[Tax filing mistakes made by your CPA (or yourself)]

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Hulk
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[Tax filing mistakes made by your CPA (or yourself)]

Post by Hulk » Thu Apr 14, 2016 9:58 pm

Found multiple errors. One of which was failing to include my 6650 HSA contribution, which would have cost me over 1500! Had some form filled out acknowledging it but wasn't deducting it on my 1040. Sheesh. Firm came recommended by several wealthy friends/family members but geez. I swear those guys just plug in numbers on some software and don't even think about what they are trying to do (maximize my freaking tax savings!)

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Re: How often does your CPA screw up your taxes?

Post by Cuzz35 » Thu Apr 14, 2016 10:28 pm

We all make mistakes. For instance, I reported an ordinary loss from a k-1 as a positive number versus negative. Filed the return but caught my mistake the next year when I was comparing the two. Granted, they guy had $15 million of income and 100 K-1s. I would cut them some slack especially if your getting your returns finished this late in the tax season. I myself am exhausted and feel like I'm probably missing some things I shouldn't. Good thing in my office my two eyeballs aren't the only two looking at returns that go out the door.
Last edited by Cuzz35 on Thu Apr 14, 2016 10:34 pm, edited 1 time in total.

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Re: How often does your CPA screw up your taxes?

Post by AlohaJoe » Thu Apr 14, 2016 10:29 pm

Hulk wrote:Found multiple errors. One of which was failing to include my 6650 HSA contribution, which would have cost me over 1500! Had some form filled out acknowledging it but wasn't deducting it on my 1040. Sheesh. Firm came recommended by several wealthy friends/family members but geez. I swear those guys just plug in numbers on some software and don't even think about what they are trying to do (maximize my freaking tax savings!)
I've never had a CPA not screw up my taxes in the ~6 years I've used them. That includes both small practitioners and large ones (Ernst & Young and PriceWaterhouseCoopers).

BAM!
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Re: How often does your CPA screw up your taxes?

Post by BAM! » Thu Apr 14, 2016 10:31 pm

Mine forgot to deduct my 401k contributions... geez!

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Re: How often does your CPA screw up your taxes?

Post by whodidntante » Thu Apr 14, 2016 10:40 pm

BAM! wrote:Mine forgot to deduct my 401k contributions... geez!
I didn't even know that was possible. My W2 has the 401k deductions applied already. Are you self-employed?

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neurosphere
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Re: How often does your CPA screw up your taxes?

Post by neurosphere » Thu Apr 14, 2016 10:50 pm

I always review the past few years of taxes for my financial planning clients, and I have found many mistakes. A few of the most recent ones are:

-- failure to file 8606
-- Incorrect 8606
-- taking an education credit or deduction for which the client was not entitled.

What's interesting is if I happen to find an error for which the client paid less in tax (but was not supposed to), I get a lot of pushback that somehow it is *I* that must be wrong. I guess that's human nature. They tend to contact their tax preparer and ask for an amended return when it benefits them, but otherwise they prefer to "wait and see what happens". :D

I'm also a tax preparer. And I recently had a case where I almost made an error, which would have cost the client several thousand dollars. What happened was that I forgot or missed or somehow neglected to check a box when entering a W2, and failed to attribute taxes withheld to "new york location" as the software calls it. The result was that these taxes withheld did not end up being itemized on schedule A, and if I recall, not being credited to the NY state tax return. It was only on my third "proofreading" that I discovered this. But I'll be honest, I think I easily could have missed this, and I don't always do a third proofread. In this case, there was big delay from when I entered the data and was ready to file, and when the client actually wanted me to file. So I went through the return again. There were 4 W2s in total. It takes quite a bit of time to double/triple check every entry, every checkbox, etc. I suspect that most tax preparers, CPAs or otherwise, just trust they'll enter everything in the first time correctly, and if there is an error, it will result in some obvious/large problem which will clue them in to the fact they need to re-verify the entries. Mistakes are going to happen, I suspect, particularly typos, or simply forgetting to account for a document received altogether.

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SittingOnTheFence
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Re: How often does your CPA screw up your taxes?

