A CPA Spills: The 10 Biggest Tax Mistakes That I See

Laura Shin
Posted

1040, 1040A, 1040EZ, Schedule C, Schedule B, 1099, W-2 … doing taxes is like trying to speak a foreign language that you’ve never taken a course in.

Given how complicated the tax code is, it’s not surprising that people mess up when filing their returns—and those mistakes can cost people thousands. (Learn how to avoid the top tax filing mistakes.)

As a Certified Public Accountant with his own boutique firm, Gary Craig has seen it all. He shares some of the most common tax blunders that he witnesses to ensure that your own filing goes smoothly.

1. Shopping for the Biggest Refund

Craig says that perhaps the biggest mistake is trying to find someone who will give you the largest refund without making sure that it’s accurate. “I got a guy last year who came in at the very last minute on April 10,” says Craig. “He and his wife filed separately to take more exemptions, and the tax preparer he’d initially used was really aggressive about reimbursing. The guy was flabbergasted by how much he still owed and came to me ‘refund shopping’ to see if I could lower his tax liability, and I had to tell him, ‘You actually owe more,’ because the other preparer was so aggressive with the deductions.”

RELATED: Taxes 101: Are You Withholding Enough?

2. Not Making Sure That Your Tax Preparer Signs the Return

If your tax preparer is confident in the accuracy of the return that he’s prepared for you, then he’ll have no trouble putting his name on it. But if he doesn’t sign the return, it could be a sign that he’s done something shady. In fact, Craig says, “If [the mistakes on your return are] serious and seem intentional, you can report him to the IRS. That’s grounds for losing one’s license.”

RELATED: 7 Last-Minute Tax Filing Mistakes People Often Make

3. Being Too Aggressive With Unreimbursed Business Expenses

Tax MistakesThis mistake has an easy solution: In addition to keeping those receipts for unreimbursed business expenses, always keep a record of your company’s reimbursement policy—even for past years. This is the only document that will save you in an audit. Without it, the IRS won’t recognize those expenses.

4. Taking Inappropriate Real Estate Deductions

If you’re not a real estate professional, and you make more than $150,000, you can’t take losses on any rental properties that you own against your normal working wages in order to lower your taxable income. Take it from Craig: “I had a client making $300,000, and taking $160,000 in real estate losses”—none of which was allowed. His bill? A cool $50,000 in back taxes and penalties.

RELATED: Oops! How to Correct a Mistake on Your Filed Taxes

  • Bill Snyder, CLU, EA

    Always bring a copy of your previous years return, especially if you are using a different preparer than last year.  Also ask questions throughout the year.  We had a client who always complained about our fees, but paid more in penalties.  In addition to his wage job, he bought & remodeled homes & then sold them.  I told him to call me when he sells a home and give me the details so I can tell him how much estimated taxes to remit to avoid penalties.  Another one whose prior returns I reviewed showed income of $8,000 from gambling & $16,000 wagers on Schedule A for a loss.  I told her she was limited to deducting wagers only up to the winnings.  Another man I was able to help had gambling winnings with wagers of less; so he had taxable gambling income.  One thing in his favor was he used an ATM in the casino to get some of the money for his wagers.  That seemed to me to be reasonable & might fit the Cohan rule.  A visiting nurse had dates & addresses of patients.  I had her check “Map Quest” and check the miles.

  • Marie

    Question on #8: This is just regarding traditional IRAs, not Roth IRAs, right? I recently got married so I’m wondering what changes with that in terms of how much we can both contribute to our plans at or outside of work, given our combined income. As far as I know, the income limit for Roth IRAs for a married couple is much higher than what’s listed here for a traditional IRA.

    Also, I believe the 2013 limit is $5,500, not $5,000.

    • laurashin

      Hi Marie,

      Yes, this only applies to traditional IRAs, not Roths. And you’re right that for 2013, the limit is $5,500. In 2012, the year that people are currently filing taxes for, it is $5,000. I will update the post to specify we mean for 2012.)

      Thanks!
      Laura

      • Marie

        Excellent - thanks for the response!

  • kate

    I keep seeing differences between “single” and “married filing separately” and “married filing jointly” – has LV written an article about the pros and cons of being married in the eyes of taxes? It seems unromantic to ask but I wonder what the financial implications of getting married are.

    • laurashin

      Hi Kate,

      Great question. This story goes into all the details of filing statuses, and also has a flow chart that will tell you which one makes sense for you: http://www.learnvest.com/knowledge-center/how-to-decide-your-filing-status/

      Laura

  • http://twitter.com/Garythecpa Gary W. Craig, CPA

    Hi Laura,
    Thanks for taking the time to interview me. I had a fun time.
    Gary Craig, CPA
    craigadvisors.com