Percentage of errors on self-prepared tax returns

[StevenL]

Hello All,

I was wondering if anyone knows of any statistics that would show the number of self-prepared tax returns that contained errors vs. the number of professionally prepared tax returns with errors. If so, where is this information available.?

Thanks for your help

Steven LaForest, ATP

Dearborn Heights, MI. 48127

[RoyDaleOne]

Professional prepared returns. generally. contain more complex tax situations, and therefore more potential for disagreement with the correct tax treatment. The more complex tax returns are, generally, not self-prepared. As a result of the foregoing any raw statistics are, really, meaningless for any real analytical purposes.

[michaelmars]

who or what would you call a professional. there are tabletop preparers who know more than cpa's and cpa's and ea's that don;t know jack. look at the questions here and on the atx community to see what i mean. to me Professional is an attitude, someone who strives to do the best and is constantly looking to increase knowledge and skills.

[jainen]

>>the number of self-prepared tax returns that contained errors<<

What's an "error"? Very few computer returns have math errors. In the category of theory, the tax code supports various interpretations. Consider the need for records, which is generally not spelled out in the regulations. Would you consider it an error to claim a business expense that was actually incurred but would be disallowed on audit for lack of documentation?

[joelgilb]

>>the number of self-prepared tax returns that contained errors<<

What's an "error"? Very few computer returns have math errors. In the category of theory, the tax code supports various interpretations. Consider the need for records, which is generally not spelled out in the regulations. Would you consider it an error to claim a business expense that was actually incurred but would be disallowed on audit for lack of documentation?

Well put Jainen

[StevenL]

Well you have definitely given me food for thought. Hopefully, I can clarify what it is I am looking for and why. I wanted to know if there was some survey that was done or possibly some statistical information that showed the % of self prepared (meaning a person who prepares his/her own tax return either hand-written, online or using an off the shelf tax program i.e. Turbo Tax) returns that contains errors vs. the % of professionally prepared (meaning a person who is paid to prepare a tax return...yes, I know...being a paid preparer doesn't necessarily make one a professional) that contains errors.

The reason I am looking for this information is that I want to use it to show the benefits of using a professional to prepare your taxes (rather than trying to do it yourself) to potential clients.

I hope this does clarify what I am looking for and why. Thanks for all your responses.

Steven LaForest, ATP

Dearborn Heights, MI.

[joanmcq]

There was a Canadian study done which showed professional returns and self prepared hand done returns (paper, pencil & instruction booklet) had an error rate of 5-15%. self prepared software returns had an error rate of 30%.

You might think easier returns are done with pencil & paper, but I've found that people that do it the old fashioned way tend to have some understanding of what they are doing, since they have to read the instructions, whereas those that just answer questions in a computer program often have no idea of what they are doing or where it ends up.

[JRS]

You might think easier returns are done with pencil & paper, but I've found that people that do it the old fashioned way tend to have some understanding of what they are doing, since they have to read the instructions, whereas those that just answer questions in a computer program often have no idea of what they are doing or where it ends up.

When you get bored, go to about taxes.com and read some of the question from people using Turbo Tax or any of the others. Some, as stated above, have no idea what the out come will be and definitely don't know where it ends up. Some of the questions make you shake your head, then you realize what a sad shape our tax code is really in. It can make you understand why our clients often refer to what their "peers" think is correct tax law.

[jainen]

>>the benefits of using a professional to prepare your taxes<<

I'll stand by my previous answer. The benefits of a professional are not in avoiding errors as such, but in understanding the various choices a taxpayer has. You might piggyback on the H&R Block ads, which everyone has seen, claiming they find missed deductions or whatnot in some unbelievable percentage of returns. (New Block clients are not likely to be coming from another professional, since Block's prices are higher). You can also explain the value of tax planning, support in audit and collection matters, free electronic filing, records retention, and the other services you can offer. You can point out that the tax return itself is geared towards professionals, with the signature block and third party designee, reliance on high-end software for worksheets as well as error checking, instructions that don't incorporate alternate interpretations or even the latest rulings, Practitioner Priority phone access, and so on.

The National Association of Enrolled Agents makes a good case for using professionals. http://www.naea.org.

[jasdlm]

What is the ATP designation? Just curious.

Thanks!

[StevenL]

>>the benefits of using a professional to prepare your taxes<<

I'll stand by my previous answer. The benefits of a professional are not in avoiding errors as such, but in understanding the various choices a taxpayer has. You might piggyback on the H&R Block ads, which everyone has seen, claiming they find missed deductions or whatnot in some unbelievable percentage of returns. (New Block clients are not likely to be coming from another professional, since Block's prices are higher). You can also explain the value of tax planning, support in audit and collection matters, free electronic filing, records retention, and the other services you can offer. You can point out that the tax return itself is geared towards professionals, with the signature block and third party designee, reliance on high-end software for worksheets as well as error checking, instructions that don't incorporate alternate interpretations or even the latest rulings, Practitioner Priority phone access, and so on.

