Hidden Third-Party Fees and Third-Rate Service

Nowadays what most want to do is, Do-It-Yourself (DIY). Certainly being self-efficient is applaudable, but tax returns are a form of Federal and State Government compliance, and when done improperly there are serious (criminal) risks to penalties and punishments.

With off-the-shelf software, even if a taxpayer is tech-savvy enough, these systems may yet lead a taxpayer to leave behind money, or worse, to an audit.

Reasons tax software fails:

1. A taxpayer’s information is filtered through a system of checks-and-balances, and that system has inevitable glitches and errors;

2. A taxpayer must acknowledge tax-lingo to accurately report; and

3. A taxpayer may leave money behind because the software lacks personalized insights to tax positions.

For example, tax software will not tell a taxpayer owing more than $1,000 of tax each year but does not have the employer withhold taxes from their W2 will be charged penalties for not paying taxes throughout the year (See Pugh Tax withholding article).

Why choose a Pugh Tax over software? Here are a few reasons to entrust Pugh Tax to do your taxes:

·      No matter how “user-friendly” software claims to be, filing taxes is never made easy, and finding out you lost money because of advertised software to make it “easy” is worse;

·      The easiest way to do something does not mean it is the correct way;

·      Software advertises to “save money”, but usually it does not (see below);

·      Off-the-shelf software requires knowing exact tax terminology;

·     Call center services take your time to get a hold of and quickly rack up frustration.

Another example, a taxpayer puts in all correct tax information. That information included paying the taxpayer’s eighteen-year-old’s community college tuition. That college student qualified as a dependent. Then, the adult taxpayer claimed American Opportunity Tax Credit ("AOTC") during their years of college, so when the confusing question by software: "Have you previously claimed AOTC?", the taxpayer answers "yes". What is not general knowledge is that the IRS Code allows for the AOTC to be claimed "per student". The software may in fact load the AOTC as per student but will recognize that a parent paid for tuition for the dependent. Thus, the AOTC cannot be claimed. Instead, the software loads tuition under the non-refundable credit (Lifetime Learning Credit) to the taxpayer’s income, and the opportunity on the refundable credit AOTC is missed.

Following the same facts as above, the taxpayer's AGI is within the phase-out of AOTC (capped at $180,000 for married filing jointly). Because the taxpayer claimed the dependent, that dependent cannot claim the AOTC for themselves. Had the AOTC been claimed by the dependent, a total of $2,500 could be refunded (all cash-back). But because the dependent is claimed by the taxpayer for a $500 (non-refundable credit) and the AOTC is phased-out, there is a net cash-loss each year of up to $500, or $2,000 for the AOTC entirety.  

Off-the-shelf software does not notice these tax positions because it can process only one return at a time, and any additional outside knowledge goes unprocessed. The benefit of going to Pugh Tax is a true personalized experience that a taxpayer can trust his or her tax return is prepared with due care and due diligence.

Contact Pugh Tax For Free Consultation!

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  Anthony Pugh, JD, MBA

Telephone: 616-606-8305

Email: anthpugh@pughtax.net