A few things that I’ve noticed from another tax season, now wrapped up save for the extenders…
There are a LOT of people who prepare their own taxes. Generally, they fall into one of two groups.
- Group One - these folks miss out on deductions because of lack of knowledge, or because the self-preparation software requires entries that they’re unaware of.
- Group Two - these folks make up numbers in a handful of predictable fields until their refund is large enough.
The flaws with Group One’s choice are clear. You’re losing out on deductions that you could take.
The flaws with Group Two’s choices are less clear. Sure, you make up some numbers, you get a refund and it all seems harmless, yes?
Most of these made up numbers go into a Schedule “C” - the report for self-employment income.
The IRS also checks vehicle mileage against the state registration/inspection databases. So, your claim of 18,000 business miles on a car you drove 14,000 miles will get you “reviewed”.
Another thing that is an immediate red flag is to take form 2106 Unreimbursed Employee Business Expenses when you don’t have a W-2 job. That form is only for unreimbursed expenses that you incur in a paycheck job. Examples could include gifts you gave as part of a sales job, business use of your personal cell phone that your employer doesn’t pay you for, and some uniform, union dues or similar expenses. Only use this form if you know exactly what you’re doing with it.
From time to time, I also see a Vehicle Deduction taken by someone who has a W-2 paycheck job. If you use your private vehicle for your employer, and you don’t get reimbursed for that you can take this deduction. But, if you just drive to and from work - you don’t have a deduction.
This isn’t by any means ALL of the ways people can screw themselves over (or have an inexperienced or dishonest tax preparer do it for them), but it’s a good starting list.
Let me know what this brings up for you! What do you wonder about now that you’ve looked this list over?