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Atlantis Accounting: a new name for a familiar firm

Wed, 15 Dec 2021 17:22:37 GMT

While our name has changed, we remain committed to the same values and ideals.

In December, 2021 Hung & Scanga, LLC has begun doing business as Atlantis Accountants. Our new name reflects our continued growth and our desire to reach out to new areas in our practice.

Small Business Income Tax Summary—Part 3 for S Corporation

Sun, 24 May 2020 18:11:19 GMT

Meet architect – Anthony – after working for an architect firm for a decade, he now decides to hang out his own shingle. He plans to rent office space and hire an assistant. After putting his projected revenue and expenses on paper for the next five years, he is confident that the business’ cash flow is healthy, and his bottom-line projects will grow about 15% per year. The first question is: what business structure shall he use for his new company?

He could choose to be a sole proprietor which I wouldn’t recommend, first and foremost because he will not have a separate business entity to shield him from potential liabilities arising from business’ creditors/clients.

Alternatively, Anthony could set up a single member LLC – which is easier to manage, with tax and business benefits. For details please refer to my article, Small Business Income Tax Summary – Part 1 for Sole Owner .

Based on the projected cash flow, the amount of experience that Anthony has had, and if he has no intention to take his company public in the future, I would most likely suggest setting up an S corporation. In my personal opinion, once he pays himself salary up to a “reasonable” amount, instead of giving himself a raise and pay more payroll taxes; the rest of business profit could be distributed through his k1 and then taxed on his personal income tax returns.

How to qualify and set up an S Corp?

Below is a direct quote from the IRS’ website:

“ S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet the following requirements:

Be a domestic corporation
Have only allowable shareholders
- May be individuals, certain trusts, and estates and
- May not be partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).”

What does “S” Corporation mean?

American companies have the choice to be taxed at either the corporate or at the shareholder level. Those who choose the shareholder option are called S corporations. The letter “S” is referred to as the Subchapter S of Chapter 1 of the Internal Revenue Code.

Examples of pass-through:

If an S corporation donates money to charity . That item is reported as a charitable donation on the Schedule k-1. The shareholder would report his portion of the charitable donation as an itemized deduction for charity on his/her personal return.

The pass-through treatment of items passed on the characteristics and the shares (for sole owner is 100%) of income, losses, deductions, and credits.

More good news:

After the tax year of 2018, S corporation shareholders could potentially reduce the income that flows through from their S corporation by 20%. This is commonly known as the Qualified Business Income Deduction, or 199A deduction.

What is “Reasonable” Salary

As mentioned above, after he is paid a “reasonable” amount of salary, the rest of the business profit could be passed on to his own returns to skip paying self-employed taxes. So, what is construed as reasonable pay? $50,000 is out of the question. But how about $150,000 or $200,000? Would you pay the same if you hire someone with similar background / experience? If a 3rd-party salary survey could be obtained as a supporting document; it will be helpful in case the IRS questions it.

Cost Basis in an S Corp

The shareholder’s basis is his capital contribution plus his share of company profit minus applicable business loss and his distribution. Even though the shareholder of an S corp. didn’t receive those profits, each will still have to pay taxes on what he is entitled to.

S-corp Federal Taxes Returns due date

S corporation tax return, Form 1120S, is due March 15 for those who operate on a calendar year basis. The due date is the 15th day of the third month following the end of the fiscal year if S-corp. chooses a fiscal year.

Regardless of your business structure, we recommend using software such as: Quickbooks Online to keep track of everything you need to file your taxes. This accounting software tracks all income and expenses for the businesses to fill out S-corp. tax returns.

If you need a consultation or a second opinion, here is the link to access my appointment calendar, https://square.site/book/9AXE057BXPYYG/annie-hung-scanga .

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Disclaimer:

To the best of my knowledge and effort, I wrote this article in general terms as each person’s situation varies. Tax laws do change from time to time. No guarantee is made or claimed through this article. Personalized advice is recommended to consult’s one’s own advisor or contact the author.

