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Financial Planning / Tax Strategies


Subject:  Re: Just curious Date:  2/9/2005  4:28 AM
Author:  ptheland Number:  76469 of 127753

how much wiggle room is there, if any?

It kind of depends on what the errors were. If you messed up something that the IRS is matching by computer (W-2, 1099, K-1, etc.) they'll probably catch it. Their computers are pretty good at this now.

Math errors are another area that will likely be caught. These include real math errors (1+1 = 3), looking up the wrong amount in a tax table, making a mistake running through the schedule D tax calculation nightmare worksheets. They double check your work in this area.

But if it's in your deductions - somewhere that the IRS has no idea what to expect until you tell them - then odds are it will go undetected.

Will the hounds be unleashed on me if I ever get audited?

Yes, the hounds of hell will be unleashed, and you will be destined to spend eternity roasting in fire while writing on a chalkboard 1 billion times "A penny saved it only half a cent after taxes".

Actually, IRS auditors are pretty reasonable people. If you've made an honest mistake, they just correct it and go on. You'd probably be charged the late payment penalty and interest, and life would go on as usual.

I am just curious as I hear about huge fees for errors.

Huge errors generate huge fees. I doubt the huge fees you've heard about were generated from adding a $50 contribution into the total twice. When mistakes get big enough, there are accuracy related penalties the IRS can add on in addition to late payment penalties and interest.

I won't lose any sleep over it because I give it my best effort to play it straight.

That's the path I'd recommend as well. If the error you discover is small enough that you still sleep well at night, then I wouldn't worry about it. (However, if you can sleep well through hurricanes this might not be the best test.) Certainly a hundred dollars or so in tax liability isn't going to land you in jail. If we were looking at a $1000 in tax or more, I'd would suggest amending and fixing the problem.

Certainly I should have an accountant do my taxes, but I still feel that the tax code should be simple enough that the average college graduate (myself) should be able to prepare his own return.

No matter how complex or simple your return, if you have the time and ability to do a good job on your own taxes, there is no compelling reason to hire a pro to do them for you. When the complexity starts taking more time that you're willing or able to invest, then a pro makes sense. Or if you just can't grasp the concepts you need to work with to complete your taxes, a pro is again in order. I see no need for you to apologize for doing your own return.

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