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How many tax returns are filed each year

how many tax returns are filed each year

By Sandra Block, USA TODAY

Kenny Stewart, 56, of Clermont, Fla. has been preparing his own tax return since 1972, when taxpayers had to fill out their returns with a pencil, and a basic calculator cost a lot of money.

Since then, the tax code has "become much more difficult and obtuse," Stewart says. Even so, he refuses to pay someone to prepare his taxes. "I just think people should be able to do their own taxes. It helps you understand where your money really is going."

To the millions of taxpayers who pay someone to prepare their returns, Stewart may seem like a throwback to when Americans canned vegetables from their gardens and cut their own hair. But the economic downturn, availability of low-cost tax software and disillusionment with tax preparation companies have spurred an increase in do-it-yourself taxpayers.

Through April 2, 64% of individual tax returns filed electronically were done by tax professionals, according to the IRS. But the total number of electronically filed, self-prepared returns was up 6.7% from the same period a year ago, while the number of returns e-filed by professionals was down 1.9%. (E-filed returns account for about 80% of individual tax returns filed.)

H&R Block and Jackson Hewitt. the nation's largest tax preparation firms, reported sharp drops in business through February, the most recent data available. Meanwhile, TurboTax, the largest provider of tax software, saw a 10% rise in sales through March 13.

Tax professionals say many do-it-yourselfers could regret their decisions, because the tax code is so complex that even seemingly straightforward returns are loaded with land mines.

"The tax laws have changed so quickly and become so confusing that it's very difficult for the average person to do their own taxes," says Cynthia Jeanguenat, an enrolled agent in Virginia Beach. Jeanguenat says she usually earns her fee many times over by finding credits and deductions her clients would miss. Jeanguenat charges about $250 for a typical itemized federal return and Virginia state return.

Why taxpayers are going it alone:

To save money. The average cost of hiring a professional to prepare a federal and state tax return with no itemized deductions is $129, while the average cost for an itemized federal and state return is $229, the National Society of Accountants says.

Prices for tax software, by comparison, range from less than $20 to more than $70 for premium versions. Taxpayers with 2009 adjusted gross income of $57,000 or less can prepare and e-file their tax returns for free through IRS Free File, a partnership between the IRS and software providers that's designed to encourage more taxpayers to file electronically. Several online software providers offer free versions of their programs to taxpayers with simple returns.

"The economic downturn has made people much more sensitive to how they spend their money. Tax software is a good alternative to spending $200 at H&R Block," says Julie Miller. spokeswoman for TurboTax.

John Simon, 38, of Newburgh, Ind. says he pays about $30 for a TurboTax federal tax program. He doesn't pay anything to file his state taxes, because Indiana is one of several states that allow residents to file their tax returns online for free. He also prepares taxes for his in-laws, a sibling and two soccer organizations.

"I just don't see the reason to pay somebody to do something I feel is fairly simple," he says. "I'm pretty good with computers, and I think the software is excellent."

They're managing other finances online. Sabina Alteras, 41, of Seattle, does all her banking and bill-paying online. This year, for the first time, she prepared and filed her taxes online using a TurboTax program.

Alteras says she decided to go it alone because she's new to the Seattle area and didn't know any tax preparers. She initially was concerned about making mistakes, but "going through the process was extremely easy."

In 2010, 31% of U.S. households are expected to file their income taxes online, up from 16% in 2005, according to an analysis by Forrester Research. a market research company. A key factor in the increase was the sharp rise in online banking and bill payment during the same period, says Bill Doyle, vice president of Forrester.

Those who use the Internet for personal banking are more comfortable doing other financial transactions online, he says. "Online consumers today are twice as likely as they were in 2003 to feel their financial information is secure online," Doyle says.

They don't trust tax preparers. Paul Kaye, 60, who lives near Sarasota, Fla. says his taxes have gotten more complicated through the years, but that's only reinforced his decision to do them himself. He thinks his return is too complicated for a preparer at one of the big tax franchises to handle and doesn't want to pay the cost of hiring a certified public accountant.

"The training these guys get, I believe, is hit-and-miss," he says. "I want to ensure that the guy wasn't selling cellphones six months ago in a kiosk in the mall."

This year, the IRS announced plans to require all tax preparers to register with the government, take a basic competency exam and meet continuing education requirements. However, the program will take several years to implement. In the meantime, in most states, anyone can prepare tax returns for a fee.


