Thursday, 3 June 2010

Where Did All the Cookies Go?

It’s funny how tax time is always such an awakening for me.  (Actually, it’s only funny if you have a really black sense of humour.)  I write this now instead of April because as a 'taxpayer living abroad' I'm not required to file until the 15th of June. 

I have prepared my own tax returns off and on for years.  My mom did my first few returns for me, and then my husband did them.  After a few years he couldn’t be bothered any more and I started panicking that we weren’t filing.  A friend at work who was retired from the IRS helped me get caught up.  Then I paid accountants for the years I lived in Salt Lake City.  It always struck me how long it took me to pull together the information for them and how easy it was for them to type the numbers into their computer, print out the finished return and collect a wad of money.  I grew to hate that smile they had, when they were handing me a pen to sign the return and write the check.

When I moved to the UK I quickly discovered that accountants were only too happy to do my US tax return – for about £1,200 (nearly $2,000 at the time).  That was enough to get me to buy some books and study up.  I was really proud of myself when I was able to file the US and two state tax returns.  It only took me a few weeks of reading mornings and evenings.  And of course there is more reading to do every year as things change.  It’s not the most straight-forward language and sometimes my brain just freezes and won’t take in the information, but I generally get there in the end.

Then came the day when I discovered that the UK expected me to pay tax on my USUS and the UK.  I quickly hurried to a tax accountant who prepared 10 years worth of UK returns, charged me £6,000 and the Inland Revenue collected £28,000 in back taxes and penalties (ignorance is no defence).  It was about that time that I lost my stomach for work and decided to pack it in, as I’d originally planned to do about the age of 50. rental income – at 40% tax; and by the way, US citizens are also expected to pay tax on worldwide income, something I only recently discovered, though I have no other income other than in the

My tax return gives me more concrete information about where I stand financially, particularly as my rental income is sporadic.  It is easy to say that I collect X dollars in rent income and so that is how much money I have.  In fact, from that X amount is subtracted management fees, maintenance and repairs, utilities, property tax, and insurance.  After that of course out comes federal and state income taxes.  Then there is the exchange rate from US dollars to British pounds and the fee associated with the exchange. 

It’s sort of like trying to get all the cookies out of the cookie jar, but your hand won’t fit through the hole, you know?  Except that in this case, everyone else gets to take cookies out before I do.  I honestly don’t resent paying taxes, but it is always a bit of a shock to see the money shrink.  I tend to do my budgeting on the previous year’s income, given I don’t really know about what will come in from month to month, and my federal tax return gives me about the clearest picture of what is in the pot.  I think of tax return preparation – at least the fundamentals – as being part of financial literacy, though I realize that as soon as one does something complicated it becomes harder work and for many an accountant is the only way to go.

Do you DIY?  Do you learn useful stuff from it?


Rick Stone said...

I've been doing my own taxes for years. Now I let Turbo-Tax do it. Like the accountants you used, I just type in the data and hit the print button. (In most cases the tax accountants are using the same software I am.) I feel the annual investment of $35.00 or so for the new years version of Tubro-Tax is money much better spent than to an accountant.

I do use an accountant to do the tax filing for the RV Club, which I serve as Treasurer. Although we are tax exempt we still have to file a return each year. Like most of the US tax code this requirement makes no sence in that we don't pay any taxes.

Shelley said...

Yes, it kills me to fill out a bunch of forms to prove I don't owe, but that's the way of it...

Struggler said...

I hate tax time, not because I object to paying (which is clearly no picnic but unavoidable), but because of the process.
I have to say, it was easier living in the UK: one form, done online.
Here in the US we are doing a state form and a federal form, plus AMT for each, and one of them can't be filed online (or at least, not for free). I heartily wish they'd just simplify it and collect their cash in a more straightforward way.
But I can't really complain, my dearest hubby does the bulk of the work. :)
As you say, the pro's charge an arm and a leg, when in fact most of the pain is in collecting the wretched info together.