- Tax preparers' fees do not reflect accuracy. There was no correlation between the size of preparers' fees and how well they scored.
- Congress can cut taxes all it wants, but if your tax preparer doesn`t know all the rules - and Money`s tax test shows that most don`t - you might actually end up paying more.
- "The implication for you is obvious. Chances are your return is so riddled with errors - even if it`s one of the 48% that will be handled by a professional - that you`re paying as much as 25% too much income tax."
Results of Money Magazine`s 2003 POP QUIZ
That year, Money magazine did something a little different. Instead of the traditional tax test, they drew up a list of 10 questions about the tax law passed by Congress in 2003, to test tax preparers knowledge of its key provisions. Fifty tax preparers, plucked at random from the Yellow Pages of Atlanta, Minneapolis, Philadelphia, San Diego and Seattle, were asked to take the quiz.
The tax preparers did quite well on the easier questions, but stumbled on questions that were supposedly no-brainers. Here are the results:
- None of the 50 preparers aced all 10 questions, and only 34 got at least half right.
- Fewer than half could cite the income levels at which the new rates kick in.
- Only one could explain how the new law changes the taxation of some municipal bonds.
- Only 1 knew that the gain on a tax-exempt bond could be taxed as ordinary income.
- Only 18 could accurately define provisional income.
- Just 6 knew the precise changes that were made to the AMT(Alternative Minimum Tax).
- Only 19 could say why the new law takes away many advantages of using a trust as a tax-saving device.
Money Magazine's Tax Test Conclusions
Fees, it turns out, are no clue to accuracy. There was no correlation between the size of preparers' fees and how well they scored.
Congress can cut taxes all it wants, but if your tax preparer doesn't know all the rules, and MONEY's tax test shows that most don't, you might actually end up paying more.
The unavoidable conclusion: Many preparers aren't keeping up with the tax law, or they lack adequate review processes in their practices.
The "right" amount of tax depends as much on a tax pro's judgment call as on the tax law itself. The pros had varying interpretations of murky areas of tax law.
The Taxes for Expats Advantage. Continue