The Biggest Mistakes I See When Reviewing Client Tax Returns
The stuff that gets missed when real planning is involved
A tax return can be filed on time, look completely normal, and still miss important details that change the outcome.
That’s especially true when retirement strategies are involved. Backdoor Roth contributions, Roth conversions, qualified charitable distributions (QCDs), rollovers, IRA basis, early distribution exceptions. These strategies often don’t show up cleanly on the tax forms that get imported into tax software, which is why the same issues tend to repeat.
One important point before we get into the list: most of these aren’t “bad CPA work.” They’re usually a context problem.
A CPA can only report what they know, and the forms themselves don’t always tell the full story. If a 1099-R shows a distribution, tax software will often treat it as taxable unless it’s coded correctly. If there’s IRA basis, the IRS only knows that if Form 8606 is filed and carried forward correctly. If a distribution was charitable, the IRS won’t know that unless it’s reported properly on the return.
So when I review a return, I’m not focused on basic wage or interest reporting. I’m focused on the retirement items where the forms don’t tell the whole story, things like 1099-R reporting for conversions, rollovers, and QCDs.
Here are the biggest ones I watch for.
1. Backdoor Roth contributions that don’t get credit for the backdoor part
Backdoor Roths are one of the most common strategies I see, and they’re also one of the easiest to miss on the return if the preparer doesn’t have the right context.
The mechanics are simple: you make a nondeductible contribution to a Traditional IRA, then you convert that amount to a Roth IRA. The return needs to show both steps correctly.
The key form here is Form 8606. That’s the form that reports nondeductible IRA contributions (basis) and tracks how much of an IRA conversion or distribution should be taxable.
If Form 8606 is missing, incomplete, or using the wrong numbers, you can end up paying tax that wasn’t necessary or building confusion into future years.
2. Roth conversions that happened, but weren’t reported cleanly
Roth conversions are another area where I see returns get filed without the return reflecting what actually happened.
The most common issue I see is simple: the Roth conversion happened, but Form 8606 wasn’t filed or wasn’t filled out correctly.
That matters because Form 8606 is what documents the conversion and, when applicable, the IRA basis involved. Without it, the conversion can be reported incorrectly and the taxable portion can be overstated.
This is one of those items that’s easy for a client to assume is “automatic,” because the custodian reports a 1099-R and the money clearly moved from the Traditional IRA to the Roth IRA. But the reporting still has to be tied out intentionally on the return.
3. QCDs that were done correctly, but still show up as taxable income
Qualified Charitable Distributions (QCDs) are one of the best tools available for retirees who already give to charity.
If you’re 70½ or older, you can send money directly from your IRA to a qualified charity. Done correctly, that amount stays out of taxable income and can count toward your RMD.
The challenge is that the 1099-R usually doesn’t indicate that a distribution was a QCD. It generally just shows a distribution.
So if the CPA doesn’t have clear context that part of the IRA withdrawal went directly to charity, it can easily get reported as fully taxable even though it shouldn’t be.
This is rarely a “technical mistake.” It’s usually that the return didn’t get the missing information it needed.
4. Rollovers that show up like taxable distributions
Rollovers are another area where the tax forms can look alarming even when the transaction was handled correctly.
It’s common to complete a rollover and still receive a 1099-R that looks like a normal distribution. That isn’t necessarily a mistake. The custodian is reporting that money left the account.
What matters is whether the rollover was completed properly and then reported properly. Direct rollovers (custodian-to-custodian) are typically the cleanest. If the money was paid to the client first, you’re usually dealing with the 60-day rollover rules, meaning in most cases the funds must be deposited into an eligible retirement account within 60 days to avoid being treated as taxable.
There are other traps here too. Withholding can reduce the amount that actually gets rolled over. RMDs are not eligible to be rolled over. And IRA-to-IRA rollovers have limits that can create issues even when the client thought they were doing something routine.
The return needs to clearly show that the distribution was rolled over. If it doesn’t, it can create unnecessary tax even when the money never truly left the retirement system.
5. IRA basis issues that quietly cause double taxation
This ties closely to backdoor Roth contributions, but it comes up in other planning situations too.
If someone has made nondeductible IRA contributions at any point, they have basis. That means part of a future distribution should be tax-free.
The issue is that basis only exists in the IRS’s eyes if it’s tracked correctly, year after year, through Form 8606. Custodians don’t track it. The 1099-R doesn’t report it. And tax software won’t assume it’s there unless it’s entered intentionally.
When basis isn’t tracked correctly, people can pay tax twice: once when they earned the money and contributed it after-tax, and again when it comes out of the IRA later.
6. Early distribution penalties that don’t get handled correctly
If someone is under age 59½ and takes money out of a retirement account, there’s usually a 10% early distribution penalty.
There are exceptions, but custodians generally don’t know the reason for the distribution, so the 1099-R often gets coded in a way that suggests no exception applies.
That doesn’t automatically mean the penalty is owed. It means the exception has to be properly claimed on the return when one applies.
7. Tax withholding and estimated payments that don’t line up with the tax outcome
Sometimes the return shows a surprise balance due or an underpayment penalty, not because the tax liability was unexpected, but because withholding and estimated payments didn’t get aligned correctly during the year.
This comes up often with Roth conversions, RMDs, and retirees with multiple income sources and no consistent withholding anchor.
The return can be accurate and still reveal a process issue that’s worth fixing for next year.
8. The occasional simple typo that turns into a massive overpayment
Most of the items above are strategy-related. But every so often, the biggest errors are the simplest ones.
A number gets entered incorrectly, a field gets transposed, and the return shows a tax bill that makes no sense.
These are rare, but they’re real. And they’re one of the reasons return reviews are valuable when planning strategies were part of the year.
What we’re doing to reduce these issues going forward
Most of these problems are avoidable when the CPA has clean information up front.
Going forward, when we’ve implemented specific tax strategies, we’ll provide a short summary letter that clients can share with their CPA. The purpose isn’t to tell the CPA how to do their job. It’s to eliminate the guesswork and reduce the chance that a good strategy gets missed in the reporting.
That letter will outline items like backdoor Roth contributions, Roth conversions, QCDs, and rollovers so the return can be prepared with the right context.
Bottom line
A tax return is a record of what the IRS thinks happened.
When planning strategies are involved, it’s worth taking an extra look to make sure the paperwork matches reality. Most issues are straightforward to fix once they’re identified, but they can be expensive to miss.
Disclosure: This material is provided for general informational purposes only and is not intended as investment, tax, or legal advice. It does not constitute a recommendation or an offer to buy or sell any security. Past performance does not guarantee future results. Information is believed to be reliable but is not guaranteed.