Post by SittingOnTheFence » Thu Apr 14, 2016 11:49 pm

My CPA usually made a mistake or two every year. Just like someone else posted, we all make mistakes. CPA's are doing a lot of returns in a very small period of time. I'm sure I could do no better considering the circumstances.

I spent 10 years comparing TTax returns to my CPA's return. My biggest angst was on how to treat depreciation of rental property. Once I felt totally comfortable with that I stopped using a CPA.

I decided I'd rather be responsible for my return than to pay someone else to crunch the numbers.

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Re: How often does your CPA screw up your taxes?

Post by Spedward » Fri Apr 15, 2016 6:57 am

SittingOnTheFence wrote: I spent 10 years comparing TTax returns to my CPA's return. My biggest angst was on how to treat depreciation of rental property. Once I felt totally comfortable with that I stopped using a CPA
How do you screw up depreciation on a rental property?

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Re: How often does your CPA screw up your taxes?

Post by livesoft » Fri Apr 15, 2016 7:02 am

@neurosphere, I like your story mostly because it confirms another reason why I do our taxes and then file for an extension. After a few months, my spouse and I go over what I've done with her fresh set of eyes and my old memory of what I did.
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Re: How often does your CPA screw up your taxes?

Post by Wagnerjb » Fri Apr 15, 2016 7:41 am

Because I had an expatriate assignment, my company paid a Big Four firm to prepare my taxes for almost 20 years (due to the complicated foreign tax credits). As a CPA who had done his own taxes for all my life, I usually checked their tax returns to verify the numbers. I found maybe a half dozen errors over those years. Truth be told, there were a few times when their return didn't match my Excel spreadsheet calculations and it was my spreadsheet that was wrong. Nonetheless, I was not impressed with their work and I attributed it to the fact that my company has a blanket contract for all expats and the Big Four firm considers it a volume business....putting their junior Associates on this task.

One of the errors was a transposition error on the amount of the dividend from a stock. They also botched the Form 8606 in recent years.
How do you screw up depreciation on a rental property?
My wife and her sister each inherited half of a rental property when their father passed away. I filled out the intake worksheets completely for this, but Price Waterhouse put the full amount of depreciation (not 50%) on the house in our tax return. I didn't notice that until 2 or 3 years later when the rental house was sold.

Best wishes.
Andy

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Re: How often does your CPA screw up your taxes?

Post by Ybsybs » Fri Apr 15, 2016 8:07 am

Most years I find one or two things. This is why I review my returns carefully. I still consider my CPA a great value. If I were doing it myself, there would not be a person familiar with taxes looking through it carefully to see if the preparer caught it all.

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Re: How often does your CPA screw up your taxes?

Post by SouthernCPA » Fri Apr 15, 2016 8:49 am

Spedward wrote:
How do you screw up depreciation on a rental property?
Very easily. I see it screwed up all the time.

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Re: How often does your CPA screw up your taxes?

Post by Texanbybirth » Fri Apr 15, 2016 8:59 am

Never, I'm my own CPA. :D
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Re: How often does your CPA screw up your taxes?

Post by SouthernCPA » Fri Apr 15, 2016 9:02 am

Cuzz35 wrote:We all make mistakes. For instance, I reported an ordinary loss from a k-1 as a positive number versus negative. Filed the return but caught my mistake the next year when I was comparing the two. Granted, they guy had $15 million of income and 100 K-1s. I would cut them some slack especially if your getting your returns finished this late in the tax season. I myself am exhausted and feel like I'm probably missing some things I shouldn't. Good thing in my office my two eyeballs aren't the only two looking at returns that go out the door.
+100.

Mistakes happen. OP, I'm guessing you have never made a mistake at your work? This is why we have two sets of eyes look at everything in our office before it goes out. Even then, things slip out occasionally that are incorrect. It's just the nature of the beast. When a client only wants to pay $350 for a return there are only so many hours a CPA can spend preparing the return, having another CPA review it and checking for errors, etc before it's not profitable. Not to mention pairing the economics of it with the fact that we get thousands of returns out per filing season - mistakes are bound to happen. At our firm, we will fix our errors free of charge and pay the penalties and interest associated with any additional tax liability due.
Last edited by SouthernCPA on Fri Apr 15, 2016 9:12 am, edited 1 time in total.

