Your Taxes : PC Tax Programs Not for Everyone : Software: Knowledge of IRS rules is a must if the returns are to be correctly completed.
Aided by a handful of popular software programs, an increasing number of technologically savvy taxpayers have begun to prepare their annual tax returns on personal computers.
It’s quick, easy and accurate, they say. Give it a try.
Accountants aren’t so sure.
“Giving these software programs to some taxpayers is like giving a gun to a 3-year-old,” says Gregg Ritchie, partner with the personal financial planning group at KPMG Peat Marwick. “They don’t know how to use them.”
We gave the two top-selling tax software programs--”Andrew Tobias’ TaxCut” and “TurboTax”--to a handful of taxpayers to find out.
The result: The taxpayers, who were savvy about neither software nor taxes, loved the programs. They found them easy to load into their computers. Easy to complete. They loved the fact that they could run out an IRS-ready copy of their tax returns on a home printer.
They found “TaxCut” as easy to use as “TurboTax” and vice versa. Indeed, the only difference between the two programs seemed to be that TurboTax’s 1040 form looked a little sharper--hardly a difference to write home about.
There was only one problem: Some of the returns were wrong--drastically wrong.
The finished returns were each scrutinized by a tax accountant, who checked them for accuracy. In three of four cases, there were errors. In one case, the errors were significant--amounting to thousands of dollars.
What happened? It’s difficult to reconstruct because no one stood over the reviewers while they were preparing their returns. But it appears the problems were mainly that the reviewers misunderstood some questions.
A bit of background: Both of these programs are set up to quiz taxpayers. When you load them into your computer, you’re given a choice of going directly to a 1040 form, or completing a question-and-answer session with the computer, where you answer questions about your income, deductible expenses, investments, etc.
The computer digests your answers, and then plugs the appropriate numbers into the right forms and schedules. All you have to do in the end is hit your print button, and the computer will spit out IRS-approved forms and schedules. The only time you have to look at the Form 1040 is when you sign it.
The taxpayers’ errors mainly fell into two categories: Deductions for state and personal taxes. Two of the three filers failed to note the DMV taxes they paid. They say they simply didn’t realize that questions about “personal property taxes” included DMV fees. One also failed to note state disability insurance payments, which are deductible on federal tax returns.
The third error-filled return had problems with state taxes--the reviewer plugged in his total state tax liability for 1993 rather than the actual amount that he paid. And significant problems with a rental property. Somehow deductible property depreciation, taxes and mortgage expenses were all severely misstated. The taxpayer is not sure why, and neither is our tax accountant who found the errors.
Mainly, however, the errors that appeared on the computer forms are errors that these taxpayers may have made if they had prepared their returns by hand. They say they may have been lulled into a false sense of security, because the programs seemed so simple.
“I probably should have spent more time reading the booklet,” one taxpayer sighed. “But it was supposed to be so easy.”
The bottom line: If you’re fairly good at filing your own tax return and you’re on friendly terms with a personal computer, you’d probably find tax software appealing.
It does your math. It automatically plugs in the right figures for standard deductions and personal exemptions. It calculates certain limitations in the wink of an eye. If you want to make changes on a form, you don’t need to bother with white-out or erasers. You simply delete or add whatever items you need. And, when you’re done, you can hit a few buttons and print the whole thing out in a format that’s acceptable to the IRS.
But the programs are not a substitute for a tax accountant. If you haven’t got a clue about how the various tax rules affect your return and if you need someone to remind you about which expenses are deductible and which aren’t, you need an accountant, not a software program.
“The software is going to do the arithmetic, but it is not the same as going to a savvy tax adviser,” says Lawrence Magid, a syndicated computer columnist.
About This Report
Today’s “Your Taxes” report, Pages D6 through D11, is a guide to preparing 1993 income tax returns. All stories were written by Kathy M. Kristof, The Times’ personal finance columnist.
