You’ve seen the commercials, heard the claims of your neighbors, and the other day you realized that they offer tax filing in your local library! So why not take advantage of these programs? If you work one job, don’t go to school, and live with your parents, this could be a great option for you. However, if your situation is a little more advanced than that, the consequences of misfiling your tax paperwork can be incredibly serious.
Separation or divorce can be one of the most complicated filing situations one could come across, especially if there are children involved. If you are still married, but living in separate households, there are up to two different statuses you could qualify for. If you are divorced, or a single parent, the same applies. Custodial questions are also an issue. Let’s say you have physical custody of your children, but your ex takes financial responsibility. Or you have the children half the time. Misfiling as Head of Household can result in the IRS withholding your refund, or taking a very large portion of it back. If the other parent files falsely, but files before you do, you will automatically be denied and will have to use a different method of filing to dispute their claim. This could take up to three months longer than regular tax filing, and requires proof and documentation that a tax professional will be able to help you organize and support. Falsely or misinformed claims of Earned Income Credit, Head of Household, or Marital Status could result in the return of your refund, garnishment of wages, investigation or audit by the IRS, and/or seizure of your return for the following year.
Many times you will come across people who file their own taxes, and have been doing so for years. Generally, they will have a basic knowledge of filing procedure, which will allow you to safely file. However, it’s important to remember that your situation is probably drastically different from theirs, therefore cannot be universally applied. The most important danger of this situation is that you will most likely not receive the money you are owed once your return is filed. Tax laws and credits change every year, and while someone retired with a simple tax return may be aware of the recent changes as they apply to them, they cannot be expected to know that you are entitled to a large deduction due to a recent addition to the credits available, or that you are in danger of misfiling because of a serious alteration in tax law.
Owning a small business, while it allows for some deductions and benefits from the IRS, also should be treated with care and consideration while filing. Small businesses have two separate forms they can file, and knowing which one applies to you is crucial to filing correctly and responsibly. The IRS also has qualifications for small businesses, both financially and structurally, so having a professional who can advise you is extremely important. If you are deducting expenses, but the IRS comes back and decides that you do not fall into the small business category, you could end up owing money even though you saw a loss. A professional will know right away if you qualify and what you can deduct for expenses. In addition, they will know what records are required to support this information, and can help you be prepared for the next year as well. Statistically, small business owners are more likely to be audited than the average American. Tax professionals offer audit protection, which means that they communicate with the IRS during audit investigations for you, and take responsibility for supplying supportive documentation to your claim. Think of this as audit insurance for your business.
Being an independent contractor means that you receive a 1099-MISC from your employer. However, independent contractors typically work multiple positions throughout the year, and it is important to be advised as to what you can deduct so that you are not left owing more than you should to the IRS. Being an independent contractor can leave you exposed to large charges at the end of the tax season if you are not aware of how to handle your records and filing. Additionally, there are occasions where an employer may not file a 1099. In this case, your preparer can advise you on the steps to take so that you may file your income and not be penalized for the oversight or negligence of the employer that hired you.
If one or more of these scenarios applies to you, make sure you seek a consultation to ensure that you are receiving the best service possible, and do not attempt to file on your own unless you are well versed in the language of taxes. The consequences can effect you, your family, and your property.
Allan J Rolnick, CPA, CTC|
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