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Re: How often does your CPA screw up your taxes?

Post by abuss368 » Fri Apr 15, 2016 9:07 am

BAM! wrote:Mine forgot to deduct my 401k contributions... geez!
Hi BAM,

Is that possible? Most employees have any 401(k) contributions deducted on a pre-tax basis from payroll.

Best.
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Re: How often does your CPA screw up your taxes?

Post by abuss368 » Fri Apr 15, 2016 9:09 am

SouthernCPA wrote: +100.

Mistakes happen. OP, I'm guessing you have never made a mistake at your work? This is why we have two sets of eyes look at everything in our office before it goes out. Even then, things slip out occasionally that are incorrect. It's just the nature of the beast. When a client only wants to pay $350 for a return there are only so many hours a CPA can spend putting in the information, having another CPA review it and checking for errors, etc before it's not profitable. Not to mention pairing the economics of it with the fact that we get thousands of returns out per filing season - mistakes are bound to happen. At our firm, we will fix our errors free of charge and pay the penalties and interest associated with any additional tax liability due.
Hi SouthernCPA,

Sounds familiar indeed! I could not have said it better myself.

Best.
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Re: How often does your CPA screw up your taxes?

Post by Pacman » Fri Apr 15, 2016 9:36 am

I'm a CPA, but don't specialize in taxes. I did however work in a tax office part-time one year. Individual taxation is not something I would want to specialize in. A lot of people assume they are smarter than you based on what they found on Google. And a lot of people think they are paying you too much. For a CPA, here is the number one sign that a potential client views you as a commodity and doesn't value your service: their first question is asking you how much is it going to cost? If your number one factor in using a CPA is cost, many of the best CPA's won't even want your work as your just as a price shopper. I didn't see this, but for existing problem clients, I have heard of CPAs simply charging those clients higher fees to drive them away.

Here is the reality of the situation, similar to what SouthernCPA said:
- you are trying to figure out someone's life situation in just a few hours. More times than not, clients forget to mention or include something or don't even bother to fill out the questionnaire.
- people's tax situation can differ drastically. One one hand, you might have a low income client who qualifies for earned income credit; on the other hand, a small business owner with real estate on the side.
- Some tax professionals literally make 80% of their income between Jan - April. They can only spend so much time on one client.

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Re: How often does your CPA screw up your taxes?

Post by InvestorNewb » Fri Apr 15, 2016 9:43 am

I pay $2,000 for my corporate taxes and usually find at least one arithmetic error per year. A high price doesn't mean the accountant is immune to making mistakes. Humans are prone to making mistakes.
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Re: How often does your CPA screw up your taxes?

Post by SouthernCPA » Fri Apr 15, 2016 9:59 am

Pacman wrote:And a lot of people think they are paying you too much. For a CPA, here is the number one sign that a potential client views you as a commodity and doesn't value your service: their first question is asking you how much is it going to cost? If your number one factor in using a CPA is cost, many of the best CPA's won't even want your work as your just as a price shopper.
Bingo. The google Tax pros and the price shoppers are the worst types of clients. I'd rather them go somewhere else. The 80/20 rule applies, 80% of your problems/pains are caused by 20% of your clients. It's best to let those clients go as they aren't the ones paying your wages/overhead anyhow.

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No idea

Post by daveatca » Fri Apr 15, 2016 10:03 am

How would I know?
I never check.
I sign and it gets filed.
The same family-owned firm has been doing my taxes since 1980.
My life is not that complicated even with owning a small business.
Last edited by daveatca on Sat Apr 16, 2016 10:42 am, edited 1 time in total.

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Re: How often does your CPA screw up your taxes?

Post by HueyLD » Fri Apr 15, 2016 10:05 am

Locally, many CPA firms have a minimum charge of $1,000 to weed out the shoppers.

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Re: How often does your CPA screw up your taxes?

Post by FreeAtLast » Fri Apr 15, 2016 10:22 am

Once in 25 years. At least, that was the only mistake which I discovered in that time period. If there were more, the IRS hasn't discovered them either, which works for me.
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Re: How often does your CPA screw up your taxes?

