TurboTax® and other tax preparation software are fantastic tools for IRS self-help. None of the programs will compute incorrectly. However, in some instances, the result is tragic, as a result of Garbage In, Garbage Out.
Garbage in, garbage out (GIGO) is a phrase in the field of computer science or information and communication technology. It is used primarily to call attention to the fact that computers will unquestioningly process the most nonsensical of input data (“garbage in”) and produce nonsensical output (“garbage out”). It was most popular in the early days of computing, but applies even more today, when powerful computers can spew out mountains of erroneous information in a short time.
We meet people every day who purchase a program, fill in the answers, print out their return and file it. They may have even received a refund. However, because of GIGO, they got audited and came to us with a severe audit problem. So, what were the warning signs that TurboTax was not up to the job? (or rather, you need help to input the data correctly into TurboTax).
TurboTax audits begin with bad input
Things start to get complicated and more risky when these factors come into play:
- you have hobby income,
- are operating a small business or have a rental property.
- A common problem is mileage deduction. You can take deductions either for mileage or for Car and truck expenses. You cannot take both of them for one vehicle. Yet because a business may have a car for which mileage id acceptable but also has a fleet of trucks which are car and truck expenses, the program will allow you to take both even though the law does not. Moreover, you need to know when and where you can deduct mileage.
- If you are a 1099 employee/ small businessman there are many instances when you can but also instances where you cannot.
- Meals and entertainment are also problem areas.
- By the way, making “estimates” of your mileage and business expenses without firm documentation is a good way to trigger an audit. Deductions which end in even hundreds ($100, $500, $12,500) say to the IRS “Audit me”.
- Income property invites problems. The program does not discriminate between repairs that are deductible as current year expenses and renovations which are not. Thus it will generate a passive loss when the property has generated a profit.
- when you have income generated from offshore accounts.
What should I do?
A well prepared return and prudent tax advice is much less than the taxes, interest penalties and audit representation fees caused by filing an inaccurate return. And the inherent business and asset planning that goes into preparing a solid return with a tax professional such as a tax attorney or CPA. If you need assistance filing, or with an audit, contact us at 888-727-8796 or email email@example.com.