Small Business Income Tax Summary—Part 2 for a Partnership

Sun, 03 May 2020 18:43:37 GMT

Like the sole proprietor, a partnership is not taxed at the partnership level. Instead, a partnership is considered a pass-through entity, meaning the profit or loss generated from the partnership is passed to each partner via schedule K1 and is taxed on each partner’s own income tax return.

To generate a K1 the partnership must calculate its profit and loss by subtracting the eligible business expenses from total revenue. Next, each partner’s income / loss share is determined by the total profit / loss percentage ideally dictated in the partnership agreement.

For example: Vicki and Michele form an architect LLC with Vicki contributing $30,000 and Michele, $70,000. Profit/loss is divided along the lines of their investment in the business, so the profit-sharing percentage is 30/70 between Vickie and Michele.

Let’s say the business generated $100,000 and paid $90,000 in expenses. The net profit of $10,000 will be passed through to Vicki $3,000 and $7,000 to Michele.

If both are actively running the business together, then both will have to pay Social Security and Medicare taxes calculated on schedule SE – Self-employment Tax. This is to recognize that they are both employer and employee and pick up the expenses accordingly.

At first glance, this may seem complicated, however they are also entitled to take half the SE taxes and deduct them on their returns.

Since partnership returns (form 1065) are information returns with no income taxes due upon filing; no income taxes are required to be withheld. It is the partners’ responsibility to estimate the share of the profit they will receive and estimate and pay the taxes due. As we are a “pay as you go” income tax system, interest will be accrued if estimated taxes are not paid when the income/revenue is earned. The interest will be added on to the taxes owed when partners file their individual income returns.

This might come as a surprise – even if the partners did not take any profit out of the business and decided to leave the cash in the business to pay for anticipated expenses. The tax owed did not take that into consideration; the point being revenue is taxed when earned not when it is withdrawn.

On the other hand, business expenses are usually recognized in the year paid which offset the business revenue. Below are some common expenses:

Auto Expenses: business usage portion, including mileage, repairs, insurance, etc.

Depreciation: is money paid for Fixed Assets which are expensed over time depending on the type of assets

Legal and Professional Fees: fees paid to attorneys, CPAs etc.

Insurances: professional liability insurance, director’s insurance, etc.

Travel Expenses

Interest on business loans, not interest on taxes owed

Equipment: may be able to elect section 179 and expense them in the same year instead of amortizing the expenses over a period of 3 to 7 years (or longer)

Education Expenses: if continued education courses or other business improvement classes are required

Taxes: paid to state and local, not federal

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In addition to these common business expenses, setting up a suitable retirement plan will not only decrease the current tax liability, but it will also help save for retirement. Depending on the structure of the business, cash flow and the goals of the business owners, a suitable retirement plan is yours if you act. Friendly reminder: some retirement plans are subject to ERISA regulations and some are required to be set up before the end of the tax year; some require owner’s match to the employee’s contributions while some are contributed from business profits, etc. Please consult with a financial advisor along with your third-party administrator to help custom design an appropriate retirement program to suit your goals.

If you need a consultation or a second opinion, here is the link to access my appointment calendar, https://square.site/book/9AXE057BXPYYG/annie-hung-scanga.

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Disclaimer:

To the best of my knowledge, I wrote this article in general terms as each person’s situation varies. Tax laws do change from time to time. No guarantee is made or claimed through this article. Personalized advice is recommended to consult’s one’s own advisor or contact the author.

Small Business Income Tax Summary—Part 1 Sole Owner

Thu, 23 Apr 2020 19:32:06 GMT

INCOME TAX RETURN FILINGS

There are numerous business structures to choose from. If you start a business by yourself, you would be a sole proprietor and file a schedule C — Profit or Loss From Business for your business when you file your individual income tax returns forms, and submit them all together. Simple. You may also have one or more state tax returns to complete.

On the other hand, if you decide to incorporate your business as a single member LLC, you still file a schedule C as described above. The main reason as to incorporate your business is to shield you from any potential liability or lawsuits.

