Preparing one's own personal income tax
returns is not necessarily difficult. Many people have straightforward income
from jobs and only a few deductions.
Business returns are another
story.
I've seen many returns prepared by
business owners. A number of them contained mistakes that resulted in larger
tax bills than were necessary. The most common is not being aware of what
expenditures might be deductible in the first place. Other returns get
audited, not so much because of the deductions they took, but in the way
the deductions were presented on their returns.
One example is a N.M. gross receipts
tax case where the return contained the wrong standard industry code. The code
was for a real estate development business. The owner was actually a real
estate sales associate. In N.M. those people are not subject to GRT. Using the
wrong SIC code caused N.M. Taxation & Revenue Dept. to mistakenly believe
this was a taxable business that hadn't reported its GRT. In the end no tax was
due. Nevertheless, there were other consequences. Understandably, the owner
worried a lot about having to undergo an audit. The owner had to
take time away from earning their living. And they paid for professional
representation. (They could have represented themselves; but, hat's a topic for
another discussion.)
Another case involved a return where
the deduction for office expenses included other types of expenses. The owner
used it as a sort a catch-all because they shoehorned everything that wasn't a
preprinted line item into office expenses. The result was that the amount of
the office supplies deduction was unusually large compared with the business's
sales. The IRS noticed this and flagged the return for an audit. While many of
the mis-classified
expenses were legitimate, the IRS
uncovered some that weren't.
How about sharing your stories of
what went wrong because you prepared your own return or the success you had by
having your return professionally prepared.
