Should You Hire a CPA To Do Your Taxes?

I was more amused than annoyed with Harry Campbell's statement, “I don’t think it takes much to be a CPA” in his article why the average CPA isn't worth the money on PFMoney blog.  

I hold a CPA license and have to say passing the certified public accountant exam was one of the hardest things I’ve ever done. Back when I took it, it was a 16-hour exam covering business law, auditing, financial accounting and tax. In order to pass, I needed a strong knowledge in all four areas since you never knew what specific scenario or obscure topic they would test on.

Passing the exam was one of the best things I’ve done for my career. It opened doors that never would have been available to me without it, increased my annual salary $10,000 the first year I became certified and boosted the amount of respect I receive from colleagues and business associates. I still notice a distinct change in attitude when I hand a vendor, banker or auditor my business card and they read the CPA designation listed after my name.

Campbell goes on to say:

Like in any profession, I’m sure there are some really good ones out there but I think it’s a myth that only a CPA can do a great job. That doesn’t mean the average person is smarter than a CPA but if you can read and you have an interest in taxes you can do just as well as the average CPA.

The reason why I feel so strongly is that this year I actually met with two different CPA’s in person. Both were very highly rated by online reviews and I ended up explaining depreciation recapture tax to the first one and arguing with the second one about the passive loss exclusion. The only reason why I knew more than both these CPA’s was because I had just read NOLO'S Landlord's Guide. It wasn’t because I’m a genius, I just spent the time reading up on landlord deductions and clearly these guys weren’t specialists in real estate taxation.

I have never prepared taxes professionally nor do I ever intend too. My eyes glazed over when I read the words depreciation recapture tax and passive loss exclusion in Campbell’s example. I attend several tax-updates each year as part of my CPE requirements, but these classes are designed to keep me informed of tax law changes affecting my industry, company or personal life, not to become a tax expert - my company has an outside accounting firm for that. I can handle cocktail party tax questions, but anything more complicated I can't answer. (I was once asked how much of a capital gain someone would have if they were to sell their printing business.)

Many of the CPA’s I know do not work in tax or even for an accounting firm. Less than 15% of the members in my professional organization prepare taxes professionally. I am confident that those who do would be able to answer Campbell’s questions accurately and with enthusiasm. If they could not, I’m sure they would know where to find the answers.

He closes with:

I got the feeling from both of these CPA’s that they were going to just take my information and hand it to a secretary to enter into their tax software. I don’t need to pay $500 for that and neither do you. My advice is to do it yourself or hire a specialist and take an active role in your taxes.

Should Harry hire a CPA?
The tax-preparers I know who work for larger firms do have interns or assistants who enter client information into tax software, but an actual CPA always reviews and signs the return. Also, they specialize - some work with small businesses, others with not-for-profits or medical professionals. I would suggest Harry call some of the rental property owners in his area and ask for recommendations. One of my co-workers owns rental properties, his wife is a CPA working in industry and he tells me she spends days working on their taxes. Someone that specializes in rental property returns would be more knowledgeable about best-practices, but if Harry feels comfortable preparing his own tax return he can certainly do that too.

Here are some other considerations:

If your tax-prepared deductions seem too good to be true perhaps they are: 
Two salesmen at my company living in two different states are currently undergoing IRS audits for their 2010 returns. Both used an outside accountant to prepare their return. Both audits disallowed their business expense deductions. One received a bill in excess of $10,000. I’m not sure what he could have claimed for $10,000 because he receives a car-allowance, reimbursement for his gas, his entertainment expenses and mileage in excess of 35,000 from our company. 

Not all tax-preparers are CPA’s or have the same training:
H&R Block has an in-house training program. When one of the CPA tax preparers from my professional organization was looking for an assistant at her law firm, she indicated she wanted someone with prior tax experience and working at H&R Block did not qualify as prior experience.

Also, not all accountants who prepare tax returns are CPA’s. If having a CPA prepare your return is important to you make sure you ask if they are licensed.

