Every year around this time, frantic taxpayers wonder whether it might make sense for their small businesses to invest in some off-the-shelf, tax preparation software. Theoretically, this in-the-box tax preparation software will automate the process and reduce costs.
Think again, says Fran Coet, founder and principal of Coet2 CPAs P.C. in Westminster, Colo.
She tells the story of a client who chose the DIY route … and promptly received a 12-page statement from the Internal Revenue Service demanding a payment of $11,000 in “additional taxes, penalties and accuracy-related fees.”
“This client was a professional, and yet-errors were made in her return that alerted the IRS to the situation,” Coet said. “I sat down with her, looked through her paperwork, corrected the errors and sent a letter back to the IRS stating that the correct adjustments meant my client actually owed only $300.”
Happy ending? Kind of.
“In the end, my client spent more going the do-it-yourself route by paying for the expensive software and eventually hiring me -- not to mention the headache of dealing with the IRS, which she would have if she had just hired a certified public accountant,” Coet said.
In addition to DIY software errors, taxpayers also should beware the following mistakes, according to Coet:
Misunderstanding the IRS language. Every industry has its own language, and the income tax industry is no exception. TFRP, EFTPS, COGS, EITC – all are shorthand for some very significant tax issues. Coet tells another story about a taxpayer who called requesting advice on how to claim an “investment tax credit” on his tax return. Since the credit listed in the IRS tax code applied only to businesses acquiring tangible personal property, she asked the taxpayer what type of equipment he had purchased for the credit. “Equipment? What are you talking about?” he said. “I opened a savings account, and made an investment into that savings account, and now I want my credit.”
Sorry to say, he did not get it.
Filing too soon.Coet has seen this all too often in her work. And no matter how much she warns against it, clients keep letting it happen. They think they have all their tax documents in order; and then the day after t filing the return, boom, a W-2 lands in the mailbox for that part-time job last March.
Of course, notes Coet, the IRS won’t let taxpayers correct a return until it has posted in their system, which takes anywhere from a week to several weeks. The next step is an amended return, says Coet, which must be done on paper; and don’t forget the additional tax due!
Procrastinating and filing too late, or not at all. Coet recognizes that we all have a tendency to delay our most unappealing tasks. Transmission of an income tax return, especially with a balance due, ranks right up there. So after you put it off and then forget about the deadline, suddenly you have interest and penalties accumulating Another common gotcha-moment: The taxpayer waits until the last possible moment to transmit that nice, software-generated return … but the computers are overloaded and can’t accept the return because thousands of other procrastinators have taken the same strategy.
Preparing taxes on your own may seem to be an attractive way to save money in a struggling economy; however, it can cost more in time and money than hiring an efficient certified public accountant to get your return right the first time, says Coet.