Post by White Coat Investor » Fri Apr 15, 2016 10:59 am

I see CPAs screw up taxes in major ways all the time (especially on form 8606). However, I do my own taxes and I'm hardly immune. I've made an error each of the last four years. This year I caught it before filing, but I did a 1040X for each of the last 3 years. So I have a little compassion for CPAs making errors too.
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Re: No idea

Post by bs010101 » Fri Apr 15, 2016 11:05 am

daveatca wrote:How would I know?
I never check.
I sign and it gets filed.
I'm curious - do others review their returns before filing? I skimmed mine this year and found an error several thousand dollars in our favor, which I asked the accountant to correct. I was left wondering if I shouldn't have looked. Of course the error could have gone either way.

SouthernCPA
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Re: No idea

Post by SouthernCPA » Fri Apr 15, 2016 11:39 am

bs010101 wrote:
daveatca wrote:How would I know?
I never check.
I sign and it gets filed.
I'm curious - do others review their returns before filing? I skimmed mine this year and found an error several thousand dollars in our favor, which I asked the accountant to correct. I was left wondering if I shouldn't have looked. Of course the error could have gone either way.
Most clients sign and don't check. Many wouldn't even know what they were looking at (especially the more complex returns.). I have a few clients who are very thorough in their review and ask me many questions about why/how/what is that? I don't mind those questions, but I'm thankful every client isn't that way or else it would be hard to get any actual work done.

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Re: How often does your CPA screw up your taxes?

Post by MrKnight » Fri Apr 15, 2016 12:27 pm

You are ultimately responsible for your own taxes, not the CPA, if there is a mistake the IRS comes after you. It is your responsibility to review the work. I highly doubt that most people do.

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Re: How often does your CPA screw up your taxes?

Post by island » Fri Apr 15, 2016 12:36 pm

Interesting thread.
My tax situation is fairly simple so have never used a tax pro and most people I know that do seem to be in the just sign and file camp.

What type of tax software do the tax pros use, something more exotic than what's available to us average schmos?

For those of you who use a tax pro and are capable of finding their errors, why not do them yourself? I'm assuming you must have a good understanding of the rules and process? Just too much of a time consuming pita?

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Re: How often does your CPA screw up your taxes?

Post by Amarisa » Fri Apr 15, 2016 12:37 pm

MrKnight wrote:You are ultimately responsible for your own taxes, not the CPA, if there is a mistake the IRS comes after you. It is your responsibility to review the work. I highly doubt that most people do.
Exactly. I cheat a little. My sister in law is a evil IRS agent and she goes over them before I submit anything. She also charges me!

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Re: How often does your CPA screw up your taxes?

Post by DoubleClick » Fri Apr 15, 2016 12:47 pm

Although I can see how easy it is to make errors, if I pay a CPA, I expect to get expertise precisely to avoid errors. In practice, I find that CPAs are prone to errors as well, only perhaps a slightly different set of errors from what I would make. Unfortunately, the complexity of our current tax code makes it very hard to avoid errors alltogether.

I've resorted to doing my own taxes because there isn't an apparent error advantage, and a side benefit is, I have an understanding of how to do better tax planning.

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Re: How often does your CPA screw up your taxes?

Post by orca91 » Fri Apr 15, 2016 1:12 pm

Just one time in over 5 years of using a CPA. He entered the wrong amount for depreciation on the rental I owned at the time. I caught it after they were done and we fixed it the next year. Too easy.

My situation has really gotten simple now that the rental has been sold. I may start doing taxes on my own since it will be so basic for me. But, it will also become quite a bit cheaper to have the CPA do them now that it's so basic. Will see... I'm admittedly lazy in some ways. :happy

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Re: How often does your CPA screw up your taxes?

Post by Rodc » Fri Apr 15, 2016 1:20 pm

Never.

Then again I am the one checking my own work so I might have overlooked something.
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Re: How often does your CPA screw up your taxes?

