When it comes to tax filing, the job boasts of immense number of forms and paperwork to be filled. The major concern that a tax preparer has to deal with is impeccable accuracy. Even the slightest error can lead to a hefty price for the clients. And that damages the reputation and profits of the end client as well as of the tax firm. The entire process of dealing with forms can be frustrating – they can lead to significant setbacks, wasted time, and even legal complications. Missing signatures and incorrect data entry are some of the most common errors that tax preparers come across. Before we get into the strategy, let us understand the common errors the tax preparers make that need to be avoided.
Most common errors:
Filing too early: While taxpayers should not file late, they also should not file prematurely. People who don’t wait to file before they receive all the proper tax reporting documents, risk making a mistake that may lead to a processing delay. It is on the tax firm to keep the clients notified of this.
Wrong Basic Info: Tax preparers must verify the names and SSNs twice. The name on the Return should match with the SSN. The preparer must check that the filer and dependents’ names are spelled correctly. Taxpayers must correctly list the name, Social Security number (SSN), and date of birth of each person, they claim as a dependent on their individual income tax return. Enter each SSN and individual’s name on a tax return exactly as printed on the Social Security card. If a dependent or spouse does not have and is not eligible to get an SSN, list the Individual Tax Identification Number (ITIN) instead of an SSN.
Filing Status: Some taxpayers choose the wrong filing status. As a tax preparer, make sure to select the correct filing status. Married couples may pay less tax overall if they file separately rather than jointly. IRS Publication 501(Single, MFS, MFJ, HOH filers) has detailed information on it.
Math Errors: According to the IRS, math errors are among the most common tax filing mistakes. They can range from basic addition and subtraction to more complex calculations. Tax preparers should pay utmost attention to this.
Deductions and credits: Figuring things like earned income credit, child tax credit, etc. Ensure the clients understand the deductions and credits for which they qualify. Missing out on eligible deductions or credits can lead to errors and heavy penalties.
Income classification error: Not entering the Income on the correct line item as is required is another common error. Wages, dividends, bank interest, and other income should be reported correctly As these forms (1099, W2, K1’s ) are already with IRS and they cross-check the information and if they do not match, the taxpayer may receive notice. Taxpayers should have all their income documents handy before starting their tax return. Examples are Forms W-2, 1099-MISC or 1099-NEC. Underreporting the income will also lead to penalties and interest.
Incorrect bank account numbers: Taxpayers who are due a refund should choose direct deposit. This is the fastest way for a taxpayer to get their money. Requesting direct deposit of a federal refund into one, two, or even three accounts is convenient and allows the taxpayer access to their money faster. The tax preparer must make sure that the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a delayed refund or be deposited into the wrong account.
Unsigned forms: An unsigned tax return isn’t valid. Sign and date the return. If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN). Taxpayers should review the special instructions to validate their electronic tax return.
The taxpayer automatically takes the standard deduction: While itemizing requires more effort, receipts, and other proof, than relying on the standard deduction, taxpayers could lose money by automatically taking the standard deduction. It is important to check which alternative gives you the greater write-off.
The state’s mandate: It is essential to be informed on what the taxpayer’s state requires and to maintain compliance. Few states require Health Care Mandates too. Tax preparers must be careful.
Virtual currency question: Forms 1040 and 1040-SR ask whether, at any time during the past year, a person received, sold, exchanged, or disposed of any financial interest in any virtual currency. Taxpayers should not leave this field blank but should check either “Yes” or “No.”
Strategies that can help:
File electronically: In case taxpayers file themselves, they should digitally file their taxes electronically, whether through IRS Free File or other e-file service providers, to help reduce mistakes. Tax software guides people through each section of their tax return using a question-and-answer format.
Request an extension, if needed: Taxpayers who cannot meet the April 15 deadline can easily request a six-month filing extension to October 15 and prevent late filing penalties. Tax preparers can use the Free File or Form 4868. But while an extension grants additional time to file, tax payments are still due April 15 for most taxpayers.
Double check data entry: To avoid errors due to the rush, tax preparers must enter all information, including personal details, Social Security numbers, and financial data carefully. Simple typos can lead to errors and potential delays. Cross-checking the data multiple times can help avoid errors.
Review before submission: Carefully review your completed tax forms before submission. Check for mathematical errors, and missing information, and ensure all required sections are filled out. Tax preparers can ask for the missing or forgotten data from the taxpayers at this stage. Be proactive and take the time to ensure the tax forms are completed correctly before submission.
Use IRS Resources/Stay informed about tax laws – Take advantage of IRS resources, such as publications, guides, and online tools, to ensure you have the latest information and understand the filing process. Remember that mistakes can happen, and if you do identify an error after filing, you can file an amended return to correct it. However, it’s always best to take precautions to minimize errors from the start.
Minimizing errors and reducing revision
Tax season can be a taxing time for the tax preparers and the taxpayers alike. Diligence and attention to detail play a key role in ensuring that this season doesn’t levy a heavy toll on either of the parties. While the strategies outlined in this guide can play a significant role in the likelihood of errors and revisions, the goal here is to attain productivity and effectiveness. A tax firm deals with several clients and it can get overwhelming with the rush of the season.
In case, you have been looking for an alternative that helps ease the season’s pressure, write to our experts at connect@finsmartaccounting.com and get all the help you need.
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
