TaxMama’s® TaxQuips Common Errors This Season


It’s TaxQuips time from® .
Today TaxMama® wants to talk to you about errors people have been making in their tax returns this year.







Dear Family,

My goodness, it’s already Spring!

The first day, here in Southern California is mostly gray, threatening to rain…but not quite making good on the threat beyond a few sprinkles. Tomorrow, expect the deluge. I hope your spring is starting out with blooms and blossoms and wonderful scents (and no hay fever).

I will admit, if I knew how to use my [blasted] “smart” phone, which keeps running out of capacity in the blink of an eye, you would be seeing pictures of our amazing rose “tree.” Yes, it looks like the roses are growing on the tree.
(Never mind, as soon as there’s some time, I am getting a significantly better phone!)

Back to taxes. Let’s look at recent problems people have raised.

  • Problem: My W-2 shows withholding for the wrong state!
  • Or: There’s no withholding on my W-2!

Several people moved to another state during the year, staying with the same employer. They complained that they were surprised when they got their W-2 and their company was still taking withholding for their previous state.

  • Solution: Look at your own paystub!

Anytime you move, or make a change in your withholding, take the time to read your paystub carefully. Make sure the withholding is for the correct state. Make sure there is enough withheld for the IRS. If you can’t really read or understand your paystub (or you don’t get one), contact the payroll department and ask them. Please don’t be embarrassed. You don’t want to have to deal with underpayment penalties at the end of the year.

  • Problem: I filed for a new LLC this year and made the S corporation election, but there wasn’t any activity. Do I have to file a tax return?

Often, when you simply set up an LLC with a single member, and there is no activity, you can enter that tax ID on the Schedule C and show no activity except the set up fee.

  • Solution: You are responsible for treating your entity like a real business.

When you make an S corporation election, you absolutely must file a tax return – and that means by March 15th of the year – or file for an extension using Form 7004. Even if there is no activity, the Form 1120S and related Schedule K-1 are due on time. Even without activity, there are late filing penalties for the Form 1120S ($220 per month, or part of a month, times the number of shareholders, for up to 12 months); and penalties for the Schedule K-1 ($290 per shareholder). So if you missed the filing deadline on March 15th, file the return and Schedule K-1, before the end of the month. (You might be able to talk the IRS out of the penalties, though.)

Note: The same S corp rules apply when the LLC is owned by more than one member – then it’s a partnership, with the same filing deadlines and penalties.

  • Problem: I own a rental property and haven’t been taking the correct depreciation (or no depreciation) for many years. How do I correct this? Do I have to file an amended return for each of those years? Heck, it could go back for 10 years or more!

We get this kind of question often – from people doing their own tax returns; and from tax professionals who just picked up a new client where the previous preparer just ignored depreciation.

  • Solution: There is a short-cut. Don’t despair!

You’re in luck. There is no need to file amended returns for all those years. Which is really good news, since you can only amend the last three years. This limit would cost taxpayers 7 years or more of lost depreciation. Since this happens often, the IRS set up a procedure that they automatically approve. It involves using a Form 3115. It’s a bit complicated, but basically boils down to this.

  1. Compute the correct depreciation.
  2. Subtract the deprecation previously taken, if any.
  3. Enter this additional depreciation on the Schedule E, or business return.
  4. If too much depreciation was taken in the past, you will be adding back the excess depreciation on the appropriate Schedule E or business return.
  5. Fill out the Form 3115

How do you fill out the Form 3115? Ideally, take all this to a tax professional (an experienced Enrolled Agent, CPA or Tax Attorney). Or try it yourself by watching this detailed webinar by Lisa Ihm, EA of BrassTax.

That’s enough for now. Keep an eye on the IRS Critical Functions page to see the status of their tax return processing, and more.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At

To make comments, please drop into the TaxQuips Forum.