A calculator and a pen used to be essential for filing taxes in the good old days, where hours are spent trying to compute everything by hand. This often led to frustrations, as many people edit their numbers again and again because of simple mathematical errors.
Luckily, most of us don’t deal with paper returns anymore, as computer software modernized the way we file. Answer a few questions about your situation, and the whole return is completed automatically. I’ve heard of people spending a total of 10 minutes filing their taxes each year, which is impossible without the new computer technology we have today.
But be careful with relying on too much automation. Here are a few dangers to consider before you totally trust tax filing software year in and year out without question.
You might want to just click “next”. Too much convenience has a tendency to make us lazy. With a computer screen always asking you to click “next”, it’s easy to simply click through to the next screen without reading each question carefully. Miss a few details and the final return may be filled out completely in error since your return is based entirely on the answers you give to the system. To avoid costly mistakes, take the time to read everything the software throws out at you and make sure you understand each question before you type in the answer.
You could skip a whole section. Though you could theoretically forget to take deductions with paper returns as well, the problem is more severe with software because doing the general return is so easy, which encourages you to quickly finish and forget the whole exercise. Make sure you take advantage of all the deductions buried in the complicated tax code by spending the time to look through each drop down within the software interface.
Your tax return could be sent to a canceled bank account. Having Uncle Sam direct deposit your refund is so much easier than waiting for a check, but don’t pay enough attention and you could end up using an inactive bank account that you typed in last year. Even if your account is still active, you may want to try out new methods of getting refunds, such as getting the money on a Visa Prepaid card, so always double check.
David’s Note: In order to have your tax refund loaded onto a Visa Prepaid card, you first have to call the 1-800 number at the back of the card and ask for the routing and account number associated with the card. Once you get the numbers, then you can treat the account as if it’s a checking account. You can also learn more about finding your routing and account numbers in the Visa Prepaid Know Your Numbers game, where you can win some prizes.
Let the complacency set in a few years and the consequences are even more drastic. Since you simply don’t spend as much time on the whole tax filing process, you could become less sensitive to how taxes affect your financials. You may:
- Forget the benefits of tax efficient investing through time when you are faced with investment decisions.
- Not really know tax law changes and still be acting on expired laws.
- Be more easily swayed by tax advice based on so-called experts. (Ever hear a real estate professional tell you to buy a bigger house because you get a tax deduction?)
And don’t forget about the cost of filing with the software itself. Each software make it incredibly easy to file subsequent returns because it saves information from previous returns so you don’t have to type in tedious data such as addresses from say, your 1099 income sources. But know that new options spring up almost every year and the cheapest (or the best) option may not be the one you have been using.
Tax filing software is extremely useful, but the convenience can indirectly cost a great deal if you aren’t careful. By staying alert and appreciating how big an effect taxes has on your financial well-being, you won’t let these money drains creep in.
I am blogging on behalf of Visa Prepaid and received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa’s. Discover more at http://www.VisaPrepaid.com or join the Visa Prepaid community at http://www.facebook.com/VisaPrepaid.
{ read the comments below or add one }
I filed once for free through one of the majors, and when the next year rolled around, I breezed through the process, and didn’t realize the excessive charges deducted from my return for that second year. To keep it free and simple, go to the local USPS, pick up the paper form, and follow the instructions on the last page to file directly with the IRS.
As you say in this article, its important for consumers to closely study the “fine print” (or the large print) of whatever screen or document they’re working on. Unfortunately, many consumers are busy and don’t have time to read closely, particularly given just how MANY financial-documents they have to fill out.
This isn’t an “excuse,” since ultimately its the consumers’ responsibility to read their documents. But that being said, the fact of the matter is that there needs to be a “better,” more streamlined and more automated way for people to stay abreast of the fine print and nuances of their financial details. Balancing financial management with work, family and exercise can be a stressful undertaking!