This is the second in my series of consumer education on tax professionals for taxpayers. This series is not to be a replacement for all the basic articles on choosing a tax preparer like this one from the IRS. Instead, the concept is to focus on what I hope will be part of the IRS education program when tax preparer licensing passes. This one is a little out of order but tax software has been in the news with the Tax Court rejecting the Turbo Tax defense and Wandering Tax Pro's blog After Thoughts - Part II
Tax software has been a big part of my tax career. I learned on paper but from my first job, at least part of the tax season, our returns were computer generated. In those days, we used input sheets to give the data processor the numbers and they entered and printed the returns. We then checked them over for mistakes. Early on the computer was just a tool to help with the math and create clean and neat returns. As software progressed, so did the quality of the software.
As tax software has developed, home computer products and online filing have made it easier for the DIYer to prepare and electronically file a return. This has given rise to two problems. The first is the taxpayer who did his own return by hand and then switched to a program and doesn't check the results. Joe Doe has been preparing his own return for years by hand and discovers one of the boxes. Before when he ran into something he didn't understand, he would grab the instructions, Pub 17 or call the IRS to find out about his issue. With the box, if he can find something like his issue, he is less likely to research and more likely to rely on the software handling it correctly. These don't worry me since they are more an IRS problem, in fact, I get many new clients from this group. The group that worries me is the DIYer, who tries to bring in a little extra money preparing returns. The boxes make it easy and too many people are tempted to do something they can not do by hand. I include in this group the guy or gal who did a few returns by hand but the software gives them the ability to do higher numbers and more complicated returns than they should. Too many tax business begin or grow too fast because of tax software. This includes all those car lots, pawn shops and beauty/barber shops who offer tax preparation.
The increase in tax software has also lulled some tax prepares into a false sense of security. No matter how good the software is, there can be errors in the returns generated. When my software is shipped in November, I and many others start putting it through it's paces to find errors. Better in December than in March. Most come from fixing one issue causing a problem in a related area. A basic software problem. Some are interpretive issues when the software tax analysts don't interpret the Tax Code they way I might. Or the problem could just be an obscure issue that wasn't tested. (Last March I ran into this with a very unique situation on a personal return.) Too many preparers automatically assume that what the software is giving them is right and they are too lazy or unable to check it.
What can a taxpayer do? First, remember that you are the one responsible for the info on the return you signed. And that just because the computer came up with it does not make the return correct. Garbage In/Garbage Out. Be proactive and ask questions about the software they use, their training, taxes or the return. If it is your first meeting with the preparer, come in with a couple of question (Will increasing my 401K contribution at work cut my taxes?) Can they explain your return to you? If you hear, "I don't know the computer does it that way." to anything but a formatting question - run. If you have concerns, ask for your W-2 and other papers back, you have that right (a future installment).
I would not want to go back to preparing returns by hand for anything but a class. Tax software allows me to do more returns and focus on giving my clients the attention they deserve. I don't have to worry about doing check tapes for the math or reading the wrong line from the tax or EITC table. Good software also gives the preparer tools that help them help the client. Tools I use include comparison charts between years, projections of future depreciation and tax planning. I don't have to maintain paper copies of the return and that allows me to provide clients with prior year return easily from the software. But I recognize that too many preparers use the software as a crutch not a tool and that the public needs to be on guard.