Homeownership questions

[ToddFogelberg]

I've already seen several clients are new homeowners. What I'm seeing is that they are able to buy a home on limited income (under 50K) with 1% downpayments. Is this a bad sign for the economy and housing market like we went through in '08? One thing that concerns me is that these deals often involve "seller paids", the price is jacked up and the seller pays a significant portion of the closing costs, making it look like the buyer is putting more money down (in my interpretation). Thoughts? I like seeing these folks get into homes of their own, but I wonder if it is sustainable?

Another observation, even with a $200K mortgage, they come no where near the standard deduction. I'm debating weather or not I should even bother filling out the Schedule A. On the one hand, doing so provides a paper trail and shows the total (which is far below the standard), on the other hand it is unnecessary.

[ATSMAN]

I sure hope Banks learned their lesson the last time around. That game of jacking up the price to pay for new appliances, closing costs etc. has been going on since I purchased my home in 2000. I still recall the sales lady asking me how much I need to buy new appliances and cover the closing costs because it can all be financed and would be TAX DEDUCTIBLE. Now here is someone giving me tax advice.

In an ideal situation Banks would get a true valuation, run credit check and payment history and figure out how much a person making $50K gross can set aside to pay mortgage payments. Also there has been a lot of non-bank lenders in the market and they are the worst.

I too am finding that with SALT, MFJ Std Deduction is equal or more than itemized deductions. The exception comes for people with deductible med and charity expenses.

[Lion]

You don't know their itemized deductions until you add it all up, and ask questions re donations, etc. So, you may as well add it up on a Schedule A to have that information in their file. And, depending on their states for work and for residence, you may be itemizing for their state. (I work in CT where about half my MFJ clients now are better off with the standard deduction for federal purposes, but I still enter all their itemized deductions on Schedule A. I like to show my clients which benefits them the most, I have a record, and my NY commuters usually are still better off itemizing on their NY returns only.)

[ttbtaxes]

I ask all clients to provide itemize deduction information. Even if they don't itemize, I include a Schedule A in their client copy so they can see for themselves how close or far they are from itemizing.

[ATSMAN]

I ask all clients to provide itemize deduction information. Even if they don't itemize, I include a Schedule A in their client copy so they can see for themselves how close or far they are from itemizing.

Do you charge by the form for that, or is that part of your base/flat fee?

[Lion]

Years ago at HRB, they charged a fee for a Schedule A that was filed for federal and a lower fee for a Schedule A that was not filed for federal, but maybe was used for my NY commuters as the NY return pulled from Schedule A. If it was not needed at all, I could get around that by inputting a Schedule A, showing the client where they stood, maybe printing a copy, and then deleting that schedule before e-filing/printing the whole return.

Now I have my own business and can do what I want. I enter data for Schedule A.The Schedule A fee lands on the invoice only if the schedule is used for federal filing. However, my NY commuters end up with a small NY fee in edition to their base NY fee if they itemize in NY. And, I don't have to do any extra data entry on the NY return as it pulls from Schedule A. Same for my CA clients and clients in a couple of other states that itemize if it benefits my client. I also can give discounts or add fees to my invoice as needed.

Just like most of us prepare Form 1040 only and not other forms in that series, so we are more efficient in data entry and in reviewing returns with our clients, I like to use Schedule A for itemized deductions even when I'm sure it won't be used for federal purposes so I'm not doing data entry on the itemized deduction schedules for ten different states or adding up by hand to check on whether standard is better. Or that client who calls later to tell me about the $20,000 dental work she had done. Let the software make me more efficient.

[ATSMAN]

The Schedule A fee lands on the invoice only if the schedule is used for federal filing.

That seems fair but what I typically see in detailed invoices from many of my competitors is the opposite. If they entered data for Sch A, they are charging for it. I have a friend who will charge a flat fee for 1040 MFJ with std deduction (2- W2, 2-1099-int/div/SSA and 2 -1099-R) $150. Includes Form 1 (MA). Any more tax documents or forms will be additional at $10 and goes up to $100 (K1, Sch C etc.). He has used this pricing model for years and he tells me I should try it because it keep the low ballers and hagglers away. There is no surprise when the bill is presented.

[ToddFogelberg]

This thread has persuaded me to continue filling out Sch A for most of my clients (good points raised). Tax season has barely begun and I've already 2 "surprise" itemizers that I would have guessed would use the higher standard deduction. Last year I had 3 clients who had implants (out of pocket) and were able to use medical. I have bundled pricing since I started my own practice 10 years ago, clients love it. There is some variation from client to client but I have a fixed fee schedule for most clients. Clients love it and I have done very well with it. Schedule A won't trigger an additional fee for most of my clients.

[taxmandan]

Most of our homeowner clients still itemize on the state return, the standard deduction is only $4,600 for MFJ. I've seen more and more ads for creative mortgage financing in the past 6 months, I think the lenders learned the lesson of play fast & loose and leave the taxpayers holding the bag, again. There are mortgage brokers on every street corner now just like '06-'08.

[ttbtaxes]

Do you charge by the form for that, or is that part of your base/flat fee?

Most returns I prepare are in a state that decoupled from the Federal itemized deduction rules so some will itemize. I ask them to provide itemize deduction information an have found inquiring can unearth nuggets of information such as long-term care premiums paid on a policy they didn't have in the past.

I've never charged by the form nor will not prepare a return based on a fixed or flat fee. I include my time from beginning to end and bill from there. I tell clients that at the outset and if they don't want to pay me for the time I believe is necessary to prepare a return, they are free to look elsewhere.

[ATSMAN]

.

I tell clients that at the outset and if they don't want to pay me for the time I believe is necessary to prepare a return, they are free to look elsewhere.

That is how it should be for professional services.

[Lion]

My billing is a combo of forms, complexity, and time.

[ATSMAN]

My billing is a combo of forms, complexity, and time.

I have struggled with a simple pricing model for the following reason:

1) For complex cases that requires research, I can't charge simply by the # of forms filed. So I have a combo model where the main components are time and research/reconciliation.
I have some business clients who are good at using automated record keeping systems that the reports of income and expenses are relatively easy to reconcile and transfer over to Sch C. Then I have some nightmares where the ledger records are incomplete, there are stacks of invoices not posted etc. etc. Then there are clients who always manage to land themselves in a "unique" situation and they want an answer pronto.

2) For your run of the mill 1040 returns that does not need Sch A, I have been moving to a flat with little adjustments for time. My competitors are moving to a base charge (flat) and a per form charge. So for example a 1040 base rate is $100 and then each W2, 1099, etc adds a per form rate. I saw an invoice that had 4 W2, 3 1099-Int, 2 1099-Div and perhaps a few others add another $100 to the forms rate. Then I see form 8949 charge by the # of lines and a flat fee for Sch D.

How do you guys charge for Form 8949 and Sch D?