Technology isn’t always the winner
Even you have an accounting/tax software, you should still have someone who knows what they are doing do the work (or at least double check the work someone else did.) In the last few years, software vendors have made billions on selling the idea of having the software do everything for you. Just input numbers, click a few buttons and instant tax return/financial reports – no experts needed.
Unfortunately, vendors can only think so much ahead for their end users and make the software so simple for the general public. If you don’t at least learn the basics, even the most robust system in the world cannot help you. We call it the “garbage in, garbage out” effect. On top of that, software do make mistakes once in awhile (gasp*.) Here’s an example going around:
You have some rental property and incurred some expenses during the year; fortunately, the IRS allows you to deduct up to $25,000 of rental losses with a catch. That catch is, if you make more than $100,000 (based on your modified Adjusted Gross Income), the rental losses that you can deduct is phased out 50 cents for every dollar over.
If your AGI is $150,000 or more, the $25,000 is completely phased out and you get to deduct nothing. Apparently, some of the common tax programs out there cannot calculate this phase out by itself.
And, embarrassing to admit for our profession, many less informed tax preparers out there are not even aware of this regulation (they simply rely on what their program tells them.)
So there you have it, software is great, but sometimes it takes an actual human to think a little to get the job done right. Happy Friday people.
This post is inspired by Michael’s lovely wife, V, who is a tax professional that has seen this mistake on many returns. Michael hasn’t had a clue that software makes mistakes nor is he aware of the entity called IRS. He is in shock as he writes this post.