The annual tax quandary: Does a white-shoe accounting firm earn its fee by tripling your return, or are you better off going it alone? As filing time approaches, we shadowed one particularly complicated couple—Scott, a freelancer, and his wife, Zoe, a government-salary lawyer—down the three most common routes to see how each planner would handle things like medical expenses from Scott’s near-fatal accident (and subsequent five-digit compensation) and the couple’s goal to save for retirement. The firm wins—but, surprisingly, TurboTax comes pretty close.
Scott and Zoe Wilson*
(*not their real names)
Her Occupation: Full-time government attorney.
Her 2007 income: $47,760.
His Occupation: Freelance photographer and artist. (Scott spent half of last year not working while he recovered from a hit-and-run accident.)
His 2007 income: $38,504: $15,502 from a variety of clients plus $23,002 ($4,252 for lost wages, $18,750 for pain and suffering) from New York’s Motor Vehicle Accident Indemnification Corporation.
Their Big Questions and Money Goals:
• How to report Scott’s accident money.
• How, after marrying midyear, to “merge our finances in the best possible way.”
• Preparing for a home purchase.
• Avoiding an audit.
• Saving for retirement.
Their Tax IQ:
Relatively high. The couple was diligent about documenting income and expenses in 2007, using Quicken software to stay on top of their finances.
The Cheap, Do-It-Yourself Time Sucker
TurboTax Online Home & Business 2007
How it works: Choose from one of four software options, and start plugging in your data online, paying at any point before actually filing. Taxpayers are guided through a series of questions meant to mimic a live interview. Save time by assembling all the relevant paperwork (W2s, 1099s, expense records) beforehand.
The Wilsons’ experience: Working on his home-office computer, Scott initially moved quickly through the interview process, which helped him settle the question of whether to file jointly, as a couple, or separately (joint status won). Two hours in, a screen-freeze forced him to shut down and sign on again—a twenty-minute interruption spent fretting about whether answers had been saved. (They had.) Scott had to rely heavily on his 2006 return for minor issues, such as the appropriate business code to describe his work. More crucial: He couldn’t get any direction on reporting his accident-related income. Opting against the TurboTax “Live Tax Advice” service (questions answered by phone at $29.95 a pop), he made faulty judgment calls on two deductions and missed another altogether.
The pros: In addition to paying little or nothing in fees, you avoid sharing your intimate financial details with strangers.
The cons: Annoyingly chirpy windows pop up to plug other offerings from Intuit (the software’s manufacturer).
Cool features: A running tally of your refund—or tax bill—shows the impact of each entry; an Audit Risk Meter feature vets your return for IRS red flags.
Scott’s take: “It held my hand more than I thought a computer program could—but it also took twice as long as I expected.”
Time spent: 6.5 hours
Price tag: $114
Total refund: $2,466
The Dependable Chain
116 W. 72nd Street, nr. Columbus Ave.; 212-799-2134
How it works: Call for an appointment, or just walk into one of the city’s 197 branches and get assigned a “tax professional.” The pros’ experience levels vary—don’t expect a seasoned C.P.A. Unless your finances are particularly complicated, the process generally takes about an hour and you can usually walk out the door with a printed return, or e-file on the spot.
The Wilsons’ experience: Scott and Zoe were handed off to Penny Polatsch, one of several cubicle dwellers in a bright but lifeless office. A twenty-year Block veteran, Polatsch briefly quizzed the couple about their work, investments, and specific tax concerns before turning to the computer. Information-gathering went quickly; were it not for Scott’s accident-related income, the return would have been finished that day. But Polatsch wanted to call on the brain trust at Block’s Tax Institute—an internal resource for preparers stumped by a tax question—about whether Scott’s reimbursement for lost wages was taxable. Two days later, they reconvened for the happy news that it was not.
The pros: It’s the Starbucks of taxes: fast, predictable, and somewhere in your neighborhood. Pros will answer your tax-related queries year-round.
The cons: Privacy can be nil; on a busy day you’ll likely find yourself elbow-to-elbow with the couple in the next cubicle.
Cool features: Proprietary software vets returns for missteps and is continually updated as tax laws change. As with TurboTax, if you’re unhappy with either the final numbers or Block’s fee, you can bail at any time before actually filing.
Scott’s take: “After TurboTax, being able to talk things through was a huge relief. But I felt a bit rushed toward the end.”
Time spent: 2.5 hours
Price tag: $395
Total refund: $2,442