Posted on October 5, 2012May 31, 2016 by Jan Roberg

Tax Court Determines that Poor Health and Turbo Tax is No Excuse for a Bad Tax Return

Photo by left-hand at Flickr.com

This is one of those geeky tax court issues that I usually don’t report on, except this is sort of a big deal for normal people, so I figured I should write about it.

The quick scoop of the case is that Robert and his wife Diolinda filed their 2007 tax return with lots of mistakes. To be brutally honest, I think they were trying to pull a fast one and got caught, but the court document refers to the tax underreporting as “errors” so I will too.

Anyway, these “errors” amounted to Robert and Diolinda owing an additional $44,643 in taxes. That’s a lot of money. And if the IRS finds that you’ve under reported the tax you owe by over 10%, they add additional penalties. In this case, the penalties amounted to an additional $8,179.

So why is any of this relevant to the rest of us? It’s because of those penalties. Robert argued in his case that he shouldn’t have to pay the penalties because he suffered from various health ailments including depression, cardiac disorders and memory loss. He had suffered from those ailments since 1997. He also claimed that he used the tax software Turbo Tax and that other people who used Turbo Tax did not get assessed penalties due to computer errors.

The response from Tax Court? Well I’m paraphrasing here but basically they said, “Garbage in, garbage out.” You see, if you use Turbo Tax and you follow the directions and prepare your return the way Turbo Tax tells you to—well then you should get a proper tax return. If you input your numbers correctly and Turbo Tax messes up your return, then Turbo Tax would be to blame. But if you go and input a bunch of crazy crap—then it’s your own fault your taxes are wrong and you can’t blame the errors on Turbo Tax. The court basically decided that Robert and Diolinda input a bunch of crap (like I said, paraphrasing.)

What about the argument that Robert’s poor health, confusion and memory loss was an excuse for the errors? The Tax Court held that since he failed to get competent help for preparing the return that it counted as negligence—so bam—penalties.

So what does this mean? If you are mentally or physically unable to prepare your own taxes properly, then you need to get competent help to assist you.

The case is Robert L. Bernard and Diolinda B. Abilheira v. Commissioner of Internal Revenue. It was filed on August 1, 2012. Here’s a link if you want to read the whole case: http://www.ustaxcourt.gov/InOpHistoric/bernardmemo.TCM.WPD.pdf

Posted on February 7, 2012May 31, 2016 by Jan Roberg

5 Most Common Mistakes on E-filed Tax Returns

Photo by Falk Lademann on flickr.com

I’m a big fan of using computer software to file your tax return. By using tax software, you eliminate many of the problems that are associated with paper filing. You can even access an online program right from my website, here’s a link: http://robergtaxsolutions.com/do-your-own-2011-taxes/. Yes, that was a blatant commercial plug, sorry.

But tax software is only as good as the information you put into it. If you know what you’re looking for, you’re less likely to make mistakes. Here’s a list of 5 of the most common problems that I’ve seen:

Using decimal points. The IRS doesn’t want you to include the pennies when you do your tax return, they just want round numbers. Some software programs let you use pennies anyway, but most don’t. If you’re an anal retentive bean counter like me, you just can’t help yourself and you automatically type in the pennies anyway. So instead of rounding $99.78 to 100 like you should, you type in 99.78. Some software programs convert that to $9,978 and that messes up your tax return.
Not proofreading before you hit send. Problems like the decimal point issue can be easily fixed if you proofread your return before you hit “Send.” One time I helped a woman who had gotten an IRS letter about her tax return – they wanted her to document the million dollars of mortgage interest she had claimed on her Schedule A. Well, of course she didn’t pay a million dollars; it was a case of the decimal point not working. She never bothered to look at the return before she sent it. She saw that she was getting a huge refund (million dollar deductions can do that for you) and was happy so she sent her return in. Here’s a good tax tip: if you’re getting an unusually large refund, or owe a whole lot more than you’ve ever paid before, there’s a good possibility that there’s a mistake that needs fixing.
Missing a Schedule D – the form for sale of stock. “But I didn’t sell any stock,” you say. Think again. If you work for a company that issues stock options, and you benefited from those stock options, you need to do a Schedule D. Yes, the tax was paid through your withholding, but you’ve got to do the paperwork on your tax return to go with it. One local company here in St. Louis, famous for hiring smart people, issued stock options to almost all of their employees one year. I spent a good part of a summer amending returns for people who didn’t file their Schedule D. (They really were smart people, so they won’t make that same mistake again.)
Missing a Schedule D – same form. This category is made up of senior citizens who take money out of their mutual funds as part of their retirement income. When you take money out of your mutual fund, you have to sell the shares to take the cash. It’s not like a regular savings account, it’s a stock investment and those sales must go on a schedule D.
Leaving out required information about taxable income. I can’t stress this enough, if you get something in the mail that says, “Important Tax Information Enclosed”, then there’s probably a number in that envelope that needs to go on your tax return. Here’s some common misconceptions:
- Just because you paid tax when you took money out of your 401(k) account, doesn’t mean you don’t have to report it on your tax return. It must be reported.
- Most retirement income is taxable on your federal return. Even if your retirement money isn’t taxable, it still gets reported on your tax return.
- The same holds true for tax exempt interest: you report it even if you don’t pay tax on it. And, a lot of federally tax exempt interest is taxable to your state. Don’t just leave that stuff off.
- Social security: for many people, social security isn’t taxable so a lot of folks just leave their social security off of their returns altogether. But for many folks, part of their social security is taxable. If you don’t include it in the calculations, you won’t know you missed it. Trust me, the IRS won’t miss the calculation if you owe tax on your Social Security.
- Along with reporting your social security, don’t forget to fill out all the boxes. In my state of Missouri, your medicare part B payment can actually reduce your taxes or qualify you for a larger property tax credit. Software programs are pretty good about making those things flow through to the pages they belong to. The key is that you have to input everything they ask you to.

