Wednesday, February 11, 2009
Indies: Steer Clear of Tax Prep Programs
The advertising for tax preparation software gets heavy during tax season and this year it seems like a heavier barrage than usual. Turbo Tax and other tax programs are blitzing the Internet with promotion, some of it well disguised. For instance, Turbo Tax has an arrangement with Comcast, describing itself as “the official tax software of Comcast.net.” Comcast’s articles, which are ostensibly written to give you tax tips and alert you to deductions -- the same tired, old tips and deductions you’ve heard before -- are simply plugs for Turbo Tax. These guys are slick.
I have warned indies against using tax preparation software in the past, see these posts on Turbo Tax . A recent story on Fox News quotes a Turbo Tax spokesperson as saying: "There's a lot of time that's put in to make sure that the product is easy to use for the average American." Well, as you know: Indies are not average Americans. Wage-earners and employees may be but not the self-employed.
The software is probably adequate to handle relatively straightforward tax returns for somebody who collects a weekly paycheck, but self-employed tax returns are not Taxes 101, they are complicated. Many CPAs don’t have a clue about how to do taxes for self-employed people. So can a software program handle returns that are nuanced and complicated by the continuous interplay of business and personal that exemplifies the indie life?
An aside here: the Turbo Tax program supposedly geared to indies costs $79.95. My tax prep program costs several thousand dollars every year and I use it with the benefit of 30 years’ experience. And I educate my clients in good, simple, accurate recordkeeping.
It’s not that these cheap software programs are “wrong.” The program may operate correctly if the data input is done right. The question is whether an indie knows what questions should be asked of the program. Many brilliant indies aren’t aware of the business aspects of what they do. Software is like any tool; if you know how to handle it and use it properly, it ought to work. But does an indie who puts all her time and effort into her indie business know enough about the rules of home office deductions to choose the right prompts?
The experience of Timothy Geithner, see my post How are your plumber and the Treasury Secretary nominee alike? , paints a sorry picture of a guy who deals with the most arcane financial matters (He’s our Treasury Secretary now!) but apparently couldn’t figure out how to do his indie tax return using Turbo Tax.
Take a look at TurboTax’s Home and Business. Billed as the program for sole proprietors, it says: "Biggest Refund For You and Your Business.”
The word “refund” is used seventeen additional times in the copy. “Watch your refund add up as you complete your return,” is one inducement to buy the software. Savvy indies who read my blog know that a refund means you’ve just loaned Uncle Sam a chunk of your money, for a whole year, interest free!
The goal for indies – as it should be for all taxpayers – is to have the lowest tax liability legitimately possible; to have paid about that much over the course of the year; and to not get a refund, but owe a wee bit. That way you’ve used Uncle Sam’s money interest free!
It shows that Turbo Tax is more interested in its own profits than in the financial well-being of indies. It shouldn’t be programming you or any other taxpayer to get refunds.
Incidentally, the company is suffering through a public-relations embarrassment, as many purchasers of the software complain about serious glitches in the program.
I know I’ve given you a daunting task: Find an indie-savvy tax pro. Take a look at this post, Two Parts to Finding the Tax Professional Right for You .
A less daunting task is to learn the basics of self-employed taxes and recordkeeping. You can start here on my blog and on my website and in my book.