If utilizing a CPA, be organized:
The CPAs I know charge clients more if they are not organized. One has a client who drops off shoe boxes filled with receipts each year. It takes her at least eight hours to organize all the papers and receipts in these boxes. She charges him for every minute of her time.

Be careful with the home-office deduction:
The home office deduction is the most frequently audited item on a tax return. The rules are very specific about how this space is used. It must be used exclusively and regularly as your principal place of business. My boss, who prepares tax-returns on the side, refuses to use this deduction on his client’s returns.

There is a new simplified option for the home office deduction:
Starting in 2013, you can deduct a simplified safe harbor amount of $5 per square foot up to a maximum of $1,500 (300 square feet). This means you can itemize your full mortgage interest and real estate interest on Schedule A of your personal tax return rather than apportioning between Schedule A and business schedules C or F. In some parts of the country this simplified option may be as much as if you claimed actual home office expenses. If you live in a high expense area this simplified method will probably amount to just a fraction of your actual expenses.

Your tax-preparation fee may be listed as a deduction, but it may not actually be reducing your taxes:
I had a co-worker who didn’t mind paying someone to prepare her taxes because his fee was deducted as an itemized expense on her return. When I reviewed her return for her, the tax preparation fee was indeed listed as a miscellaneous itemized deduction, but the total miscellaneous deductions in excess of 2% of adjusted gross income was zero - meaning her tax preparation fee was not actually reducing her taxes.

The same can be said for medical expenses:
I currently have a co-worker who hires H&R Block to complete her taxes because they itemize her medical and dental expenses for her; something she doesn’t like doing. I told her to make sure she is actually receiving a deduction. In the past, you needed out-of-pocket expenses in excess of 7.5% of adjusted gross income. In 2013, that percentage has been increased to 10%. If you or your spouse is 65 or older the 10% increase does not go into effect until 2017.

Should You Hire a CPA To Do Your Taxes?
If you have a fairly uncomplicated tax return, nothing new or out of the ordinary occurred during the tax year and you are familiar with the various tax reporting forms you probably do not need to hire a CPA. For the past three years, I’ve used TurboTax answering all of their questions to make sure I didn’t miss anything. I was finished in less than two hours. If you do the same, you probably don't need to hire an accountant to do your taxes. If you have your own business you may want to hire a CPA - at least for the first year.

Do you prepare your own taxes?

*Part of Financially Savvy Saturdays on Femme Frugality and Stapler Confessions*

48 Days To The Work You Love

What is Dan Miller's book 48 Days To The Work You Loveabout?
Dan Miller, a life coach, has written a book not about finding a new job, but about discovering what you are going to “be.” According to Miller, failing to make that fundamental discovery is why so many people find themselves in jobs they hate. His book is to help lead you to the vocation you will love.

Motivation for reading:
This book has been included on several must-read career book lists, but it wasn’t until Sarah Ingle mentioned it in her post things I wish I'd been told in college that I decided to read this book. She wrote:

I wish someone had made me read 48 Days To The Work You Love.  I know I talk about this book all the time, but it was the first thing I ever read that actually helped point me in a direction. I think every college freshman or sophomore should be REQUIRED to read something like this before they waste thousands of dollars on classes that are useless and have no direction. 

If you are a regular reader of this blog, you may have noticed I’ve been feeling trapped in my career as an accounting manager for some time now. I’ve worked in accounting for 25 years and would like to do something more fulfilling in the next stage of my life. I was hoping this book would provide some insight.

