How to avoid common mistakes made by tax preparers

How to avoid common mistakes made by tax preparers

“I’m only human,” the old song goes. “Born to make mistakes.” 

And yes, for tax preparers, mistakes on taxes will happen. But errors can’t be accepted or expected. The rush of tax filings and documentation crossing your desk might make “efficiency” seem imperative, but carelessness is the first and worst mistake a tax preparer can make. One simple slip-up can snowball into a nightmare for you and your client.  

Instead, slow down the pace, establish strict guardrails, use continuing professional education to stay informed of tax law changes and avoid these seven common tax mistakes that can trip up a busy tax preparer.  

7 common mistakes made by tax preparers 

Not following due diligence requirements 

Does your client qualify for the earned income tax credit (EIC), American opportunity tax credit, child tax credit (including the additional child tax credit and credit for other dependents) and head of household filing status? 

Never assume you know what’s going on in your client’s life. Many clients don’t realize they qualify for important tax credits that could significantly ease their tax liability. Once they do know, they certainly aren’t aware of the forms required to claim their credit.  

Remember that you’re the professional, retained to guide clients through the Byzantine tax code and to help them avoid tax mistakes. Use IRS Form 8867, Paid Preparer’s Due Diligence Checklist, to ensure you have covered all the bases for determining eligibility and filing for beneficial credits. Your client may have gone through life changes they don’t think about sharing. The checklist supports due diligence by making sure you remember to ask all the right questions and listen for meaningful keywords.  

Using the wrong filing status 

A married couple walks into your office, and you assume they are filing as “married filing jointly.” Or a newly widowed spouse with dependents will, most certainly, file as a “qualifying widow(er) with dependent child.” 

Not so fast. The wrong choice in filing status can reduce the client’s refund or make them owe more taxes. A few calculations could show that “married filing separately” is more advantageous for that married couple. The widow might be better off as “head of household.” Even with the help of modern tax prep software that can automatically determine the most advantageous filing status, it’s your job to understand the meaning behind each claim and determine which one positions your client for the best outcome.    

Bank account errors 

Everyone loves the convenience and speed of direct-deposit refunds, but an incorrect bank account or routing number on the tax return can spell disaster. Misdirected refunds can go to the wrong account or back to the IRS. In either case, good luck retrieving the refund. Believe it or not, the IRS lacks a procedure for retrieving lost electronic transfers.    

Avoid account mistakes on tax returns by checking and triple-checking those bank account and routing numbers. Assigning multiple pairs of eyes to review doesn’t hurt, either. It’s even important to make sure that auto-populated numbers are entered correctly. 

Basic math and spelling errors 

You got into this business because you’re good with numbers but don’t become complacent. Even a math whiz can make mistakes, especially when they take their strengths for granted. Plus, numbers can be transposed during entry, or a misplaced keystroke can jiggle those auto-populated fields out of place.  

Errors in math and spelling can result in fines, fees, processing errors by the IRS and higher tax bills or lower refunds. Make proofreading a regular part of your office routine. The time and effort you put into the front end before filing is rewarded by avoiding unwanted attention on the back end.  

Failing to report all additional income 

In the age of the gig economy, many of your clients could have multiple income sources. Others may have earned investment income. Whatever the source, the IRS knows because reports of that income go directly from the provider to the IRS.  

Advise clients to keep track of any additional earnings from which tax was not withheld and that they provide you with all Forms 1099. While you’re at it, make sure they understand that cryptocurrency earnings are taxable and properly report any capital gain or loss on that virtual currency.    

Failing to verify name and SSN 

Our names might seem immutable but think again. Names change through marriage and divorce, and according to whims and preferences, as we use middle names, initials or nicknames at different phases of our lives. Which one does the IRS recognize? 

Getting names wrong is a common tax mistake, so it’s vital to confirm names, Social Security numbers and birth dates, making sure that they match. An incorrect Social Security number can cause a delay in processing the return or even outright rejection. Check spelling and numbers, and do it after the tax return is ready for mailing or electronic filing to make sure that our friend, the misplaced keystroke, didn’t add a space or alter a crucial number or letter.  

Overlooking tax credits and deductions 

We’re all guilty of the temptation to call up last year’s forms and simply brush up the dates, but that could be a disservice to your client. Like a Christmas tree loaded with ornaments, the tax code is full of dazzling benefits and deductions that could make a big difference to your client’s refund or taxes owed. Continue practicing due diligence by probing for life changes and circumstances that could qualify them for beneficial tax credits or deductions.  

Avoid errors here by itemizing when it’s called for, and making accurate entries when reporting taxable income, withholding and estimated tax payment.  

Are tax preparers liable for mistakes? They certainly can be. For instance, tax preparers advising clients to take a deduction or credit they don’t qualify for can open themselves up to legal action. That’s why protecting your clients and yourself is crucial to staying on top of tax law changes through high-quality continuing professional education.  

Sharpen your skills with Surgent CPE 

If carelessness is the most common tax mistake you can make, willful ignorance is a close second. Your clients are constantly changing, and so is tax law. A strategic approach elevates continuing professional education from a boring requisite to a secret career weapon. By taking courses aligned with your interests and the needs of your clients, you build an arsenal of information that guides wise decisions, keeps pace with the latest thinking in tax preparation and boosts your career status and earnings.  

Surgent CPE offers more than 1,500 courses tailored to a tax preparer’s every need in webinar and self-study formats that suit your learning style and schedule. Learn how Surgent CPE takes your tax preparation to new heights with the courses that focus your practice on streamlined, error-free and timely services for grateful clients.