Your tax return – Is it a ticking time bomb?

Outside of trained tax professionals and do it yourselfers who really knows what is on their return? I say in reality not many.  Often I see people that do not really know, and when they are audited are somewhat or very surprised what was put on the return.  There is very little regulation on who prepares a tax return in today’s world.  There are likely many more untrained preparers versus CPA’s or enrolled agents doing taxes today.  If we are expecting the preparer to make the right calls we need to make sure they have the credentials to start with.  Today I saw an individual who their preparer got a cease order to stop preparing tax returns.  I have seen worse but it appears they overstated basis for depreciation and improvements to the properties.  This caused thousands of dollars a year in excess deductions.  Luckily while they did indeed overstate deductions they also missed things too.  There was no mileage taken for the properties and the taxpayer had four rentals and was involved with repairs and projects throughout the year with several.  This can help minimize the impact.  While I do not really recommend this the taxpayer is choosing to represent himself the first go round as he actually has support for most audit items outside of the basis.  We will get involved if the meeting does not go well or other issues arise.  I have seen many questionable deductions in my day and most of the taxpayers were very unaware.  For example one million dollars of goodwill that did not exist, deducting S Corp losses to the tune of hundreds of thousands of dollars where no basis exists, deducting rent paid to a shareholder on the corporate return while the shareholder failed to report the rental income on his return etc.  The odds are fairly good we will not be audited but my feelings are, prepare for the worst and hope for the best. Fortunately there is a statute of limitations limiting the exposure as long as the error is not considered fraud where no limitation exists.  Areas on returns that draw the attention of the IRS: First time rentals, Large losses on Schedule C or E, Matching of mortgage interest, high expense to income ratios (how did this person live on this) Schedule C itself makes you four times as likely to be audited and as the income rises so does the likelihood of audit.  Some people will pay an IRS notice even if not correct, thinking they do not make mistakes which is not true. We see many notices that just need an explanation. Sometimes there are several potential places to report income that may not be readily apparent to the IRS.  If you could send a notice and a certain percentage get paid even if not correct you would likely be tempted to try it.  The higher caliber professional we choose the less we should have to worry about what gets put on our return, and we should also expect a professional to explain to us what is there and how it impacts you.  The discussion of risk/reward on deductions and strategy are equally important as the numbers that show up on the return.

GYL Decauwer has highly trained professional CPA’s on board to help you make the most out of your personal and business tax returns. Visit us at www.gyldecauwer.com or Call us at: 909/948-9990.