Your Rich Uncle Doesn't Do His Own Taxes and Neither Should You


Thinking of doing your taxes yourself this year? Maybe you should think again. We have our first official Tax Court decision of 2019 and it’s a doozey. If you start to get nervous while you read this remember that Eliseo CPA, PLLC, the best accounting firm in Charlotte, is always here to help!

The Case

The taxpayer was charged by the IRS with payment deficiencies and penalties for close to $70,000 and decided to try to fight this case without a lawyer. He had prepared his own returns for tax years 2009 and 2010 and when he appeared in tax court, he did not have sufficient documentation to fight the mistakes he had made which are outlined below.

This guy really likes to do-it-himself. Don’t you think if you’re going to Tax Court you’re going to pony up at that point? He could have probably retained a top law firm for less and saved the difference.

The Mistakes

The petitioner claimed a $43,000 IRA distribution as a nontaxable rolled over IRA. This is more common than you think and one made by self-preparers all the time. In trying to remove the 10% penalty for early distributions, he claimed to have been disabled and thus needed the money for medical expenses. That usually flies but there were two things wrong with this claim. First, due to his working conditions this man was clearly not disabled even though he submitted evidence that he did have a medical illness. His medical illness and inability to work were unrelated. Second, he didn’t show up with documentation to support his claim of using the IRA distribution for medical expenses! Unbelievable! Even the guys on USA’s show “Suits” show up with a folder or something, even if it’s just on TV! As the top accounting firm in Charlotte, we watch out for our clients and are constantly advising them to keep records just-in-case. This is that just-in-case moment. Probably could have been resolved with mailing copies to the IRS but apparently Tax Court is wayyy more fun.

Another mistake was a large mileage deduction on his Schedule A. Instead of bringing the documentation of his employer’s reimbursement policy with him, he simply claimed that he had it along with other important documentation “carefully placed in an envelope”. What does that even mean? Where is the envelope? I’d fine this guy too if I had to listen to his stories. As for his mileage logs, he included some info but left out specific dates, locations, and the purpose of each trip. There is a saying applicable to almost every profession, if you didn’t document it, you didn’t do it.

Some other issues that were brought forth included excessive miscellaneous and repair expenses, charitable contribution deductions, capital loss deductions, residential energy credits, and whether or not he was liable for additional tax payments due to failure to timely file his return. The taxpayer was not able to provide supporting documentation and once again claimed they were placed in his supposed mystery envelope. To further the point made above, if you’re going to go through the trouble of keeping documentation, keep it secure, safe, and ACCESSIBLE!

Why You Should Rethink DIYing

So, not only did this guy decide to file his own tax returns, and take deductions that he was not entitled to, he also decided to DIY when it came to legal proceedings and was poorly prepared to fight the claims. This is truly showing up to a gunfight with a knife. So, let’s think about it. TurboTax is about $100 for the software (yes we know they have CPAs IN THE SOFTWARE now who sit at desks on rotating platforms) and if you’re wrong you could get slapped with $70k in penalties. Or, you could pay a little more to have the best CPA firm in Charlotte, NC help you out and avoid all of this. Plus, YOU DON’T HAVE TO DO YOUR OWN TAXES!

On a serious note, although this taxpayer may have taken things to the extreme with some of his tax return mistakes, and maybe you don’t think you’ll be in a position to do the same, that doesn’t mean that other DIYers won’t make mistakes that can affect their returns negatively. Hiring a professional to prepare your tax returns can help save you money by taking all of the correct deductions that you may have missed, as well as avoid costly mistakes such as any of the situations described above. Even one of those mistakes that this taxpayer made could cause problems. Why not hire a professional with knowledge and experience and put your trust in them to diligently and effectively prepare your taxes? It beats waiting for the IRS to contact you about mistakes you didn’t even know you might have made.