My thoughts:
This book is not a step-by-step how-to-guide to finding a new career in 48 days; instead it is a book filled with anecdotes and stories from Miller’s coaching practice, the bible and quotations from other books. Each chapter does end with a list of questions designed to get you thinking about your own life and its purpose. Overall, I thought the book was a bit repetitive. I would have preferred a more logically organized step-by-step book, but reading it was not an entire waste I came away with several invaluable insights. Here is a sampling:

Not only know yourself, but know what is changeless about you:
The power of knowing yourself acts as a compass through change. Popular writer Steven Covey says the only way we can handle change is to know what is changeless about ourselves. You need that changeless core, knowing how God has uniquely gifted you and what you value. With that knowledge you can forge through change with clear direction and unshakeable purpose. (Pg. 31)

On having action plans and setting goals:
A plan of action will separate you from 97% of the people you meet. Everyone has dreams, but very few ever turn those into goals. The difference between a dream and a goal is that a goal is a dream with a timeframe of action attached. (Pg. 48)

Only 8% of the general population can identify goals and only about 3% ever actually write them down. (Pg. 56)

Goals are not written in concrete terms but certainly give you a starting point and a destination. The important thing is you are working on your goals; your life has meaning only when you are working towards goals through with your achieve meaning. After all, success is the progressive realization of worthwhile goals. (Pg. 57)

Indecision is the greatest thief of opportunity:
A recent Harvard Business School Study asked, “What are the top characteristics of high achievers?” At the very top of the list, one characteristic stood out: speed of implementation – having the ability to act quickly. Eighty percent of decisions should be made immediately. (Pg. 55)

When confronted with a decision Dan and his wife allow a 2-week maximum for arriving at a decision. Here is their approach to the process:

1. State the problem
2. Get the advice and opinions of others
3. List alternatives
4. Choose the best alternative
5. Act

Look for what you love first:
Looking for the best opportunities in career and jobs often leads to disillusionment and frustration. Look for what you love first. Then you will have the confidence and enthusiasm to find success in places others overlook. (Pg. 188)

I enjoyed the chapter on entrepreneurship. It contained one of the best “Do you have what it takes to be an entrepreneur questionnaire” I’ve seen. It is extensive – at 18 questions and does not include your typical are you a risk taker type question.

The chapter on interviewing pointed out how important it is to appear energetic and enthusiastic during the interview process.

Bottom line:
I may not have determined what my next career will be, but I did gain valuable insights from reading this book. I recommend it to anyone just starting out or searching for a new vocation with this caveat - Miller writes this book from a Christian point of view. If this will bother you, you may want to skip this book.

What is the best career book you’ve ever read?

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What Are You Reading for Women’s History Month?

For the past few years in honor of Women's History Month, I’ve been reading a book covering women’s history or a biography of a famous woman during March. Last year I read Robert Massie's book Catherine the Great: Portrait of a Woman. In my review I noted that Robert Massie had written Elizabeth I of England used virginity and abstinence as prizes to tempt and manipulate powerful men. This was in contrast to Catherine the Great who had numerous lovers during her rein. I then suggested a biography on Elizabeth I would make an excellent companion read to Massie’s book.

As a result, I am choosing Alison Weir’s book The Life of Elizabeth Ias my read this year for women’s history month:

I discovered this book on Deb of Urban Moo-Cow’s list of her top ten non-fiction reads. She wrote:

I am an unabashed Anglophile. I have read so many books about Tudor-era England, both fiction and non-fiction, it is almost embarrassing. But Weir is special: an amazing writer and historian. You feel like you are reading a story, not a history book, yet every word is meticulously researched.

 Since this book is 488 pages long, I’ve decided not to select it for The Savvy Reader Book Club - book club selections are supposed to be 300 pages or less. Instead of selecting a book this month:

I am challenging you to read one book of your own choosing for Women’s History Month

If you need ideas here are a few books I recommend from my book archives:

This Little Light of Mine: The Life of Fannie Lou Hamer by Kay Mills:
In addition to being an excellent choice for Women’s History Month, this book provides a study of the civil rights movement, the history, culture and politics of Mississippi, and the economic programs and human rights Fannie Lou fought so tirelessly for.

When Everything Changed: The Amazing Journey of American Women from 1960 to the Present by Gail Collins:
This is a well-researched comprehensive history of what has happened in every realm of women’s lives from 1960 to the present including Hillary Clinton’s historic presidential campaign.

Coco Chanel: The Legend and The Life by Justine Picardie:
An informative biography of the famous fashion designer Coco Chanel. This is a rags-to-riches tale describing how Chanel made herself into a style legend and what she had to hide along the way in order to ascend to the top.

