A coworker raves about how great their tax person is and that they got their family a 10k refund one year.
We’re both considered simple taxes – w2 employees, spouses also w2s, dependent kids, mortgage, etc.
I have a basic understanding of tax filing and has used online software like turbotax to file for about 15 years now. In my mind, they could have gotten that 10k refund by filing themselves.
In your opinion, at what point does a w2 employee benefit with a tax professional over self-filing with software? When is it complicated enough that a tax professional can use their expertise?
Coworker mentioned that her tax professional knows what deductions to maximize while minimizing risk of an audit. For example, like how much donation to claim. How risky is this? And would the tax professional benefit liable if an audit happens?
Skepticism of going to a tax professional
byu/coco_nutnuts intax
Posted by coco_nutnuts
13 Comments
Tax Accountant: I think people benefit from having a tax pro when their return goes beyond w2s and interest forms, or make somewhere in the 150k or higher range.
Your idea is generally correct. But even if their return seems basic, if they are in a higher tax bracket, there are deductions you may not be aware of.
I dont think there’s ever a reason to go to an hr block type place. Like you say, do it yourself.
Ultimately you’re liable. You sign off on the tax return saying everything is true. It is a small chance of being audited (I’ve read like only 1%?) but it’s not something that I’d FAFO. IRS has plenty of bite and penalties are harsh.
Honestly? Probably fine just filing by yourself with software and calling it a day. Once there’s rental property, some side businesses, maybe some foreign things, etc then find someone.
“Knows what deductions to maximize while minimizing risk of an audit” screams “I know what to lie on and probably get away with”.
I could be reading it wrong though….
Coworker could also have the “tax person” putting in fraudulent business loses to reduce the tax burden generating a refund. You’ll never know until you look at the return, or they could have 3 kids for child tax credits that are not reflected on the W-4.
>knows what deductions to maximize while minimizing risk of an audit
Nobody who’s behaving honestly would say that. These are the words of someone doing a crime.
A legitimate preparer filing a legitimate return doesn’t “maximize” anything. They ***truthfully*** record whatever the facts are—even if the facts are unusual or suspicious in some way. Lying to make a tax return less suspicious is ***illegal***.
With a truthful tax return, the “risk of an audit” is utterly irrelevant. An audit is just verifying that your tax return isn’t full of lies. It’s only a scary situation if it is, in fact, full of lies.
And let’s be clear: that means your coworker is also doing a crime. The statement you sign when you file your tax return says you’ve examined the whole stack of papers and you swear under penalties of perjury that it’s all correct.
The trouble with tax fraud is that it’s really easy to get away with… at first. You can write almost anything on a tax document, and the IRS will tend to just accept it and hand out whatever refund you’ve said you’re owed in order to keep things moving along. But they also get ***unlimited time*** to detect and prosecute fraud. Is your coworker definitely going to still have that $10,000 next year? In five years? In 20 years?
Personally, I wouldn’t want to live the rest of my life wondering when I’m going to have to repay the money I stole from the government.
But it sounds like you’re not asking about fraud; you’re asking when there’s a ***legitimate*** reason to hire a professional.
My answer is: when you can’t explain the situation you’re in easily.
Employment is easy. “I made $50,327 this year.” A young child could fill in a tax return with that information. (Source: I have a young child.)
When your explanation uses a whole lot of conjunctions and you’re not even sure what’s relevant, that’s when a professional is probably helpful. “I bought a house with my brother but then he moved to Spain and I moved to Florida and now we rent out the house to our elderly mother who pays us rent, but I also keep the inventory for my Etsy business in the basement…” — you probably want to work through that one with someone who knows what they’re doing.
The taxpayer is always responsible. Even if a pro prepares the return. The taxpayer’s signature is on the return.
If this pro is making up fake numbers for a larger refund, stay away.
Many times people don’t really understand taxes and think their pro is pulling some magic to increase their refund. When in reality it’s the same refund whether done at home or by a pro. Especially for simple returns.
You are probably right that the TurboTax crowd could get the same result. Unless you actually see their tax return, it’s hard to know if it’s legit or “padded”. You also don’t know if their withholding is too high and they are just getting back their own money.
Reducing your tax liability depends on how you handle your finances throughout the year, not just tax time. Understand what impacts your taxes, then plan accordingly. Secondly, with the standard deduction, fewer people have enough deductions to itemize, and donations isn’t going to get you $10k. Tax professional didn’t find $10k, person overpaid throughout the year.
There is no context as to why that person got a 10k refund. It’s highly unlikely that it was due to some little know deduction that only tax pros know about. It’s more likely that the refund was a result of overpaying tax through withholding or estimated taxes or a one time tax event that may or may not apply to you. If you are considering a tax pro in the hopes of getting a bigger refund, you’re thinking about it the wrong way. I would recommend getting a tax pro if you have rental properties, a business, or complicated trading activities. For someone with 2 W-2s and standard stuff like kids and a mortgage, it’s unlikely you’ll get any different result in terms of balance due or refund using a pro vs DIY.
We tell people who have simple w2 returns that they don’t even really need us and try to steer them to doing it themselves . A tax pro can’t really do much as most people don’t even itemize anymore .
Getting 10k back could mean their way overwitholding and or Getting a lot of credits for their kids.
The major thing you can do is contribute to an Ira / hsa
It’s all just math that’s calculated and it people can still have a variety of individual situations.
I swear that many people have their tax advisor ask them for medical reciepts and possible work expense receipts etc etc saying that they’ll put them toward the deduction. But because the tax payer themselves are too scared to learn about actual taxes they don’t know that the standard deduction is pretty hard to beat so they think the advisor is using all that to give them a big deduction.
Most of the times for people on w2, there is no need to go to a tax pro, as a tax pro. Sometimes it mean you ran your life through someone that know the law and apply it correctly to your situation.
I amended a new client last 3 years of returns and got them around 15k because they qualified for HoH status without knowing it.
They missed on 2020 and 2021 and those would have gotten them another 7k or so base on their income, but it is too late to get a refund from those years.
This is a rare case though for a random w2 person. I would just tell them my rate for a consultation if they need to discuss something and leave it to them to file their own tax.
With how little people understand tax (as someone who does it for a living) my first assumption when people tell me about refunds or amounts owing is just ignorance. So when I hear “my accountant *got* me ###” it’s as OP alludes to and they could have received that refund filing themselves but are too ignorant on the subject to understand this.
The number of people who think getting a refund is magic and witchcraft rather than realizing it’s just rou getting money back you were overwithheld on is sadly a large part of the population. Explainig to two people who make identical salaries that their paychecks differ due to how you filled out a W4 literally is the entire ‘magic’ trick lol
OP seems on good course if his return is just W2 and minor 1099s or the like – an accountant isn’t creating any more refunds you likely aren’t getting. If you have investments that enter the world of partnerships (you receive K-1s), youre estate planning – ahead of filing returns – or have one time events such as inheritance then there may be a benefit but otherwise you’re likely to get all you need from Reddit who have enough ‘expertise’ to advise on a W2 return 🤓