I’ve had a local tax preparation firm prepare my tax return for many years. As I think about it, I pay them A LOT relative to our investment costs. I’m going to complete my return in TurboTax this year. I’ll see how it goes. I may use my tax preparer this year to compare, but maybe I’ll be confident in the TurboTax return, meaning I won’t engage them this year.
== I think this is new this year ==
I like this offer on my login page for Fidelity. I like FREE. A lot.
== I pay A LOT ==
Last year I paid $700 to my tax prefparer. There is comfort knowing that it is done correctly, but $700 is significant relative to our total investing cost. Our total investing cost is less than 0.04% of the amount invested or less than $400 per $1 million invested.
We only own one Fidelity fund, FSKAX, and its expense ratio is 0.015%. That means I pay Fidelity $150 per $1 million invested in FSKAX. And THAT’S IT! My friend Pete only owns Fidelity funds with 0% expense ratio, so he pays Fidelity NOTHING. $700 to prepare my tax return is out of whack. I’m paying my tax preparer the same amount that I would pay Fidelity to manage more than $4 million of FSKAX!
== I’m more confident in DYI ==
I understand more about how some things are calculated on my return. I get 100 pages of detail with my copy of the tax return from my tax preparer. That’s fooled me into thinking it is more complex than it really is. For example, I now understand QBID. It’s a simple calculation of 20% of the sum of items considered business income. That results a reduction in taxable income that lowers the effective tax rate on this business income.
This week I refined my spreadsheet that estimates how much tax I will pay. You can download my spreadsheet here. Here’s a sheet with some added explanations. Download my sheet; add or subtract rows appropriate to you; input the data from your tax reporting documents; and use the right tax calculation in cell E23. It should be VERY close to your tax final tax return.
When I look at my spreadsheet, I count that I have to get the data from 13 tax reporting forms to give to my accountant. Five forms come from Fidelity. If I used TurboTax, the data from Fidelity downloads to my tax return. I only need to gather eight tax reporting forms. I’d guess you have fewer than eight added forms.
== This task does not change ==
I have to add the items of expense for Schedule A to see if we exceed the Standard Deduction. Because we have high property taxes and a mortgage, Patti and I get close. Because of higher Medical co-pays in 2022 – I had three (!) surgeries – we’ll actually have some Medical Expenses that are more than the threshold of 7.5% of AGI and we exceed the Standard Deduction this year. Patti and I need to get in the habit of doing this task every year. When it is just one of us, itemized expenses will always exceed the Standard Deduction.
== I think TurboTax does it all ==
As I think about it, I think TurboTax’s software has to do the same calculations as the software my tax preparer uses. I remembered a number of things that I’ve been confused about in the past, and when I google “How does TurboTax handle ….” I find an answer that says it handles it and describes how to correctly enter the number into a TurboTax data entry screen.
I have nothing to lose but time to generate a return using TurboTax . (I think I pay $125 if I need assistance on my return, but I’m thinking I won’t need this.) I can see if the return matches my spreadsheet result. If I’m really confident in it, I’ll cut my current tax preparer loose. Or I’ll have my tax preparer complete the return this year and cut them loose for the 2023 return.
Conclusion. I pay more to my tax preparer than I pay Fidelity to manage all my investments, provide 24X7 phone service, provide a local office to visit with a specific advisor who always answers any questions I may have, provide all my tax reporting forms, and provide TurboTax for FREE. I think I’m a self-reliant investor, and the amount I pay my tax preparer seems out of whack. I’m going to start on my FREE TurboTax this next week. I’m thinking the data entry will be straightforward. I may stick with my tax preparer one more year to see if the result with TurboTax matches his return. I’m hoping I can file with TurboTax and save $700 per year.