In the Name of Honor: A Memoir by Mukhtar Mai:
This is the story of Muktar Mai, a poor, uneducated peasant woman from the small village of Meerwala, Pakistan. Her life is turned upside down when she is gang-raped on the order of a council of elders as punishment for her brother’s alleged affair with a woman of a higher clan. Instead of committing suicide which is the cultural norm she decides to fight for justice.

Loving Frank: A Novel by Nancy Horan:
This book is a fictional account of the real life story of Frank Lloyd Wright’s affair with one of his clients, Mamah Borthwick Cheney in the early 1900’s. Mamah who lived life on her own terms provides a glimpse into what life was like for a woman who leaves her husband and children for another man prior to the women’s movement.

Mighty Be Our Powers by Leymeah Gbowee:
Leymah won the 2011 Nobel Peace Prize for helping to lead the women's protests that toppled Liberia's dictator. This book is her courageous story.

Marie Antoinette: The Journey by Antonia Fraser:
This book along with Caroline Weber’s Queen of Fashion: What Marie Antoinette Wore to the Revolution are both excellent biographies of Marie Antoinette’s life.

The Feminine Mystique by Betty Friedan:
This is Betty Friedan’s classic book that ignited the feminist movement. It can be a bit dry and repetitive at times, but is still a worthwhile read.

My Life in France by Julia Child:
This book which is based on the letters Julia Child and her husband Paul wrote to family and friends while living in Europe is a delightful read about a woman discovering her passion later in life.

For more book recommendations see these book lists from around the web:

Books and Bassets provides an interesting list.

The Book Wheel's 30 Inspiring Books For Women, By Women - I can't you believe I've only finished four of these.

The Invisible Mentor shares a list of classic books written by women. She is celebrating the month by reading 7 or 8.

What are you reading for women’s history month?

First Darling of the Morning by Thrity Umrigar

In February, The Savvy Reader Book Club read Thrify Umrigar’s book First Darling of the Morning: Selected Memories of an Indian after Tanya of Mom's Small Victories recommended it. I had recently joined the Around the World in 80 Countries Reading Challenge after learning of it on Tanya’s blog. The premise of this challenge is to read 80 books that take place in other countries to get a better understanding of that country and culture. Thrifty Umrigar’s memoir covers her childhood growing up in Bombay India.

What is this book about?
Thrifty Umrigar is the author of the acclaimed novels Bombay Time, The Space Between Us, and If Today Be Sweet. She grew up in a middle class Parsi family in Bombay (now Mumbai) India. In her coming of age memoir she examines her childhood, exploring what things and people helped contribute to her becoming a writer. In doing so she honors the people who raised her. She lived in a joint household that included her parents, an aunt, an uncle and his wife and her cousin. She opens her life up to us with brutal honesty sharing the pain and embarrassment of living with an abusive mother, her writing influences, her teenage rebellion and finally her decision to leave Bombay to finish her education in America. All of this takes place against the backdrop of Bombay in the 1960’s and 70’s.

My thoughts:
It is easy to see why Thrifty Umrigar’s novels are so popular; she is a talented and gifted writer. I particularly enjoyed learning of her early writing influences:

Thrifty attends a private catholic school. Her 4th grade composition teacher turns her writing world upside down when she tells the class, “For once in your life do not make your characters blond and blue eyed. And for heaven’s sake give them real names, that is, Indian names, not names like Mr. Jones and Mr. Henderson. Thrifty and her classmates grew up reading Enid Blyton books. Thrifty had lived so intensely in the fictional world of small-town England that she knew more about this world than the hot crowded, equatorial city of dark haired men and women that she dwelled in. Her teacher’s question helps her realize:

Writing is - can be – a complicated and important thing. And that it is tied to other things, things like culture and nationality and history and where you live. This is a brand new thought that all writing is not the same and that where you live can define who you are and so change the way you write. I am both excited and confused by how a simple request to change the physical descriptions of our characters is taking me down a new path, making me think about these things that I have never thought about before.  

