Tax Preparation: Pencil Versus Software

[livingdeb]

When it comes to preparing taxes, I'm apparently some kind of odd combination of geek and cavewoman throw-back. See, I do my own taxes, as if I'm not afraid of math, but I use a pencil, as if I'm afraid of computers.

Actually, my tax situation is relatively simple and has gained complexity from completely easy in small steps that were easy to keep up with. And I'm too cheap to pay someone to do an easy form. So that explains doing it myself. Actually, that explains not paying for software, too.

However, this year I used Robin's software to double-check my work and to electronically file my taxes. Here are my observations. (I don't want to beg for spammers, but in case you're interested, I will tell you that the software name rhymes with Herb O'Smacks.)

1. Work Process

Pencil: As I receive various forms in the mail, I add the appropriate amounts to the appropriate blanks. At the end of January, I check that I have all the forms, double-check my math, compare my results to prior returns, and make any adjustments.

Software: I don't like that it's not that easy to move around using the software. Everything is presented in a step-by-step way that requires you to get up and hunt for things on a regular basis. It is possible to go back and change things, but it's really best for people who have gathered everything together before they start. It's also disconcerting that things are not presented in the order I am used to.

Winner: I prefer pencil, but probably just because it's what I'm used to. Probably you can learn to go back and forth through the form and save at intervals, etc., but I don't know. I much prefer doing it as I go over trying to get it all done in one overwhelming sitting. It's more fun in spurts.

2. Thoroughness

Pencil: During the early years I just read through all the lines on the form and read up on any sections that looked like they might be relevant to me. Now I just read through the lines and pay attention to changes from one year to the next. This research helps me keep the right records and make informed decisions throughout the year.

However, who knows if I'm missing something? Everyone knows the tax system is a mess and that people should hire tax preparers to help them get a bigger refund.

Software: It seems like it's hand-holding, but I don't like that I had to enter irrelevant numbers. For example, it asked whether and how much I contributed to a Roth IRA. This is not necessary because those are not taxed. However, if your income is low enough (which mine isn't: woo hoo!), you do get some money back. They also think it might be good to keep track of your basis in case you cash it out early at a loss. Uh, no thanks.

Also, it asks me whether I paid property tax on my car, which I did, while also telling me that this is not deductible in my state, which I knew. You have to actually lie and say you did not pay this or it shows up on your form anyway. Having to lie distresses me.

Also, it makes me enter the names and addresses of places I contributed to unnecessarily.

However, it didn't make me figure out which part of my sales tax was state and which was local the way the paper form does.

Conclusion: I did not find any more things to add using the software than I had on my own. Both methods are annoying in their own special ways. So, I guess it's a tie. Only I feel more comfortable researching things on paper and underlining things and otherwise keeping notes on what I'm doing and why.

3. Accuracy

Pencil - This method requires loads of double-checking, calculator use, and did I mention double-checking? I have to do the final check while my brain in thoroughly alert.

Software - All the calculations are done automatically. Once you have typed in the right numbers (no easier than writing them) in the right blanks (much easier than on paper), you're set. I didn't do a single worksheet. They didn't even mention the alternative minimum tax, let alone make me fill out a worksheet.

However, they round everything off to the nearest dollar whenever possible, thus costing me $0.38. However, a stamp costs more.

Winner: the software is the clear winner in this area.

4. Speed

Pencil - Filling out my taxes takes quite a while - several sessions.

Then I make a pretty copy, photocopy the form, and send it snail mail. I have to put enough postage on (or they'll send it back) not to mention a return address (in case they decide to send it back). On the other end, people have to read the handwriting and type it into the computer.

Software - Filling in the numbers, even when all the ones I need are right there with me, was still quite time consuming. It's possible that next year a lot of things will automatically be copied over, so it won't take so long.

After checking my data, I could file the form electronically for free. On the other end, it's also much quicker. It seems much less likely that things will get lost or otherwise experience difficulties.

Winner: Software.

5. Cost

Pencil - the cost of postage and photocopying.

Software - the cost of printing. It would be tens of dollars, but Robin gets it for himself and you're allowed to have multiple users, so for me it was free. E-filing is even free this year.

Winner: for me, software.

Overall Conclusion

The software does seem a little scary for me. Hard to trust. I have trouble going back and checking things and I'm not sure that I could do it as I go. It reminds me of the difference between driving an automatic and a stick. Sure, an automatic is easier, especially if you have a sprained ankle or broken wrist, but it separates me from the car. With a stick shift, I feel closer to the engine and like I can notice problems more easily. That's what I prefer.

Also, dealing with the computer was annoying enough when I had everything all collected. I actually dread that in a way that I just don't when I'm doing it by hand.

In the future, I will probably do what I did this year: Fill it out by hand first (though with less calculator double-checking) and then use software to double-check and file my taxes.

Comments

[alethiography.blogspot.com (from livejournal.com)]

This was really interesting.

I've done my (extremely simple) taxes the past couple of years using the same software's online version, which is great in that you don't have to deal with a software installation or anything, but annoying in that it is slower than software running on your own machine. But I really enjoyed that this year it knew everything from last year already and just asked me questions like "Do you still work for [Old Company]?" and so on.

I did feel free to lie about things I didn't feel were relevant to my taxes.

I do have to do a state tax return as well, but Colorado's tax return is extraordinarily simple - even easier than a 1040EZ - unless you have a rare situation (e.g., invested in a special state conservation area).

I also did Ed's taxes this year, because he was stressed about it. He used software last year, and I think his mom helped him, and he would probably have used software again, but I knew his return would be very simple and not worth my time to bother with software over. (Mine is even simpler, so go figure! But somehow I wanted to just do his by hand. Also, I'd have had to impersonate him to file his taxes online, and that's slightly uncool. This way I just filled out the forms and had him sign them.)

He just had a bit of income, tuition expenses, a scholarship, and he actually qualified for the EITC.

I used a pen. Two forms (for the feds) and one multiple-page worksheet (for the EITC).

But it was kind of fun.

[livingdeb.livejournal.com]

Yeah, kind of fun. And I try to figure out what they are trying to do with the worksheets. Usually I can, sometimes not.

[pamwheatfree.livejournal.com]

I must admit that I was very impressed with your rhyme. I started using the computer software a long time ago but you are correct about dreading it. I always dread doing my taxes even if I have all the stuff with me and the software asks for stuff I know won't go on the form so there is a lot of going and looking for things. However, this year we had to get our business taxes done by an accountant so they threw in our personal taxes as well. Very expensive but done correctly with no hassles.

[livingdeb.livejournal.com]

I've only had very simple business taxes before. (Small numbers, no expenses.)