“Joel Stein Has Four Accountants” is an interesting article at
BLOOMBERG BUSINESSWEEK written by an apparent tax illiterate who decided to see
which was the best way to prepare his 2011 federal and state tax returns.
As the title suggests, Joel used 4 “preparers” –
1. TaxSlayer.com, an online tax service that cost $30.00 to
“self-prepare” the return with “help” from the program,
2. Henry and Richard (i.e. H&R Block), which cost $400,
3. his own family accountant of many decades (who had been
preparing his returns since college), to whom he mailed the return, who also
charged $400, and
4. a “high-end” firm, which charged $1,200.
In describing the Henry and Richard experience he correctly
observed that they were “not particularly
cheap”. Luckily H&R no longer
pushes usurious refund anticipation loans (RALs) on their clients, or the cost
would have been greater.
Joel did not specifically identify the family account or
“high-end” firm as being CPAs, although I got the impression they were.
He got 4 very different results – from $119,554 in federal and
CA state refunds via TaxSlayer.com (enough, as Joel puts it, to buy a summer
home – although where I do not know), to owing $4,544 combined via the “high
end” firm. Henry and Richard had the
best result with $2,387 in refunds, and the family accountant had him net “out-of-pocket”
$469.
Joel sought out the wisdom of former IRS Commissioner Mark
Everson (2003-2007) before beginning his experiment – who, wrongly, “predicted that all four of my returns would
come out the same, since, unless you lie, the numbers all plug into one formula”. Everson told Joel that “paying more for an expensive accountant doesn’t mean he’ll find lots of
loopholes that will get me more back”, which is a true statement.
In the article Joel pointed out that Everson, a former IRS
Commissioner, CPA, and current vice chairman of a tax advisory firm, doesn’t do his own taxes. And he also reminded us that “Treasury Secretary Timothy Geithner, who
filed his own returns with TurboTax, got audited for failing to pay $35,000 in
self-employment taxes for years 2001-04”.
Unfortunately Joel never did try to determine what the “correct”
answer was via an independent source. He
apparently provided the same information to all, or rather answered the
individual questions of all using the same information.
This story reminded me of the item that MONEY magazine used to
run each year at tax time (I do not know if they still do) in which a tax
scenario was created and the exact same information was provided to several types
of preparers (i.e. large and small CPA firms, non-CPA preparer, Henry and
Richard, etc). As with Joel, each
preparer had a very different result, although MONEY did have what they
considered the “correct” answer (or the “most correct” answer) to which to
compare the different results.
I remember that one year the closest to the “correct” answer was
provided by Henry and Richard. However,
the H&R representative who prepared the “return” was not the local seasonal
employee whom one would encounter when walking in to a local office off the street,
but an upper level manager.
The differences in the answers Joel received resulted in some
instances on the level of “aggressiveness” of the preparer. As one example –
“. . . my donation of four
boxes of books to the local library was worth $250 to him {the “high end”
firm), $400 to H&R Block and $1,250
to {the family accountant}.”
And the H+R preparer suggested claiming a home-office deduction
on Joel’s 1040. FYI, Joel is the owner
of a one-man “loan-out” corporation (a term Joel did not understand, and,
frankly, I have never heard in 40+ years).
The family accountant advised against this, citing the dreaded AMT and
the fact that the office deduction had been claimed on Joel’s corporate return,
I assume as a reimbursed employee business expense (which, to me, is the
correct way to go).
The TaxSlayer.com result was utterly ridiculous – further testimony
to the obvious fact that the tax illiterate should never use a software preparation
package, whether online or via a box, to self-prepare anything other than a
basic 1040A – an obvious example of Garbage In – Garbage Out.
I am obviously prejudiced toward the “long-time family
accountant”, since that sort of describes me as well. Although I certainly do not agree with his
“estimate” of the value of the books donated, unless he knows something about
the books that was not indicated in the article (I would actually be closer to
the H&R deduction, depending on the number and type – hardcover or softcover
– of books).
If the cost of using Henry and Richard and an independent
preparer are the same always chose
the more personalized services, and probably more correct results, of the
independent preparer (to be honest I would actually say always chose the independent preparer over H&R or any other
fast-food chain commercial preparer).
And, as one would expect, the “high-end” firm cost 3 times as
much as the independent preparer – a result of much higher overhead that does
not provide additional benefit to the 1040 client. In the firm’s defense, it did provide Joel
with long-term tax planning recommendations based on his individual situation.
Of course to properly evaluate the work of the 3 different human
preparers I would need to know much more detail on the differences in the
specific returns. I would need to
actually look at the 3 different sets of returns.
In case you are wondering, Joel decided to file the returns
prepared by the long-time family accountant because –
“He’s affordable, a little
aggressive with the deductions {not necessarily always a good thing – rdf}, and knows me. He makes the process painless, which . . . is
what I’m really looking for.”
While interesting reading, Joel’s article was more a humor piece
than a serious analysis of different types of preparers.
I hope Joel was well paid for the article – since “researching”
it cost him at least $1,630 “out of pocket”.
TTFN
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