We get about 4-6 new 1040 clients every tax year who used one of the more popular software programs that allow taxpayers to self-prepare their personal tax returns. They seek our assistance when they get audited by the IRS and discover that their returns had tax errors in them and they owe the IRS significant taxes, interest and penalties.
We currently are representing a taxpayer who the IRS claims owes $40,000. The taxpayer claims that he carefully answered the questions in the software package and can’t believe that he owes the IRS this sum of money.
We are not saying that these tax preparation software packages are faulty, unreliable, and should not be used. Everything in life has its place. If you have a simple tax return with a couple of W-2s and interest income, then these programs are likely perfect for your tax preparation needs. The problem is that the more complex the return, the greater the chance that your return will be prepared incorrectly and you could be audited by the IRS because of these errors. Think of it this way. If the engine light in your automobile shows that the engine is hot, most drivers can pull off the road, let the vehicle cool, and then add water to the radiator. You don’t need an auto mechanic for such a simple task. However, if your brakes get mushy and your call is not stopping properly, do you want to change your own brakes or do you want to have a qualified auto technician inspect and fix your brakes? I think most people would agree that an auto technician would be the best course of action in the latter example.
And yet when it comes to tax returns, many taxpayers, including those who make a very nice salary, can’t resist preparing their own tax return. To say that the tax law is very complicated is an understatement. There are exceptions to the law, and there are exceptions to the exceptions. There are tax elections that can be made to reduce taxes due the IRS. We take numerous continuing education courses during each calendar year to keep abreast of these changes. Most of the errors in self-prepared tax returns are due to the mistakes made by the persons preparing the returns. They may not understand the question or explanation in the software and mistakenly answer or input data that is incorrect.
A fellow CPA shared the following story with us.
Story: Harvard professor purchased one of these software packages and decided to really put it to good use, so he found something to enter on almost every schedule prepared by the tax software. Mortgage interest was “expensed” on a number of schedules. He had lots of rental type expenses but, no rental income. At the point where the auditor told this fellow CPA about this, she already had made 23 adjustments to the 1040. More were in process. Is this the fault of the tax software or is it the fault of someone who thought that tax preparation was some sort of Internet game to be played?
What Can Be Learned from this Story? You need to decide how best to use one of our most precocious possessions – time. Do you want to spend countless hours preparing your own return, trying to figure out the questions in your personal tax preparation software package and hoping that your return is prepared reasonably correct? Or would you rather spend a few hundred dollars to have a tax professional prepare your return so that you sleep well each night knowing that your return was prepare correctly?
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
