Though I’ve tried many times, I have never read James Joyce’s Finnegans Wake or my own tax returns. If the U.S. Internal Revenue Service ever asks me to defend anything I declared or exempted or deducted or itemized, I’ll just sigh, take out my wallet, and start handing them twenties until they stop talking.
I don’t resent taxes for the usual reason—that government wastes my hard-earned money. No, I resent paying taxes because if the government wants my money, it should have to do the work of figuring out how much it wants. I don’t click on a book on Amazon.com (AMZN) and then fill out 20 pages of forms to figure out how much it will cost me, and then keep every receipt and form in case Amazon wants to make sure I got the number right five years from now. If I had to do all of that for Amazon, I’d have an even lower chance of reading Finnegans Wake.
So I’m grateful for my accountant. He’s the accountant my dad has used for three decades, and he’s been doing my taxes since I was in college. And I’ve never met him. I think we’ve talked, in total, three times on the phone. I mail him some forms, he asks me for some more forms, I write some checks, and he e-files for me. I wish all of my relationships were like this.
There were four years after I moved from New York to Los Angeles, however, when I switched to a high-end accountant because I created a loan-out corporation. To this day, I don’t really understand what a loan-out corporation is, but that accountant cost me well over $10,000 a year. I have no idea if he was better. But he had nice offices and paid for my parking.
This year I really wanted to find out: What level accountant do I need? Can I do my returns myself using websites that promise to guide me through the process? Can H&R Block (HRB) handle it? Is my current accountant great? Or would a high-end accountant know all the loopholes and get me so much money back that his fee would be worth it? Would any of them slip me the results of the Academy Awards?
Mark W. Everson, who ran the IRS from 2003 to 2007, predicted that all four of my returns would come out the same, since, unless you lie, the numbers all plug into one formula. The accountant one needs, Everson said, isn’t based on wealth, but complexity: If, for instance, you have a business partnership, you need a high-end accountant to value the shares of that privately held company. As an analogy, he explained that people with very small lawns can use a push mower, the equivalent of doing their taxes themselves; some need a regular lawn mower like H&R Block; some need a riding mower like an expensive accountant. “Some people need riding mowers because they have big lawns, other people have a riding mower just because they want a riding mower,” he said.
Everson, a CPA who is vice chairman of alliantgroup, a tax advisory firm, doesn’t do his own taxes. “It’s easier, and I have a part ownership in this partnership. It’s complex, and you want to make sure it’s right. I started that when I was in the service. One thing I couldn’t afford to do was make a mistake,” he says. Treasury Secretary Timothy Geithner, who filed his own returns with TurboTax (INTU), got audited for failing to pay $35,000 in self-employment taxes for years 2001-04.
Since I’m unlikely to ever be treasury secretary, I tried TaxSlayer.com, an online service so powerful that it not only sponsors bowl games (including the TaxSlayer.com Gator Bowl) it’s also used by Dale Earnhardt Jr., who races the TaxSlayer.com Chevrolet.
TaxSlayer asked me to choose an accountant, either Bobby, a white guy with dark hair and a suit, or Kelly, a white woman with dark hair and a suit. I picked Kelly. I could click on videos to have Kelly explain things to me, like that my W2s are also sent directly to the IRS (Kelly’s subtext: Do not lie about your earnings). Kelly also said comforting things such as, “Your W2 can often look daunting, but it’s much simpler than the complex groups of numbers may suggest.” This website understood the level I was operating at. When it asked for my Social Security number, it showed a picture of a Social Security card, in case this was the first time someone had brought up the whole Social Security number thing. TaxSlayer.com was making me feel like an accounting genius.
TaxSlayer.com even told me which way to file (married filing jointly) and informed me of recent tax law changes (mileage reimbursement rates are up!). Then I input data for three hours, during which I learned a lot about the tax code. From what I gathered, based on the deductions offered, the following people control our tax laws: farmers, clergy, homeowners, people who live in Washington, D.C., parents, and, not surprisingly, accountants.
The fun part of the site is that as you enter data, it keeps a running tab of how much you owe or are getting as a refund. So every time you punch in a number, you cheer or boo at your screen. When I finished, TaxSlayer.com said that I’d be receiving a refund of $92,309 from the IRS and $27,245 back from California. The entire process had cost me only $30. I was going to use the $119,554 to buy a summer home. And I was going to name that home TaxSlayer.com.
I was slightly suspicious of TaxSlayer.com’s returns, however. I made $399,101 in income plus $19,073 in dividends, $1,312 in capital gains, and $11,902 in refunds from last year—that’s a total of $431,388—and paid $127,826 in taxes, almost 30 percent. With my refund, I’d be paying only $8,272 in taxes for the year, a little less than 2 percent. That didn’t seem possible, since I do not run a hedge fund.
So I went to an H&R Block near my house in Los Angeles. I always figured that H&Rs were cheesy, full of sad sacks who show up with a jumble of paperwork in a supermarket plastic bag. But much like my first LensCrafters experience, I found H&R to be professional, cheery, competent, and not particularly cheap. There were huge signs proclaiming, “I am here to turn your shoebox into a treasure chest.” My returns would cost $300 to $400, exactly what my longtime accountant charges me. But unlike H&R, my accountant doesn’t throw in free tickets to the Laugh Factory as a promotion. I got the feeling my returns were going to turn out differently than they did with TaxSlayer.com. I didn’t need the Laugh Factory after my TaxSlayer.com returns. I could have bought the Laugh Factory after my TaxSlayer.com returns.
