Rethinking My Decision to Prepare My Own Tax Return

I have always considered my ability to prepare my own taxes a side benefit of my CPA license. I work in industry, so I don’t prepare anyone’s taxes other than my own, but felt I was proficient enough to prepare my own return. This year was different than prior years in that my husband had pension and social security income for the first time, we sold investments and I was hoping to use the personal energy credit for the water heater and gas furnace we had purchased in 2015. I spent three weekends preparing our returns and in hindsight think perhaps I should have used a professional preparer. Here are a few things I learned:

Only 85% of social security benefits are included in taxable income.

My husband started receiving social security last year, since I work full-time I knew we would pay tax on this income, but was surprised TurboTax included only 85% of this benefit as taxable income. According to the SSA website: 

No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules.

Pensions are taxable, but not according to my husband’s 1099-R.

On the form 1099-R my husband received for his pension, the taxable amount box was blank and the taxable amount not determined box was checked. When I entered the 1099-R exactly as provided, TurboTax concluded the pension wasn’t taxable. After reading TurboTax guidelines concerning pension income, I decided the pension income had to be taxable and entered it accordingly.

Remember the personal energy credit I was so excited to take advantage of:

From my post Appliances Don't Qualify for Energy Credit:

The $500 lifetime credit (10% of cost up to $500) for energy efficient improvements has been extended until 12/31/16. I am excited about this one since we installed a new furnace and water heater in 2015 – although $500 doesn’t come anywhere close to covering 10% of what we spent.

It turns out:

The energy credit for natural gas, propane, or oil furnace or hot water boiler with an annual fuel utilization rate of 95 or greater is capped at $150.

TurboTax did not ask for any information on water heaters, so we did not receive a credit for the new heater. Today I found the following on the Energy.gov website:

Natural gas, propane, or oil water heater which has either an energy factor of at least 0.82 or a thermal efficiency of at least 90 percent: $300.

Perhaps I missed something for the water heater, but at the time I determined we were only eligible for the $150 credit. 

Establishing cash basis for our sold investments was kind of nightmarish:

The 1099-B I received for our sold securities included basis for only a portion of our sold investments – there was a section for transactions for which basis is reported to the IRS and another section titled transactions for which basis is not reported to the IRS.

My boss, who prepares taxes on the side, informed me there was a law change about four years ago requiring brokerage firms to provide basis information for mutual funds purchased after January 1st, 2012. Since the assets we sold included mutual funds purchased both before and after January 1st 2012, the 1099-B provided basis only for the assets purchased after this date.

I called our brokerage firm who was able to provide the original cash basis for all our sold investments. I then had to reconcile the basis by each individual asset by date (there were several pages of these). The final cash loss I calculated did not equal what was on the 1099-R. In the end, my husband pushed me to file with the information I had. The loss wasn’t off by a lot only about a hundred dollars and I did use the lessor loss. If we are ever audited and I was wrong at least the IRS will owe us money.

Taxable losses can be deducted up to $3000 and the excess can be carried over to future returns:

According to the IRS website:

Generally, realized capital losses are first offset against realized capital gains. Any excess losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately) on line 13 of Form 1040.

Losses in excess of this limit can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up.

Okay I am sure I knew this when I took the CPA exam, but didn’t make the correlation when we sold the assets. I deducted the loss and am not questioning this one further.

Our taxes are filed – I paid $92 for the federal and state TurboTax Premier. I know of a tax preparer who sets her fee based on the number of forms she prepares, so I imagine I would have paid $250 or more if I’d have hired someone to prepare this return. My co-workers tell me my boss’s fees are reasonable, but I didn't want him to know my entire financial situation. I think I will be okay preparing my return next year, but if we ever sell securities again I will strongly consider seeking professional help.

Do you prepare your own tax return? Are you sure you took advantage of all the incentives available?