Tis the season of all things spooky, scary, and sinister. Halloween is right around the corner, and here at J.D. Frost & Company, we’re sharing the most horrifying stories we’ve encountered. You won’t find witches, ghosts, or vampires in our tales, but we certainly find them all haunting. We hate seeing individuals or businesses lose money from accounting errors or missed opportunities. With ever-changing tax legislation and complicated rules and regulations, taxpayers are bound to make costly mistakes, and what’s scarier than that?
It reminds us of those classic scary movies - the ones where you’re screaming for the actors to make the right decisions, to run away from dangerous situations rather than toward them. We know financial decisions can be just as dire, which is why we’re always advocating for tax planning and utilizing the advice of a CPA. Listed below are a few accounting horror stories that give us the jeepers creepers. Continue reading, if you dare.
The Cursed Tax Software
I had a client that chronically underpaid for the director of accounting/controller position. Often, one gets what one pays for.
I came by to look over the trial balance for this client’s fabrication job shop. I recognized that the software being used was infamous for allowing subsidiary ledgers to become uncoupled from the trial balance. Thus, I ran reports from the subsidiary ledgers and compared them against the trial balance. The accounts payable subsidiary ledger had a balance of $120,000, whereas the accounts payable line on the trial balance was around $30,000. After some work, I confirmed that the subsidiary ledger was correct. About $90,000 of expense had not been captured for job billings, and the uncompiled financial statements had already been submitted by the client to a banker to increase the shop’s line of credit.
Thus, false information was submitted to a financial institution, the opportunity for cost reimbursement was lost, and the guy was in the hole, rather than profitable – no Christmas bonus for him that year.
So, he fires his $30,000 controller, then hires someone with even less experience for less money (full time salary of $24,500 in 2005).
The shop is now closed. There are none so blind as those who will not see!
A Monstrous Tax Bill
I once worked for a client who did not have an accounting system prior to me coming in and helping. They had added up their expenses at the end of the year, but they double counted certain expenses.
When they got audited, they ended up with a large tax bill. If you have a business, you need to have an accounting system so you don’t double up your deductions and get surprised by a tax bill!
Richard just started his pass-through business, and knew that he probably lost money, so didn’t bother to hire a CPA to process the forms for the 20% deduction, even though this must be done each year to eventually qualify for the deduction
In Richard’s second year, he made $1M. He was so excited at the thought of the 20% deduction – at 37%, this could save him up to $74,000 in tax! Except he didn’t file the proper paperwork in the prior year.
So now, Richard has to pay a CPA to amend the return, wait for the IRS to process it (can take 4 – 6 months), and then follow up every few weeks to check the status. At the end of the process, Richard waited nearly a year longer than necessary to receive his full refund, lost the use of that money during the waiting process, and paid much more in CPA fees than would have been necessary had he not decided to “save” fee costs.
Poor Richard! He didn’t know what he didn’t know, and what he didn’t know definitely hurt his wallet!