Post by neurosphere » Fri Apr 15, 2016 1:28 pm

DoubleClick wrote:Although I can see how easy it is to make errors, if I pay a CPA, I expect to get expertise precisely to avoid errors. In practice, I find that CPAs are prone to errors as well, only perhaps a slightly different set of errors from what I would make. Unfortunately, the complexity of our current tax code makes it very hard to avoid errors alltogether.

I've resorted to doing my own taxes because there isn't an apparent error advantage, and a side benefit is, I have an understanding of how to do better tax planning.
In general, there are three broad types of errors (and then perhaps sub-types) which can be made:

-- Data entry errors (which include typos, failure to notice/include a form or document received, etc)
-- "Knowledge", education or training errors (not understanding or knowing the tax law, the tax rules, filing requirements, new changes to the tax code, taxes/credits/deductions a client is entitled to, etc)
-- Process errors related to software (where to put a number, how to activate a worksheet, when to "force" something which needs to occur but doesn't occur automatically, and of course built-in errors/mistakes of the software itself).

Given the volume and the speed at which most tax preparers need to work, I think it's unrealistic to assume that data entry errors and process errors will not occasionally occur. That's true of any job in which humans are employed. On the other hand, the knowledge errors should not happen. I expect a paid preparer to either 1) know what they are SUPPOSED to do, or 2) know that they DON'T know.

I.e. I limit the types of paid returns I agree to do, based on what they need. I've turned dozens of people away because I feel the client will NOT be getting their money's worth in the "knowledge" department from me (e.g. complicated dependency/EITC issues, divorce or other legal agreements to take/split tax credits or deductions in a certain way, unusual employee stock option situations, any trust or s-corp returns, complicated business situations, etc). But I have the luxury of doing that based on how I've structured my business, and my family's income needs.
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Re: How often does your CPA screw up your taxes?

Post by MathWizard » Fri Apr 15, 2016 1:36 pm

Never.

Had a CPA firm do the taxes twice, once for each business my wife started.
My wife was a bookkeeper, and had all the numbers ready an an office assistant plugged the
numbers in. A CPA may have reviewed the form, but I'm sure did not fill it out.

My wife and I did just as well filling out paper forms with calculator and pencil.

Nowadays, with just W2 income, investments, and using tax software, the
return is so simple, it is not worth the cost of a CPA.

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Re: How often does your CPA screw up your taxes?

Post by NOVACPA » Fri Apr 15, 2016 1:42 pm

The above poster nailed it with the three types of errors.

Data entry is in excusable as an OCR eliminates much of that.

The software errors should also be a non-issue as there is a plethora of training available for all of the major providers (CCH, BNA, Intuit, etc.).

The knowledge issue comes about when a CPA is in over their head. They think they can do all sorts of returns, but then they get into the weeds and realize they don't have the skills, and more importantly, the network to find out the correct way to handle a transaction.

The third issue could be mitigated by extending the return and being honest with the client and tapping the local CPA society to see who knows how to handle the transaction and working to pass off the return or paying for the consultation.

With that being said...

Many CPA's are likely very knowledgeable but have no idea how to run a business. They commit to too much, over promise, and fail to hire appropriate resources for the volume of work.

Doing low dollar, high touch returns is a recipe for failure.

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Re: How often does your CPA screw up your taxes?

Post by Gnirk » Fri Apr 15, 2016 1:43 pm

Just once that we know of, on last year's return. Discovered this year he hadn't included interest on cashed I-bonds on 2014 return. His unsolicited advice: "let's wait to see if the IRS catches it". DH agreed, but I'm not happy about it.

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Re: How often does your CPA screw up your taxes?

Post by NotWhoYouThink » Fri Apr 15, 2016 2:09 pm

Only one experience here, I prepared the data for FIL's CPA for his 2015 taxes. BIL signed the completed tax form and had the CPA submit it. I compared CPA submittal to my Turbo Tax ghost return, and found that CPA had underreported state taxes paid, which caused about $50 in extra federal tax. She also did not calculate the penalty for under payment, guess the IRS will send a bill later, maybe.

Put this under "things I can't control so I won't fret over" file, but thanks for giving me a place to vent.

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Re: How often does your CPA screw up your taxes?

