no other complicating factors. We’ve since switched to Turbotax

I think you have enough intricacies where it may be worth meeting with a new CPA

Click to expand...

Agree - no need for a CPA for you unless you're simply uncomfortable with handling your taxes.

[G]

I think I've asked this before, but are there any data on whether a CPA changes your audit risk?  Aside from obvious red flags (not reporting known income, etc), I wonder if a bureaucrat sitting in an IRS office would bother to take a stab at a doctor-size tax bill that is co-signed by a CPA.  It would seem there are more lucrative/easier targets.

[Jim]

I've been told that using a CPA decreases your audit risk.  The rationale is that a CPA, whose license & reputation are "on the line" to some extent when they sign your return, is less likely to try and cheat than you are, doing them on your own.

Whether this is true or not, or if true, how MUCH is decreases your risk, I do not know.

 

[Laeno]

Thanks for the advice everyone.  I think I will search out for a CPA in the area, at least for this year's taxes.  I'll re-evaluate next year if need be.

[jfoxcpacfp]

Jim wrote:

I’ve been told that using a CPA decreases your audit risk.  The rationale is that a CPA, whose license & reputation are “on the line” to some extent when they sign your return, is less likely to try and cheat than you are, doing them on your own.

Whether this is true or not, or if true, how MUCH is decreases your risk, I do not know.

Click to expand...

Using a CPA can decrease your audit risk as long as you are not using a CPA that is on the IRS' radar for bad practices, which does happen. This is a very subjective area and I know of no stats, just anecdotal data. Fortunately, we have a great relationship with the IRS and I do believe it has made a difference in the number of audits and also the depth of inquiries.

In conversations with agents, I have been told that some tax preparers are more susceptible to being audited because of past issues with clients or on a particular topic (M&E, for example). It is quite easy for them to pull data and target clients, as you might expect. You would be shocked at the c**p I see from CPAs when we review prospects' returns. I'm sure you have similar situations in the medical profession - doctors that you wonder how they managed to get through school and become licensed.

[jfoxcpacfp]

Laeno wrote:

If I do need a CPA, anyone have a recommendation in the DFW area, preferably the northern Dallas suburbs?

Click to expand...

Ok, to follow up on my earlier promise, I put the request up on the NAPFA open discussion forum (NAPFA is the organization made up exclusively of fee-only Certified Financial Planners). Here are the recommendations I got:

"Bland Garvey (POC is Lori Eads) or Hein & Associates, LLP (Tony Banks) are both very good firms in N Dallas area. You can look them up on their websites."

Because these come from fee-only CFPs, that means the members have no personal incentive for referring these CPAs to you. We (NAPFA members) put our reputation on the line when we refer a professional so I have a high degree of confidence that you will be satisfied with either.

Good luck!

[Craigy]

A real CPA should make your life easier and know what questions to ask you.  That said, Turbotax would probably get you there if you know what you're doing.  You might miss out on some deductions that you didn't think to look for, but it's going to be about as good as whatever H&R Block guy plugs and chugs into the system.

I did income tax for a year and had several high-earning doctors, attorneys, etc. who would have been just as well off plugging in their own W2s and 1099s and mortgage interest statements into turbotax than paying us $700, $800, $1,000 etc. to enter in their data.  They simply had very few moving parts.  On the other hand, many of our clients had so many variables that it would have taken a very skilled person to make a program like turbotax work and capture everything.