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Albuquerque, New Mexico, United States
I am a Certified Public Accountant in Albuquerque, New Mexico specializing in representing taxpayers who are unable to pay the taxes they owe or being audited for NM gross receipts tax.. I am also a frequent presenter of IRS Small Business Workshops for new businesses and new employers. You can read more articles on my website.

Saturday, September 29, 2018

Should business owners prepare their own returns?

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.

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