What’s wrong with this picture?
As do-it-yourself tax software becomes more powerful and easy to use, the number of DIY filers is on the rise. A CPA Trendlines analysis finds the number of self-prepared, e-filed tax returns submitted to date this year is nearly 6 percent higher than at the same point last year. E-filed returns submitted by tax professionals have fallen by 1.3 percent during the same period.
“Do the math and you’ll find professionals’ 60 percent share of the e-filing market last year has slipped to about 58 percent – a seemingly small amount that, nevertheless, translates into hundreds of thousands of returns and millions in lost revenues,” CPA Trendlines reports.
That’s not particularly surprising; we’ve seen that trend coming for a while. Heck, when you can file a simple return on your smartphone, why go to a tax pro?
Here’s why: Most self-filers vastly overestimate their ability to take advantage of all the tax breaks coming to them.
A new report from BMO Harris Financial Advisors found that 83 percent of taxpayers who file their own returns are confident they’re doing a good job, but only 45 percent say they are knowledgeable about “tax-smart investment solutions designed to reduce their overall tax liability.” Moreover, only 44 percent understand how capitals gains are taxed and just 47 percent say they know the tax implications of dividend income.
The short version: More people are filing their own returns but admit they really don’t know what they’re doing. And this isn’t an easy problem to solve. How do you convince someone they’re missing out on something when they don’t even know it exists?
Everyone thinks they can write, or fix the plumbing, or patch the roof. Want to know what often happens when they try? Bad things. Very bad things.
Some things are best left to the pros. For the time being, your tax return is one of them.
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