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.
In on case from my practice, Schedule C contained a 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.
In another case involving N.M. gross receipts
tax (GRT). In N.M., commissions received by teal estate sales associates are not subject to GRT. Inf act, GRT reports are not even required to be filed. However, the taxpayer used the wrong standard industry code on Schedule C. The code was for a real estate development business.
The N.M. Taxation & Revenue Dept. (TRD) obtains from the IRS gross receipts (sales) and compares that amount to GRT reports. If Schedule C is more than GRT reports the taxpayer gets audited.
Using the
wrong SIC code caused TRD to mistakenly believe
this was a taxable business that had not reported its GRT. In the end no tax was
due. Nevertheless, there were other unfortunate consequences. Understandably, the owner
worried a lot about having to undergo an audit. The owner had to
take time away from earning his living. And he paid for professional
representation. (He could have represented himself; but, that's a topic for
another discussion.)
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.
