A head-spinning number of rules cover various types of tax credits and deductions. Yet somehow questions keep arising about the value of tax professionals and the future of the tax preparation industry. At the root of this concern is tax preparation software and online return filing options that are increasingly popular among a young computer-literate generation. Ignored in this assessment is that an older generation invented personal computers and created the online tools we have today.
Software has certainly eased the pain and cost of tax return preparation for many individuals. This is especially true of younger workers, who tend to have simple tax situations. A lack of computer skills is not what causes older workers to seek tax professionals. Rather, seasoned taxpayers value the knowledge of experts with tax return preparer training to address matters that are more complicated than those of younger people.
Some high-end tax practices - like those operated by an IRS enrolled agent or a CPA - are seeing fewer tax clients early in the year who are switching to choices like TurboTax. However, such tax operations can still thrive. These professionals may have fewer tax clients, but earn more money from the clientele they retain. They tend to deal with individuals who have complex tax circumstances. Some examples are taxpayers with IRS notices or detailed tax calculations. Plenty of enrolled agent job opportunities exist to help taxpayers with various problematic situations.
Basic tax preparation companies are also still seeing plenty of clients. These tax preparers offer reasonable fees and especially provide lower-income individuals with several advantages. For instance, a professional with annual registered tax return preparer continuing education is aware of updates to tax laws. An RTRP knows what expenses qualify for certain tax credits. In addition, RTRP study covers essential details that taxpayers often overlook, such as eligibility of family members as dependency exemptions and qualification for beneficial Head of Household filing status.
Tax preparation software helps people prepare tax returns correctly if they follow the tax rules. When taxpayers don't like the result, they can manipulate the software. This doesn't mean they are dishonest. They are simply unwilling to research the tax code. Tax software does not give all the answers. For example, TurboTax will not reveal that a taxpayer cannot claim a dependency exemption for his girlfriend's child that lived with him for part of the year.
Individuals with complicated tax issues usually need a professional sooner or later. Someone who finds the tax rules confusing wisely selects a professional tax preparer right away. Business owners and persons with rental properties or extensive investments usually hire paid tax preparers.
People who plug inaccurate details into tax preparation software are often eventually caught. The IRS is increasingly skilled at finding mistakes or tax-cheating regarding understated income, overstated deductions, incorrect dependent matching, and ineligible claims for tax credits. These individuals are eventually clients for enrolled agents, who are needed to fix IRS problems. This gives tax practitioners with EA certification an even broader avenue to capture ongoing return preparation clients.
The bottom line is that the increasing use of tax software is likely to boost growth of tax preparer careers. The marketing plans of tax professionals should embrace individuals using TurboTax by pointing out the inherent dangers for many people due to changing tax laws and better IRS procedures to find erroneous returns.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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