Post by dodecahedron » Fri Apr 15, 2016 2:38 pm

MrKnight wrote:You are ultimately responsible for your own taxes, not the CPA, if there is a mistake the IRS comes after you. It is your responsibility to review the work. I highly doubt that most people do.
When you sign, YOU are signing the following statement:
"Under penalty of perjury, I declare that I have examined this return and the accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete."
The preparer is signing a much more circumscribed statement, essentially the substance is that is correct based on the information available to the preparer, most of which has presumably been provided by you.

So, yes, the taxpayer is the one ultimately responsible for the accuracy of his or her return. Relying on the advice of a qualified preparer is no substitute for actually reviewing the return yourself.

At the VITA site my students operate, our volunteer preparers and quality reviewers walk our taxpayers line by line through every line on their 1040s, explaining what it represents and double-checking with the client that they haven't forgotten to tell us anything before we even allow our clients to sign. We emphasize to our clients that THEY are an essential part of the quality review team and that the return can be no more accurate than the information they supply to us. We really encourage them to ask questions and "kick the tires."

Most of our clients are stunned and say that no preparer has ever done that for them before.

We have a very elaborate quality review process, with typically four sets of eyeballs on every return (the preparer's, the quality reviewer's, the client's, and ultimately mine) before it is efiled. Even so, it is not 100% perfect.

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Re: How often does your CPA screw up your taxes?

Post by SouthernCPA » Fri Apr 15, 2016 2:55 pm

neurosphere wrote:
In general, there are three broad types of errors (and then perhaps sub-types) which can be made:

-- Data entry errors (which include typos, failure to notice/include a form or document received, etc)
-- "Knowledge", education or training errors (not understanding or knowing the tax law, the tax rules, filing requirements, new changes to the tax code, taxes/credits/deductions a client is entitled to, etc)
-- Process errors related to software (where to put a number, how to activate a worksheet, when to "force" something which needs to occur but doesn't occur automatically, and of course built-in errors/mistakes of the software itself).

Agree. I feel like most bogleheads assume that if you can avoid the Data Entry errors because your retail tax software helps you then you don't need tax help. This is true for very simple returns, but when it comes to making decisions on when something should be capitalized vs expensed, asset disposals, carry forwards, etc data input is not going to solve your problems and you really need the knowledge part because Garbage In, Garbage Out applies.

An example I like to use (that is a "no duh" for the accountants here), but I frequently see clients who "keep their own books" using QuickBooks. Say this client is a Schedule C, sole proprietor. A Simple example of Garbage In, Garbage Out is a client makes payments on a car loan and records the payments to "automobile expense" in QuickBooks. If this client were to print out the P&L and punch this into their Schedule C, the return is incorrect although the data entry is right (by "right", I mean they punched in the automobile expense number off the P*L). By not knowing the underlying accounting around assets, liabilities, etc the client has an incorrect P&L. The car should have been capitalized and depreciated, the loan should be recorded as a liability and the interest on the loan should be the only thing hitting the P&L - everything else related to that car is a balance sheet transaction with no impact on net income. Basically not knowing tax accounting in this instance would cause the client to overstate expenses and underreport income and they would have no idea they did this incorrectly. They could use Turbo Tax to print the P&L and enter the numbers in and then get on a forum and say "I just do it myself, I don't need a CPA" and that's because they don't know when they are wrong because they don't have the knowledge aspect referred to by Neurosphere.

The above is a very simple example. But there are hundreds of these examples related to all sorts of transactions. If you have a W2 and 1099-Int/1099-Div, by all means give it a go yourself. But if you have Passthrough income, small businesses, rental properties, S-corps, C-corps, Trust, Estates, etc - hire a tax pro. Your situation is probably more complex than you realize.

Lynette
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Re: How often does your CPA screw up your taxes?

Post by Lynette » Fri Apr 15, 2016 3:23 pm

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Last edited by Lynette on Wed Dec 06, 2017 11:20 pm, edited 1 time in total.

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LadyGeek
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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by LadyGeek » Fri Apr 15, 2016 3:31 pm

I retitled the thread.

To keep this actionable, describe mistakes made by your CPA or yourself.
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island
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Re: How often does your CPA screw up your taxes?