And in a flash I understand something new: that just as reading and writing are linked, so are questions and answers. You have to know how to phrase a question to get the right answer. (Pg. 88)

From a conversation she overhears about the song The Boxer:

I can’t get over this song even though I’ve heard it a million times. Just listen to the lyrics. They’re like a poem. I tell you, this is the song by which the ‘sixties will be remembered.’

I have no idea what they’re talking about. But the hair on my arm stands up and I am filled with a rush of excitement. Where I come from, nobody ever talks this way about music. Where I come from a song, is something to be whistled along with and music is an impractical luxury, like flowers and art and museums. Nobody I know has ever asked me to listen to the words of a song. (Pg. 110)

Other early writing influences are Demian and Steppenwolf written by Hermann Hesse and Irving Stone's Lust for Life:

I read Van Gogh’s biography in two days and learn more about the mysteries of my own life than about his. All the things that have never made sense to me before - why I never felt comfortable when I was with the ‘in” crowd, why I always stuck up for the underdog, why I don’t lust after the things that make most of my friends happy, why the evening sky has made me feel melancholy and lonely for as long as I can remember, why certain songs have a heart-tearing effect on me. All of these suddenly become clearer.

I have been a misfit for a long time. Now I have a companion in a crazy Dutch painter who was dead long before I was born. (Pg. 119)

Thrifty reminds me so much of myself. I think we are the same age. We both grew up feeling trapped in an unhappy household and we both escaped into the world of books. We both eventually end up leaving home never to return; me from my family's farm in rural Wisconsin and her from her home in Bombay.

Thrifty, exhausted from trying to keep the peace at home decides to go to college in America. Here she writes about her decision:

America. A way out. If I am to get away from my dead-end life, I will have to find my way to America, land of self-invention. This is the only place I know where one can start anew. As long as I am unmarried, I know that economics and social convention will dictate that I live at home.

All the things I thought would save me – music, books, politics – have befriended me for a while but ultimately I’ve had to come back and face myself. After years of looking forward to a job and independence it would give me. I’m facing up to the facts: I do not feel prepared to enter the work world and as long as I’m living at home, I will never be truly free. I will never find out who I am with all these people around me. (Pg. 260)

She decides to move to America and not to another city in India because:

After all Bombay is the glittering jewel in India’s crown. Bombay is the place where the rest of India migrates toward. To leave the city and settle in one of the lesser places would be a slap in my father’s face. As repudiation of the life I have here. (Pg. 261)

The book ends with Thrity’s plane leaving for America. For me, this ending feels abrupt. I have so many questions; how did Thrifty pay for her education once she got to Ohio State, did her new life in America meet her expectations and how did it compare to life in India. Fortunately, I was able to find the answer to some of these questions in a radio interview on blogtalkradio.

Thrifty had read so many books set in America prior to her arrival that her expectations pretty much matched reality. She never assumed our streets were paved in gold. Her first two years here were the happiest of her life. When she arrived she hadn't known anyone and had led such a sheltered life in Bombay – she had never even gone grocery shopping before. She was continuously amazed by the acts of kindness and generosity she received from strangers who help her find her way.

As to class differences – America prides itself on being a classless society, but there are class differences here, they are just more hidden. There is also poverty in America. You don’t see it because you don’t venture into those neighborhoods. India has substantially more poor people and you don’t have the option of looking away; the poor are everywhere. She left India in the early eighties, unfortunately based on her observations India’s poverty problem has not improved since then.

Bottom line:
This book was a good selection for my Around the World in 80 Countries Nonfiction Reading Challenge.  I recommend it to anyone who would like to learn more about Thrity Umrigar, enjoys reading author memoirs or likes a good coming of age story.

Have you read Thrity Umrigar’s book First Darling of the Morning? If so what were your thoughts?  

Please Note, I am an Amazon Affiliate

Other reviews:
Me, You and Books
Mom's Small Victories