Category: Due Diligence Requirements for Preparers
Due Diligence and Schedules A, C and E
To prepare an accurate Schedule A, you should ask your clients sufficient questions to determine that the expenses that are being claimed are correct. The most common Schedule A issues are:
- Unreimbursed Employee Business Expenses claimed on Form 2106: Taxpayers may only claim allowable unreimbursed expenses.
- Mileage claimed on Form 2106: Taxpayers should provide you with documentation to support business miles claimed.
- Travel, meals and entertainment expenses: Taxpayers must have documentation of business purpose, as well as receipts to support expenses claimed.
- Charitable Contributions: Taxpayers must have receipts for all cash contributions and adequate documentation for all non-cash contributions.
To prepare an accurate Schedule C, you should ask your clients sufficient questions to determine that the expenses claimed are correct. The most common Schedule C issues are:
- Gross receipts not being fully reported: Books and records should be available for review.
- Business Expenses:
- Expenses claimed must be ordinary and necessary for the type of business reported.
- All expenses claimed must have been paid or incurred in the current year and the allowable amount of the expense must be correctly computed.
To prepare an accurate Schedule E, you should ask questions to determine income and expenses claimed are correct. The most common Schedule E issues are:
- Rental income and expenses are not properly reported
- Rental depreciation not being correctly calculated
- Limitations surrounding passive activities, basis and at-risk rules are not properly considered or calculated
Last Updated: 3/9/2015