A couple of months ago I offered FREE! CPA Tax Reviews of past year’s tax returns. That offer is still open. I’ll give you more information on how you can get a FREE! review at the end of this blog post.
There is one thing I discovered in reviewing all these returns. Well, actually a lot of things and it all boils down to this: There is a huge gap between CPAs who understand new tax law and those who don’t. By the way, when you send you returns in, if you’ve got a CPA who did a great job, I’ll tell you so. I wish I could give more of that news. Sadly, I’m seeing a lot of missteps on the returns.
Some of the costly mistakes I found just this past week:
(1) A net operating loss was not properly reported. This puts the whole NOL at risk. In other words, the loss might not be able to roll forward against other income. That little mistake could cost as much as $20,000 in taxes.
(2) Section 179 was not maximized in 2007 because the tax preparer was using an old IRS table or an outdated program. Well, to be honest, I’m not sure what went wrong, but I know the client ended up paying about $15,000 too much in taxes last year. Nothing I can do about it now, but I’ll make sure as my client that doesn’t happen again.
(3) Schedule C was used when the client actually had a valid, proper corporation in place. This is the second time I’ve seen this mistake. It means the client is 15 TIMES more likely to audited!! Plus it ended up costing over $8,000 in excess tax. So, more risk, more tax – why would anyone do this? I’m guessing that it was a case of a very busy tax preparer who just got tired and confused. That’s one of the reasons why the way we do business is different. We make sure every single person gets our full attention and more importantly, that the tax return reflects the strategy.
(4) The wrong pension plan was used. YIKES! I hope this client can skate through on this one. On the advice of his tax preparer, he set up a SEP-IRA last year for himself. Actually he funded one that he’s had for years. Every year he puts money in it. He has a business and takes a salary, so what could be wrong? Well, the problem is he has LOTS of full-time, long term employees who need to be covered on the policy as well. He was astounded to discover that this could cost him over $50,000 in pension contribution, penalties and fees. It could have been done differently (which we will discuss during his customized tax strategy session) so that he could have funded the plan and not had to include others. The problem is that either the preparer didn’t understand the rules, got too busy or simply didn’t follow through to make sure it was done right. It wasn’t and right now there is a big cloud hanging over his head.
(5) Wrong use of offshore trusts causes MAJOR audit. This is a really scary one. I’m coming into it pretty late in the game. The audit is almost done and the client is resigned to the taxes, penalties and interest he’s going to have to pay. Luckily, he didn’t end up falling under the abusive tax shelter umbrella. (I think he came clean and cooperated fully so that’s how he avoided it) If he had been considered to have an abusive tax shelter, he could have faced a penalty of $100,000 and jail time.
That’s all just in one week. I wish you could sit where I do for a few of these reviews. It’s amazing to see how much extra taxes people pay or how they leave themselves open, completely unwittingly.
If you’d like to get a FREE! CPA Tax Review of your returns, please fax in your returns to our secure fax at 602.258.0721. You can also give Richard a call at 888.592.4769 or send him an email at Richard@DKTaxServices.com to arrange to send in PDF copies or discuss our services with him.