PAYROLL TAXES

As you are an owner and employee, you would have to pay payroll taxes as both; the applicable taxes are calculated in a schedule SE — Self-Employment Tax, which is also filed with your form 1040 and a schedule C.

BUSINESS CHECKING ACCOUNT

Whether you apply for a separate Employer Identification Number (EIN) or not, I recommended that you open a business checking account to separate business transactions from your personal ones. Aside from the legal perspective, having a business account keeps business/tax records clear and readily available for tax filing.

BUSINESS EXPENSES

What could be construed as business expenses? Postage, office rental, CPA fees etc. just to name a few.

Let’s look at some business expenses item in depth.

Cell Phone: monthly phone bills are reduced by the portion that is used for business.

Restaurants: half of the meal expenses for taking clients out, or business luncheons can be deducted. The reason for deducting up to half is because you enjoy half of the meals, and the other half paid for your business client, is considered “business expense”.

To claim Home Office expenses, you need to set aside a designated space which is regularly and exclusively used for business purpose. Thus all applicable expenses for maintaining this space can be classified as a business deduction on your returns and you will have the documentation to support it in case you get challenged (for more detailed discussion, please refer to my article titled, “Home Office”, https://www.hungscanga.com/tax/home-office/, ).

For vehicle usage, you should log your mileage: “to” and “from” for business trips/purposes in order to provide proper documentation for deprecation amounts and other related expenses.

Estimated Taxes

If you are like me, I don’t like to pay taxes, and definitely avoid paying interests/penalties. If you owe a lot of taxes on your income tax returns, interest will be added on top of the taxes you owed, because our income tax system is designed as “pay as you go”.

No one is withholding any income taxes when you make money, you are the boss and you are the one who is responsible for paying the estimated taxes to Federal Government and to the State.

Over the years, I have had clients whose revenue is not evenly generated throughout the year, and the income taxes/interest owed are calculated assuming it is. As a result, my client ended up owing interest when he should not. If your income is seasonal, you want to let your CPA know when she/he prepares and files your returns for you if you estimate your own taxes during the year.

RETIRMENT PLANS

From an Individual Retirement Account (IRA), ROTH IRA, to a Simplified Employee Pension IRA (SEP IRA), and an Individual 401k plan, the contribution/deduction amounts, the reporting requirements, the annual custodian fee, the benefits are not the same.

For a small businesses just starting out with no steady income/profit, IRAs serve the purpose while a cash rich business might need to set up an individual 401k plan to tuck away the money instead of paying a good portion of what you make to the government, and miss out the opportunity of saving for your retirement. Which type of retirement plan suits you the best depends on your cash flow, your life goals and business plan.

One thing these retirement plans have in common is: you cannot take the money out before you reach age 59 1/2 without paying income taxes and penalty (with the exception of ROTH IRA assuming certain conditions are met).

Lastly, once you set up the retirement plan/account and contribute money into it, you won’t just let the money sit in the account making little interest, will you? Where will you invest that money? Stocks? Bonds? Mutual funds? Real Estate? As you have heard plenty of times: the investment mix should be driven by the number of years that you want to stay invested in and your risk tolerance (in other words, are you able to sleep when the market drop 30%?)

If you need a consultation or a second opinion, here is the link to access my appointment calendar, https://square.site/book/9AXE057BXPYYG/annie-hung-scanga .

Stay safe!

Disclaimer:

To the best of my knowledge, I wrote this article in general terms as each person’s situation varies. Tax laws change from time to time. No guarantee is made or implied through this article. Personalized advice is recommended by consulting one’s own advisor or the author.

Trust? Grantor Trust?

Sat, 07 Dec 2019 18:09:30 GMT

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So, What is a trust?

One of the Definitions of a Trust by Merriam-Webster is: a property interest held by one person for the benefit of another

Per Fidelity: A trust is traditionally used for minimizing estate taxes and can offer other benefits as part of a well-crafted estate plan.

