As we have mentioned previously, we actually spend time researching our subjects prior to writing white papers or case studies or recording videos and creating advertisements. When researching the topic of Tax Preparation Software, we came across an article written by an individual that used both an accountant, and tax preparation software to prepare his income tax return. What this person found was that it cost him more, in his opinion, to have an accountant prepare his tax return. He also determined that the accountant made errors because they did not take what he felt were items eligible for a full deduction. Further, he felt the accountant took too long to prepare his tax return. What this person first failed to take into account was the cost associated with his own time, software purchase and equipment and utilities to prepare his tax return. Second, this person is under the impression that he better understands tax code and deductible items than his accountant. Third, he fails to realize that an account is preparing tax returns for numerous individuals, not just the one he submitted. Would you like to know what finally swayed this person’s decision to use a licensed, professional accountant? It was when he was audited for his self-prepared income tax return. The tax software company would not represent him. The cost? An additional $350.00 an hour to represent the tax preparer and correct the errors he, and his software, made.

Last month in our “Why Hire a Licensed Tax Professional” series we referenced a case where a person misinterpreted what the tax software was asking her, and she tried to take a deduction for an item that was not deductible. She attempted to deduct her purchase of a Prius when the tax software asked if she had purchased or upgraded any energy efficient materials or equipment. The IRS rejected the return and unfortunately, the young lady did not know how to solve the problem. This misinterpretation cost her an additional $150.00 to adjust her tax return and re-file it with the IRS.

As a sales professional, I talk with a lot of prospective clients that currently use tax preparation software. When they finally allow our firm to prepare their income tax return, they are surprised by the amount of money they were unknowingly leaving on the table when preparing their return themselves. Many are not aware of some tax credits they are eligible for because the tax software does not ask them about it. When we meet with clients each year, we review their information and ask questions to ensure we can take advantage of every credit and deduction they are eligible for. A tax professional can also recommend payroll tax withholding amounts, or even investments that may lower a taxpayer’s tax liability. Tax software cannot do this on its own as it has no mechanism to do so.

We often have people that walk in our office stating they used tax preparation software and it shows that they owe. They are requesting the tax accountant’s assistance in lowering their tax liability or finding ways to get them a refund. Most of the time we are able to help them. Sometimes, their situation is beyond helping for that particular tax year. Meeting with a living, breathing accountant can help a taxpayer prepare for future tax issues that may arise, as well as plan on how to attack your tax position in that current or upcoming tax year. While tax software may give you some ideas, those ideas are limited in scope and based on previous years information.
There is an acronym I like to use when people tell me they use tax preparation software. I learned this acronym while working in the telecommunication industry. But honestly, it is sales 101. The first letter in the acronym is “T” for “time”. Do you have the “time” yourself to sit down and prepare your income tax return? Some people do or feel they can make the time. Some people do not due to whatever situation or lifestyle they choose to live. The next letter is “E” for “experience”. Do you have the “experience” to prepare your income tax return yourself? The tax software industry thinks you do because they do the work for you. However, you may own a business or rental property or a farm. While those area’s you may have experience in, you may not have experience in preparing the accounting for them. The next letter is “S” for “staff”. While an individual may not have “staff” per se, they may be their own staff. In that case, if your “staff” is busy trying to figure out how to prepare a tax return, what are they not doing that is generating revenue for you or your business? Finally, another “T” for “training”. While similar to “experience”, training implies that you have a special set of skills that specifically relate to the task at hand. Looking at your own situation and using “TEST”, do you have the “Time, Experience, Staff and Training” to effectively complete your own tax return? Or, should you hire someone that does? If not, you have failed the “TEST”.