Tax Pros: Don’t Overlook These Due Diligence Situations

Gwennetta Wright
Jan 10
2 min read

By Dr. Gwennetta Wright, Tax Coach

When tax professionals hear the words due diligence, the first thing that usually comes to mind is clients with kids claiming Head of Household, Earned Income Tax Credit, Child Tax Credit, or the American Opportunity Credit. But here is the truth, due diligence is not just about child dependents.

There are other situations that get skipped over far too often. And yes, you can still get fined if you do not ask the right questions or keep proper notes.

Let me give you two real examples that you cannot afford to miss.

1. Single Taxpayer with No Kids Still Qualifying for EITC

This one catches a lot of pros off guard. If a client has a business loss, they may still qualify for Earned Income Credit. But you must document everything properly.

Ask questions like:

Are you operating this business to make a profit
How are you tracking income and expenses
Do you have proof you are really in business like a license, website, or invoices

Your notes must clearly show how they ended up with a loss and how that loss impacts their EITC eligibility.

2. Head of Household with a Parent as the Qualifying Person

Yes, it is possible to claim HOH with a parent who does not live with the taxpayer. But you still have to prove that the taxpayer provided over half of their support.