Saturday, January 24, 2009

Turbo Tax vs. Tax Professional - Part 2

Sitemeter tells me I'm getting visitors from Google because of this post but I suspect most people who use the search terms "Turbo Tax vs. Tax Professional" are really interested in the trouble of the Secretary of the U.S. Treasury's tax woes. (Though Google searchers should be!) Instead, I think they're interested in finding the advantages and disadvantages off using Turbo Tax or a Tax Professional. If so, they've come to the right place.

Of course, I'm a tax professional so I think you should hire me to do your taxes but you might be surprised to know that I don't believe everyone should. In fact, I think computing your tax burden should be simple enough that everyone could do it on their own. Well, taxes aren't simple, and if you foul up, you could get into serious trouble, so it's best to leave the task to a professional and have at least some peace of mind. You might be able to change a washer in your kitchen faucet but you wouldn't want to install an entire faucet on your own, unless you're extremely handy. Most people aren't. They have these things called lives.

And you might be surprised to know that I think Turbo Tax is a good program. Before I resigned from the IRS, I used an online version of Turbo Tax and I was impressed with its performance. But I had years of experience with taxes to help me make sure Turbo Tax was doing the tax return correctly and I was familiar with most of the issues on our tax return. I can't say how the average user would do without that background. Turbo Tax makes it simple, so you'd likely have little trouble learning how to use it, but, again, there's that thing called a life you have which you'd rather spend living than learning how to use tax software. And once you've learned how to use the software, you still have to input your information, submit the return for filing electronically (or not), correct for errors, re-submit, print out a paper copy for your files, maintain that file for three years, etc.

And then what happens if you get audited? Turbo Tax won't represent you before the authorities. Turbo Tax won't advise you about the chances of appealing a Revenue Agent's findings. A tax professional will.

I guess the best selling point I can make about hiring a professional is that what you're really buying is your own time back. Sure, you can handle most of this stuff on your own and go through most of your life without any problems. But your time is more valuable than that. At least as valuable as any fee you'll pay a professional. Using Turbo Tax makes doing your taxes easier but it doesn't give your time back.

Have I convinced you? I hope so. To avoid spammers, I won't give out my contact information on Blogger, but if you want to talk more about this in person, Google me and give me a shout. I'd love to talk to you more about it.


  1. Thanks for the post Pete. I think you make good points. It appears your thesis above is focused on time saving - going with a CPA allows you to save time that would be spent working with Turbotax, and that the CPA (not you) will spend time with IRS in case of audit.

    I agree you save the prep time by letting a CPA do the taxes, but it seems we're talking about a small savings. Also, I understand the number of audits IRS does is infinitesimally small, assuming no gross errors, so it is unlikely you or the CPA will need to spend happy time with IRS.

    My real question is how accurate is Turbotax versus a CPA? Put another way, will a CPA do a better job than Turbotax at properly keeping my tax burden to a minimum? Thoughts?

    I'm thinking I may answer this question after I file this year by submitting to a CPA my Turbotax-filed 2008 and 2007 taxes, and asking for re-look to see if it missed anything that could warrant an amendment.

    I would note, however, a Money magazine article a few years ago where the publisher had scores of CPAs from all over the company prepare one couple's taxes for one year, and each CPA came up with a different answer, and results varied widely, from big refunds to big tax due. I know Turbotax is somewhere in this gamut, since it's made by CPAs, so it's still only human.

    Thanks for chat!

    Tony Mormino,

  2. Thanks for dropping by, and the comment, Anthony. You make some good points so let me address them and maybe I can help you make a better decision.

    The prep time savings may be small but you'd be the best judge of what you're time's worth. If all I'm saving you is an hour or two, then my fee may not justify the investment, especially if you have a relatively simple tax return: a W-2 or two, some 1099s for interest, a 1098 for mortgage interest, that kind of thing. My fee for that kind of return already exceeds the cost of Turbo Tax software and I can't say the return I'd prepare would be any more accurate. I could prepare that kind of return quickly while you might take slightly longer with Turbo Tax but by the time you factor in your drop off and pickup time of your records and prepared return, well, you've probably come out ahead.

    If your return is more complicated - and I suspect it is, after a quick review of your profile and blog - the savings to you might be more substantive. Your time would be more valuable doing other things than preparing a tax return.

    Yes, the IRS has cut back on audits and the chance of being audited on a simple return are practically nil. The information on those returns is compared to the information reported to the IRS and discrepancies are referred for resolution. A letter from the IRS about such a matter counts as an audit for the IRS but probably doesn't feel like an audit to the taxpayer. The taxpayer can probably resolve that matter quickly and, if they get a reasonable IRS employee to review the response, the issue can be closed with a minimum of fuss. Who needs a CPA for that?

    But let's get to the crux of your issue: would the return I'd prepare be more accurate than one prepared by Turbo Tax? It depends. (Yeah, I hate that kind of answer, too, but sometimes it really does depend on the circumstances.) I'm familiar with the articles you reference and my own experience has shown many CPAs prepare returns differently. Tax laws are complicated and they're open to interpretation and client's circumstances are different: for instance, with the downturn in the economy, it may be wiser to forestall some tax benefits this year and save them for a future time when your income is higher. And tax returns are really just estimates anyway. When it comes to the interpretation of law, the IRS believes one way and I, as a CPA, may believe another. The matter may be resolved in Tax Court and even then that's a matter of interpretation and opinion.

    So, yes, Turbo Tax can give you an accurate calculation, as accurate as any CPA, just as I can represent myself in court and probably come to the same resolution an attorney could if I'd turned the matter over to him. Let me say again, I think Turbo Tax is a fine program, in my experience, as good as any out there for certain returns. And using Turbo Tax will likely be cheaper than a CPA, so I can't compete in price. In that case, the only way I can win your business is to provide you with service that makes you think you got your money's worth. And there, I'm confident, I can win.

    Again, thanks for dropping by and the comment. You've given me much to think about.

  3. What about adopting a child--something we did in 2009?

    Will Turbo Tax come to the same "conclusion" a CPA would? (For me, I don't mind the time inputting the data--actually kind of enjoy it; it's purely a bottom line decision on which will provide the maximum cost benefit.)


    P.S. This is the first time I've considered hiring a pro.

  4. Hi, James,

    First, congratulations on your adoption! We're the so very proud adoptive parents of two daughters; you're at the beginning of a wonderful adventure.

    The TurboTax interview process is fairly thorough and I'm sure one of the questions will be if you adopted a child. Answering yes should trigger the correct form to be included with your return. I'm not sure which version would be best for this - probably the most expensive one. But I'll bet TurboTax will take care of it.

    Would a professional come to the same conclusion? He should! And with a professional like me, with experience with adoptions - and having claimed the credit myself - I'd make sure you got the maximum benefit from your adoption costs.

    Most likely my fee will be higher than the TurboTax cost so it would be up to you to decide if the service I provided you was worth it. I do know that with the IRS' ramped up audit program, this might be an area at which they might look more closely.

    Regardless of your decision, I'm sure you'll be fine.

    Good luck with your new status as parent!

    Take care,

    Pete Terranova