If you’re not checking your tax return before it gets sent to the IRS, you could be in for some nasty surprises.
Did you find a tax pro who swears she can get you better refunds than anyone else in the world? Do all her clients get great refunds, and you can’t figure out why you and your accountant can’t get the same result? Is she smarter than everyone? There’s a reason she can do this. She’s committing tax fraud. What happens when your tax preparer commits tax fraud? You get into trouble.
Consider the case of someone who is being audited because her tax preparer took deductions for business expenses. She can’t provide receipts for those expenses because she doesn’t have a business — or any such expenses. She is rightfully nervous. By the time the IRS gets done with her, she will owe the taxes on those fraudulent expenses, several types of penalties — and interest on the whole shebang.
The first thing you need to know about any tax return you sign is this — there are some words over your signature:
“Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.”
Read your entire tax return. Don’t put up mental walls and blinders. You are responsible for what goes into those pages. When you see something that you don’t understand — ask. If your tax preparer refuses to provide answers, or to let you see your tax return before it is e-filed, take your papers and records and leave.
These seven steps will help you prepare your own tax return properly — or to catch your preparer’s errors or fraud.
All names should match the Social Security cards, where the IRS cross-references all names. One client told us we had spelled his first name “Jeffrey” incorrectly. We had used the spelling on his Social Security card, which was “Jeffery”. When he looked closely, he saw that his Social Security account had been set up with the wrong name from day one.
Did you get married without changing your name with the Social Security Administration? Use your single name.
Check the name appearing on all Forms 1098 and 1099. If you have a living trust, make sure you transferred all your assets to that trust. You will know if the forms don’t show the trust’s name.
Verify each person’s Social Security Number by looking at the SS card. Don’t use your memory. When we first started looking at SS cards, one child’s number turned out to be half hers and half of her father’s.
Verify taxpayer ID numbers used on any business schedules, including Schedule C, K-1s, and so on.
Make sure taxpayer ID numbers on Forms 1098 and 1099 are correct. People in business often forget to give their customers or clients their business ID number. So the 1099s get issued to the wrong entity. What should you do when that happens? Get a tax pro to help you report it correctly. Update the number with your clients and vendors by giving them a new Form W-9.
Look over the bottom area of page 1 of your Form 1040. Are there any numbers you don’t understand? Is there a deduction for an IRA or retirement plan contribution that you know you didn’t make? Or did you want to make a contribution? This step will help you remember to fund that plan before April 15.
Unless you’re paying alimony (and relatively few people do), there should be no amount showing for it. If you are paying alimony, the ex-spouse’s Social Security number must appear next to the alimony amount. The IRS computer will be looking at his or her tax return for the corresponding income amount. If it’s not there, both parties will face IRS scrutiny.
When you have education costs, they appear either in this area as a tuition and fees deduction or on the next page as education credits. If they don’t show up in either place, ask why not. The software often requires extra steps to make these expenditures appear on the tax return. This could get overlooked.
Folks who were age 65 or over on Dec. 31 and those who are blind should be sure those boxes are checked. Checking those boxes increases your standard deductions. If you don’t own a home or have very high medical or business expenses and contributions, you probably don’t need to itemize. If line 40 of your tax return shows an amount higher than the standard deduction, you’ll want to look at Schedule A. A common ploy is to enter numbers as mortgage interest and contributions when you didn’t really spend money on either expense. The fraudsters use the national averages the IRS publishes each year to make up amounts on your behalf.
Common areas of abuse are excess Child Tax Credits, Earned Income Credits and Education credits. Those are called refundable credits. In other words, the IRS gives you back money even if you paid nothing in. Fraudsters often phony up information to get you these refunds — even when you don’t have qualifying children. If these credits show up, make sure you’re entitled to them. And even when you are, having them on your tax return will slow down your refund.
Make sure this shows the correct amount. A common error (of tax pros and amateurs alike) is to enter the Social Security withheld into this field. Also, if you had more than one job during the year and earned more than the Social Security contribution limit, make sure the computer picked up your excess Social Security withheld.
When using the direct deposit feature, don’t just double check the routing number and account number. Triple check it. Make absolutely certain it is your account — and that the account is open. If you use the wrong number and someone else gets your refund, the IRS cannot help you. You will have to sue that person to get your money back, unless they voluntarily hand over your refund. That doesn’t always happen.
You would think that by using a tax professional, you’d have no worries. But when you shop for the lowest price and highest refunds — sometimes you get what you pay for.
Eva Rosenberg is the publisher of TaxMama.com , where your tax questions are answered. She is the author of several books and ebooks, including “Small Business Taxes Made Easy.”
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