State Taxes Paid in prior year

[Steve M]

I have been using ATX for quite a few years. However, recently a client asked me where the state income tax he owed and paid in 2007 showed up in the 2008 Schedule A. I was flabbergasted to see that it was not automatically rolled over from the prior year. I called ATX and they said it does not roll it over; you have to input it manually because they don't know if the client actually paid the taxes owed?!? I can't believe it; am I the only one who is this naive to believe that the software did the rollover? I have spoken with other tax preparers and their software does it. Is everyone using ATX aware of this? In other words, you must look at the previous year's taxes to see if they owed any state income tax.

ATX doesn't issue a manual anymore, but looking at thier old manual, no where's does it mention anything about owed state income tax. If there are limitations in the software, shouldn't they let us know? I guess I can't believe this situation is real.

SteveM

[NECPA in NEBRASKA]

Steve,

I knew that it didn't roll over, but none of the programs that I have ever used did roll over the state payment. I always have put it in myself. I hate to say it, but I do have clients that haven't paid their taxes in a timely fashion, or I may file three years of returns in one year and they might pay all of the taxes in one year. I always have to check the amount anyway so I don't really care. I don't want the estimated payments to automatically be added to the return until I put in the dates paid, because I have clients that forgot them or just didn't want to make them.

Bonnie

[Wayne Brasch]

I have been using ATX for quite a few years. However, recently a client asked me where the state income tax he owed and paid in 2007 showed up in the 2008 Schedule A. I was flabbergasted to see that it was not automatically rolled over from the prior year. I called ATX and they said it does not roll it over; you have to input it manually because they don't know if the client actually paid the taxes owed?!? I can't believe it; am I the only one who is this nieve to believe that the software did the rollover? I have spoken with other tax preparers and their software does it. Is everyone using ATX aware of this? In other words, you must look at the previous year's taxes to see if they owed any state income tax.

ATX doesn't issue a manual anymore, but looking at thier old manual, no where's does it mention anything about owed state income tax. If there are limitations in the software, shouldn't they let us know? I guess I can't believe this situation is real.

SteveM

SteveM,

It's not the place of the tax software-no matter which one you may use-to determine if your client is entitled to that itemized deduction. In my opinion, that is what tax preparers are for-to determine what deductions any of our clients may or may not be entitled to use. The tax must be actually paid by your client. It's not safe just to have assumed they paid it.

Wayne Brasch

[Catherine]

SteveM,

It's not the place of the tax software-no matter which one you may use-to determine if your client is entitled to that itemized deduction. In my opinion, that is what tax preparers are for-to determine what deductions any of our clients may or may not be entitled to use. The tax must be actually paid by your client. It's not safe just to have assumed they paid it.

Wayne Brasch

I forgot one a couple of years back and now put a little sticky note on my monitor at the beginning of the season reminding me to check.

As for estimateds -- about one client in four or five actually makes the payments in the amounts I specify at the time cited. So I always get a list from the client, rather than assuming from the prior year information.

[bstaxes]

I always check last year's state to see if there was a balance due or refund. Sometimes the refund is different than the return (client forgot an estimated payment or the est amount was different than what they told me or interest may have been added).

[mcb39]

I also check it myself. I agree that it is our job to figure out the deductions for our clients. Some states don't even have income tax. There is no way the software could accurately judge for sure whether the taxpayer had paid state sales tax or not.

Catherine, I like the idea of the sticky note.

[Jack from Ohio]

At the risk of sounding mean...

Tax software DOES NOT equal Tax Knowledge.

This is why my clients come to me instead of trying to do it themselves.

I use this saying all the time when people refer to TaxCut or TurboTax. It is especially potent when they have received a notice after using the DIY tax programs.

[JohnH]

Jack:

I don't know why you would say that.

After all, Turbo Tax did a fine job for the current Treasury Secretary.

It even got him off the hook for penalties.

[chief]

At the risk of sounding mean...

Tax software DOES NOT equal Tax Knowledge.

This is why my clients come to me instead of trying to do it themselves.

I use this saying all the time when people refer to TaxCut or TurboTax. It is especially potent when they have received a notice after using the DIY tax programs.

A number of years ago the IRS Tax Forums had a theme TAX SOFTWARE IS NO SUBSTITUTE FOR TAX KNOWLEDGE. i used that on my prinfed materials a long time. It has a powerful message.

[Jack from Ohio]

Jack:

I don't know why you would say that.

After all, Turbo Tax did a fine job for the current Treasury Secretary.

