A Costly QuickBooks Mistake: How Duplicate Income Led to Thousands in Unnecessary Taxes

QuickBooks Online (QBO) is a powerful bookkeeping tool, especially when paired with bank feeds and automation. But like any tool driven by artificial intelligence and user behavior, it still requires oversight. Recently, we worked with a client whose experience highlights why having an accountant review your books before filing a tax return isn’t just helpful—it can be critical.

The Situation: When Automation Works Too Well

This client used QuickBooks Online to manage their bookkeeping and had their bank accounts connected through bank feeds. Over time, QuickBooks “learned” how transactions were categorized and began auto-adding entries based on past behavior.

On the surface, this sounds like a great feature. In practice, however, it created a serious problem.

The client was:

• Issuing invoices to customers

• Recording customer payments against those invoices

• Also allowing bank feed deposits to be automatically categorized as income

As a result, the same revenue was being recorded twice:

1. Once when the invoice payment was applied

2. Again when the deposit hit the bank feed

QuickBooks didn’t flag this as an error because, based on prior behavior, it believed both actions were correct.

The Consequence: Income Reported at Nearly Double

Because no one reviewed the QuickBooks file for accuracy, the financial reports showed significantly more revenue than the business actually earned. Those reports were then provided directly to the tax preparer, and the tax return was completed based on that inflated income.

The outcome?

• The business appeared far more profitable than it truly was

• Taxable income was overstated

• The client paid thousands of dollars more in taxes than they should have

All of this stemmed from a bookkeeping issue—not a change in actual business performance.

A Common Misconception: “I’ll Just Send the Reports”

Many business owners assume that as long as QuickBooks is running and reports can be generated, the numbers must be correct. Some choose to simply send those reports to their accountant at tax time without having the books reviewed.

The challenge is that accountants preparing tax returns generally rely on the data they are given. If the underlying bookkeeping is inaccurate, the tax return will be too—even if it’s prepared correctly.

The Value of a QuickBooks Review Before Tax Time

Having an accountant review your QuickBooks before filing your tax return can help uncover issues like:

• Duplicate income, as in this case

• Missing expenses due to bank feeds becoming disconnected for a period of time

• Improperly categorized expenses, which can create compliance issues

For example, entertainment expenses are no longer deductible under current tax law. If those costs are mistakenly categorized in an account that is normally fully deductible, you may be claiming deductions you’re not legally entitled to. That can increase audit risk and lead to penalties down the road.

The Bigger Picture: Accuracy Saves Money

In this client’s case, a proactive review of their QuickBooks file could have caught the duplicate income well before the tax return was filed—saving them thousands of dollars and a great deal of frustration.

Automation is a valuable tool, but it doesn’t replace professional oversight. QuickBooks does exactly what it’s told to do, even when that means repeating a mistake consistently.

The Takeaway

Your bookkeeping system is the foundation of your tax return. If that foundation is cracked, everything built on top of it is affected.

A periodic review by an accountant isn’t just about “cleaning up the books”—it’s about:

• Ensuring your income is accurate

• Making sure you’re capturing all allowable deductions

• Staying compliant with current tax laws

• Avoiding overpaying taxes unnecessarily

Sometimes, the most expensive mistakes are the ones that quietly go unnoticed.