but ignorance is priceless!
A professional tax preparer shared this hilarious story:
A single woman with a salaried position was looking for help with her “simple” tax return. She also has a side business as an artist. The art work generates minimal income but much larger tax deductions that resulted in losses of at least $5,000 year after year. She prepared her own tax return for the past several years, saying she “followed the lead” of the CPA she used to use but said “he charges too much.” She deducted 100% of his auto expenses and said that the CPA used to only take part of it, which she assumed was a mistake. Depreciation taken on business use of home was significant … and confusing, as she rents where she lives. Back when the CPA did her return, she did own a house, and she just continued the deduction based on what he used to do. She didn’t grasp the concept that she can’t write off a house she no longer owns! Schedule C deduction for insurance turned out to be her medical insurance, which she took off the amount reported on her W-2 that was paid partially by employer and partially by pre-tax withholding. Most of her other business expenses were even 100-figures, and when I asked about documentation, she got a glazed look on her face like I had asked her the meaning of life. There was a “bad debt” deduction on Schedule C for $1,000, matching what was on the two previous returns. She said the guy who owed her money still hadn’t paid the $1,000 he owed, so she reported the bad debt each year.
I wonder if this story encompasses the greatest number of tax errors I’ve ever seen in a single case! I can only imagine that this taxpayer will eventually trigger an audit and the tax penalties will eventually be far more than the most expensive CPA.