Post by island » Fri Apr 15, 2016 3:47 pm

Lynette wrote:I hired a CPA as I had some rentals in Johannesburg. What a pain to files two different sets of returns with different tax structures. I sold the rentals. Since then I got lazy and let my CPA do my taxes. As I'm close to retiring, I decided to do my taxes manually to see what I was doing. I also bought HR&Block Software. The results were close. By this time I was exhausted and filed the CPA's version. I'm deliberating limiting activity in my taxable accounts to simplify tax filing.
I get what you're saying. My tax situation is nowhere near as complicated as what your's must be, and after a few years of doing them myself, because I didn't want to be the disinterested spouse who may someday be the one left behind and clueless, I can see how simplifying my financial life would be a perk.

Fewer banks, brokerages, funds, transactions, types of investments, I can get onboard with that!

I'd also like to say thanks to everyone contributing to this thread, especially the CPAs and tax pros. Learning a lot!

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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by jebmke » Fri Apr 15, 2016 3:51 pm

Most of mine are fat-finger mistakes. I do a hundred or so returns per year so I find it better to let my return "age" for a while and go back to it after the season is well past. Then I fix anything, have my spouse check my work and file it in late summer/early fall.
When you discover that you are riding a dead horse, the best strategy is to dismount.

island
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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by island » Fri Apr 15, 2016 4:01 pm

jebmke wrote:Most of mine are fat-finger mistakes. I do a hundred or so returns per year so I find it better to let my return "age" for a while and go back to it after the season is well past. Then I fix anything, have my spouse check my work and file it in late summer/early fall.
You mean file a late return, isn't there a penalty for that? Or file an amended return? I've never done either.

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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by jjface » Fri Apr 15, 2016 4:02 pm

Forgot to check full year health coverage once.

quantAndHold
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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by quantAndHold » Fri Apr 15, 2016 4:13 pm

I do my own, and pretty much every year....I fat finger something, or I put something on the wrong line on the form. Usually I catch it before I submit, but sometimes the IRS catches it for me.

I agree with livesoft. I do the taxes, save, then go do something else for a couple of weeks. Then I come back and print the forms, and review them line by line for errors. I almost always catch something in the review.

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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by jebmke » Fri Apr 15, 2016 4:19 pm

island wrote:
jebmke wrote:Most of mine are fat-finger mistakes. I do a hundred or so returns per year so I find it better to let my return "age" for a while and go back to it after the season is well past. Then I fix anything, have my spouse check my work and file it in late summer/early fall.
You mean file a late return, isn't there a penalty for that? Or file an amended return? I've never done either.
I always file an extension in early April and usually file the return in the fall. One year I had to seek a second extension and file in January. Second extensions are more cumbersome. You have to have a pretty good reason to go beyond the normal filing deadline of October 15.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by llama » Fri Apr 15, 2016 4:26 pm

I had to file 1040X last year because I paid double taxes on disqualifying disposition of ESPP shares. I didn't realize that the brokerage reports the discounted price as the cost basis and that the discount was already reported as ordinary income on my W-2.

I talked to several others at work who made the same mistake ... this error is probably rampant.

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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by Kevin M » Fri Apr 15, 2016 7:08 pm

Here are some mistakes made by the CPA of the trustee of a trust of which a good friend of mine is the beneficiary. These are mistakes on the pro-forma 8949s and Schedule D she provided as guidance in filling out his tax return, and on the K-1 issued as a result of the 1041 she prepared.

This all is related to the sale of my friend's deceased dad's house, 1/6 of which had been transferred to friend as a gift several years ago (and 1/6 each to two other siblings), and 1/6 of which was inherited in early 2015 (was in dad's revocable trust at time of death, and ditto re: the siblings). This has been through two iterations so far, one with incorrect form 1099-S (all gross proceeds reported on one sibling's 1099-S), and one with corrected forms 1099-S (one to each sibling with 1/6 gross proceeds, and one to successor trustee of trust with 1/2 of gross proceeds).