This is how I describe it – Trust is a separate tax entity created by an individual to transfer some or all of his/her asset to a Trust based on the objective(s) he/she intends to accomplish for the benefits of himself/herself and/or another individual(s) / entity.

COMPONENTS OF TRUST

Grantor: the person who creates the Trust and transfers his/her assets into it.

Trustee: the person who oversees the assets being held in the Trust for the benefits of the beneficiary. The Trustee duties includes but are not limited to administrating, accounting, etc. The Trustee has a fiduciary duty to the beneficiary.

Beneficiary: the person who receives the “benefits” of the Trust.

GRANTOR TRUST (Note: there are many different types of trust. For this article, only the Grantor Trust is discussed in detail.)

Although there is a named Trustee, the Grantor could manage the assets/investments held in the Trust and change the beneficiary, the income distribution amount, etc. and is also the beneficiary of the Trust. This kind of trust is often called as Revocable Trust and/or Living Trust.

Some of the Grantor Trust rules outlined by the IRS are as follows:

The ability to modify the beneficiary of a trust
The ability to borrow from the trust without appropriate collateral
The ability to use income from the trust to pay life insurance premiums
The ability to make changes to the trust’s assets make-up by replacing assets with those of equivalent dollar amount

However, Grantor Trusts could be Irrevocable Trusts as well if they retain none of the controls.

INCOME TAX IMPACT

If the grantor retains access to the income and management of the Trust, then the income will be passed on and reported on the grantor’s individual income tax returns. Otherwise, the Trust will report its own returns.

FEDERAL ESTATE TAX IMPACT

For Non-Grantor trusts, since Grantors have no control over the assets being transferred to the Trust, the assets are therefore excluded from the grantor’s estate. However, if the transferred (gifted) asset amounts exceed the annual gift amount permitted, filing a gift tax return is deemed necessary.

PURPOSE OF GRANTOR TRUST

The ownership, control, receipt of trust income or use of principal are all factors to determine whether the Trust is considered a separate entity from the grantor, and hence determines who (Grantor or the Trust) is to report the income generated from the Trust and whether the Trust is able to be excluded from the Grantor’s estate.

Further, the type of assets being transferred to the Trust is governed by various income tax rules. One of the important tax advantages is capital gain exclusion on the sale of primary residence if ownership and occupancy conditions are both met (please refer to my other blog titled, “The Income Tax Capital Gain Exclusion on Home Sale”). Therefore, some benefits of the trust are:

To avoid probate: the most common reason
For Elder Care or Long-term Care Planning: by transferring the owner’s assets to a trust reducing the owner’s assets to help qualify for the Medicaid funding of the owner’s long-term care

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Disclaimer:

The Income Tax Capital Gain Exclusion on Home Sale

Thu, 24 Oct 2019 17:20:01 GMT

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Charitable Contribution Deductions

Thu, 17 Oct 2019 17:28:05 GMT

Is giving better than receiving?

My parents grew up without their fathers and they learned to live with limited resources. Needless to say, they live their entire lives within their means “by habit”. However, they still do “give” because it is a nice thing to do? Because it is what the society expects of “good people”? Or just because it is out of the goodness of their hearts?

How about you? What is the reason most of people give? For tax deductions? For one’s legacy? Or just because they simply want to help.

What could one give? Money? Asset? Time? All deductible. Time too? Well, sort of. If you drive to a charity organization to do volunteer work, the mileage (if properly documented) is allowed for deduction although it is so minimal that it might not even make a dent or worth the time to document them.

Money is money. If you donate $10,000 to a qualified charity organization, then you can deduct that amount in the year you made the contribution. It doesn’t matter if you pay by cash, check or credit card. Yes, credit card too! You could charge on 12/31, and pay in January of the following year, and you could receive charitable deductions in that year you made the donation. I had just give you a taste of “tax planning”.

It gets “fancy” when it comes to donate your assets. The rule of thumb is that you get to deduct the Fair Market value of the asset on the day you donated. What then could be donated as assets? For example: stocks, mutual funds, houses and/or cars are the most common ones.

