Advertisement
  1. Archive

"Experts' again fail the income tax test

Lock 50 experts in a room with their calculators and copies of the new federal tax law, give them your shoe box of tax records and what do you get? Fifty answers, says Money magazine, and most of them wrong.

For fees ranging from $271 to $4,000, the pros will tell you that you owe the IRS as little as $9,806 and as much as $21,315. The correct answer, the magazine said, was $12,038.

You also could call the Internal Revenue Service. This year they will answer 72 percent of your questions correctly _ up from 59 percent a year ago.

Or you could fill out your return yourself. Before you do, consider Money's answer:

"If our insanely complicated tax code can trip up even highly trained CPAs, what hope would a mere layman have unless his return was relatively simple or he was an avid amateur accountant willing to put in long hours of study?"

This is the third straight year that Money has handed tax professionals the records of a hypothetical family and asked them to calculate what the family owes under the 1986 tax overhaul.

The first year, no two preparers computed the same amount of tax due, and their answers ranged from $7,202 to $11,881. The second year, the range was from $12,539 to $35,812.

"This year's results were even more depressing: our test stumped all but two of the 50 tax pros who were willing to grapple with it," the magazine reports in its March issue.

The report reached these conclusions:

There was no connection between fees charged and performance. "Of the two preparers who fared best, one charged about $275 above average; the other around $260 below."

Over the three years, the average preparation fee has risen by 30 percent, to $1,012 this year.

Many of the experts were stumped by fairly routine stuff, such as computing the Social Security tax owed by a self-employed person and calculating the credit for child-care expenses.

This year's test involved John and Jane, who had two preschool children and income of $132,000. Their finances put them in the top 2 percent of earners, and although some of their tax problems will never be encountered by most Americans, they should not pose a major problem for professional tax preparers.

In addition to several errors on the child-care credit and self-employment tax, Money said, other major mistakes involved calculation of taxes on mutual fund shares; tax consequences of Jane's $8,000 loss on worthless stock; the handling of the couple's retirement accounts, and treatment of moving expenses.

YOU MIGHT ALSO LIKE

Advertisement
Advertisement