Growing Without Rain

News and Views about Taxes

Does “biggest refund” = “best tax value”?

with one comment

Apparently, according to CPA Success:

We knew it. The profession knew it. Anyone who has ever worked with a CPA knew it.

Now, the rest of the country knows it, too.

“It” is simply this: The best bang for your tax preparation buck comes from a CPA.

Here’s the problem with the video: We don’t know what refund the couple should have received if they took all legal deductions and credits, because we know almost nothing about the information they presented to the various tax services. The only thing that we do know – that they recently started a business for which they tried to deduct expenses and for which they were told they could not until 2011 by the H&R Block preparer – tells us nothing about whether they actually could have deducted the expenses legally or not. (Full disclosure: I work for Block.) We don’t know what the CPA found that led to a $4000 refund, nor what Block didn’t find that made the refund smaller. We don’t know if the couple presented the same information to the CPA that they did to Block, or entered the same information into TurboTax.

Yes, I’m defending my fellow Block preparer here. I don’t doubt that Mr. Kane did a good job based on the information that he had, but what I don’t know – and more to the point, what CPA Success doesn’t know – is whether the Block preparer failed to gain access to the same information because he/she didn’t ask the right question, or because the clients didn’t have (or know how to present) the information when they saw the Block preparer.

Furthermore, by presenting this as “biggest bang for the buck”, CPA Success leaves the impression that it’s primarily about the size of the refund, and we all know how dangerous a proposition THAT can be. Again, not questioning Mr. Kane one bit – but does CPA Success really want to embrace the proposition that the most important thing is how much money the preparer can “get back”, rather than that the preparer has given the client the best tax advice for his situation? I look at the value proposition differently – I want my clients to get the biggest refund to which they are legally entitled, based on the deductions and credits that they can support if the IRS comes calling. And if they can’t support a home office deduction or that the miles they drive from home to a job site aren’t commuting miles (which are by far the two biggest questionable deductions I see on CPA-prepared returns), then I tell them they shouldn’t take them, because it’s on them if the IRS reviews their return.

For the record: most CPAs are excellent at what they do…but so are we. Like anything else, you should vet your preparer thoroughly whether it be a CPA or someone at a brick-and-mortar tax prep house like ours.


Written by nctaxpro

March 8, 2011 at 11:07 pm

One Response

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  1. Yes – the public’s focus on the size of a refund and some practitioners using that for publicity purposes illustrates the low understanding of the tax system by most taxpayers. People want a large refund when they should be focused on whether they paid the correct amount of tax and at the right time. A refund means you are loaning money interest free to the government – perhaps a noble activity, but not necessarily a wise one. It would be nice if tax returns had a final line to make taxpayers compute their effective tax rate (tax liability divided by taxable income). Perhaps that would cause people to think about their federal income taxes in a different way.

    Annette Nellen

    March 9, 2011 at 1:13 pm

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