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Sunday, October 17, 2010

H&R Block Will Not Be Doing My 2010 Taxes

I have to warn you in advance that this post contains some technical details that only someone who prepares their own or other people's taxes might understand. But the details are not important. The main point I am trying to make in this post must be understandable to anybody who reads it.

This week, for the first time, in our tax class, we got to work on the computers. We were provided our own logins and passwords for the software that H&R Block uses to prepare clients' returns. We were explained some of the basics (the software is reasonably user-friendly, so the basics were not that difficult to grasp), and we were then given some test cases to prepare tax returns for.

Our instructor put up the solutions on a flipboard in the center of the room (the final income amount (AGI) and refund or payment amount). We were then asked to go at it.

The software is not like the software most people are used to for preparing taxes for themselves. It is not based on a detailed interview format. Instead, it relies on the tax professional having looked at the client's situation in some detail and having worked out some of the broad details such as the forms to use for the client.

Thus, for instance, the software does not ask whether you owned a business and have business income and expenses to report. The tax professional is supposed to know this and select Schedule C from the list of available forms himself. Similarly, if the client had sold stocks and bonds for gains and losses, the tax professional is supposed to know that this would require to be reported on Schedule D.

Given that only tax professionals use this software, this is not really a problem. The problem I had was with some of the weird problems in the software that no well-designed software should have.

First of all, many people got stuck on one screen where the client's social security number and that of his spouse are to be entered. Under some special set of circumstances which I haven't yet figured out, the software gives an error message saying that the spouse's social security number is not a valid one. However, at that point, the software refuses to allow you to edit that field. All it does is beep at you disapprovingly every time you hit a key or click a mouse button. You can not tab into the spouse's social security number field, you can not click into it.

You can not exit the form or the tax preparation application either. Pretty much nothing works at this point. The user can not even log out of Windows at that point. And Ctrl-Alt-Del is about as useful as a candle would be in melting your way out of an avalanche! The instructor, who has been with H&R Block as a tax preparer for the past 3 years, did not have a solution to this problem either. The only way to get out of the jam was to power down the computer by holding in the power button for a few seconds and then rebooting. Completely unacceptable software design, as far as I am concerned.

But it gets even worse. The whole point of tax software is that it does the hard work for you, doing all the calculations and what-not so that you don't have to do it yourself. Now, imagine a tax software that does the calculations wrong. All your input is correct, but for some reason, the software comes up with the wrong results. You know they are wrong only because you have already solved the problem by hand and know what the results should be. And the tax software's results do not match the correct results.

That is scary, but it happened in the class. Under three different scenarios. The first scenario was when one person, by mistake, put a "Y" in the box that asked whether a client's business was exempt from Self-Employment tax. This resulted in Schedule SE not being filled out. This completely changed the final outcome because one half of the self-employment tax is a deduction against income (thus changing the final Adjusted Gross Income), and the full amount of self-employment tax is part of the tax liability of the client.

As soon as the final outcome was different, the student quickly figured out that his adjusted gross income was different from what he was supposed to get, and based on that, figured out that he was missing the deduction for one half of the self employment tax. So, he went back to the screen where he had made the business exempt from the tax, and changed the "Y" to an "N".

One would think that this would fix the problem, with the software automatically using the update to generate the changes necessary to fix his problem. Nope. The Schedule SE was still not added to the tax return. He then went back to first screen of the program that allows the tax pro to pick the forms to include in the tax return and included Schedule SE in the return. But this only included a blank Schedule SE in the return. It would not automatically fill with the appropriate numbers from Schedule C to make everything work out.

He then had to go into the blank form, and manually put in the final profit from the small business before it would calculate the numbers appropriately. Strike one.

Even worse though, was another person's problem. In this case, the profit from the small business was below $400, so no Schedule SE is required. But for some reason, a Schedule SE had been generated for the return, and some amount of self employment tax had been calculated. This was mystifying to all of us, and opening up the Schedule SE solved part of the mystery for us. The final profit from the client's business had been doubled on this schedule for some unknown reason, making the client liable for self employment tax. This also increased his tax liability quite significantly.

No amount of tinkering with anything that had been entered in the return fixed the problem. We manually changed the profit number to what it should be, and the schedule SE did show a zero self employment tax. But only until we exited the form. As soon as we exited the form, the numbers automatically went back to the wrong ones, resulting in errors up and down the entire return.

We then decided to simply delete the Schedule SE off the return. That fixed the problem part-way, but not fully. It turns out the client's Earned Income Credit was also being calculated wrong because the client's business profit was once again being doubled on that EIC worksheet also. No amount of tinkering fixed this second problem, and the EIC form could not be deleted off the tax return either. The final solution was to delete the Schedule C of the client, then regenerate a new one from scratch. The profit then worked out correct on other forms, schedules, and worksheets to give the final correct answer. Strike two.

By this time, I was quite dumb-founded. This is not the way the software I use to prepare my taxes every year works. And it is certainly not the way I want any tax software to work. You would think that any change you make to a scenario or number somewhere on a tax return should flow through to all relevant parts of a tax return without having to start a return from scratch!

The final straw came when we worked on a scenario that involved depreciation. When you enter the details for the first capital asset to be depreciated, the software pops up a screen asking whether the client chooses to opt out of accelerated depreciation of different classes of depreciable property. We did not enter anything into this screen, and by default, accelerated depreciation was enabled on our tax returns.

Our depreciation amounts came out much higher than in the solution put up by the instructor because they had opted out of accelerated depreciation. Once we figured that out, we knew we had to opt out of accelerated depreciation too. But we could not get to the screen that allowed us to opt out of it. It only appears when we enter details about the first asset to be depreciated, and even deleting all the assets on the depreciation worksheet and starting afresh does not show us the screen again. Strike two and a half.

We finally figured out that the optout screen does appear when we finalize the return. All right, problem solved. We opened the optout screen and opted out of accelerated depreciation for all asset classes. Problem solved, right? Wrong!

Our depreciation numbers did not change when we made this change in the options. It turns out that the option takes effect only for assets we enter after the selection is made. It does not go back and change the depreciation numbers for the assets already there. We had to remove all the assets we had already entered, and then re-enter them one by one for the new depreciation numbers to be calculated correctly. And there is no indication or warning that the option takes effect only going forward. And no way to turn it on going backwards to assets already entered! Strike three!!

This was well past ridiculous, bordering on the insane and imbecilic! We were able to prepare returns that matched the instructor's answers eventually. But if we did not have the instructor's answers to compare ours against, none of us would have produced correct tax returns at all. The results produced by the software defied all logic and reason. Simple transfers of numbers from one form or schedule to another were flubbed. Changes in options did not carry through a return the way one would expect.

In short, use this software only if you know what the final answer should be, and then massage it laboriously and slowly to get it to produce the correct results. If you have no idea what you are supposed to get, your chances of getting the correct final answer seem to be about the same as a snowball's chances in hell.

Assuming I actually get hired by H&R Block to work with them, I thought I would use their software to prepare my tax returns for 2010 instead of my free web-based solution (I use TaxAct free version). I might still do that, but only out of curiosity. I will certainly not be trusting something as important as my income tax liability to software that is as buggy and temperamental as this. It may be good enough for H&R Block's clients who don't know any better, but I am not touching this with a barge pole!

1 comment:

Security Guards said...

For a limited time, H&R Block tax professionals will provide free reviews for missed tax deductions on returns that were self-prepared or completed by other tax professionals.

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