Friday, September 26, 2008


As most of my regular visitors know I still prepare tax returns “the old fashioned way” – by hand. And I am very proud to say so.

Each tax season I prepare about 400 sets of returns manually. In my 36 years as a paid tax preparer (I prepared my first 1040 in February of 1972) I have never used tax software to generate a 1040, 1040A, or, for that matter, a 990, 1065 or 1120.

Whenever I attend a tax seminar and the instructor asks who still prepares returns manually my hand is among the two or three that go up (on occasion it is the only hand). This is usually followed by a statement by the instructor to the effect – “Well you are the only people here who really know tax law”, or “who really know how to prepare tax returns.” At an NSTP seminar instructor Beanna Whitlock, the association’s Executive Director, wanted to shake my hand.

At a recent IRS Tax Forum in the session on common mistakes made by preparers the instructor went so far as to say that those who use tax software to generate 1040s have basically become nothing more than glorified data entry clerks.

Whenever someone asks me what tax software I use I simply point to my head – indicating my brain.

It is not that I am a “technophobe”. I have embraced the computer and use it constantly to email, blog, keep up-to-date on tax law changes, and research tax issues for client returns, and for word processing. I have been using general ledger and payroll software since the mid 1980s.

There are several reasons why I will never use tax software to prepare tax returns.

The biggest reason is the cost. I have no intention of spending thousands of dollars upfront, and again each and every year thereafter for “updates” and “technical support”, and as a result have to substantially increase my fees without putting any additional money in my pocket or, in my opinion, without providing the client with any additional value.

I honestly do not see any benefit to me as a preparer in using tax software. It would not save me any time. I have done so many returns over the years that I have developed a good “rhythm” and can prepare accurate returns quickly.

The closest I ever came to using tax software is 25+ years ago when I worked as a “para-professional” for one of the then “big eight” accounting firms. The firm used “Computax” for some of its income tax returns. I would manually prepare an “input form” which was given to a data entry clerk for processing. It was my opinion back then that by the time I had filled out the input form I could have prepared the actual tax return!

I must admit that back then, when there was a regular tax, minimum tax, maximum tax, Ten Year Averaging and Income Averaging, I did use a computer application at the firm to verify the tax liability calculation, and the choice of calculation method, on a completed manual return, again via input form. I also admit to working with a programmer client to develop a “Tax Calculation Verification System” software program (which was never completed) to do the same thing some 20+ years ago.

The State of New Jersey requires that I, as a professional tax preparer, file all my full-year resident state income tax returns “electronically”, unless the client specifically requests that I do a manual return by filling out an “opt out” form. The only option available to me is NJWebFile, which is available to all taxpayers for free online at the NJ Division of Taxation website. I use this system whenever possible (there are certain returns that cannot be filed via NJWebFile because of the nature or volume of information reported on the return). In comparison, except for the simpler returns, entering the data for online filing usually takes longer than doing the NJ-1040 by hand.

Using tax software does not relieve one of the need to check the return for accuracy, something that many tax preparers fail to remember. I have often come across prior year returns from new clients prepared via software that contain glaring errors that would have been easily discovered with even the simplest of checking. One still has to carefully check the return for data or math errors as carefully and in the same way one has to check a manual return.

I find that tax software wastes tons of paper printing needless subsidiary statements and reports, adding to their overall cost.

At just about every tax seminar either the instructor or a participant will discuss how his/her software will not always properly handle or calculate a specific issue so that one has to “force” the correct number.

The only advantage to using tax software was pointed out to me by a colleague at a recent tax seminar. On occasion in the process of checking a return I find an error or omission that requires me to pretty much rewrite the entire return. With software all I would have to do is enter the correction(s) and the return would be automatically recalculated and revised. I would still, of course, have to check it to make sure the revisions were properly done.

Because I do not use tax software to prepare returns I also do not file federal income tax returns electronically. I am not against electronic filing – as mentioned above I file NJ state income tax returns online whenever possible, and also file just about all state payroll and sales tax returns online.

I would gladly file federal returns electronically if the IRS provided a method for online filing of 1040s and 1040As totally free of charge, and without the need for outside software or the use of a third party, on its website – similar to the way New Jersey does with NJWebFile.

Another reason why I do not file federal returns electronically is because I have no intention of giving the government my fingerprints, apparently still a requirement for becoming an ERO (electronic return originator).

I challenge my fellow tax preparers out there to give me a good reason, other than the one mentioned above, why I should use tax software to prepare a 1040.


1 comment:

Anonymous said...

Well I fail the challenge as there really isn't any other reasons for buying software.

When I decided to go pro I started using software so that I could offer the e-file side of things. It was troublesome. I tease the brothers and other fastfood tax preparer companies about how much time they spend training new employees software

But I also realize that if you can't make the software put the information in the right place on the form then - garbage in garbage out.

I was finger printed all those years ago and frankly I found it to be unsettling.

As it is now, In my time using software I have tried/test many, and have only used three for actual preparation. I could actually write a post about that so won't do so here.

As it is now, I prep the return, on paper, then input it into the software. Some for e-filing, all for keeping an electric copy of the return. In those years the software has helped me to realize an error here and there but swear to never trust it as an absolute accurate. I have a lady that does "data entry" returns for me during season. All are printed and checked by me before they are completed.

Software has its advantages and admittedly I like having it to use. But to blindly enter a return with it. Hell no. Keep doing returns by hand my friend, I wish I had never started.