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True March Madness: Every idiot who blindly uses TurboTax and TaxCut

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True March Madness: Every idiot who blindly uses TurboTax and TaxCut

I don’t hate the months of March and April because it’s tax time (I actually enjoy doing my taxes), but rather, I hate it because it’s “Praise the Intuit Gods” month. I think the constant praise given to TurboTax and TaxCut are the true source of at least my March Madness.

Late TaxesDid every author and blogger’s brain fall out just because they want to get paid by TurboTax to promote its product? Are we really expected to believe the complete lack of analysis that goes into comparing software to a CPA?

Let me explain why so many bloggers are wrong and should not promote unintelligent software as your tax preparation tool.

My own experience

Picture it…my house, February of 2009. I had long heard the debate about tax software versus a CPA. Fortunately, I had been able to receive free tax preparation as student (check out the VITA program if you make less than $40k a year) from an actual person but we no longer qualified. Faced with the decision to use software or a CPA, I decided to conduct a little experiment to see what was going to maximize my net return.

Net Return = Total Tax Refund – Expenses Paid to Prepare and File

I signed up for both TurboTax and TaxCut and hired an accountant. IMPORTANT NOTE: You don’t have to pay for either TurboTax, TaxCut or many accountants until you are ready to file. So you can run this same experiment. I entered in all of my information into both programs and provided the same information to the accountant. Both programs missed several large deductions (even though I answered all of their questions).

The accountant cost me $500, which was $400 more than either TurboTax or TaxCut. However, my refund increased by $2500 as a result! Here’s a side-by-side comparison.

Net CPA Return = An additional $2100

Even better yet, I traded-in that accountant for a much better one (he stares at my shoes instead of just his) and I paid only $185 last year. So for an extra $85 or so dollars, my return increases by hundreds and thousands of dollars. Also, my story is not unique.

So stop harping on the fact that an accountant costs more! Of course one does.  Anything of quality will always cost more. However, your Net Return is greater. Just pay attention to the numbers and stop hyping the software just because you get paid if someone uses it!

Computers are stupid, literally. Why? Because they aren’t human.

Here’s another tidbit from my experiment. TurboTax, “the #1 rated, best selling, blah, blah, blah…” asked me, as one of the very first questions, “Did you purchase a new home during said timeframe in 2008?” Knowing that I qualified for the $7500 First Time Home Buyer Credit, I happily answered yes. With that information in hand, TurboTax did not give me the credit. In fact, I had to dig down several layers into the program in some obscure area to find the credit and check the box. If I had just trusted the software that knew I had purchased a home and should have then given me the credit but didn’t, then I would have been out the $7500. Moron.

Moral of the story – Computers are not humans. They work based on a predetermined set of algorithms and rules. If anything is outside of those algorithms or rules, or if the software company has done a poor job in constructing the rules, then YOU LOSE. Not the software company who happily still takes its fee despite the bungled tax preparation.

Just do the math and compare the savings

Maybe I am completely wrong. But maybe the other guys are wrong, especially considering their financial incentive. Either way, test it yourself. Put all of your numbers into both programs, go to a good accountant and see what happens. Admittedly, if you have simple taxes and don’t make a lot, then the tax software will probably be better. But if you make more than $40-50k, own your own business, or even just freelance on the side, then an accountant is probably better (read bigger Net Return).

If anything, an experienced accountant knows the right questions to ask, how to maneuver through the tax code, can have a conversation with you that often results in additional deductions, and isn’t restricted by a fixed set of algorithms and rules.

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