2006, the Government Accountability Office secretly submitted 19 tax returns to commercial tax preparers. All the completed returns had errors, the GAO found, and several overlooked common deductions.

Jackson Hewitt requires its preparers to take a five-part competency test and provides continuing education sources to employees, the company said in a statement. It said it gives mandatory ethics, fraud and compliance training. H&R Block's preparers must successfully complete 110 hours of class work and take 30 hours of continuing education each year, spokeswoman Elizabeth McKinley says.

Privacy is also an issue for some do-it-yourself taxpayers.

Scott Frock, 52, of Stratham, N.H. does taxes for his family and his college-age daughter. He'd rather do the job himself than pay someone else to do it.

"I don't feel its anybody's business what I have in assets and income," he says. "I'd rather keep track of it myself and understand what's going on in terms of changes in the tax law."

Preparers warn of risks

Most tax practitioners say individuals who are eligible to file a 1040EZ, or even a 1040A, should have no trouble preparing a tax return without professional help. But even common life events, such as a home purchase or the birth of a child, can lead to complications that even the best software can't handle, preparers say.

The many tax credits and deductions available for higher education offer one example of how convoluted the tax code can be.

The economic stimulus package Congress enacted last year allows parents to claim a $2,500 American Opportunity Credit for every child who is in college.

If a child attends a Midwestern college or university in an area that was affected by the 2008 floods, the parents could get a larger tax break by claiming the Hope credit instead.

"If you've got kids in college, with all the different education credits, how could you possibly know which one applies to you?" says Roger Harris, president of Padgett Business Services, which provides accounting services for small-business owners.

Harris says his company has had to work harder this year to hold on to clients and attract new ones, because many business owners are looking for ways to cut costs. Although there are software programs designed for small-business owners, "there's a certain amount of knowledge you have to bring for it to do its job properly," he says.

"What's deductible? What's a start-up expense vs. an operating expense?" Harris says. "As long as you know it, the software will work fine, but if you don't, the software isn't going to tell you."

Some do-it-yourselfers are willing to take that risk for philosophical reasons.

"I object to the idea that I, as a taxpayer, should have to pay somebody else to file my taxes," says Jason Muckenthaler, 31, of Pasadena, Calif. who used H&R Block software to do this year's return. "The tax burden is already too high. Paying somebody to figure out how much I owe is like pouring salt on a wound."

Tax software has cut the cost of tax preparation but hasn't eliminated it. The IRS Free File program lets eligible taxpayers prepare and file a federal tax return free, but depending on where they live, they may have to pay to prepare and file a state return.

TurboTax's most popular software program, TurboTax Deluxe, costs $49.95 for one federal return, plus $39.95 for a state tax return. H&R Block's Deluxe version costs $34.95, plus $36.95 for one state tax return. Taxpayers with complicated investments, rental property or business income typically pay even more for software that fits their needs.

Proponents of a simplified tax system say the USA could make it a lot easier for citizens to fulfill their civic duty by adopting a program used in the United Kingdom and several other industrialized countries.

Taxpayers receive an annual tax statement, based on information the government has about their wages and other sources of income. Those who agree with the information simply sign the form and send it back. President Obama raised the idea of giving taxpayers a "pre-filled return" during the 2008 campaign.

An effort by California to streamline tax filing for residents illustrates the obstacles such efforts face.

In 2004, California launched a pilot project called ReadyReturn, which offers taxpayers who have simple tax situations the option of receiving a pre-filled state tax return. The initiative generated a buzz saw of opposition from lobbyists for tax software companies, particularly California-based Intuit. which owns TurboTax. Two million California taxpayers were eligible for the program last year, but only 60,000 took advantage of it.

TurboTax officials maintain that the pre-filled returns often are inaccurate because they don't include information, such as the birth of a child or education expenses, that could lower a family's tax bill. The company says states that want to lower tax preparation costs for residents should adopt their own version of the IRS Free File program.

The IRS hasn't embraced the idea, either. In comments last week before the National Press Club, IRS Commissioner Douglas Shulman said the agency would need to make huge investments in technology to provide pre-filled returns. He questioned whether taxpayers would support such a cultural change.

"We have a voluntary tax system," he said. "It's the law that people pay, but the government doesn't calculate it for you."

Category: Taxes

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