Iteration 1 (incorrect 1099-S):
  • Put sale of inherited portion on pro-forma 8949 Part I (short-term); should be on Part II (long-term).
  • Checked box B (short-term transactions reported on 1099-B, basis not reported to IRS) for inherited portion); should have been box F on Part II (long-term, not reported on 1099-B).
  • Entered deceased's date of death in column (b), date acquired; should have entered INHERITED.
  • Checked box E (long-term, reported on 1099-B) on Part II for gift portion; should have checked box F (not reported on 1099-B).
  • Even suggesting that friend report inherited portion on his 8949 was an error, since this should be reported on the trust's 1041, and friend's portion reported on K-1.
After I pointed out the 1099-S problems, they got the title company to issue correct forms 1099-S, but then the errors continued.

Iteration 2 (corrected 1099-S):
  • Reported large capital gain on K-1 issued to friend. Should have been a capital loss due to basis step up to FMV for inherited property plus adjustments for selling costs. Basically she used the gift share basis on the trust's 1041.
  • Provided a pro-forma Schedule D showing the capital loss that should have been reported on the K-1, basically suggesting that friend use stepped-up basis on gift share (basis that should be used for inherited share).
  • Showed the capital loss on Part I (short-term) of pro-forma Schedule D. Everything is long term, either because of actual holding period, using donor's basis for gift share, or treating all inherited assets as long-term.
  • Net capital gain (gift share and inherited share) increased by about $10K in iteration 2, with no explanation as to why.
Other than the $10K discrepancy in basis and capital gain between iterations 1 and 2, there is no net impact on taxes paid, but the way it's being reported is wrong. Not only would it essentially be tax fraud to report it this way, knowing that it's incorrect, but I'm concerned that it would be more difficult to explain in an audit, since it's obviously so wrong.

Trustee (friend's sister) is unwilling to request that CPA fix the problems (CPA walks on water as far as she's concerned, and can make no mistakes). Apparently she's the kind of client that the CPAs here seem to like. On the other hand, I'm the kind of person the CPAs here apparently would not want as a client, because I don't like to file tax returns that I know are incorrect.

I had my friend file extensions and pay worst-case federal and state income tax for now, with the plan of providing the CPA with written explanations of the problems, and a follow-up phone conversation if necessary (after April 18). I've been working on various drafts of the explanation, the challenge being that these errors seem so obvious to me (having settled a few trusts, filed a couple of 1041s, dealt with inherited real property, know how to read tax publications and even the IRCs, etc.), so I don't know how much detail is required for the CPA to understand the errors. In other words, I don't know if this all is due to sheer incompetence, or just stupid mistakes due to her rushing to get this done with the hundreds of other tax returns she's probably been working on.

Would be interested in thoughts from the CPAs participating in this thread. My references for all of this are Instructions for Form 8949, publications 550 and 551, and IRCs 1014 and 1015, not to mention the fact that I already knew all of this from prior experience.

Kevin
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Miriam2
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Re: [Tax filing mistakes made by your CPA (or yourself)]

Post by Miriam2 » Fri Apr 15, 2016 8:31 pm

Question for the CPAs -

On the few occasions I used CPAs - and they were from large well-respected firms doing our family taxes - I had the feeling the data input was being done by a para-professional, sort of the CPA equivalent of a paralegal or nurse practitioner, who did the in-putting from the documents we put together for them, then passed the package to the CPA for review. Do some/most CPA firms do this?

I'm not suggesting it is illegal. It's really no different than a law firm using a law clerk for writing or a paralegal for research.

I ask because the last time, when I found 3 errors, our CPA denied they were there and I had the feeling he had not actually even seen the forms.

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Re: No idea

Post by grabiner » Fri Apr 15, 2016 8:34 pm

bs010101 wrote:
daveatca wrote:How would I know?
I never check.
I sign and it gets filed.
I'm curious - do others review their returns before filing? I skimmed mine this year and found an error several thousand dollars in our favor, which I asked the accountant to correct. I was left wondering if I shouldn't have looked. Of course the error could have gone either way.
I review mine, to catch both my mistakes and mistakes made by software. I have caught several bugs in TaxAct, and I also find things that I entered incorrectly because the numbers don't look right (Why am I paying tax on this Roth IRA conversion, since it was a backdoor? Why does my total dividend income earned in both states exceed the federal total?)
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