Do You Trust Tax Software?

[JohnH]

As a last step, I do run a total for the W-2 gross wages, fed withholding, and state withholding, then compare it to the entries on the returns just to be sure my totals are correct. Also a separate total for 1099-R totals and SocSec gross earnings. (I don't keep the tapes.)

Like FE, I don't bother to check the tax calculations, taxable SocSec, etc, since I expect the software to get that stuff right. I also check the gross amounts on Schedule D against the 1099-B's and total 1099-Int and 1099-Div (paying attention to qualified div amounts) for the same reasons. I look over Schedule D for long-term vs short-term entries, since that's another area which can be easily messed up by entry errors.

All of the above are just a final check of the accuracy of my entries, rather than any questions about what the software is supposed to do. I do visually scan the retrurn for relevance, but that process is different for each return. Finally, a quick side-by-side glance at last year's return vs current year, just to mentally note any variances. Anything unusual gets a follow-up.

As FE pointed out, NC & SC do have some odd adjustments, especially when there are 1099-R's involved or education expenses, so that also requires a visual check. Usually a comparison to last year is the easiest, unless it's a first year entry for a given client. When the client owed state tax in the prior year, or if they made a payment with their extension, I always check the Fed Schedule A entry to be sure everything found its way onto Line 6. When a client lives in one state and works in another, it's always good to double-check the credits to be sure they were handled right on both returns since ATX depends on preparer entry to allocate the credits properly. (I think some of the higher-end programs do this automatically, but not ATX)

All in all, I'd say this process adds about 10-15 minutes to preparation time for the average return. For a simple return it's a minte or less, and for a complex return it may be more than 15 minutes. In any case, it's all reflected in the fee anyhow.

[FEDUKE404]

A bit more

Excellent points on checking "gross proceeds" on Sch D as well as comparing prior year to current year, and looking for any warning flags.

One minor nit to pick on the below:

...When the client owed state tax in the prior year, or if they made a payment with their extension, I always check the Fed Schedule A entry to be sure everything found its way onto Line 6...

It is quite possible that the taxable state refund amount differs from that of the actual refund (common, even excluding those who used standard deduction). But there also are common scenarios where an additional adjustment needs to be made to the Sch A "payments" mentioned also. The amounts paid for estimates, extensions, or state balances due may still require modifications, due to a certain extent as to how the state refund was handled. Most good tax software has worksheets to come up with the amounts, but GIGO (or preconceived ideas) can be a detriment to determining the appropriate...or most beneficial... amounts.

FE

[JohnH]

You're right. I find that ATX handles the state tax refund correctly, but only if I make sure all the info is entered where it's supposed to be, with proper dates, and if it's a returning client. (New client situations are a horse of a different color altogether)

I'd say that about 20% of my "taxable" state tax refund amounts are different than the amount shown on the statement the state sends out, so that disconnect always causes me to do the math by hand.

Also amazing how often a simple set of "T" accounts on a sheet of yellow paper makes it all fall right into line.

[geekgirldany]

I do about like John. Double check W-2, 1099R, etc by adding up the amounts. Gross wages, federal withholding, state withholding. I also check Schedule D amounts with 1099Bs to make sure they come right correct. Double check estimated taxes paid in, Schedule A state tax deduction especially when estimated taxes have been paid.

I have found a mistake when reviewing a return with a client. Although they get the glazed eyes I still review it as it serves as another check for me. Thankfully most of the time it has come out for the better.

States need to be reviewed more carefully it seems as some like GA do not recognize some Federal deductions.

[tpert]

Thanks for all the responses

I had generally focused on certain areas for detailed review and confirmed that all of the individual items were reported where they first belonged. I also review the entire 1040 with the client as a second pass at my interview questions. I thought I knew the strengths and weaknesses of my software and I did not focus on arithmetic that much.

However, there are a number of things I have not been doing which I have recently read could be causing errors. I am not sure that I knew all the weaknesses in my software. I recently read about and confirmed that the software does an incorrect lookup for the Sales Tax deduction under certain circumstances. I knew it could possibly overstate a state refund. I felt that was controlled by the actual 1099-G. I had not considered that it might cheat a taxpayer out of an itemized deduction when carrying forward the state tax balance due. It is basically the same computation, so that makes sense.

I appreciate the sharing of ideas, too. I have been using a software feature to double check some totals, but may start doing that outside the software since that will allow me to check items the vendor had not thought of.