H&R Block? What The Hell For?

They say this as if proud of it.

They say this as if proud of it.

 

 

Meet Ana Maria Costanza, part of H&R Block’s attempt to show that tax preparers can be beautiful at any size. And with any face.

 

 

Ana Maria claims to have read all 900 pages of the ObamaCare Act, the single defining law that forever modifies the relationship between government and citizen to one of lord and serf. But without getting into the costs of a law that won’t do a thing to improve the average American’s health*, what about the law’s impact on your taxes, anyway? Ana Maria spent weeks figuring out the answer. Can we do it in a couple of hours?

Looking exclusively at the tax implications of the law, you’ll pay a 40% penalty for having an expensive health insurance plan. (The $4800 annual plan your non-smoking, teetotaling, drug-free, childless and physically fit blogger with no chronic illnesses nor birth defects has doesn’t count as “expensive” for these purposes, but enough digression.) Your individual medical expenses deduction might change. You won’t be allowed to contribute as much to your flexible spending account. Your 26-year-old child can still count as a dependent, which means Kevin Durant’s parents can keep him on their plan. And lots more.

So Ana Maria read the whole thing cover-to-cover. We’re impressed. What we’re not impressed with is the idea that she can do your taxes better than you can. Why? TurboTax, that’s why.

H&R Block management might be surprised by this, but the people at Intuit (makers of TurboTax) incorporate every year’s tax code changes into their software. So do their competitors, including TaxSlayer, TaxAct, etc.

NOTE: This is not a paid post, although it should be. We just hate the idea of you throwing your money away to use an obsolete in-person service that should have been rendered defunct by now.

But I like seeing the person who’s doing my taxes face-to-face.

Do you like the sound the needle makes when it hits the record, too? How about the unmitigated thrill of paying your bills with a checkbook, an envelope, a stamp and a trip to the mailbox? Hey, you know what else is awesome? Paying by the minute every time you want to communicate with someone who lives in a different country.

Formal tax preparers like H&R Block, Jackson Hewitt etc. had a nice long run, but it’s over. Put them on the rural landfill next to bookstores, music stores, and travel agencies. TurboTax isn’t just more efficient than a seasonally employed human preparer, it’s cheaper. The Deluxe version costs $30. You’ll pay an additional $37 if you’re one of the 82% of Americans who live in a state that levies its own income tax, plus you’ll have the pleasure of paying said income tax itself.

If your return is simple enough that you need a cheaper version of TurboTax than the Deluxe, you don’t need a cheaper version than the Deluxe. In that case you can calculate your taxes yourself, probably in less time than it’d take you to order the appropriate stripped-down version of TurboTax.

So is TurboTax for everyone? Not at all. In fact, hopefully it isn’t for you. How can we contradict ourselves within the space of one blog post and still have any credibility? Read on.

If you’ve taken the lessons in The Greatest Personal Finance Book Ever Written (Len Penzo’s words, not ours) to heart, you know that you’re never going to build wealth if you restrict yourself to the money that derives from a W-2. You need to start embracing those other sources of income:

  • from any limited liability company that you set up, funneled your personal income through and thus likely qualified for lower taxes on.
  • from any S-corporation you set up, same thing.
  • K-1s. Do you have a partnership requiring distributions to be handled on yet another form? If not, why not? Otherwise you’re stuck in your pathetic little tax bracket, at the whim of legislators who design the tax code specifically to keep you in its clutches. God, you really need to read our book. Especially Chapter 9, the one on taxes. Here’s the link again.
  • foreign income. Did you know you can get paid by people in other countries, too? Most people don’t, which is a contributing factor to why they’re still less rich than they could be. But yeah, keep contributing to that emergency fund.
  • trusts, private placement income, etc.

If you’ve got at least one of these, Ana Maria or her local equivalent will stare at you, stare at your documentation, cock her head at a 30º angle, open her mouth a little, and call for a supervisor who will then do the same things in the same order.

So if you’re deriving any kind of passive income, find a professional: a Certified Public Accountant who can find the complex deductions and credits that few mall tax preparers know the first thing about. You’ll pay considerably less, too.

Wait. A CPA charges less than an H&R Block preparer?

No, of course not. That’s absurd. They can charge 10 times as much, and should. And do. But that’s still just a fraction of what you’ll save in taxes.

From a taxpayer’s standpoint (that’s you), you either want to be safe on shore with TurboTax, or out past the breakers with a CPA who sends you Christmas cards and itemized bills. It’s in the middle, dealing with a preparer who barely knows more about taxes than a lay person does, where you get clobbered.

*But it will:

  • Regulate insurers’ business models, forbidding them from taking more than 15% of revenue as profit.
  • Phase out annual spending caps by next year.
  • Prohibit you from using a Health Savings Account to buy any over-the-counter drug other than insulin.
  • Designate domestic violence counseling as a medical treatment, for some reason.
  • Set caps on premia, the inevitable result of which will be the federal government becoming the default health insurance provider.

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