How did you find this retired IRS agent? That sounds exactly like what I'm looking for - someone who will actually do the work I'm paying for!

I found him through a local Facebook group for my town. I posted asking for tax preparer recommendations specifically mentioning I wanted someone who didn't use the questionnaire system, and several people recommended him. He works out of a small office and doesn't advertise much, but has a loyal client base. You might try asking in community groups, or even calling some of the smaller local accounting firms (not chains) and specifically asking about their process before making an appointment. Many older tax professionals or those not affiliated with large firms still prefer the traditional method of service.

It's mostly about efficiency and liability. The tax software companies have been pushing this model because it reduces the preparer's time per return, allowing them to handle more clients. There ARE some new compliance requirements around investment reporting, especially with the broker reporting changes that started phasing in last year, but that doesn't explain making clients do all the data entry. That's just shifting work to increase profits. I work in accounting (not a CPA though) and our firm still offers traditional service for older clients who prefer it. We charge about 15% more for it now, which seems fair since it takes more staff time.

Thanks for explaining that! I suspected it was more about increasing their client load than any actual requirement. Maybe I'll ask if they have a tiered service option like your firm does where I could pay a bit more for the traditional approach.

What about aggressive interpretations of gray areas though? Like if the law isn't super clear about something and you take a position that benefits you tax-wise, but there's a decent chance the IRS would disagree?

That's where the concept of "substantial authority" comes into play. If you're taking a position in a gray area, the question becomes whether you have a reasonable basis for your interpretation. Tax professionals typically look for about a 40% chance of prevailing if challenged to consider there being "substantial authority" for a position. If you're taking an aggressive but supportable position, the key is proper disclosure. By filling out Form 8275 (Disclosure Statement) with your return, you're telling the IRS "here's my position on this gray area" rather than hoping they don't notice. This disclosure protects you from accuracy-related penalties even if the IRS ultimately disagrees with your interpretation. It separates aggressive-but-legitimate planning from attempting to hide something.

Not reporting cash income is pretty clearly fraud, not strategy. The IRS definition of fraud includes "intentional wrongdoing with the specific intent to evade a tax known to be due." If you received income, it's taxable regardless of payment method. Pretty much any tax professional would tell you that deliberately not reporting income crosses the line from strategy into fraud. Legitimate strategy would be looking at whether that income qualifies for any deductions or credits, or considering ways to offset it with business expenses if it's self-employment income.

That's a great way to explain it! I'm definitely going to try this approach. Our tax liability last year was around $10,500 and I had about $9,800 withheld while he had his measly $46. We ended up owing, but it wasn't too bad since I had extra withheld from my checks. Do you know if there's a penalty for underwithholding even if you pay everything you owe by April 15th?

Yes, there can still be a penalty even if you pay everything by April 15th. It's called an "underpayment penalty" and the IRS expects you to pay your taxes throughout the year, not just at filing time. The general rule is that you need to have paid at least 90% of this year's tax liability OR 100% of last year's tax liability (110% if your income is over $150,000) through withholding or estimated quarterly payments to avoid the penalty. So if you're significantly underwithholding, you could face penalties even if you pay the full amount when you file.

This is exactly what happened to my coworker! He thought the form was asking for how many people were in his extended family, so he put 12 (counting parents, siblings, etc.). His first paycheck had like $3 in federal withholding and payroll had to explain the mistake.

Thanks for bringing this up! I just checked my 1099-G and see they only withheld about 10% for federal taxes. Is that going to be enough or should I be preparing to pay more when I file?

The 10% withholding might be enough, but it depends on your total income for the year and tax bracket. Unemployment benefits are taxed at your normal income tax rate, not a flat 10%. If unemployment was your only income for the year, 10% might cover it for federal taxes. But if you had other income sources or worked part of the year, you might owe additional taxes. A good tax program will calculate this for you when you enter all your information. Just be prepared for the possibility of owing some money, and don't be caught off guard. This is one advantage of filing sooner rather than later – if you do owe, you'll have more time to plan for payment before the filing deadline.

I used Credit Karma Tax last year with a 1099-G and claiming a missed stimulus. It was actually completely free, no hidden fees even with the Recovery Rebate Credit. The interface was pretty easy to use, though not as polished as TurboTax. Just make sure you have all your documents ready before you start!

Did the estimator handle bonuses correctly? I get about 20% of my income from quarterly bonuses and those are always withheld at a different rate. Every calculator I've tried seems to mess that part up.

The estimator does handle bonuses, but you have to enter them correctly. There's a specific section where you can enter expected bonuses separately from your regular salary. It will then factor in that bonuses are typically withheld at the 22% supplemental rate rather than your normal withholding rate. When I used it, I had to enter my annual salary in one field and then my expected bonus in the separate bonus field. Don't combine them or it will calculate as if all your income is withheld at the same rate. That was probably the issue with other calculators you've tried.

You might have checked the box in Step 2(c) for "multiple jobs" without realizing what it does. That box basically tells your employer to withhold at single rates which is much higher. Try redoing the form without checking that box and instead use the withholding estimator to calculate a specific extra amount to withhold on line 4(c).

You're totally right! I just checked my form and I DID check that box plus I had also put an additional amount on line 4(c). So I was essentially double-counting the extra withholding needed. HR gave me a new form to fill out today and I'm only going to use the specific dollar amount approach instead. Thanks for catching that!