10 Feb 6 Ways DIY Tax Return Software is Screwing Up Your Tax Return
Everyone knows at least a hand full of people in their lives who are penny-wise but dollar foolish. These people (yes, I’m on my soap box) will do whatever they can to save a penny on the front end, regardless of the problems created on the back-end. We’ve all been this person at one point or another. Just the other day I decided to cheap out on a quality paint roller, only to have to purchase another bucket of paint, a better quality roller, as well as doubling the amount of time spent on the project. If there was punctuation that symbolized the palm of my hand hitting my forehead, I would have ended that sentence with such.
The bottom line is that it’s easiest to see how others make this mistake when it involves your own line of work. I can’t count the number of times a tax return has come across my desk that was prepared in one of the do-it-yourself tax return websites (Tub-O’-Tax, H&R Block-you-from-a-refund, etc.) that had to be amended due to errors. So, what errors do you commonly see? Great question!
Here are my top 6:
- Expenses for a sole proprietor are reported on the wrong schedule
- You don’t need to be a tax whiz to understand the potential problems here. The area where they are mistakenly reported will limit the total deduction the taxpayer can take as well as allow for no deduction against self-employment tax. This one is costly, folks!
- Depreciation is missing or incorrect
- Most laypeople are only vaguely familiar with what depreciation is, how it works and how it can impact their tax bills. Too often do I see clients completely miss this valuable deduction in prior years. The catch-22 is that this is a use-it-or-lose-it deduction which can actually cause income in future years, even though you never took the deduction in the first place.
- Calculations are done incorrectly
- This one speaks for itself
- Required forms are not filed
- Do you think Tub-O’-Tax knows that you need to file Form 3115 to request an accounting method change for your schedule C business or schedule E rental property, as required by the new tangible property regulations? No. They don’t. And even if they did, it wouldn’t be completed correctly or filed with the appropriate IRS office.
- Educational credits/deductions are missed or scholarships are incorrectly treated as income
- There are a ton of rules surrounding the deductibility of tuition and student loan interest, as well as credits that can be utilized. Answer a question posed by your DIY software incorrectly, and you’re going to see what garbage in, garbage out is all about.
- Deductions or income related to prior years are missed
- Believe it or not, individual tax years are not isolated islands. One year often has an impact on the next year(s). If you switch tax websites from year to year, you’re likely to omit items that pertain to a prior year return. This can be costly in terms of missed deductions or interest & penalties.
If you had any of the above problems with your tax return, would you even know it? Chances are you don’t have the acumen or the time available to review the IRS and state forms that DIY software fills out for you. Which begs the question, do you want to risk losing out on significant deductions and/or subject yourself to penalties & interest in the name of saving a buck today?