Thursday, March 17, 2011

The $1,000 Tax Mistake

So this week we took a thick file folder in to get our taxes processed.  T'were our various incomes and forms simple, we would use The Box (software).  But that's not the case.  The past two years, we've used a local accountant and been perfectly satisfied.

Being in a new town this year, we didn't know of anyone and went with what we thought would be a good option: Jackson Hewitt Tax.

Big Flipping Mistake.


While they have same-day processing and took about 30 minutes, it cost us $400 <wince>

I know, we were aghast too.  That's a ridiculous amount when you can buy a tax program for 40 bux.

Lessons learned:
  • RESEARCH!  Do not just pick a place haphazardly.  Look for reviews online or get recommendations from friends.
  • Ask for prices before committing: Had we done this, we could have easily avoided this whole situation.
  • Watch for upcharges: Part of the reason our bill was so expensive is they charge per form.  We had 5 W-2s, which means they were around $90 a pop to file.  
  • Local accountants are less expensive than big boxes: When we've used local accountants, we've only paid between $100-200 for filing.  They were really good about explaining items, asking follow-up questions, and ensuring we got the maximum return amount.
  • Software is even cheaper: I've done the Turbo Tax thing before.  It was fine.  I guess I like knowing a real person has looked over my forms.  That being said, it's not worth $400 to file your taxes.  If you have basic forms and don't need to itemize, then do it online or with software.


If our bill wasn't steep enough, turns out we OWE the government $600.  The craptasticness of 2010 is serving up a final punch in the gut.  I have never had to pay for taxes, much less over $1,000 between processing and owing.

The fault, in part, lies with me.  As an adjunct, my income was "chunked," so to speak.  For the first half of the year, I pulled together income from two different colleges.  Unfortunately, the pay was low enough that they didn't take out federal taxes.  Apparently I don't understand the concept of allowances and didn't have enough selected.  This also happened to a part-time job that Mike had.
 
Over $20,000 of our $44,780 didn't have federal taxes taken out, hence the need to pony up to Uncle Sam.

So while unintentional, I learned I'd much rather have the maximum amount taken out of my paycheck than not enough.  I will be reviewing my Stamats allowance shortly and will make sure when I'm teaching again that my income is taxed.

Should you need clarification on allowances, HR Block has a helpful overview (which is not an endorsement): http://www.hrblock.com/free-tax-tips-calculators/tax-planning/filling-out-w4.html

Overall, I'm super glad we waited until after we had Mike's GI Bill file.  Otherwise, we literally could not have paid that processing fee and had to call up the IRS for a payment plan.  Now with one check, we'll be square with Lady Liberty.

Hope you all pay way less than we did for your taxes!
 
Question of the Day: What tax advice do you have to share?

4 comments:

  1. Find qualified and licensed local accountants. For some years I had very complicated tax returns, some returns were an inch thick. I never paid more than 250 for any of them. You got massively ripped off by a firm that has been cited numerous times for fraudulent practices. What they did, this time, is not illegal. It is only moderately not-right. Good demonstration of caveat emptor.

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  2. Yikes! That's a lot of money! At least you didn't owe too much as you can actually get penalized by the government for owing too much.

    If you plan your finances carefully it is actually better to owe a little than to get a huge refund. A refund doesn't actually mean you are getting a bunch of money, it just means the government has been taking too much of your money during the year and making interest on your money before giving it back to you. It actually is better to have that money and invest it or at least make interest on it yourself before squaring up with the government as long as you don't owe too much. Of course you need to plan for it or it can be hard around tax time.

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  3. From a friend on facebook:

    "It's true its very hard to decide, especially when in a new area. I first asked the people I knew for suggestions on who to go to, however they all did their taxes themselves using the box, which makes sense for them. Me being an independent contractor, holding a part time job, and having income coming from various places, I prefer to have a professional do my taxes and explain things to me.

    So I went to H an R Blocks website, I researched the various accountants they had available in the area and selcted the one that had the most experience with my kind of income and taxes. True having taxes done cost about 200 then a bit more because of a bank fee for the option I chose of having it taken out of my tax refund. I consider this worth it knowing that my taxes were handled by a professional, that was also very friendly and helpful. IN the end I agree with the RESEARCH RESEARCH RESEARCH concept. You want to get your moneys worth, and if you are a single income person it is probably best to do the out of the box taxes."

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  4. @ Tracy and QDM, thanks for the comments. It was a good lesson, just a costly one. And to think we avoided H&R because it would be too expensive! It happens, you learn, you make a note for the next time :)

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