Pop Test! One question; what is a simple tax return? Correct answer; whatever return the caller has. Their goal is to get you to under price the return. This will be something they will hold you to no matter how much they mislead you.
Okay, it was a trick question but a real world answer. I get it all the time. I price returns by the forms and entries I have to use. When a shopper calls, they are given the price for a Federal/Kansas return with one W-2 ($80) and told that is with absolutely nothing else. I don’t price any further on the phone. If they want to come in and talk to me, I’ll give them a ballpark figure.
I define a “simple return” as one with income from W-2s, interest or unemployment. The filing status doesn’t matter as long as there are no dependents. Dependents, other types of income, credits all make the return more complex.
Dependents are the single most complicated issue any preparer will handle on a regular basis. Once there is a dependent on the return, the child can affect many credits, deductions and filing statuses, each with their own rules. And don’t get me started on the due diligence I have to do for Earned Income Credit. Not at all simple.
Yes, type of income is also a deciding factor in how simple a return is. The amount of the income doesn’t change the complexity. I still have to figure the special capital gains tax calculation on a return with qualifying dividends. It doesn’t matter if the amount is $15 or $10,000+. And just because it comes on a 1099MISC doesn’t mean that it is treated like a W-2. Too often, a special form or 2 is required. And all investments are not the same. If you buy a stock and don’t sell it, you just have dividends to report. But if you sell a stock you will have to report the sale along with any dividends you received. You buy a limited partnership and the complexity level of your return can go through the roof even if you don’t sell it.
Finally, for me, the more organized the client the simpler their return. A shoe box of loose receipts can turn a return with one W-2 into a complex preparation. I can’t rule out that you might be able to itemize or have another deduction or income until I go through the box. Just clipping receipts together by type (charity, medical, taxes) can simplify my life tremendously.
Bottom line, a simple return is the return that someone else does for you. The real test of complexity is the time it takes to fully prepare the forms required to properly report your income and claim your credits and deductions.