Story from March 4, 2007

I am taxed out -- pun intended.

A few weeks ago, I told you about my "tax experiment."

My husband has always prepared our taxes. But I always felt that it was one of those things that I should know how to do. So I decided this would be the year I'd learn. There was no fight from him in handing over the task.

I took a reader's advice and did my taxes four ways: with a certified public accountant, a retail tax preparer, a home computer software program and the good ol' paper 1040.

It was a great idea and definitely a learning experience. My incentive was that I was going to get professional tax help, which my husband and I have never had, on the Beacon Journal's dime. And in the end we ended up getting a nice refund -- slightly more than we would have figured out on our own. But boy, was the whole process painful.

It's bad enough to do your taxes once. But to learn for the first time and go through it four times, then to try to analyze the results to figure out where they differed, took a lot of time and caused a lot of headaches. I spent a lot of time at work and even late nights poring over the taxes, much to the chagrin of my husband. He now tells me that I'm the family tax expert, so from now on I get to do them.

My work also went beyond the four tax returns. As a result of this experiment, we found out that we had erroneously filled out previous years' returns and essentially double-taxed ourselves, so I also filled out three years' worth of amended federal and state tax returns to request more refunds.

Before I get to my results, let me first throw out a disclaimer. As is probably obvious, this experiment was one person's experience. It was based on my family's tax situation, which it turns out is mildly complicated, but not one that is so complex that I need professional help year-round. The results I got are just to show readers how things shook out for me. You may have a better or worse experience -- with your taxes and the professionals and programs used -- than I did.

Here's a breakdown of each method and the results:
   
    CPA

The certified public accountant I consulted, Michael C. Davis with Fiducial Tax & Business Services in Stow, prepared the most accurate return with the highest refund, mostly because he helped us claim a few more deductions that we didn't know we had. I was not looking for the highest refund (though that's nice), but for the most accurate return based on our taxes. That's because in the end, it doesn't matter who prepared my taxes -- my name and my husband's are on the returns, and we're responsible.

Davis also explained to us that the profit on stock I bought through an employee stock purchase plan with the newspaper's former owner, Knight Ridder, and immediately sold, was already reported on my W-2 as income and didn't need to be claimed as capital gains, which we erroneously had been doing for several years.

Because of that capital gains error that Davis pointed out, after I file three years' worth of amended federal and state returns, I'm expecting about $800 in refunds. The money probably will arrive this summer because amended returns aren't reviewed until after all other current returns are reviewed, according to IRS spokesman Chris Kerns.

Davis charged me $300 for his services: $200 for our normal married-filing-jointly return and $100 to complete the Schedule C forms for my small scrapbooking business and one freelance writing job I did last year.

Although the additional refund from the 2006 return that Davis prepared wouldn't have made me whole after having paid him the $300, he more than found that $300 with the $800 I'll be getting back after I file the amended returns.

The process with Davis was also the least painful. We met with him for an hour to go over our paperwork, and that was it. A few days later, Davis had our returns ready. It also has been reassuring to have Davis a phone call away, as I've had other questions -- such as on the amended returns, which he suggested I could do on my own because they were fairly straightforward.

The best way I can describe my trip to the CPA was that it was a good checkup that has put me on the right path. In the future, unless my tax situation changes dramatically, I now know how to prepare my taxes.

Here's Davis' suggestion: if you're uncomfortable doing your taxes yourself, or you're losing sleep over it, "have it done right at least once." Some people just feel better having someone else do the work for them, he said.

He likens it to "an immunization," and occasionally you might need a booster shot if your tax situation changes.

Davis said most small firms will charge in the range that he did; medium-sized firms may be 50 percent higher, and large firms work mostly with business clients or will charge at least $500 for tax preparation.

One tip that Davis does offer to married filers: figure out your taxes on the federal and state returns both jointly and separately. Too often, people figure their taxes out only on the federal return and find that filing jointly will get a bigger refund, so they file the state return the same way. But under Ohio's tax laws, filing separately will often -- especially for married couples whose incomes are close to each other -- reduce your state taxes. By state law, your filing status for federal and state returns must be the same.

In my tax situation, it didn't benefit us to file separately, but it may for you.
   
Retail tax preparer

My experience with H&R Block, which has locations mostly in malls and strip malls, didn't turn out so well. At $358, it was more expensive than the CPA, and it took me a total of two hours, 20 minutes and two trips.

Although I was very surprised that the fee was more expensive than the CPA (H&R Block charges based on the number of forms and lines the employee fills out for you), I also think my particular bad experience was the luck of the draw. I know many people who have been more than satisfied with H&R Block and other retail preparers.

I chose to walk into the H&R Block that is in the Sears store at Chapel Hill Mall. I did not call ahead to tell them I was coming or that I was a reporter; I felt it was fair to walk in just like anyone else getting their taxes prepared.

