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I Almost Overpaid My Taxes by $3,000 – Here’s What Happened
Hiring a tax preparer is supposed to make your life easier, right? I stopped doing my own taxes when my investments increased, and then, after getting married, it just seemed simpler to let someone else handle it.
Every year, you hand over the documents, trust the process, and expect everything to be handled correctly. I’m usually anxious during this time because the worrywart in me is thinking, ” Did we provide everything? How much are we going to owe?” etc.
But we learned this year that even pros make mistakes. And if I didn’t catch it, it would’ve cost us thousands. Here’s how it went down.
The Mistake That Would’ve Cost Thousands
When reviewing the preview of my return, I noticed something odd.
I had specifically told my tax preparer that I made an employee contribution to my Solo 401(k), but I didn’t see any numbers on the return that matched it or even came close. After consulting with Claude, I learned that my contribution number should be on Schedule 1, Line 16 on the tax form. There was an amount there, but it was $12,000 less than what it should’ve been.
After testing multiple Solo 401(k) calculators online and getting numbers much higher than those on my tax form, I realized my tax pro had calculated my retirement contribution using a SEP IRA formula instead of a Solo 401(k) formula.
And that distinction matters!
A SEP IRA generally allows for employer-only contributions, whereas a Solo 401(k), which is what I have, allows for both employee and employer contributions. This means higher contribution limits with a Solo 401(k).
So, because the wrong formula was used, my deduction on Schedule 1, Line 16 was much lower than it should’ve been.
What That Error Looks Like in Real Dollars
When I noticed the mistake, I immediately emailed my tax guy and sent links to the calculators, Fidelity, and IRS information on Solo 401(k)s. He called back and said that I was correct, that the wrong formula was used, so here’s what our numbers WOULD’VE looked like if I didn’t double-check.
Before the correction, our tax outcome would’ve been:
Owing $4,963 to Federal
Owing $39 to State
After catching the error and fixing the calculation:
Owing $2,757 to Federal
Getting a refund of $1,090 from State
That’s over $3K in savings! All because of an incorrect formula on the type of retirement account.
Why This Happens More Than You Think
Tax preparers handle a lot of clients, a ton of paperwork, and they’re also human.
If your situation includes things like:
- Self-employment income
- Solo 401(k) contributions
- SEP IRA vs. Solo 401(k) decisions
- Multiple income streams
Then it’s easier for something to get misapplied. And it’s not because they’re careless, but more that your financial situation is nuanced.
What You Should Always Double Check
Even if you fully trust your tax person, here are a few things worth reviewing each time:
1. Retirement Contributions
Make sure:
- The correct account type is used
- Contribution limits are properly applied
- Both employee and employer portions (if applicable to you) are included
I feel so relieved knowing I caught this big mistake and can use that $3K in savings elsewhere.
2. Deductions on Schedule 1
This section is where many key adjustments live, including:
- Retirement contributions
- HSA contributions
- Self-employed adjustments
Small errors here can have a big impact.
3. Income Sources
Double-check your 1099s, W-2s, Side income, or platform earnings. Make sure everything is accounted for and categorized correctly.
4. Your Final Numbers
Before filing, always look at:
- Amount owed or refunded
- Total taxable income
- Major year-over-year changes
If anything feels off, ask questions! It doesn’t hurt to get clarification, and you might save some money.
The Lesson: Know Your Numbers
Obviously, you don’t need to be a tax expert. But you should know and understand the basics of your accounts, know what you contributed, and be able to recognize it if something doesn’t look right.
Because at the end of the day, you’re responsible for your own tax return. Your tax pro or CPA just helps you get there faster and can be extremely valuable when you collaborate, especially when you have self-employment income, investments, retirement accounts, and/or multiple income streams.
The Money Move
Moral of the story? Hiring a tax preparer doesn’t mean you can go on autopilot, since one mistake, like using the wrong retirement account formula, could cost you thousands.
In my case, a thorough review turned a $5,000+ payment into a much lower bill and even resulted in a state refund. So the next time you file, review your return, ask questions if something feels off, and double-check the details. No one else cares more about your money than YOU!
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