The National Association of Enrolled Agents makes a good case for using professionals. http://www.naea.org.

[StevenL]

>>the benefits of using a professional to prepare your taxes<<

I'll stand by my previous answer. The benefits of a professional are not in avoiding errors as such, but in understanding the various choices a taxpayer has. You might piggyback on the H&R Block ads, which everyone has seen, claiming they find missed deductions or whatnot in some unbelievable percentage of returns. (New Block clients are not likely to be coming from another professional, since Block's prices are higher). You can also explain the value of tax planning, support in audit and collection matters, free electronic filing, records retention, and the other services you can offer. You can point out that the tax return itself is geared towards professionals, with the signature block and third party designee, reliance on high-end software for worksheets as well as error checking, instructions that don't incorporate alternate interpretations or even the latest rulings, Practitioner Priority phone access, and so on.

The National Association of Enrolled Agents makes a good case for using professionals. http://www.naea.org.

[StevenL]

What is the ATP designation? Just curious.

Thanks!

Accredited Tax Preparer. Accreditation through Accreditation Council for Accountacy and Taxation www.acatcredentials.org

[cred65]

According to a study of IRS data, 56% of professionally prepared returns showed significant errors, compared with 47% of those done by the taxpayer. And audited taxpayers who used preparers owed an average of $363, while those who filed themselves owed $185.

see attached

http://finance.yahoo.com/taxes/article/104...'t-Tell-You

[Lion EA]

See if your trade organization has the statistics you're looking for.

[TAXBILLY]

According to a study of IRS data, 56% of professionally prepared returns showed significant errors, compared with 47% of those done by the taxpayer. And audited taxpayers who used preparers owed an average of $363, while those who filed themselves owed $185.

see attached

http://finance.yahoo.com/taxes/article/104...'t-Tell-You

Smartmoney.com was not so smart. The actual report reflected the opposite:

http://www.gao.gov/new.items/d03610t.pdf

taxbilly

[OldJack]

there are tabletop preparers who know more than cpa's and cpa's and ea's that don;t know jack.

I am a CPA and I know Jack! However, I learn something new every day just like the professionals that are not afraid to ask questions on a forum like this one. To imply that someone here does not know much about taxes because they ask questions is a wrong attitude. Questions are sometimes ask to confirm an opinion or to simply get other opinions on a gray area of the tax laws. We don't need posts that imply that we are not professionals on this a professional forum.

[Catherine]

I am a CPA and I know Jack! However, I learn something new every day just like the professionals that are not afraid to ask questions on a forum like this one. To imply that someone here does not know much about taxes because they ask questions is a wrong attitude. Questions are sometimes ask to confirm an opinion or to simply get other opinions on a gray area of the tax laws. We don't need posts that imply that we are not professionals on this a professional forum.

Hear, Hear!!

Catherine

[Gail in Virginia]

I don't think that the poster was referring to anyone particularly on this board, just making a general observation. THe profession of tax preparation is like any other profession where human beings are involved. Some are very conscientious and work hard to maintain their craftsmanship, while others just want to make a few bucks without working very hard at it. This is true both ways of those with and without professional designations. I have noticed that a lot of posters to this board do not flaunt any credential, and yet sometimes their responses lead me to believe that they have either the EA or CPA designation. I respect most of the responders on this board, whether or not they have indicated their professional standing. Usually, the way they answer questions tells me all that I need to know about their professionalism.

[mcb39]

I don't think that the poster was referring to anyone particularly on this board, just making a general observation. THe profession of tax preparation is like any other profession where human beings are involved. Some are very conscientious and work hard to maintain their craftsmanship, while others just want to make a few bucks without working very hard at it. This is true both ways of those with and without professional designations. I have noticed that a lot of posters to this board do not flaunt any credential, and yet sometimes their responses lead me to believe that they have either the EA or CPA designation. I respect most of the responders on this board, whether or not they have indicated their professional standing. Usually, the way they answer questions tells me all that I need to know about their professionalism.

That is a wonderful and very "professional" synopsis. Good job at saying what needed to be said.

[schirallicpa]

I saw last year where the IRS was counting errors on professionally prepared returns. One of the biggest "errors" per the IRS was when the preparer used a 1040 instead of a 1040A or EZ. Personally, I don't think that should be counted as an error. I always use the 1040.

[OldJack]

>>I don't think that should be counted as an error. I always use the 1040. <<

I also only use the long form 1040. I have always thought that using the same form might keep you from making an error.

[joanmcq]

I'll occasionally use an EZ. But never an A. They confuse me; the line numbers are all wrong!

[TAXBILLY]

I forgot to give a client the saver's credit once because I used the 1040-EZ. Since then I use only the 1040. It also makes it easier, as some have said.

taxbilly

[David1980]

What is the purpose of a 1040-A anyway? I mean I understand the EZ, being one page of paper. It's also simple enough for anyone to figure out. A 1040-A though. Two pieces of paper. Simpler? Not really, considering you have to be able to determine that you qualify for a 1040-A and that's more advanced knowledge than anything simplified.