Have you seen the commercials on TV already this tax season? H&R Block is offering a ‘Second Look‘ at your prior years' tax returns to see if you qualify for a bigger tax return. They try to make the process very simple, and even offer a free assessment on their website. But the real question is this: does this program really work, or is it just a marketing gimmick? Here are some stats from the IRS that may make you take your own second look at your tax return this year.
How Many Tax Return Errors Happen Each Year?
It very difficult to say exactly how many tax return errors happen each year, but we can get a glimpse of potential tax return errors by looking at how many amended tax returns were filed each year. You can infer that people are only correcting past returns because there was an error (since there is no reason to fix perfectly correct returns).
It should also be noted that, while you're required to fix your tax return if you owe the IRS money, you aren't required to amend your return if you deserve a refund. Also, given the IRS's enforcement capacity, small offenders are probably not having to amend their returns either.
So, for 2012, there were 3,468,000 amended returns that were filed, out of a total of 246,826,000 returns filed. That equates to a 1.4% rate of having amended returns filed. That really does seem reasonable, but it also means that you, as an average filer, have a chance of making one mistake in your lifetime that will require an amended return.
The Most Common Tax Return Errors
So, according to the IRS, what are the most common tax return errors that are going to get people into trouble?
- Missing or Incorrect Social Security Numbers: A lot of filers are missing basic information like Social Security numbers or incorrect Social Security numbers.
- Incorrect Tax: The incorrect tax due amount was entered based on filing status and taxable income.
- Computation Errors: If you've ever looked at the tax form, you know you need to do a lot of computation using data from other forms. Many filers have computation errors in figuring the taxable income, withholding and estimated tax payments, Earned Income Credit, Standard Deduction for age 65 or over or blind, the taxable amount of social security benefits, and child and dependent care credit.
- Entering Information on Wrong Line: At the end of your return, witholdings and estimated taxes paid are entered on the wrong line.
- Math Errors: Simple math errors, like addition, subtraction, and multiplication.
If you are using online tax preparation software, you can avoid many of these errors, since the software will take care of making sure all data is entered on the correct line and computations are done correctly. However, software can't fix bad data being entered in. So, make sure that you're double checking your inputs, even when you e-File using tax preparation software.
So, Marketing Gimmick or Real Value
Now that you know that mistakes happen, and what the most common mistakes are, is H&R Block just using their ‘Second Look' program as a marketing gimmick, or does it add real value to filers?
I'm putting it completely in the box of: Marketing Gimmick.
Errors will happen, but if you look at the top five errors, chances are there isn't going to be much in terms of monetary value in fixing them (such as having the wrong Social Security number). The IRS is pretty smart, and will usually fix many of the errors listed for you: computational errors, entering information on the wrong line, or math errors. It will delay your return, but it will be processed correctly.
Furthermore, since tax software will prevent most of these errors, they're not too likely to happen. Plus, even the tax preparer at H&R Block is going to be inputing your information into tax software that will flag the errors as well.
If something was missed, chances are the H&R Block employee won't be able to find it anyway. Remember, these individuals also just rely on the information that you provide and bring in with you to do your taxes. So, if you didn't understand what you were investing in, and got a K-1 in the mail but never gave it to the H&R Block employee, they can't help you figure out your income any better in the future!
The only real way to avoid tax errors is to make sure that you're organized and prepared. Check out my advice for getting organized for tax time, and use those tips to help you make sure that you avoid errors to begin with.
Have you ever used a ‘second look' program? Have you ever filed an amended return?