Thursday, November 5, 2009

When to DIY and When Not to DIY

Case Study: When to DIY and When Not to DIY

I have a client who has worked as a Full-Charge Bookkeeper for various companies for over 20 years. A couple of years ago, she started up a side business and hired me to prepare her 2007 corporate tax returns (her first year in business). Then in 2008, she decided to save some money by doing them herself.

Last week, she came to my office and showed me a notice from the IRS for approximately $675 worth of penalties & interest and another notice from NYS for $500 worth of penalties & interest. While reviewing the corporate tax returns that she self-prepared and filed, I also discovered that she had overpaid her taxes by $1,600.

So, by trying to save my $500 year-end corporate tax return preparation fee, she cost herself $2,775 ($1,600 of unnecessary tax + $1,175 of penalties & interest) that she shouldn't have had to pay.

I’m fixing all of the mistakes she made by filing amended tax returns. I will be able to get her back $1,600 and some of the penalties, but the majority of the penalties & interest will stick and during the amendment process, her audit risk will be extremely high due to the fact that we’re asking for almost all of her 2008 tax bill back in the form of a refund.

And this is a woman who has been a professional bookkeeper for over 20 years! Imagine what happens when small business owners with even less bookkeeping/tax experience attempt to do the same!


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