Despite this list of common mistakes, you’re still much better off e-filing your return than preparing your taxes by hand. I did a separate post on common mistakes on paper filed tax returns: http://robergtaxsolutions.com/2012/02/four-most-common-mistakes-in-a-paper-tax-return/ – those mistakes are impossible to make when e-filing so you’re already ahead of the game. Besides, you now know what these common mistakes are so you’re not going to make them.

Posted on January 20, 2012May 31, 2016 by Jan Roberg

Three Problems With Turbo Tax and How to Fix Them

Working on your own taxes can be frustrating no matter what software program you’re using.

First, full disclosure: I love Turbo Tax. I used to tell people that I’d do TV commercials for it. I even seriously considered going to work for the company. I have worked for one of their competitors – and I still like Turbo Tax better. So when I title this blog post as “Problems With Turbo Tax”, you’re not going to find an exposé of all things bad with the company. This is just a heads up for people using the number one tax software in America.

Problem number 1: “The program won’t let me…” This is the one I hear most often, “The program won’t let me change the number, it won’t let me delete my neighbor’s child.” Turbo Tax is great when you’re in the act of preparing your taxes, but it’s not as easy to go back in and make a change if you’ve done something wrong and need to correct it. For example: one of the things I do is review tax returns that people have prepared for themselves before they send them to the IRS. (I charge a fee for that but it’s much cheaper than paying me to do your taxes for you.) One year, I reviewed a woman’s return and she had put a $4,000 tax credit on her return. That was wrong; the $4,000 belonged someplace else. I explained the problem and where the $4,000 needed to go. Granted, she wasn’t going to get that big refund she was expecting, but her return would have been right. Anyway, a few months later she was in my office again. She had received a notice from the IRS stating that she wasn’t allowed to claim that $4,000 tax credit I had warned her about. I asked her, “Why didn’t you change it like I told you to?” “Because Turbo Tax wouldn’t let me,” she said.

Dealing with that problem: First, you need to know that “Turbo Tax wouldn’t let me,” is not an acceptable excuse in Tax Court. Second, one thing that Turbo Tax does well is that they have real people who can answer your questions. You call the phone number and you get to talk to an Enrolled Agent who understands tax issues and the Turbo Tax software. You can tell her you’ve got a number on line 53 but it really belongs on line 29 but you can’t figure out how to make it work and she’ll guide you through it. You might pay a little more for Turbo Tax to get that service, but it’s there when you need it so don’t be afraid to use it.

Problem 2: Choosing the right product. Turbo Tax has 5 versions of its product, plus its online applications. In the store you can buy:

Basic – for simple tax returns with no itemized deductions
Deluxe – for regular 1040 returns with home mortgage interest and charitable deductions
Premier – which includes everything in Deluxe but also handles investment income and rental property
Home & Business – which is for sole proprietors
Business – for persons filing corporations, partnerships and LLCs

I cannot stress this enough, if you need the more expensive package, don’t be cheap – buy it. I’m always amazed when people call me for help because they want to depreciate their income property by hand because Turbo Tax won’t do it for them. Yes it does, if you buy the Premier edition. Of course I will gladly prepare a depreciation schedule for your property (for a fee), but if you don’t use the correct software when preparing your tax return, there could be other problems that you won’t realize like passive income limitations (sounds like I’m speaking Geek doesn’t it? I am.) The right software will keep you out of trouble. And there’s no excuse for buying the wrong one: go to their web site and do their quiz to determine which package is right for you.

Problem 3: Not updating the program before you e-file. This isn’t a Turbo Tax problem so much as it is a user error. You have to install the updates before you file your tax return or it could easily be wrong. Let’s be realistic about this. Turbo Tax tries to get its product to the shelves by December for customers to buy it. This is a pretty good business plan. The problem is; there’s always some last minute change to the tax code. Last year, Congress changed the tax rules on December 17th. They messed things up so badly that the IRS computers weren’t able to accept certain returns on the normal date. Intuit (the Turbo Tax Company) has to get its product out to the stores in time. The only way for them to get the product to the store shelves and have it work correctly is to have people install the updates to the software before they file their returns. If you didn’t install the update, your return could easily have been wrong. Installing updates is a normal part of doing taxes – I update my professional software almost every day. If you don’t have internet access and cannot install the updates, the box might not be your best option.

Now I wrote about these Turbo Tax issues because these are all problems that I have helped people with because they had filed taxes and there was a problem. If you file a bad return and the IRS sends you a letter, I charge a lot to fix it. All of these problems I mention are preventable. You will save yourself lots of money by buying the right program, updating before you file, and making use of the Turbo Tax 1-800 number provided in your box.

Final disclaimer—if you haven’t already purchased your tax software, let me recommend clicking on the “Do Your Own Taxes” page at the top and take a walk through my 1040.com program. It doesn’t have the famous name recognition, but it is a good, solid program. If it wasn’t, it wouldn’t be on my website.

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