Tax & Accounting News

Tax Q & A: 9 TaxBuzz experts share some of the biggest fails from DIY prepared tax returns.

by
Lee Reams II
on
12/1/2016
Tax Q & A: 9 TaxBuzz experts share some of the biggest fails from DIY prepared tax returns.

At TaxBuzz we see thousands of stories of the failed DIY tax return. Garbage in means garbage out no matter what the tax software tells you. We recently reached out to our network of tax professionals to hear their DIY horror stories. Here are some of the best stories and sound advice.

Jeffrey Quatrone E.A. at Quatrone PLLC encountered the following DIY fail -

"I have found on occasion that when a taxpayer has residential rental property the expenses are not accurately reported. In 2012 a brand name software program had a bug that miscalculated deductions creating correction letters for the taxpayers with additional tax due. A professional tax preparer would have caught the error."

Olathe, KS based Bret Willoughby of Tax911.com, Inc. shared the following -

"A new client came to me because he was being audited. When using the tax software he did not understand the questions the tax software asked. He did not know how to check the return to know if it, the software, had interpreted his answers correctly. He had taken the same expenses both as an employee and as a self-employed business owner. On the face of the return as originally filed it was clear that the return was not well prepared. I find that an experienced tax preparer can use an off the shelf retail tax software to address unique tax issues like clergy housing allowance, rental properties, health care penalties but if the person answering the questions does not understand the question as the saying goes "Garbage-in Garbage-out" (GIGO.) The tax software rarely has the ability to run what if scenarios such as how to maximize refundable credits like the Additional Child Tax Credit, Earned Income Credit or the educational credits. The operator needs to understand what is going to be best for the taxpayer over the next several years not just this year. The most expensive errors I see are when the taxpayer/software operator does not understand the difference between income tax and self-employment tax. The software will typically not calculate self-employment tax on clergy W-2's. This can easily be a US $10,000 "oversight" just for the self-employment tax."

Joshua Standley, EA from DKK Accounting LLC made the following key observation -

"DIY tax software does not get to know your personal situation. Questions asked can be ambiguous and lead to errors."

Tony Proctor from Proctor & Assocs. TBS, Inc. gets right to the point -

"You can't engage in conversation with the software. You may answer yes or no to a seemingly simple question that is critical to your final tax liability and may end up costing you several hundreds or thousands of dollars!"

Keith Ehrich from Ehrich Consulting Group made this observation about rental property owners -

"The biggest error we find is not taking depreciation on a rental."

Norwalk CPA, Peter W. Flournoy, CPA remarked -

"If there is even the slightest bit of complexity or a large volume of information to enter, I would recommend hiring a tax preparer rather than to run the risk that you can do it yourself. I have amended many DIY returns where simple child tax credits and other tax benefits have been missed due to the taxpayer not having a full understanding of tax provisions. Remember that the result will only be as accurate as the input!"

Travis Tandy from Fullerton CA based Tandy Consulting may have said it best -

"Greed!!! The user knows the refund is abnormal but their reply is that the software let them do it. Greed blinds them to the reality of what they know is wrong."

Grand Prairie CPA Lorra Brown from LBE Consulting, LLC has encountered some expensive mistakes -

"I've found that using DIY tax software programs can end up leaving hundreds or even thousands of dollars missed, even when you follow the directions. I see this all the time when frustrated clients bring in a prior year's tax return, and are surprised at all the money I'm able to find for them. I've also seen clients key in incorrect numbers, which leads to audits. You have to keep in mind a software doesn't know you, it's not able to apply an extensive amount of tax law to your individual situation. Even worse... I've seen where clients choose the wrong method to file their taxes, such as wrong filing status."

Sacramento tax professional Allison Huynh from Addfi Tax remarked about a common home-based business DIY mistake -

"You may make a mistake when deducting Office-In-Home expenses (Schedule C), such as entering Mortgage Interest and Property tax twice on Form 8829 (Sche C) and Schedule A. I have a client who used to deduct their mortgage interest and property taxes on Schedule A and Schedule E without knowing the mistakes until IRS audited her. She came to me for help and never do her own taxes again."

Tax law is complicated. It changes each year and professionals spend countless hours studying the tax changes to best help their clients. Whether it be convenience, or price, DIY is not meant for everybody, and can cost much more than the fee a qualified tax preparer might charge. With tax reform on the horizon, it is more important than ever to seek professional advice before it is too late.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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