Tax Professionals and Random Number Generators

2 Replies

I'm dating myself but what the heck. I remember from years ago, that for a while Money Magazine did a yearly tax return test involving a hypothetical tax return and tax pros. Money Mag would ask a number of tax experts to calculate federal taxes for a make-believe family to see how they compared. Well, guess what, they didn't compare very well at all. Tax preparation fees range between $271 and $4,000 (1990 dollars). The correct answer came from the preparer who charged close to the low end of that range. I found this article describing the test: Tax Test

My question is, why should I pay a tax preparer $4,000 (in 1990 dollars) to prepare my tax return when I can use a random number generator to determine my tax liability and in all likely-hood have an answer no worse than a 'tax pro', and save myself $4k + probably an additional $4 to defend the non-sense in an audit?

That was a magazine article, had the results all come out within $100 of each other the article probably would never have ran.

Because the tax code is so complicated, once your finances move beyond filing on using a 1040EZ, your taxes become more of an amount based on how aggressive or less aggressive you want to be with the interpretations of the tax code. 

With a complicated enough financial situation, 10 tax accountants will likely have 10 different returns, because not only is one variable how they interpret the code but also how you decide to interpret it, there will be multiple situations where the accountant will advise you on the possibilities of getting an audit, ask you how much risk tolerance you have for the different interpretations of different situations and how likely you would be to pass or fail an audit and warnings that if you fail it you will not only owe the difference in taxes but likely the penalties and interests accrued which could be over multiple years if the return gets pulled years later. It will be up to you and your accountant to decide which situations you're confident you can interpret it more in your favor and which situations you will be less aggressive and pay more taxes. This variable between interpretation and risk tolerance is why there can be multiple final numbers on a tax return. 

Is there  a link to the actual test? I'm up for a challenge.

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