The role of confidence in tax return preparation using tax software

Abstract

This paper investigates the nature of tax preparers' confidence, as well as how the introduction of a tax decision support system (TDSS) affects tax preparers' confidence levels. Psychological theories of confidence (e.g., Einhorn & Hogarth, 1978) are drawn upon to develop predictions regarding the role of process (ex-ante) and outcome (ex-post) confidence in tax return preparation. An experimental methodology is used with 114 inexperienced and experienced participants that prepare an individual income tax return manually or with tax preparation software (a TDSS). Less experienced tax preparers have lower levels of ex-ante confidence, and are more likely to be overconfident in the accuracy of their performance. Furthermore, when examining only the participants that made errors in their tax return preparation task, those that prepare the return with the TDSS are significantly more likely to be overconfident in their performance. These results support the predictions of Noga & Arnold (2002) and suggest that inexperienced users' over-reliance on a TDSS (Masselli et al., 2002) may be due to individuals' overconfidence in the accuracy of their performance with the software.

Witnessing Your Own Cognitive Bias: A Compendium of Classroom Exercises

“…Inexperienced tax preparers are overconfident in the accuracy of their performance when using tax decision support systems such as TurboTax (Hageman 2010).…”

A Comparison of the Motivations and Predicators for the Use of Tax Preparation Software Versus Paid Preparers.

“…While previous researchers have examined the effect of the use of software on the quality of decisions taxpayers make (Noga and Arnold 2002), their confidence in the accuracy of their returns (Hageman 2010), and their compliance decisions (Brink and Lee 2015;Masselli, Ricketts, Arnold, and Sutton 2002;Hunt and Iyer 2018;Brink and Hansen 2020;LaMothe and Bobek 2020), little is known about how taxpayers make the decision to use software and how these reasons/motivations compare with similar decisions taxpayers make in choosing to use a paid preparer. One of the few studies involving the decision to use tax software examines enduser adoption of a cloud-based tax software system (Lee and Brink 2020); however, the decision context (i.e., whether or not to adopt cloud-based tax software) differs from the decision of interest in our study (i.e., use of tax software versus use of a paid preparer, two types of paid tax preparation assistance).…”