Tuesday, April 15, 2008

"Happy" Tax Day

The tax deadline is here. I filed my own taxes way back in January. I spent a grand total of about four hours on the task. But over the past week, I spent more than a dozen hours working on tax returns for my retired parents.

I grumbled about the time spent, but I guess I should be happy. This USA Today article reports that the “average person who prepares his or her own taxes spends 34 hours on a 1040 long form, according to the IRS.” I am able to do taxes faster than average for two reasons: my former profession and my current profession.

I spent my early adult years working as a tax professional for the IRS. Though a number of years have passed, I retain a certain level of familiarity with tax forms, publications, and laws. That familiarity permits me to read through and comprehend tax jargon much more rapidly than the average person.

As an IT professional, I have learned to develop relatively complex spreadsheets. Years ago I built a dynamic spreadsheet that is designed to quickly calculate taxes for someone with a tax situation very similar to mine. It requires a few tweaks every year due to tax law changes. Then it just requires plugging figures into a handful of fields, and voila, the calculations are done.

Don’t ask for a copy of the spreadsheet. For one thing, your tax situation is probably sufficiently different that it wouldn’t work for you without lots of tweaking. Working on complex spreadsheets is messy due to dependencies between various fields and sheets. Also, I use the spreadsheet only as a scratch pad. I can’t legally vouch for its accuracy. I actually go back and calculate everything by hand as I enter the data onto tax forms.

To do that, go to the IRS forms & pubs site, download the forms I need, fill them out, and print them off. My wife and I check the forms for accuracy (the downloadable forms allow input, but do not calculate anything, so you can make math errors), sign them, and ship them off.

You may ask why I don’t use a tax preparation package, such as TurboTax that actually does compute everything with some degree of accuracy. Those tools are great for people that are not proficient at tax preparation. But frankly, for people like me they just get in the way. It would take a lot longer for me to use TurboTax than it does to use my own longhand method.

I also refuse to file electronically, partially because I’m cheap, and partially as a private protest against government subsidization of the accounting industry. As noted in the USA Today article, the complexity of our tax code “helps underwrite a $65 billion industry of tax preparation and related services, and it enables the wealthy to exploit the code's many artfully crafted loopholes.”

Tomorrow: my personal experience with subsidizing accountants.


Anonymous said...

I have enjoyed the availability of free e-file options in these last couple of years. I believe that most people can find a free option (at least for their federal taxes, I'd have to pay if I didn't do my state taxes by hand). However, your point about government subsidizing of the accounting industry may make me rethink that in future years.

I'm comfortable enough to manage the forms by hand and since I don't use my taxes to pay for overspending on Christmas I can afford to wait a bit longer for a paper return to be processed.

Scott Hinrichs said...

Free e-file is only available for taxpayers with certain conditions, especially those with relatively simple tax situations. The rest of us have to pay.