lesson learned.....

Don't have time to be posting, but I am so angry that need to vent it out, so thank you in advance for your patience in reading this post.

I prepared a tax return on Monday afternoon for a client who has been with been quite a few years. Works for the local public school system with 2 college age children. Doesn't even crack $20K of income.

In looking over the closing statement from the house she sold in February 2008, I see she paid the closing costs for the buyer, which is unusual, especially since this market has not been too heavily effected as other parts of the country. In discussion, come to find out that she had a real bad real estate agent, and it cost her money.

During the conversation, it is mentioned that she even had to move from the house, and let the buyers stay there until they were ready to close. She says that at least she collected some rent. Rent? That was never told to me. She then bemoans the fact that the apartment she had to rent until she found a place was more money then what she was collecting.

So with all that in my mind, we discuss the rent and how she should have told me about it because it should have been reported on her 2007 return. She is not happy about that, and wishes she did not say anything. So I tell her let's just worry about 2008. She tells me she rented the house for two months, as the closing was February 29th.

I put down the gross rent, and don't worry about anything else. Normally you would deduct homeowner insurance (mortgage interest & r/e taxes were already on the return on another schedule), homeowner association dues, etc., but for the two months I tell her that we won't worry about it, and just leave as is, and ignore amending 2007.

Yes, this was not correct on my part. She should have picked up the income for 2007, and I should have amended the returns. If I did that, she would have been paying me a fee for amending the returns, and she would have owed taxes on the amended returns, and if the income was high enough, her $4000 refund, would have turned into her owing money (because of the Earned Income Credit). Even if lesser income, she was looking at about a $400 tax payment plus my fees.

After hearing her story, I thought this was a good idea.

Bad idea.

Seems the increase in her income for 2008 because of the rental income, has played with her FAFSA application, and does not make her eligible for as much financial aid. So now she is ranting about me rushing through her returns, giving her no guidance, and looking to screw over her numbers.

I explained to her that I would correct 2008 to reflect certain expenses and change the rental income figure, but in doing so, I feel obligated to also correct 2007, because I know of that unreported income. Can you say "not happy"?

So, I have a client that does not report income to me. When she does, and I tell her it is income (she says she did not know this would be income), she tells me she wishes she did not say anything. I skip the amended return, lose a fee, place the rental on as "gross only", don't charge extra fee for rental schedule, and also save the client about $400 tax dollars, which could go as high as $4000. And, she is not happy.

This has been my back and forth in emails for the past two days.

Lesson learned:
Do it by the book, even if it is for $1. Charge the client for everything. Stop worrying about the client and there "back story". Sometimes it takes me 23 tax seasons before I learn certain lessons.

Until the next time.....