How doing your taxes can become a complete nightmare…
In the age of Amazon, YouTube tutorials and ubiquitous internet access, it feels like you can do anything.
When was the last time you hopped on WebMD to try and diagnose yourself? Or the last time you googled how to solve a plumbing issue?
If the stakes are low, that’s a perfectly valid response. But when you’re really sick, you go to a doctor. And when your bathroom is flooded you call a plumber.
And if things go wrong with your taxes, it can end up costing you a lot more than a flooded bathroom. It could cost you the whole house!
Now if your tax situation is as simple as it can be, then TurboTax, TaxCut or similar solutions are all you need. It may take you an entire weekend, but you can do it.
However, if you’re running a business or have doubts about how you should file or what you need to include, doing it yourself may not be the right choice.
Take Darryl for example (name changed for obvious reasons).
Darryl works as an insurance consultant, and though he paid an accountant for most of his business affairs, he figured he could handle his taxes on his own.
For that reason he wound up in Tax Court, which is never a good place to be.
And while his income seemed in order, many of his deductions were called into question. For example:
- He deducted $80,000 in mortgage interest for two years, which came from a loan that was due to be paid off prior to the filing years. The court could see that he had paid something, but he couldn’t produce the paperwork to show how much interest he paid or even why he had to pay it. The court disallowed every penny of the $80k deduction…
- He also deducted $150,000 in alimony he paid over the same time period. His divorce specified $2,500 per month in alimony, but he and his ex-wife agreed to bump it to $5,000. Unfortunately, the law specifies oral agreements aren’t enough and that he needed a written agreement, so the court disallowed it.
- He even deducted $187,000 for “other expenses,” which he explained came from a net operating loss carryforward from a previous year, which though he listed incorrectly in his return was a perfectly fine deduction. Unfortunately he didn’t file the required “concise statement setting forth the amount of the net operating loss deduction claimed and all material and pertinent facts relative thereto, including a detailed schedule showing the computation of the net operating loss deduction.” The court only allowed $163 of the $187,000.
As his case was coming to a close, in a last ditch effort to save himself a rough decade to come in paying back taxes, Darryl tried to shift the blame onto the tax software he had used to file.
But the court wasn’t having any of it. It was determined that a tax software is only as credible as the information that is put into it, and for that reason it wasn’t the tax software that was lying.
Moral of the story?
If you are looking to maximize your deductions and you want them to hold up in tax court then you’ll want a professional prepping, filing and reviewing your tax returns.
You can save on taxes, and if you do it the right way you’ll have nothing to worry about.
Start with CODEaccounting today to get your peace of mind when it comes to taxes.Tags: Accounting, Tax
Categorised in: Blog
This post was written by CodeAccounting