Monday, March 8, 2010

Does Tax Preparation Software Really Get You More Money Back?

Does Tax Preparation Software Really Get You More Money Back?

Each year, right about this time, I receive quite a few inquiries from people asking which tax preparation software will get them the largest refund.

Just the other day, I had to referee an emotional exchange between two siblings who were having a very passionate discussion – to put it lightly – about this particular issue. Sibling A would have received a larger refund if she had utilized Sibling B’s recommended software. Or was it the other way around? Regardless of who was “right,” I must tell you, it was quite interesting and amazing to hear their contrasting views.

Throughout the Year Is What Matters

Tax law is tax law, PERIOD! So allowable deductions, exemptions, and/or credits will be the same, regardless of whether you use the latest software or do it the old-fashioned way, using a little piece of software I call a pencil. What is critical – and what I believe most are overlooking – is that once December 31st passes, there is absolutely nothing you can do that will get you a bigger refund than you are legally due. That’s right! No tax expert, guru, software, or CPA for that matter, can improve your refund after the fact.

In effect, if your tax guy or software company claims responsibility for your refund but does not instruct you in how to structure your affairs between January 1 and December 31 of the prior year – other than simply punching your information into a software program – you probably are not receiving any valuable tax assistance anyway.

No software has magical powers that enable it to pull more refund dollars out of thin air. The only possible way I can think of to get a bigger refund than you legally deserve is to cheat on your returns, and I’m sure you’re not interested in going that route.

What About the “Maximum Refund Guaranteed” Claims?

If you pay close attention to this claim that every software company makes, technically they are NOT saying that if you use something else – including a pencil – you’ll receive a lesser refund, even though your mind might interpret it that way. It’s simply an effective marketing technique. They know you’ll fall for the message, and they know they can get by with it, so they use it. Interesting, isn’t it?

The more fascinating part is that over the years, I’ve examined returns that were software prepared and spotted areas where money was being left on the table – missed credits or selecting a less favorable credit/deduction. In one such instance last year, the filer was able to improve her software refund by more than $1,000.

Give yourself a break and do your tax planning during the year, instead of after the fact. And to all the parties who may be debating the relative merits of one software package vs. another, relax! And to the software marketers creating the illusion of a magical refund, I have a one-word response: Puh-lease!
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