Did You Review Your Tax Return?

Review Before You Submit!

Tax season can be exciting for some and very overwhelming for others.  It all depends on whether you anticipate a nice refund or you are expecting to owe taxes.  Some taxpayers take on the challenge and do it themselves since the market is flowing with ‘do it yourself’ software.

For simple returns, the risk there is low; however, it is very important to understand at least the basic principles of tax preparation.

Regardless of who prepared the tax return, it is imperative that you as a taxpayer, review your return before submission to the IRS and state.  

Errors and omission can happen even if the return was prepared by a tax professional.  I know that the assumption is that you are paying someone so the responsibility is on them to get it right.

Well, that is not entirely true.  The taxpayer’s signature is required as an acknowledgement and agreement with the information submitted on the return.

Before you finalize your tax return, pay close attention to the following areas:

• Income – Check against your W-2’s, 1099’s and any other reportable income. Make sure you report all income and that the amounts are correct.
• Credits – Claiming credits incorrectly can trigger an IRS audit. The Child Tax, Earned Income and American Opportunity Credits are generally scrutinized closely by the IRS.
• Deductions – It is to your advantage to maximize your deductions.  Review all areas thoroughly to ensure that you are not leaving key deductions on the table.
• Supporting Receipts – Particularly for claiming business expenses, if you are filing a schedule C, be sure to have receipts to back them up.

Errors on a tax return can result in having your tax return rejected or recalculated by the IRS.  In some situations, a CP letter or notice is generated and sent to a taxpayer.  This tends to generate panic and deep concern; however, it’s not always bad news. 

Believe it or not, a recalculation can be favorable at times.  The key is to do your due diligence and make sure that accurate information is submitted on your tax return.

COMMON REASONS FOR THE IRS TO ISSUE NOTICE OR LETTER

1. They need additional information

2. They changed your tax return

3. There is a delay in processing your tax return

4. You are due a larger or smaller refund

5.They need to verify your identity

The tax preparation space has become crowded but a bit more regulated. Paid preparers must obtain a Preparers Tax Identification Number (PTIN) in order to prepare taxes for a fee.  It also raises the level of accountability and reduces the level of incompetence within the industry.

PTIN holders have to renew annually and meet CPE requirements.  Tax laws require careful and accurate interpretation; therefore, the goal of the IRS is to protect the public. 

Even with all the regulations, there are those out there that will still find ways to circumvent the system.  Beware of who you are trusting to prepare your tax returns.  A few of things to consider

1. Does this individual have the experience and knowledge required?
2. What if you receive an IRS notice after tax season, will they be available?
3. Are they registered with the IRS and hold an active PTIN?

Here is a scenario based on a tax resolution case:

Taxpayer with very limited knowledge of taxes was referred to a tax preparer.  Two forms W2s, which were the only sources of income, were submitted electronically by the taxpayer.  The return was prepared and submitted without the taxpayer’s understanding and review.  

The preparer sent a one-page report to the taxpayer which apparently contained the access information to the full return; however, the taxpayer never retrieved nor saved a full copy of the tax return. A nice tax refund was received and the taxpayer considered the tax return complete.  

Well, as it turns out, the taxpayer received a CP2000 notice with the IRS’s proposed changes, which resulted in additional taxes owed. The lack of review of this return by the taxpayer proved to be consequential.  The return was submitted to the IRS with the following errors:

1. The main W2 form was omitted from the income
2. An amount unknown to the taxpayer was listed as additional income.  The IRS treated it as self employed income and assessed SE taxes.
3. The AOTC credit was claimed on the return which the taxpayer did not supply.

The dilemma for this taxpayer was (a) the refund was already spent (b) the tax preparer was unreachable

The takeaway here is that the tax return should be reviewed and signed-off on before it is submitted.  Don’t let this scenario above be you in any way. 

Ask questions and seek explanation for key calculations. If you are receiving a refund or if you end up with a tax liability, take time to understand how the amount was calculated. Remember, you bear the final responsibility for your tax return. Know before you sign!