We all have discussed cleaning up messes made by taxpayers who have used Turbo Tax so they could avoid paying a tax preparer. I don't think I will ever have another case like I finished five days before the deadline this year.
New elderly clients, ages 77 and 68 are quite wealthy with a bevy of old ESOPs, Keoughs, 401k's, etc. Elder spouse is received MRDs but the plans still earn much more than they distribute. They have a "brilliant" son, an Engineer, who told them he used TurboTax and would process their return through TT just to see what would happen.
It just so happened they got hacked off at their broker/custodian, Mutual of New York, and took ALL their money out of one of these plans. MONY sent them a 1099R for $138,000, fully taxable. TurboTax properly calculated a tax due of $34,000. So they were anxiously awaiting my arrival this year.
When I sat down, the discussion went as follows:
Snag: "My God, Bill, what IS this thing?"
Bill: "Got p....d off at my broker, and cashed out this old IRA."
Snag: "Bad news, Bill. and not smart."
Bill: "Don't quite understand it. I didn't make but $18,000."
Snag: "Says you took out $138,000."
Bill: "Yeah, but I put $120,000 in this thing. I only made $18,000."
Snag: "Yes but you took a tax deduction on your IRA and never paid
on the $120,000."
Bill: "Well, I thought I paid tax on the $120,000 when I took it out the
first time."
Snag: "When did you take it out the first time? Was it not a rollover?"
Bill: "No rollover. I paid tax on it in 1998. My wife looked at my old tax
papers a couple days ago. Wanna see them?"
Snag: "Sure. But then why is Mutual of NY taxing you on the entire
amount?"
Bill: "Dunno."
Snag: "If what you say is true, Mutual of NY has improperly issued this 1099R."
So we give it a couple of weeks. They call MONY. Turns out they DID in fact
invest $120,000K in 1998, in a series of growth mutual funds. At time of cashing
them out in 2005, they had a basis of $126,000, as taxpayers had been taxed on
some $6K of reinvested dividends.
The outcome? MONY corrects the document, this time issuing a 1099-B for $138K.
The money was never in a retirement plan all along. The "original" $120,000 was
the cash out of an old plan, hence the client believed it was still "retirement" money.
Did TurboTax miscalculate? No. And it won't. Did the brilliant Engineer make a data entry mistake? No. But nonetheless, the client would have had to cough up $34K just because someone thought the expertise of a tax preparer could be replaced by computer software. Would the TurboTax "interview" go down the same path I did? FAT CHANCE!!!
Am I a knight in shining armor? Most of you know I'm not. But these people believe I am. But I only did something that almost ALL of you could have done if you just sat down with these people and talked with them. Try to convince these people that TT is a great deal!!
Folks, if we are to compete with TurboTax, we can only do so if we give them something
they won't get in off-the-shelf solutions. If we CAN'T give them this extra personal perspective and expertise, then we DESERVE what happens to us.
New elderly clients, ages 77 and 68 are quite wealthy with a bevy of old ESOPs, Keoughs, 401k's, etc. Elder spouse is received MRDs but the plans still earn much more than they distribute. They have a "brilliant" son, an Engineer, who told them he used TurboTax and would process their return through TT just to see what would happen.
It just so happened they got hacked off at their broker/custodian, Mutual of New York, and took ALL their money out of one of these plans. MONY sent them a 1099R for $138,000, fully taxable. TurboTax properly calculated a tax due of $34,000. So they were anxiously awaiting my arrival this year.
When I sat down, the discussion went as follows:
Snag: "My God, Bill, what IS this thing?"
Bill: "Got p....d off at my broker, and cashed out this old IRA."
Snag: "Bad news, Bill. and not smart."
Bill: "Don't quite understand it. I didn't make but $18,000."
Snag: "Says you took out $138,000."
Bill: "Yeah, but I put $120,000 in this thing. I only made $18,000."
Snag: "Yes but you took a tax deduction on your IRA and never paid
on the $120,000."
Bill: "Well, I thought I paid tax on the $120,000 when I took it out the
first time."
Snag: "When did you take it out the first time? Was it not a rollover?"
Bill: "No rollover. I paid tax on it in 1998. My wife looked at my old tax
papers a couple days ago. Wanna see them?"
Snag: "Sure. But then why is Mutual of NY taxing you on the entire
amount?"
Bill: "Dunno."
Snag: "If what you say is true, Mutual of NY has improperly issued this 1099R."
So we give it a couple of weeks. They call MONY. Turns out they DID in fact
invest $120,000K in 1998, in a series of growth mutual funds. At time of cashing
them out in 2005, they had a basis of $126,000, as taxpayers had been taxed on
some $6K of reinvested dividends.
The outcome? MONY corrects the document, this time issuing a 1099-B for $138K.
The money was never in a retirement plan all along. The "original" $120,000 was
the cash out of an old plan, hence the client believed it was still "retirement" money.
Did TurboTax miscalculate? No. And it won't. Did the brilliant Engineer make a data entry mistake? No. But nonetheless, the client would have had to cough up $34K just because someone thought the expertise of a tax preparer could be replaced by computer software. Would the TurboTax "interview" go down the same path I did? FAT CHANCE!!!
Am I a knight in shining armor? Most of you know I'm not. But these people believe I am. But I only did something that almost ALL of you could have done if you just sat down with these people and talked with them. Try to convince these people that TT is a great deal!!
Folks, if we are to compete with TurboTax, we can only do so if we give them something
they won't get in off-the-shelf solutions. If we CAN'T give them this extra personal perspective and expertise, then we DESERVE what happens to us.
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