Friday, July 2, 2010

I am not a "Tax Artisan"

Robert Flach referred to me as a fellow tax artisan.

However, as I use the term, I have not been a tax artisan for decades.

I routinely use tax software, both in preparing returns for my own family and for the taxpayers my students serve at our VITA site.

But I insist on understanding the results of the software, and I also insist that the students preparers and taxpayers at our VITA site understand the returns we are asking them to sign as well.

I prepared my very first tax returns by hand in the 1970s. It wasn't until I got to grad school that calculators became cheap enough for students to own them. (I still remember one of my undergraduate math professors proudly displaying the simple four-function calculator he had paid hundreds of dollars for in the early 1970s, but I did not know any students who could afford such a thing. We used slide rules for our calculations--or decks of cards that we keypunched, fed into a cardreader, and transmitted over slow phone lines to a mainframe hosted at a nearby research university. If we were lucky, we would get results back the next morning. But slide rules and mainframe computers were for complex calculations in academic subjects. Our taxes were simple enough to do by hand.)

In the 1980s, even before commercial software was available, I wrote my own spreadsheet macros to help me double-check the logic and math in our tax returns.

Once commercial software became available, I adopted it and we've used it ever since, though my husband and I continue to carefully walk through the logic and math of our printed tax returns line by line to make sure we understand and agree with what we are signing.

Thanks to our legislators, who have continued a trend of exponentially increasing tax complexity and who insist on tinkering with tax laws right up to the last minute before the filing season begins, tax software is extremely complex and intricate. Tax software is a useful tool, but I consider it vitally important to check the results carefully before filing.

At the VITA site where my students prepare hundreds of tax returns each year, they use the TaxWise software the IRS provides for their use. Tax software saves a lot of time, especially for our returning taxpayers, thanks to the use of carryforward features in the software. Tax software also enables us to efile our taxpayers' returns, so they get their refunds faster. Once again, I insist that my students walk through the tax return line by line with their taxpayers, explaining the logic and significance of each item listed on their returns.

That line-by-line walkthrough is a critical step in preparing tax returns, but unfortunately I have not heard of many commercial tax preparers who have the time, interest, or ability to walk their clients line by line through their returns. I am mindful that use of tax software makes it all too easy to think of our tax system as a mysterious and inscrutable "black box" which defies explanation.

Even knowledgeable and highly trained tax professionals can fall into this trap. For example, tax attorney Steve Rosenthal described his inability to explain his own teenage children's tax returns to them or even to understand what was going on in his own tax return:

I taught my son and daughter to file their first tax return last April — they both have income from part-time jobs, high-school teenagers — and I walked them over to TurboTax. Put in their names, we put in their numbers — you know, the funniest thing was after we had finished, and the correct number popped out, my son asked me, well, what does this mean. And I couldn't explain it. I'm a tax lawyer, having done my own tax returns from the time I was, you know, a teenager myself, and always could understand where we were headed when I was filling out a box on a return and the like. But a couple years back, I stopped understanding the numbers TurboTax gave me. Last year, I had no AMT. The year before, I did. I can't explain that to you, but from a computational standpoint, I'm fairly confident I have the right number on my tax return, and I also finished my taxes quite quickly.Source: TRANSCRIPT ROUNDTABLE DICUSSION: TAX REFORM AND SIMPLICITY —TAX ANALYSTS
Washington, D.C. Friday, July 8, 2005

Wow! I would assume that the tax returns of Mr. Rosenthal's teenage kids were pretty simple and straightforward. It's disturbing to me that he was unable to explain the tax returns TurboTax had generated for them, but I expect it's not all that uncommon a phenomenon. Most of our VITA site clients tell my student preparers that no commercial preparer has ever taken the time to even try to explain their tax returns to them before. I expect that many of those preparers could not have done so if they had tried.

As I said, I am no artisan, but I do insist on understanding the logic and mathematics embodied in the tax returns that I use software to prepare. If that return is for another person, I also do my utmost to explain it as fully as possible.

Unlike tax attorneys and other tax professionals, as VITA volunteer I am required to take annual IRS certification exams. The exams are available in late November, often before the software comes out. I actually enjoy the challenge of doing the sample tax returns required for the certification tests without software--it helps to keep me on my toes and ensures that I do understand the rules embodied in the tax code.

I also ask my fall term public finance students to do a few simple tax returns by hand, without software, as well, just to make sure that they understand the conceptual framework before the tax season starts.

But, when it comes to actually preparing real tax returns for real people (myself, family members, and the taxpayers who seek my students' help at our VITA site), I can't imagine doing it entirely by hand as an artisan.

Tax software is a necessary evil for most of us, thanks to our complex tax code. I wish our tax code were simple enough for more of us to do without it, but I don't see that day happening any time soon.

But it's also important not to be too blindly trusting of tax software. Unfortunately, there is no such thing as "foolproof software."

1 comment:

  1. MOK-

    When I referred to you as an artisian I was speaking of your skills as a teacher and not a tax preparer.

    Thanks for continuing the discussion on this issue - and for stressing the importance of carefully checking a software-generated tax return.

    The best way to learn how to prepare tax returns is doing them manually - and I am glad you have your students so do.

    A tax preparer who relies 100% on software and does not understand the numbers or theory on the resulting return is not a tax preparer at all - but simply nothing more than a data entry clerk.