Accountant
Tax time is already here and people are trying to outwit the system by either going to a famous store-front to get a tax accountant who they strongly believe knows all the tricks to get them the largest refund or doing their own taxes.
Well, why wouldn't you? I mean advertisements say it almost everywhere “It is like a GPS – there is road-map guidance to assist you comfortably do your OWN taxes” or “We made sure that this person got an extra $4000 in refunds by simply taking a second look!” or my favorite, "We will do your taxes for free!"
What is completely lost in all these clever advertisements speak is reality. Whilst all these situations are more the exclusion than the rule, we all know from doing several thousand tax returns in the last few years that the biggest risk is either going to the traditional store-fronts or doing your own.
But how? Because we also do second looks! Our total average is roughly $1600 in savings, whether it is a larger refund or a lower balance owed. Additionally, there are particular cases where we may find that your refund is a bit lower, however, this is because you or your store-front preparer took a completely wrong credit or deduction.
Well, no big deal, right? WRONG!
The Internal Revenue Service will easily catch you and even worse, it will not be till after you have fully received and spent all of that big fat refund check that you finally get a nasty letter informing you that you owe them some money plus penalties and interest.
With that said, do you think it is actually worth saving a few bucks just to do your taxes on your own? Even worse, going for the services of a store-front preparer, most of whom charge up to 3 times what our professional service charges.
And what exactly is the total cost of an audit?
What is the actual cost of having to pay back that reimbursement with penalties and interest and possibly having to take a loan to do so causing you to pay more interest?
If your answer is "too much", then good for you. Otherwise, it is a big shame on you. As the saying goes "fool me just once and it is a shame on you, fool the second time and its shame on me." Well, let this be a warning if you have never been a victim of poor tax preparation.
The following are the 5 most Common Mistakes that we always see:
1) Child and Dependent Care Credit – Most individuals are always scared to take this if they have a family member or even friend to help look after their child. This is simply because you have to produce a Social Security Number (SSN) which in turn makes the income received "reportable". Make sure you note exactly how I said reportable and not taxable. In some cases, the provider actually receives a huge benefit in the form of a higher Earned Income Credit by receiving that additional income. Always keep in mind that a number of family members who actually look after your children possibly earn less than the EIC thresholds and the extra income will certainly assist instead of hurting them.
2) Not Demanding the Loss from a Second Property Leased out to Friends or Family Members- This is definitely another situation where you are afraid of taxing your loved ones. But in reality, you as the owner are the only person who stands to lose when you do not report any of your rental expenses. In fact, chances are that you are losing a lot of money on this property, why not ensure you get tax benefits whilst you are at it?
3) Retirement Savings Credit - Normally referred to as the "Saver's Credit". Whilst most individuals are aware that you can simply defer taxes by paying to your work's 401k or IRA, astonishingly many at-home preparers are completely ignorant of one of the few "double benefits". The main reason why this is a double benefit is just because you not only get to save on your taxes, but there is an extra incentive for people in a particular income range to get added credit towards their taxes through saving for retirement.
4) Missing State Specific Items – A very good example is in AZ, whilst Medical Deductions have the uppermost threshold on the Federal return before you can detail, in Arizona they are adjustments. Meaning that dollar for dollar you can simply deduct out of all pocket medical expenditures on your state return. WI is another good example where you can possibly get credit for rental expenditures, so much for buying a house for the tax benefits! And you can be sure there are several other states that have completely different quirks that you will get from a part-time preparer.
5) Residential Energy Credit – This is another one that most individuals think they know from the common "road-map" feature. However, I’m sure you were not aware something as simple as installing energy efficient sun screens on all your windows will make you eligible. No, you really don’t have to go all out and make installations on your house or even purchase a $4500 solar water heating system just to max out that credit. As a matter of fact, it is absolutely not about maxing it, but only qualifying in the first place.
With all of that said, you would think that most educated individuals would definitely know these or at the very least the regulation of a commercially existing software product OR tax preparer working for a certain store-front would know. The truth of the matter is that they don't! I always see countless individuals coming in for a second look and these are just the five most common items we get. We will save all the other for a future article. Meanwhile you need to make sure that you don’t make the same mistakes. I know you have always made an effort to find a tax professional who will give you outline to you all the hidden costs in vain. Worry less because I will bail you out this time. Let your worries be mine. Contact me today and you will never regret my interaction with you.
Kevin J May CPA