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Interesting Question Regarding Tax Software

By JLP | March 4, 2009

Philip, a long-time AFM reader, sent me this email:

I was wondering what your opinion is on whether you think that the availability of simplified tax software has left many people knowing even less about their taxes than they used to? I know recently Nickel had a post about taxes and lots of people seemed to think that if they were getting a tax return then they did not pay any taxes! Lots of people don’t understand that a raise will not put them into a larger bracket and they will take home less money—the graduated tax system confuses them.

I guess I just think if these people had to fill out some forms and not just copy numbers they would understand more of what is happening with their money and how much they are paying in taxes.

I used tax software to calculate my return but I checked the numbers and read the tax return that was prepared by the software to make sure the numbers did what I expected.

-Philip

First off, I LOVE my tax software!

Second, I don’t think it matters. People who don’t understand taxes wouldn’t understand them any better if they didn’t have software. They would probably just go to a tax professional.

It’s a shame that people don’t pay more attention to their finances but they don’t. It’s just a fact of life.

I would like to see a tutorial included in the software package that would explain the tax system to its users. Even then, I’m not sure it would do any good. Most people just want to be done with it.

What are your thoughts?

Topics: Tax Planning, Taxes | 7 Comments »


7 Responses to “Interesting Question Regarding Tax Software”

  1. Lily Says:
    March 4th, 2009 at 2:17 pm

    I have filled out my taxes by hand and tried several different tax software. Never had taxes done by professionals before, but this weekend I’m actually seeing someone at H&R Block because I need to fill out an amended return for 2006.

    I learned the least about taxes when I was filling out my returns by hand. I got so bogged down with various forms, the endless line items and schedules, and worry that I might make a math error, that I couldn’t grasp the big picture.

    Several software are black boxes: numbers go in, different numbers come out. TurboTax, I think, is the best of the lot. There are very good explanations that accompany each topic. No broad tutorial on the tax system though.

    For people who are interested, the information is out there. There probably aren’t enough of those people to justify more comprehensive information in tax software.

  2. Lily Says:
    March 4th, 2009 at 2:17 pm

    I have filled out my taxes by hand and tried several different tax software. Never had taxes done by professionals before, but this weekend I’m actually seeing someone at H&R Block because I need to fill out an amended return for 2006.

    I learned the least about taxes when I was filling out my returns by hand. I got so bogged down with various forms, the endless line items and schedules, and worry that I might make a math error, that I couldn’t grasp the big picture.

    Several software are black boxes: numbers go in, different numbers come out. TurboTax, I think, is the best of the lot. There are very good explanations that accompany each topic. No broad tutorial on the tax system though.

    For people who are interested, the information is out there. There probably aren’t enough of those people to justify more comprehensive information in tax software.

  3. Tim Manni Says:
    March 4th, 2009 at 2:20 pm

    The point of technology is to make our lives easier, yet the side effect of that benefit requires us to know and memorize less (cell phones prevent us from memorizing a lot of phone numbers b/c of the instant access to a digital phone book/contacts). I think many will agree with you (JLP) that they just want to get their taxes done as quickly and efficiently as possible.

    Philip or JLP: How much would you estimate the average consumer losses on their annual tax return because they are more uneducated (in terms of taxes) than others who understand the process?

    Great post,
    Tim

  4. Marcus Says:
    March 4th, 2009 at 3:26 pm

    I am about this(holding fingers very close together) knowledgeable about taxes, but I do understand some of the basics. I have simply given up trying to explain the above mentioned concepts to my friends.

    They look at me like I am simply retarded for trying all year to get ZERO back and having to pay ZERO.. WOW what a concept, only pay what is due and not let the govt hold on to MY money. I have no issues paying taxes (how they are spent I have issues with, but thats a different story) but allowing them to keep it and earn interest on it when I could keep it for myself boggles my mind.

  5. Stacey Says:
    March 4th, 2009 at 4:28 pm

    I used to do our taxes by hand until AMT struck. It’s SO much easier to use Turbo Tax (or a competitors’ product…all will get the job done.) However, it’s still irksome to me that it used to cost me ZERO by paper (but more laborious for the IRS) and now I have to pay (but easier for the IRS.) Still worth the $20 I guess.

    As for educating the masses–it’s hopeless. Sorry JLP. It is what it is.

  6. Miranda Says:
    March 5th, 2009 at 7:38 am

    I filled out my taxes by hand for years. But now they’re just too complicated with the LLC and foreign income and other things that we have on there now. I could do it by hand — or even with the tax software — but it would take forever. I have a great accountant, though, who goes over the return with me and we talk about the ins and outs. I think it is important for us to understand the tax system. It’s part of an overall understanding of our finances.

  7. Ken Says:
    March 5th, 2009 at 8:06 am

    I performed an interesting experiment 2 years ago. I filled out all my tax data into 4 different tax software websites. Guess what, the resulting tax refund amount was different on 3 of the 4 websites. Any where between $50 to $100 bucks difference. I thought that was hilarious, at least to an accountant that was humorous.

    Also, most sites will let you print out the tax return without paying and then you can write the results down and mail the forms in yourself. Another little chuckle.

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