I was struck by the H&R Block ad campaign, claiming that Americans who did their own tax paid an extra billion dollars last year, enough to put $500 on every seat in every pro football stadium in the U.S. I got to thinking about how, while that sounds like a lot, and seems to imply that people stink at doing their own taxes, the ad might actually indicate that we “self-preparers” do a decent job at it.
Firstly, the ads each feature small print stating, “In a study of self-prepared tax returns, H&R Block tax professionals found more money for about 1 in 5 people.” I surfed over to their website to see if they share any detail about this “study.” They don’t, so this stat is virtually worthless. Tax returns aren’t readily available for “study,” so I suspect that these returns were provided to H&R Block by folks who wondered whether they screwed up their taxes, and thus this is not a random sample. Who knows how many they “studied?” And yet, even under questionable conditions, they only managed to find about 20% of the returns had overpaid. That indicates that 80% of filers either got it right or actually underpaid (but perhaps got away with it by not being audited). That’s not too shabby.
And how much is this billion dollars divided up over those people? According to the website, 56 million Americans will “try to do” their own taxes this year (those idiots!). If those numbers are correct, on average each of those returns will pay an extra $17.85. Or if 20% of those returns contain errors, then the average “wrong” return costs about $89.29 (though somehow H&R Block claims it costs $460 on average). According to the IRS Databook (Publication 55B), Americans paid $1.164 trillion in individual income tax in 2010, so the billion H&R Block is so excited about amounts to 0.086% of the total tax bill. And none of this discusses that subset of self-filers who get away with underpaying the “correct” bill.
What all this means to me is that self-filers, who are reasonably intelligent and willing to invest some time and care, can do a good job and probably know a lot more about their taxes in the end. Perhaps that results in lower tax bills in the long-run, because self-filers can structure their lives to more effectively take advantage of the tax laws. Not to mention that the chance I might overpay by $18 is not enough to convince me to let H&R Block do it for me for whatever they might charge.
So I will continue preparing my own tax returns and I plan not to let H&R Block scare me into thinking I’m massively overpaying. (And, for the record, $500 on every seat in every NFL stadium amounts to $1.08 billion, so at least they got that part right. But that amounts to about $3.18 per U.S. person.)
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Very fun!