After being offered macaroons and coffee, I was led to tax associate Michael Goldblatt, who wore a suit and a name tag and looked exactly like an accountant. He was nice, knowledgeable, and happy to deal with the jumble of paperwork I had brought in a supermarket plastic bag. I also showed Goldblatt my TaxSlayer.com returns, which were 48 pages long. “Whoa. That’s a book,” he said. Then he looked at my windfall. “The refund is definitely interesting. Somehow the government might give you a call on that one. They might send a car for you.” According to Goldblatt, if I had filed that, the IRS would be the one doing the slaying. I’m going to let him use that one at the Laugh Factory.
Because of my loan-out corporation, Goldblatt said my personal taxes were easy. I had very little to deduct since my corporation deducts expenses before paying me. Compared to the actors he helps with tons of W2s or the prostitute who doesn’t have any W2s at all, I was a simple case. The H&R returns were just 22 pages long and had me owing the IRS $1,227 and owing California $1,160—$2,387 out of my pocket. Not bad. But my summer house was definitely gone.
Determined to see what I’d done wrong, I went back to TaxSlayer.com and started over. This time, I got just $16,695 from the IRS and owed California $21,992. It was clear that I am not smart enough to use TaxSlayer.com. Dale Earnhardt Jr. must be a genius.
I FedExed my forms to my regular accountant, Halbreich Accounting & Tax Services in Staten Island, N.Y. Howie Halbreich started the business 40 years ago and now has more than 3,000 clients. He works with his son, Alan, and has a part-time CPA who is also a full-time firefighter. The only thing I don’t like about these guys is that their e-mails are in ALL CAPS and they never have gotten me a $119,554 refund. Still, I’ve never been audited. And if I were, I know they’d have my back and show up with me to explain all the things I couldn’t. I picture it like a cop procedural, where I start to talk to the IRS and the Halbreichs storm in and tell me to shut the hell up.
Howie told me that refunds are overrated, and I was smarter to owe a little money this year. “You don’t need a refund. It’s an interest-free loan to the government,” he said. I did not see that on a sign at H&R Block. Unlike Goldblatt, he advised against declaring my home office as an expense, since—due to the Alternative Minimum Tax—they use the office expense on my corporation, which also means I won’t depreciate my home thereby causing more capital gains when I sell it. Their 22-page returns had me getting a $1,488 refund from the IRS and then giving most of that to California—$1,019. Still, I was $469 ahead. Better than H&R Block.
Finally, I took an elevator to the plush offices of RBZ in Los Angeles, which has more than 100 employees and views of the entire city. It was the firm’s Spirit Week, and everyone was wearing pajamas. I was deeply suspicious.
Mark Baumohl, who handles the Family Wealth Group and has a business card that lists his job as “Co-Partner In-Charge,” wasn’t wearing pajamas. Even though he was in a suit—a very nice suit with purple lining—he wasn’t at all what I expected in a high-end accountant. He had a beard, a guitar in his office, and a framed diploma from Humboldt State University. He took all my notes on a yellow legal pad and punched my numbers into an old typewriter with a paper roll printout. He’s had some clients for five generations. He makes house calls to some of his widowed clients. He played me a song. He was so thoughtful and empathetic that my only anxiety was he was going to file my returns to Marlo Thomas.
He did also have a computer with three monitors. And the questions Baumohl asked were less about how much I made than about my parents, my wife, and my son. He was trying to figure out what kinds of things I should be planning for, like whether it was worth putting money in a 529 College Savings Plan for my son and risking the 10 percent penalty if my parents wind up fully funding it. He suggested opening a medical reimbursement plan through my loan-out corporation. His main advice was to never make a life decision based on tax implications. “Don’t let the taxes wag the dog,” he said.
My returns, for which he would charge $1,200, were 25 pages long and had me paying the feds and California $2,592 and $1,952, respectively. He was less aggressive than the Halbreichs—my donation of four boxes of books to the local library was worth $250 to him compared with $400 to H&R Block and $1,250 to the Halbreichs. Small decisions like that added up to me paying $5,013 more than I will with the Halbreichs’ returns. Even though he thought the Halbreichs were a little aggressive, Baumohl said there was nothing fishy. “Based on the income, it’s not unheard of,” he said.
Like former IRS Commissioner Everson told me, paying more for an expensive accountant doesn’t mean he’ll find lots of loopholes that will get me more back—in fact Baumohl sent more money to the government than anyone else. What a higher-end accountant does is look at my financial situation holistically and think long-term. Sure, Goldblatt at H&R Block also had some ideas for changes I could make in my savings, but it isn’t the thrust of his business as it is for Baumohl.
I’m going to stick with Howie. He’s affordable, a little aggressive with the deductions, and knows me. He makes the process painless, which—more than a fat return or even a long-term plan of how to beat the government—is what I’m really looking for. Even if one day he thinks we should meet over something, he’s in Staten Island. Everyone knows there’s no way anyone is going out there.