It’s time for our annual rundown of Bozo Tax Tips, strategies that you really, really, really shouldn’t try. But somewhere, somehow, someone will try these. Don’t say I didn’t warn you!
The story you are about to read is true. Only the names have been changed to protect the stupid. This is not an April Fools joke.
This past week I spoke with a new client, call him Tom. Tom had been using a tax preparer named Jim. Last year (2012), wasn’t a good year; Tom’s business lost money. Yet Jim told Tom that he should report positive income so that, “[Tom] can collect social security in the future.”
Tom signed the tax return with the wrong income. Unlike a story that Joe Kristan reported last week, this has nothing to do with the Earned Income Credit; Tom didn’t qualify for that. (I don’t mean to diminish the issues with the Earned Income Credit: They’re very real. Credits like that do lead to fraud.) Tom paid a couple of thousand dollars in tax that he shouldn’t have. We’ll be amending Tom’s returns so in the end all will be well with him.
A tax return is supposed to report your income–accurately. If you make $50,000, that’s what should be on the return. If you lose $5,000, that’s what should be on the return. As an IRS auditor told me years ago, “One of the goals of an audit is for the taxpayer’s return to be reported accurately: no more, no less.”
There is plenty of Bozo behavior in this story. First, Jim (the tax preparer) should go back to basics. Yes, Jim is a licensed tax professional so he supposedly has taken continuing education courses. He might want to stay awake for them this time.
Second, you need to always review your tax return. The income and deductions reported on your tax return should match what you actually earned and spent. If you have questions about anything on your return, ask. Your tax professional should be happy to answer any questions you have.
Finally, if a tax professional tells you to add extra income to your return either add income so that you can qualify for social security or the Earned Income Credit, run, not walk, the other way.