Do You Trust Tax Software?

[tpert]

I am wondering how the rest of you feel about this topic. I think with the late tax law changes, it is beginning to impact the reliability of the software we use.

How much do you trust your software when completing returns? Do you just enter data, print and mail or do you painstakingly check everything? Do you feel confident that everything will end up where it belongs if your data enter the correct values or do you use have some key things you check for? Do you compute a rough estimate of what you expect will result on Schedule C and E or are you just careful when entering data? Have any of you been surprised by something your software did particularly well or a strange omission?

[Jiggers]

I use the Proforma method of data entry. All client information is entered on Proformas. From those I then enter the information.

I run a tape of the client information, "+" for income, "-" for deductions.

I run a tape of the information on the Proformas, + or -.

Those amounts have to be the same.

After data entry, I review the return and complete a reconciliation sheet. This reconciliation sheet is one that I have developed over time that makes + or - adjustments to my tape total.

Adjustments like the non-taxable portion of SS benefits. I enter the total amount on the Proforma, my software calculates the taxable portion based on other entries.

Adjustments like the deduction for 1/2 the SE tax.

Adjustments like the depreciation deduction that is calculated. I don't calculate the depreciation, nor check the amounts.

Adjustments like the capital loss carryover due to the $3,000 limit.

Adjustments like the sales tax deduction, if itemizing.

Adjustments like the 2% haircut on Schedule A.

Adjustments like the 7½% medical haircut on Schedule A.

And many other adjustments.

After completing the reconcilation worksheet, I should have the same taxable income as the software has calculated.

[SFBOB]

Prior to software

Old timers like myself would use a pencil and pink pearl eraser to complete a tax return forms. We put the answers where they were supose to go. What else can I say? The software is a tool that we use. Just like a carpenter cuts with a saw. The carpenter had better cut the correct length or he will have a problem,correct? Have a good one. Bob

[Burke]

In general, I trust my software. It also has an error-check feature. But I have several double-checks I do on a return -- and find that most errors that surface are due to my input/omission. Sometimes when it calculates other than what I think it should be, I go more in-depth to see if it is me or it. Often I find that I have to reinput through a worksheet or two, due to upgrades from year to year -- i.e, was a direct input last year, worksheet this year. Only rarely do I have to override something, but it happens occasionally, mostly on one particular form which I critically review for correctness. And that is due I suspect to carryovers from previous years where an override occured. I usually know (or think I know) what the answer is supposed to be; when it isn't, I have to find out why.

[Lion]

Check vs. Calculate

There aren't a lot of lines that I would CALCULATE. But I LOOK at every line for reasonableness vs. prior year and then dig down for explanations of changes. I spend more time on "tax law changes" line items, new situations for a specific client, new situations to ME, and new clients. I pay a lot of money for "good" software with good diagnostics. I know my own weak spots and am learning my software's weak spots. But, whether sleep-deprived or rushing to meet deadlines, I'm sure I've missed things I could have caught with more careful checking.

I'm getting a few HSAs this season and have struggled with that form. In one case with the client sitting here expecting to walk out with her return e-filed, I worked on that form on my screen and we both thought I had all the right numbers in all the right places. Well, the bottom line was correct. But, I had a number on a wrong line, but with no effect on her bottom line. More annoying was the fact that my screen showed her with a single plan, but the printed page -- that I didn't look at as she was in a hurry -- printed that she had a family plan. Now, we used the correct numbers for a single plan, so again no change in her taxes. But, it was embarrassing a few days later to get her call saying that I had reported a family plan for her, probably the point that stood out and caused her to read every line and discover the misplaced number too. (My software company had already made the Family vs. Single correction before we noticed. She was my first client of the season.) I no longer make any exceptions to my policy of reviewing each client copy on paper before e-filing or releasing the return to the client !!

[dtlee]

I spend a lot of time checking returns at the beginning of the season, when I am getting used to the new rules and any changes in the software. If I get comfortable with certain aspects of the return, I do not as a rule check those in detail. I also do a lot of rechecking of my actual data entry because I know I can make errors there and I do that throughout the season.

Like Bob, I am an old-time pencil pusher. I also spent quite a few years as a district office tax return checker for a H&R Block back in the pencil and eraser days. I still feel that I have a good sense of where I expect to see something and how much I expect to see there. After inputting the return, I willl generally review every form with the client as part of this overall reasonableness check that everything is in its place.

I did get a major surprise one year. I reviewed a return which had two Schedule Cs. One had no income or expenses (it had no activity at all and no amortizable expenses carrying forward) and the other had significant activity. Since the inactive Schedule C was not likely to ever be active again, I deleted it and e-filed the return (in my defense, it was April 15). I did not notice at the time (nor did the software notify me) that all of the depreciable assets associated with the second Schedule C were no longer associated with anything since there was no second Schedule C any more. I did not notice this until I got my (substantially smaller) tax refunds (yes, it was my return). I have been very hesitant to remove anything like that from a return ever since, but the software I use also now has error messages to tell us when we do something stupid like that.

