It's the preparer, not the software

Marci Grossman CPA
February 15, 2011 — 1,476 views  
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Tax season is upon us. And, every year, nuances of the tax returns seem to get a little more intertwined. Lawmakers' tax simplification acts never simplify much and paperwork reduction legislation seem to add more pages to the return. And that's just at the federal level. All praise whoever thought up tax software or we would never get through it.
When I started practicing in the mid-1980s, the returns for the office I worked for were mostly done by hand. Of course there already were some firms that had in-office processing and others that sent them out to providers who sent back computer-generated returns. Then, those returns were sent back for corrections. No matter in-house or out, computer tax processing was a long and tedious process.
I think it was in 1987 that passive activity loss rules started and it seemed that computerized processing became a necessity. The allocations and record keeping requirements weren't necessarily hard, but they were tedious. The computer did it better.
Originally, there were input sheets and output calculations forms for the tax software, and most practitioners prepared these manually as a check. The software didn't always give an option for input format. It has since evolved into what we have today, a complex system that allows many different methods of input, and offers virtually every state or city return.
While some states don't have returns, some have returns that seem to flow straight from federal numbers, and others seem to create more hoops and tax codes to jump through. People, our tax clients, aren't staying put anymore, either. With the economy the way it is, multistate returns because of families moving, or one spouse relocating for a job, seem to be increasing. Because of the various delivery services and technology, as well as the potentially temporary nature of people’s job situations, they seem more likely to keep their current tax preparer. I've talked to more than a few CPAs who have to prepare a new state return in a recent year.
All hail tax software. We couldn't get it done without it. But are we relying on it too much? I won’t even mention the standard bugs and compatibility issues. Those are to be expected on software that is effectively rewritten every year for hardware that is continually changing as well. The bigger problem for CPAs and other tax preparers is that these programs aren't perfect. This is especially true for laws and issues regarding state returns.
For the most part, the software companies seem to handle the federal tax returns well. But code it wrong and you won't get the answer you should. If you aren't fully checking your returns – the flow of information and the accuracy of the input numbers – you won't catch the errors.
State returns that you may be less familiar with can be a big problem. It's easy to feel you can rely on the software, believe they've been doing it for years, and not familiarize yourself with the tax laws and miss the coding issues. Michigan recently replaced the Single Business Tax with the Michigan Business Tax. Michigan tax preparers have been trying to figure out how this return works on top of how to make the software do what it should for standard situations.
Not all tax returns are standard. Some tax issues are not correctly programmed by some vendors. It's not just a matter of a coding issue for the preparer, but the software doesn't know the proper way to handle a unique issue. To make the return come out correctly, you must use overrides. It's impossible to expect a software company to get everything right for every state in time for tax season because, until they prepare every possible return including every possible variation of information and situations, they are guaranteed to miss something.
Software is great. It speeds up preparation time and limits the errors caused by numbers flowing from one page to the next and what happens when one number changes and every page it flowed to must change. But it isn't perfect. For it to be perfect, it wouldn't be sent out until a year or so after tax season. Because we can't wait that long, we have to remember that the most powerful part of our software is the quality and care of the preparer.


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Marci Grossman CPA