Income Tax Reduction, Audit Deterrence, Penalty Avoidance and Tax Preparation

Common Errors and Omissions of

CPAs and Income Tax Preparers

Most of our clients have had unsatisfactory experiences with their prior income tax preparers.  They come to us after realizing that cutting costs for income tax services is false economy.  Careless tax preparers lead to wasted time, wasted money and, often, lost opportunities for not being able to make sound business decisions because their bookkeeping was either not accurate, not detailed enough, not reliable or not up to date. 

We have frequently seen where tax services have done the following:

• Accept incorrect or suspicious bookkeeping without question or informing the client of questionable transactions, numbers or classifications

• Blame the bookkeeper for ignoring errors or omissions which are obvious and can cause an audit

• Little or no communication about tax opportunities or threats observed in books or tax returns

• Ignore or omit maximizing depreciation deductions through the equipment expensing option

• Capitalizing trivial amounts for depreciation, which increases assessment for property taxes

• Misapplication of depreciation and amortization methods for improvements and intangible assets

• Cut corners where inappropriate which flags the return for audit

• Frequent misspellings showing careless preparation or omitted error trapping (loses credibility)

• Creating misleading categories or establishing mysteries in descriptions, flagging return for audit

• Omit confirming the optimum married filing status (Married Filing Joint or Separate) for lowest tax

• Collapse detailed account categories into large, generalized groups

• Omitted optional breakdown of costs in Cost of Goods Sold section of tax returns (mandatory in scope of audit)

• Poor or no documentation showing their sources of data

• Entering information which the tax payer has not furnished

• Business losses entered for non-existent businesses

• Making up deductions about which the client had no knowledge

• Tax returns not signed, or signed by someone who was not the preparer

• Omit supporting information to explain tax treatments or deductions fully

• Frequent errors or omissions, including wrong social security numbers

• Misspelling client name, address or dependent information or status

• Omit, disregard or under-report legitimate deductions

• Give bad or misleading advice

• Don't check the work

• Use bargain or home-based software which prepared or allowed inconsistent numbers from form to form

• Do not confirm tax treatment with legitimate tax research sources

• Prepare tax returns when they have not been registered with the State of California as required

• Misapply tax law

• Use the wrong tax forms (S corporation tax entity using a C corporation forms, etc.)

• Do not coordinate the personal and business tax returns

• Unknowingly or knowingly expose the client to preventable audit exposure

• Reckless tax strategies (S corporation showing little or no salaries to shareholder-employees, etc.)

• Create or prevent penalties and interest assessments (little or no attention to estimated tax payments for the following year, etc.)

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We believe Mr. Ruskin had the right idea when he advised the following:

"It is unwise to pay too much, but it is worse to pay too little.

When you pay too much, you lose a little money - that is all.

When you pay too little you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.

The common law of business balance prohibits paying too little and getting a lot - it cannot be done.

If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better."

John Ruskin

(1819-1900)

British Author, Artist, Essayist and Critic