Timeless blunders: What mistakes are clients making this season?

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A pandemic has thrown the season for a loop just a year after reform introduced a generation’s worth of changes in tax law. Is it any wonder clients make mistakes?

According to the IRS and others like the Illinois CPA Society, some goofs spring eternal (especially on DIY returns): missing or inaccurate Social Security numbers, misspelled names, wrong filing statuses, math errors and incorrect bank account numbers.

“Clients are still misunderstanding that even though they might not be able to itemize deductions for IRS purposes, they still might be able to itemize for [their state],” said Michael Eisenberg, a CPA with Top 100 Firm Squar Milner, in Encino, California. “They’re not bringing these potential deductions to their preparer.”

One thing they sometimes do bring is the wrong attitude. “Trying to point to the internet that somehow knows better than the tax professional,” said Chris Hardy, an Enrolled Agent and managing director at Georgia-based Paramount Tax and Accounting. “The comments have changed from ‘my hairdresser’ or ‘my neighbor’ to ‘Google said’ and ‘this online message board said ...’ Same hearsay, just a different venue.”

“Complete disengagement. Lights out, don’t care,” said John Dundon, an EA and president of Taxpayer Advocacy Services, in Englewood, Colorado. “Just tell’em how much to write on the check.”

‘Take a closer look’

Unsigned forms and expired ITINs also make the list of frequent mistakes, as do wrong deductions and credits.

Squar Milner’s Eisenberg has also found clients struggling with the new W-4. “The issue has arisen from many people being under-withheld in 2018, the first year of the numerous tax changes,” he said.

Reform reduced the taxes taken out of many paychecks. Many clients failed to recalculate withholdings — and dropped their jaws at their tax returns a year ago yet often failed to heed preparers’ advice (see our story). The IRS had to delay the redesigned W-4 (see our story) after complaints that it violated privacy by requiring too much information about other income, placed too much on employers to figure out how much to withhold, and was too complicated.

“Many clients have not adjusted their withholdings and need explanation as to why they owe more or their refund is less this year,” said Twila Midwood, an EA with Advanced Tax Centre, in Rockledge, Florida.

“We reviewed their returns with them last year and explained how it could impact their 2019 taxes, but it’s apparent that they didn’t change anything with their employer or retirement pay,” Midwood said. “Perhaps this will encourage them to take a closer look.”

Freeman Income Tax Service in Anthem, Arizona, normally tries to call all clients over the summer, according to EA Kerry Freeman. “We also use e-mailer to remind our clients that we’re here,” Freeman said. “It’s a lot of effort [but] many still don’t take this opportunity to reduce potential taxes.”

Obligations and impacts

A closer look at past tax commitments might benefit some taxpayers.

A client of Doug Radtke, a CPA in Mountain View, California, had an enormous tax bill for 2018, went on an IRS payment plan and was provided estimated payment vouchers by tax prep software. “The 2019 tax year had also an enormous tax-due amount, and the client had used all the free cash they had for a down-payment on an additional investment property,” Radtke said. “A huge problem and a huge mistake — take your tax obligations seriously!”

This mistake is rampant enough during the pandemic that the IRS is postponing certain payments related to installment agreements and offers in compromise and limiting certain enforcement initially — at least — through the new Tax Day of July 15.

This coming off-season may be rife with another common mistake in the wake of the pandemic. “When life events happen, [clients] neglect or don’t think about off-season tax planning,” Freeman said. “Home purchase or sale, kids going to college, family illness or death, or starting a business: All of these have an impact.”

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