Let’s elaborate further. If you invested 1,000 share of stocks for a total of $20,000 on July 1st, 2000. On August 1st of 2019, when the total market value of this stocks reached $45,000. Instead you sold the stocks, realized the $25,000 long-term capital gain and paid taxes on the profit; you donated this stock and took $450,000 deductions on you return. Depending on your personal tax situation, your may or may not come out ahead with your bottom line. Consulting your CPA to get a more in-depth analysis (by compensating him/her with a fee that you mutually feel reasonable) is the approach which I would take.

What if the market value is $4,500,000? Then another commonly used estate planning technique called Charitable Remainder Trust (CRT) might be suitable. If you set up a trust and put highly appreciated assets in, have CRT sold the assets and pay you income over life time and when you decease, the remainder of the assets goes to charity or charities of your choosing. This way, you get income tax deductions right away, take the asset out of your estate which reduce your estate taxes burden, and you would continue to receive income distributed form CRT during your lifetime. Seems like a win win solution. However, there are many important details such as: who shall be named as your trustee to manage your trust? Are you concerned about “leaving your children” out of this piece of asset? So much to think about and decide. What I usually and always advise my clients are: considering these matters while you are younger and healthier to make the decision with a trusted and experienced estate planning attorney. “Make an appointment” with yourself to come to an “at peace” resolution; sit down with your family to make your wishes known. Then finalize your decisions with your attorney and pick out a trustee (a topic to bring up with your lawyer or me, yours truly). Note: it is a common practice that attorneys charge by hours; often, I (as a CPA) work with attorneys to prepare financial and/or tax related tax documents to facilitate and smooth the estate planning process with a fee (lower than that attorney’s obviously).

Another important thing to keep in mind is which organizations are considered as charity organization (please refer to link, https://www.irs.gov/charities-non-profits/tax-exempt-organization-search ). It is better to ensure of their entity status before you open your check book if you intend to take advantage of the tax deductions on your returns.

When in doubt, I am here to help. Just an email or a phone call away.

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Disclaimer:

Home Office

Thu, 20 Jun 2019 17:34:58 GMT

This past tax season, there seemed to be some confusion about claiming Home Office deductions. Below I took part of the definition from Internal Revenue Service’s website, and the link, https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction , to hopefully address it in plain English.

Two Methods are available to calculate eligible Home Office expenses

Simplified Option – For taxable years starting on, or after, January 1, 2013 (filed in 2014), tax payers now have a choice to elect Simplified Option. In a nutshell, IRS has pre-determined/”packaged” a “rate” to include applicable Home Office expenses and all you have to do is use this “comprehensive/all inclusive” rate multiply the square footage of the home office to get the expenses that you are allowed to deduct on your returns. This way, you don’t have to keep track actual expenses occurred, nor to have the receipts put in a show box. If you adopt this approach which will help reduce the time and burden of preparing your returns.

Regular Method—one must use actual expenses occurred by category and times the space devoted exclusively for business usage.

Note: please see example demonstrated in the “ Indirect Expenses ” below for clarification.

Requirements to Claim the Home Office Deduction

Regardless of the method chosen. there are two basic requirements for your home to qualify for deductions:

Regular and exclusive use.
Principal place of your business.

These two requirements are not either/or; both of them have to be met in order to claim the Home Office deduction.

Regular and exclusive use

You have one room or a “well marked” (defined) area that is solely utilized for business tasks including; meeting with clients/customers, processing invoices, marketing research, etc. You don’t use that room/area as children’s playroom, or as your workout place. It is used just for “business” purpose and for that purpose alone at all time.

Principal place of your business

There are no other places outside of your home that you use to conduct business. Although you might meet clients at their place, or at restaurants, you use your home office most of the time.

However, if you do meet clients/customers at home office as well as other locations, IRS’s position is you may be still able to qualify for the home office deduction.