It even got him off the hook for penalties.

I may have to re-think my stance on this issue! :read:

[imjulier]

I have to admit that in my first year in business, I didn't know I could add the state taxes paid for the previous year to schedule A. I had a client that caught it because she pays all her state with her tax return to the tune of about $8,000. I then looked back through all my clients to see the impact. I only did 3 amendments because those were the big ones, all others had a less than $50 tax impact. But I had to do them for free and worry about the rest. Now, I check previous year tax retrun and input it myself. I would have thought that a competent review (or use of a checklist to check all the final figures, in case something was fat-fingered) of the tax return before calling it final would detect this. Makes me wonder what else might be wrong in your returns? Not trying to be mean either, just pointing out a flaw in your process.

Julie

[TAXBILLY]

ATX doesn't issue a manual anymore, but looking at thier old manual, no where's does it mention anything about owed state income tax. If there are limitations in the software, shouldn't they let us know? I guess I can't believe this situation is real.

SteveM

You can get the manual in PDF form at the MY Atx Support Center.

taxbilly

[kcjenkins]

Steve, I think you are wrong about the 'other software'. Although some of them might offer a 'reminder to check', that should be the most they do. It's like the folks who complain that the estimated payments they set up don't roll over automatically. Actually, they do, but are not 'activated' until you input the payment dates. Because often clients either miss a payment, change the amount they pay in, or pay it late. All factors that we need to input, in order not to make things worse than they would be if we omitted claiming the payment. Omitting it will only cause them to get a bigger refund. Claiming it when it was not made will mean they owe more, with penalty and interest as well.

Claiming the amount they were SUPPOSED to pay last year is the same thing. If they did not pay it, or did not pay it until after year end, you have a problem. This is one of those things that can not be 'automated', simply because our clients are not robots, who do as we tell them. Some times they do pay it, usually, I think. But I believe this is one of the things that it is up to US to check out each year, with any client that owed state tax last year.

I make a list, each year, in September usually, of all my clients who owed state tax, by putting checks by them and then going to Reports, and then Print Marked Client List. I keep that list on a pullout surface on my desk, ans check it now and then to be sure I check it with any client who may have some tax to add on the A.

[Catherine]

<snip>

I make a list, each year, in September usually, of all my clients who owed state tax, by putting checks by them and then going to Reports, and then Print Marked Client List. I keep that list on a pullout surface on my desk, ans check it now and then to be sure I check it with any client who may have some tax to add on the A.

Thanks for this idea, KC -- I can add a flag column to my spreadsheet. That'll work better than my post-it note!

Catherine

[kcjenkins]

Glad it helped. It's a shame that some users expect the software to do everything, because if it could, they would not need us. I expect some of those programs that cost 4K and up do 'remind' the user, automatically, to check this sort of thing, but I don't feel the need to pay that much extra just so that I don't have to bother to check this sort of thing.

[michaelmars]

i agree with everyone who says the program isn't a substitute for a preparer but i think this should roll over, afterall the program does roll over the prior year overpayment as taxable in the current year, yet we still have to decide to leave it in as a taxable refund or take it out. I am in Ny and the rollovered amount is wrong because atx doesn't adjust if for the sales tax portion of the prior years tax or other certain non-taxable credits but seeing the number on page one of 1040 is a great reminder to make sure i include the correct,adjusted, amount. in more cases than less, the taxes due are paid by the client and should be included on sch A but as KC stated, a warning diagnostic ie state estimated payments would be great.

[jainen]

>>the rollovered amount is wrong because atx doesn't adjust<<

There are tax prep programs that have more calculations and other features. For example, Lacerte competes heavily on that very issue. Another approach is to use standalone worksheet software like Tax Tools.

[mcb39]

[ I am in Ny and the rollovered amount is wrong because atx doesn't adjust if for the sales tax portion of the prior years tax or other certain non-taxable credits

[taxtrio]

I agree, each state has many variables. Adjustments we as preparer have to make, the software is just a tool for us to use, the more we use it; the better we get at knowing the software and it's features. But that is not a substitute for knowing tax law.

I always told my students in class that I never wanted to hear them say "The computer did it so it must be right."

The computer is not the tax professional, .... we are the ones controlling the computer, our responsibility to make sure it is calculating correctly. My favorite thing about doing tax returns on the computer is the fact that it recalculates the entire return in a few seconds when the client finds an extra receipt, etc. Nice!! I love my computer!

Taxtrio