The receptionist asked me a little about myself, whether I have children and a house mortgage. I said yes.

When I sat down with my tax preparer, we went through the documents I had and discussed my tax situation. I mentioned that I also have a side business.

To be honest, the tax preparer was a very nice gentleman, but I didn't feel that I was getting expert advice. Throughout the process, which took two hours the first day, he asked me questions about where we should put items on the return. But I was the one going to him for the advice.

Several times, he asked a colleague for advice, and that colleague answered. I think the part that tripped up my preparer the most was my Schedule C for my other businesses. He admitted that he hadn't filled out a Schedule C in a while. I wondered to myself whether it would have been wise for him to have handed off the return to another colleague at that time.

After two hours passed, it was the end of the day and I had to go pick up my son, and we still weren't done. The preparer also said he needed to research something further on my side business, so he asked me to come back the next day. The next day, the return was done, requiring another 20 minutes.

In the end, the federal return's refund was $30 less than the one prepared by the CPA. But the biggest difference was in the state return. Instead of a $50 refund, which we were due, the H&R Block return said we owed $79. That $129 difference was because the preparer didn't figure in the contributions we made to our children's 529 college savings plans. I had asked him in our interview whether he needed the information; at the time, because I was still learning about filing taxes, I didn't know whether it was needed.

When I asked H&R Block spokesman Dan Smith about my experience, he said that H&R Block has a 100 percent satisfaction guarantee on returns. If you are not satisfied, you can request a refund of your tax preparation fees.

First-year tax professionals at H&R Block have at least 66 hours of tax training, and most professionals have an average of eight years' experience, he said.

Smith also said I could have pointed out the errors when the preparer reviewed the return with me, but I told him that I didn't have any reason to think the return was inaccurate until I had other returns done.

I'm still a bit confused by a statement by Smith that the professionals prepare the return "based on the documents the clients provide." I can't tell whether Smith was trying to imply that it was my fault that I didn't provide all the documentation needed for my return. I countered that I was going to H&R Block for professional advice, and I expected the preparer to ask me for information in the interview process. It seems a bit moot, anyway, because I did mention the 529s.

In the end, H&R Block is refunding the Beacon Journal the $358 that was paid because the return was inaccurate.
   
Tax software

Computer tax software has been the choice for us for many years, and I know it's popular among consumers.

I chose H&R Block's Tax Cut program for federal and state returns for $29.99 because I wanted to see whether there'd be much difference between the return from the software and from the H&R Block storefront location.

The software is only as good as the person answering the interview questions, though. I'm not sure whether I answered the questions incorrectly or whether the program wasn't designed to take into account stock sales that are reported on W-2s, but the program had me report capital gains, which as I now know is inaccurate. There were also some variances on my Schedule A that ultimately led to a $74 smaller federal refund with the software than with the CPA. My state refund turned out fine.

A reader has pointed out an error he discovered with Tax Cut's Ohio program, which involves the Ohio Line 43 deduction for "unsubsidized health insurance, long-term care insurance and excess medical expenses." The program does not specify "unsubsidized" medical expenses, so it could severely affect a return. H&R Block spokeswoman Denise Sposato said Friday that an update for the Ohio program had been created Thursday and that customers with the program should click on "tools" to update the software.

If you've already filed your return without the update, you'll need to amend your return. Sposato said consumers often check on updates to the program even after they file returns, and it's essentially a consumer's responsibility to check for them.
   
Paper 1040

This was the cheapest method because it didn't cost me a thing to fill it out, and if I mailed in the return, I'd also have no e-filing fee.

But if I had to pay for stress and headaches, the paper form would have cost me a lot. It was actually the last method I did in the experiment, and you'd think that after going to the CPA and retail tax preparer and using the computer software, I would find the paper 1040 a breeze. Instead, I felt like I was back in high school taking a standardized test when I was trying to read through the packet of information and understand some of the directions.

The paper form took me the longest -- three hours, 40 minutes -- and I ended up with a federal refund that was $44 less than I was due on the CPA return because I messed up on my deductions.

I've spoken to plenty of people who have relied on the paper forms for years and have never had problems. I suspect that as I get more tax experience under my belt, it'll get easier and seem less like a standardized test.
   
Conclusion?

So what's my conclusion after all this pain?

I'm probably going to use the tax software, but maybe after completing the paper 1040 and checking my work on the tax program. Or I'll look over the tax-software return with a fine-toothed comb to make sure that it's accurate based on what I learned this year.

And if I ever get a big inheritance or sell a house or have something major happen that will change my tax situation, I'll return to the CPA for another checkup.

In the meantime, I have a year to persuade my husband to go back to doing it. But I may be out of luck.