Please note that to simplify Home Office deductions in this article, the focus in on self-employed or sole proprietors. For employees, from 2018 through 2025, you won’t be able to deduct any home office expense since the Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions subject to the 2% floor for this time period.

For more conservative clients, they are concerned and focused on “may” be eligible for deducting the Home Office expenses. If you could define an area or designate a room just for your business, it is rightfully so to claim the expenses. You just have to “follow the rule” and document well, in my humble opinion.

What can you deduct as Home Office expenses? There are again two main categories – direct and indirect expenses.

Direct Expenses

Those expenses are directly associated with your Home Office. Just to name a few: desk, chair, paintings on the wall. You could deduct 100% of the money spent on your Home office.

Indirect Expenses

On the other hand you could only deduct a portion of business usage for indirect expenses like: property taxes, mortgage interests, utilities, and home insurance premiums paid. For instance: if your Home Office accounts for 10% of your house, and the property taxes is $14,000 for any given tax year. On your tax return, you will be deducting $1,400 property taxes on your returns, while the balance ($14,000*90%) will go on to your schedule A deductions and subject to any tax rules/calculations/limitations.

Now, can you see the “power” of Home Office deductions? The $1400 in the example listed above are dollar for dollar deductions off of your business income/revenue, as opposed to being deduced on schedule A, which are subject to some limitations due to your household taxable income level and other variables.

Also, please pay special attention to Depreciation Expenses. Depreciation expenses are deductions allowed for the wear and tear on your house for the home office portion. The catch is, later on, when you sell your house, the depreciation that you once deducted has to be recaptured (reducing the cost basis of your house), and as a result, it may or may not trigger any capital gain. For more details, please refer to IRS Publication 587 , or consult your CPA. If you need a second opinion, or would like to engage my service, I am here to help.

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Disclaimer:

Kids: the more the merrier?

Sun, 09 Jun 2019 17:42:27 GMT

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Before the tax year of 2018, we were able to claim personal exemption amounts based on the number of the dependents claimed plus ourselves; hence, the family with more children is entitled to deduct more.

In December 2017, Congress passed a new tax law that eliminated the children’s dependency exemptions. The Tax Cuts & Jobs act of 2017 went into effect on January 2018. The new federal tax law reduces the dependency exemption for each child to $0 and raises the standard deduction. The Children’s dependency exemption will remain in effect until 2025.

Now that we got away from the personal exemptions, do the families who have more kids still have any “leverage” over those have less?

It depends…

For self-employed and/or business owners, the answer is still affirmative depending on if or when they put their minor children (under age eighteen) to work. Theoretically, they need not to pay payroll taxes for wages up to $18,000 per tax year. Is it too good to be true? Please allow me to lay out the pros and cons below for you, and you be the judge:

PROS:

Once the children have “earned income”, they will be permitted to set up and contribute to their individual retirement accounts.

CONS:

Once you have more than one “employee” on payroll, the business will need to get Worker’s Compensation Insurance. Depending on the type of business, and some other variables, the insurance premiums may or may not exceed the payroll taxes saved.

PROS vs CONS :

This is good and bad for setting up their retirement account; if they open a ROTH IRA (Individual Retirement Account) and certain “requirements” are met, they could withdraw money free of taxes. On the other side of coin, if they apply for college, the ROTH IRA will be listed as their “assets” which will count against their application for scholarship opportunities.

Now, let’s take a step back and talk the logistics of “hiring” your own children. The position must be legit and compatible with the “ability” of the kids, and their compensation are to be reasonable and customary. Ideally, using a time sheet that tracks the children’s work hours could provide appropriate “proof”/basis of their pay in case of an audit (as likely as it may seem).

What can children do to help out? How about having them shred documents? Sort or open mail? Clean the office space? Organize files? Just to name a few. Having them do more “advanced” duties such as: market research or social media posting can be great experiences that can be added to their college applications, couldn’t they?

Personally, for me to have a “personal assistant” 24/7 within reach is truly helpful. I could dictate and watch over my child’s shoulder to see her ‘work” and ensure she does them correctly the first few times and be “bossy”!