I would like to think I would have caught that one, had I looked it over one more time, but here is one I caught only by accident....

Most software will compute the amount of the state refund which is expected to be taxable next year and then carry it forward for us to Line 10. A simple, straightforward computation, right? Wrong. In 2009, my software used $12,400 as the standard deduction for a married filing joint return when computing what to carry forward (they used the correct figure elsewhere in the same software which implies a whole different problem). I only caught that because I was wrestling with another issue. I seldom check such straightforward calculations and even then, it would not show up on most of my returns. No, they never fixed it.

[JG EA]

Maybe I checked the wrong box but...

...I checked the box that said I checked every line - which I do, But I don't check every calculation. Actually I don't check any calculations or look up tax tables, etc. I do expect the software to do that correctly. But I do check unusual calculations, worksheets and the like to see if I understand what it is doing and how it is calculated on the return for the first few of those.

[ChEAr$]

Hey Bob and Doug!

Just so you know, I've got an oversupply of carbon paper at the office.
If you ever need some........

[oceanlovin'ea]

I go over every return with the client before they take it out of my office. I do look at things as I am doing the return and if something doesn't look right I will dig deeper and see why.

But by going over the return with the client, if there is a mistake we will both see it and I will correct it. I usually tell them this is exactly why I want to go over the return with them to make sure it is correct.

I still make some mistakes but hopefully not major ones and only a few.

Linda, EA

[taxxcpa]

Checking returns

I try to double-check everything from the source document to see that it ended up where it should on the tax forms. Also I do this to make sure I haven't omitted something- which is more likely to involve something simple that obviously should be there but can be overlooked, especially in case I'm distracted while working.

Generally I trust the software to make the correct calculations unless it is something new in the tax rules that wasn't there for the last several years. Even then I would be checking it more to understand it myself than to question the tax software's calculation. I don't have a lot of state tax other than the Texas Franchise Tax for which I trust the software less than I trust it for Federal tax.

[dtlee]

Just so you know, I've got an oversupply of carbon paper at the office.
If you ever need some........

I went to Staples a few years ago and asked the clerk for carbon paper. He asked me, "You mean like drawing paper for charcoal?" I tried to describe it and he said, "I know what you mean," and took me to some construction paper saying, "I don't think we have any that is just black." I thanked him, left the store, and walked back into the past alone.

[Earl]

Since I do not do the return with the client in front of me I will compute the expected return using a program I worked up. I will enter all information just as if I was going to enter it into the software program.

After entering all information if the end result is not the same as what I computed earlier then I will go through the return to resolve where the difference lies. This basically ensures that I enter the correct amounts into the software as well as ensuring that everything was entered in software to obtain the correct result.

Saves me the time of going over each line of the completed return to check for errors.

[FEDUKE404]

Check data, theory, and ignore math stuff

I will review carefully the handling of new (to me) scenarios, and will frequently calculate by hand certain limitations such as MAGI or "certain itemized deductions/gross income" on a Form 1116. For something such as an office in home form, I try to see if "logic" gives me the same bottom line answer and accordingly I will check to see if the proper associated adjustments have been made on Sch A.

On the main 1040, I pretty much "eyeball" every line especially the IRA/retirement/Soc Sec entries.

For new depreciable assets, I spend considerable time to be sure the facts are there and the starting number is correct.

Some people think the taxable amount of state refunds is a simple matter - well, it is not. Especially when other issues come into play such as estimated payments/refund in same calendar year and having to consider what the sales tax table amounts "would" have been. NC also has some wacko calculations, especially the additions to/deductions from federal taxable income. In most cases I have to spend a bit of extra time there dealing with the sniff test factor of the numbers that showed up.

As dtlee mentioned, someone who has reviewed a lot of returns over the years can quickly get a feel for where a reviewer should look.

I do not waste any of my own time doing simple math, to include 2%/7.5% issues, Soc Sec taxable calculations, and the like. I never bother to check a number on the tax tables nor calculate an amount using the tax rates. Anyone who does that likely also has an "adding machine" sitting on the desk.....or even runs a "check tape" from the Block days.....

Where I do focus a lot of effort is on accurately entering informing from tax documents, especially W2s and 1099-Rs. The tax software can generally handle things quite well, but the GIGO principal can show up quickly even though the return appears to be OK.

FE

[Burke]

.....or even runs a "check tape" from the Block days.....FE

Ah, the ole check tape. Wonder if I could still do it? Pre-technology it actually worked pretty well. For the math.

[FEDUKE404]

How true!

Ah, the ole check tape. Wonder if I could still do it? Pre-technology it actually worked pretty well. For the math.

I thought the blue pencil was a great idea - hated the doggone ammonia though.....

FWIW: A properly run check tape removed virtually all math errors from the return. It was the best thing going, surpassed a bit when management finally decided they could "afford" those high-priced four-function with memory calculators.

And for a real challenge: Multiplying something on an "adding machine"........ Yes, they actually taught us how to do that.

FE