Most of the time when I review past returns for new or prospective clients, I find mistakes that we can fix.  There are a few that we can’t.  I’ve dealt with all kinds of outrage when my new clients discover they have overpaid taxes because some strategies didn’t work or because the return wasn’t properly prepared.  Most of the time we can recoup the expenses in subsequent years.  Sometimes we can’t.

I just reviewed a return for a couple who were struggling to pay their 2007 taxes.  They, like many, had gotten hammered in 2008 with declining business income and upside real estate investments.  Then they got their tax bill and simply couldn’t pay it.  So, they’re on a payment plan.

That’s when I discovered that their previous tax preparer (not a CPA) had somehow overridden the tax software to change the amount of Section 179 deduction taken.  The Section 179 allows you to immediately expense personal property items that you normally would have to depreciate over 5 - 18 years.  The current Section 179 amount is $250,000, but it drops down again to $102,000 + inflation adjustment next year.  In 2007, it was at that $100K ish figure.  (I’d have to look up exactly how much it was)  But for some reason the tax preparer thought the program was wrong and overrode it to allow the taxpayer to only take $25,000 in Section 179.  And this was a year when the client had paid tens and tens of thousands of dollars in improvements to business property.  

Instead of getting the deduction which would have wiped out his taxes for the year, he’s now set up to take the deduction over the next 15 years in the form of depreciation.  

So, in the end, at the end of 15 years, it’ll all be the same.  But try telling that to someone struggling in this economy to just stay in the house he’s got and now is faced with a tax bill he definitely can’t afford!  He could sure have used that deduction this year.