Instead of training other employees, I found it even more satisfying to teach my own flesh and blood about the necessity of having a strong work ethic and maintaining professional business etiquette. She, on the other hand, appreciates and understands the demand of my profession. My child has the on-the-job training and experience that will help her decide whether she likes what I do. If she does, then I would be able to have her succeed me in the future.

After your children turns age eighteen, is it game over? Not quite. One possible scenario would be to consider investing in your “adult” children’s names before they reach age twenty-two (or before they start making huge amount of income). This can save a considerable amount of income taxes for money made in brokerage accounts.

What is the downside of this strategy? The children are legally owners of the investment accounts (although it’s your hard-earned money). They could literally do whatever they please with the investment account without your permission… So think hard and think twice…for the unthinkable.

Lastly, I just want to share with you a question that was asked before – “Can I deduct my pet?”. The answer is: “Sure you can, if the pet has a social security number.” With all kidding aside, your children or any dependents, need social security numbers to be claimed on your income tax returns.

For those of you want to hire your children, please consult your CPAs and ensure all your papers are in good order. I am here to help if you need further assistance or encounter any questions. Enjoy your little ones because they grow up so quickly!

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Disclaimer:

I Use Turbo Tax®

Mon, 20 May 2019 17:54:08 GMT

Quite a few people come to me start by saying, “ I use Turbo Tax….”

Scenario 1
“ I use Turbo Tax to prepare my returns. Would you please check if my returns are correct?”

Believe it or not, it will be easier and supposedly in my humble opinion more accurate if I just prepare it based on the tax documents and run through my high-priced professional tax software. The simple reason is the logic and programming built into the software, and I have used both software and read their “returns” and what appeared to me that I pay more for a reason. Otherwise, I would have bought Turbo Tax ® to prepare returns for my clients!

Scenario 2
“ I use Turbo Tax to prepare my returns, and Turbo Tax did it incorrectly.”

With all due respect, a software program will just do what you ask (unless there is an Artificial Intelligence version out there that I don’t know about). The disconnect is “communication” – the software asks you one thing, and you think you know what is being asked and responded accordingly which isn’t what was being asked.

Words on the street is tax preparers just “plug in the numbers”. Yes, that is the first step. But, behind the scenes, I (can’t speak for everyone) check and double check the returns by verifying my input, see if the returns make sense and verify the “numbers” are going in to the right places. Ask my colleague, Jim, he would tell you how thorough and detail oriented I am. When comparing to last year’s returns, I check for inconsistencies which may need to be addressed, corrected or added. Furthermore, I will also look for some tax planning opportunities for the following tax year.

What “I use Turbo Tax” implies to me: The returns must be right since the software isn’t cheap and the commercial is on TV or whatever media all the time. It must be correct, but is it?

The price is not the cheap part, it probably right though.

When I hear “I use Turbo Tax”, I ask myself the following questions:

Does the user think Turbo Tax is as good as a real person who knows the tax rules?

Does the user think using Turbo Tax guarantees to do the returns correctly?

Does the user think he/she is able to use Turbo Tax is an accomplishment in itself?

Does the user think that he/she saves a lot of money by getting the returns done?

Does the user think getting returns done are the same as getting the maximum deductions possible?

Further, what makes the user so confident about using Turbo Tax? Is it because their parents or people they know all use it? Or is it because it spills out the returns and they look right? Is it because the IRS and the states accepted their returns when they use Turbo Tax? Or is it because they didn’t get audited?

I wonder. What gives them the confidence of using Turbo Tax or any software for that matter?

I remember vividly the first year I started working on a tax returns. After completing 4 years of college and then another 2 years to earn my MBA degree, I used a tax software, but I didn’t feel confident that I did it right. I looked up the IRS publications and read them. Was I just lacking self-confidence?

NO.
I just want my returns to be done right.

I do not want to risk being audited. I want to take every deduction possible. That is just me.

How about you?

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Disclaimer: