Magic Refund Pencil

The second year I prepared income taxes, I worked in a cubicle for a national chain. In the adjacent cube was a preparer who started every (and I do mean every) interview by mentioning that he was using his “magic refund pencil” to get the client a refund. The problem is that there is no magic pencil, formula, credit or deduction when it comes to taxes. There are legitimate ways to reduce taxable income and/or taxes but they require documentation or apply in specific circumstances.

Every so often I talk to a taxpayer in distress because of what happened in an audit. The audit turned up preparer liberties. The preparer uses the low number of audits to justify a deduction. For example, they include commuting miles as an employee business mileage on the Schedule A even though taxpayers can’t deduct commuting miles. The preparer rationalizes that the IRS won’t catch the error. But what if the IRS does catch the commuting miles? The auditor will disallow the deduction. They might also look at other years for similar errors or be more diligent looking at other issues on the return. After all, if the preparer made one mistake they may have other mistakes. When the audit is over, the taxpayer is left owing more tax plus interest and penalties. They owe the money not the preparer.

When you sign your tax return, you are agreeing with what is on the return. You are the responsible party should there be problems. Take the time to review and question that return before you sign. If you see a deduction that you didn’t give the preparer or you don’t understand, ask questions. Ask why deductions weren’t used.

There are no magic numbers for taxes. There are very few set rates or percentages (mileage and day care meals come to mind) and they require your actual business miles or meals served to properly calculate. You can’t just deduct a percentage of your gambling winning as losses or find your allowed business expenses on a chart. There are no IRS “minimum allowed” deductions for charitable deductions. (And I have been asked about all those.) If you preparer is telling you that you can deduct what you can’t document, do some checking before you file the return.

Just because the preparer is telling you what you want to hear doesn’t mean that it’s right. You’re the one who will be held responsible if the IRS makes changes in the return. It’s up to you to make sure that your preparer isn’t playing the audit odds game with your money behind your back. Review and question your return and if you aren’t comfortable don’t sign the return until your questions are answered.

 

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Comments

[Sue Fuss]

Ten years in, I STILL tell my clients, "I have no magic wand! Tax preparation is addition, subtraction, and a little bit of division and multiplication."

[Brett Buen]

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