More of “Things your tax pro may not tell you”
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“You wouldn’t believe it.”
Complaints about tax preparers, including allegations of inaccuracies and returns that weren’t filed on time, are up 80% in the past five years, says the Council of Better Business Bureaus. But when it comes to the Internal Revenue Service policing problem preparers, “the lifeguard is still asleep.”
Less than 1.5% of returns get audited, and while that may pacify nervous taxpayers, audits are the primary way to catch bad tax pros. The GAO found that a year after it reported poor preparers by name to the IRS, the agency had failed to audit a single one. Professional organizations, such as the American Institute of Certified Public Accountants and the National Association of Enrolled Agents, pack even less of a wallop because they often wait for the IRS to act. Then the institute will strip membership and report bad accountants to the relevant state-licensing group.
Finding this information is a two-step process. If your CPA is an AICPA member, you can find out if he’s been disciplined by the institute by checking on the AICPA website. You can retrieve details by putting his name in the site’s search box. If your CPA has been disciplined, it’s important to note the reasons why, “There is a whole range of situations where the (institute) would discipline a member.” Those could include not returning client records, disclosing confidential client information and not exercising due care in preparing a tax return. To find out if a CPA’s license has been revoked, you should check with your state board of accountancy.
“What are your qualifications?”
Concerned about unethical, unlicensed tax preparers and what has been called “sharks in the water.” “Anyone can call himself a tax preparer.” Many have. At one point as many as 600,000 tax preparers were unregulated, according to the National Taxpayer Advocate, the taxpayer assistance wing of the IRS. Some set up shop in a local real-estate office, but many work for the big chains.
This all changed with the IRS RTRP program. If your preparer doesn’t have an PTIN, they are not allowed, by law, to prepare your return for profit. (This includes any CPA, EA, Attorney, RTRP anyone who prepares) by the end of this year (2012) All non-CPA’s, EA’s, or Attorneys will have had to pass a competency test. A minimum competency test is now live and by the end of 2013, all preparers will have to pass the test in order to prepare tax returns for compensation. The new RTRP (Registered Tax Return Preparers) will also have an annual continuing education requirement of 15 hours. All the hours will be tax related.RTRP - Ask your Representative why it is that CPA’s, and Attorneys are exempt from these requirements. I say this because As it stands now, They are not and will not be tested concerning tax issues nor will they need to take CPE related to tax matters like an EA or RTRP.
“If it’s February, you’re late.”
A savvy tax pro may be able to cut your tax bill or juice your refund. But don’t expect to find one come mid February. From that point through April, tax pros are generally too busy to talk to new clients. So if you don’t already have a preparer lined up, by the time you actually have your W-2s in hand, you’re probably not going to get good service.
This means you should be talking to tax preparers in October, November or even as late as early January. They’ll have time to answer questions, look over your old returns and suggest changes. Not only that, but talking to a tax pro in the fall means you still have time to plan. If you wait until you have all your W-2s, you’ve locked in all your income for the year. But in the fall a good preparer can help you figure out ways to manipulate your income by increasing your 401(k) contributions, deferring a bonus until the new year or taking taxable losses.
Wait until spring and a professional can help you make small decisions, like whether to itemize or think about different deductions, but you’ve lost most of your flexibility.
“Taxes, whatever — let me see what else I can sell you.”
The real money in tax prep has nothing to do with 1040 forms and W-2s. For the big-chain preparers, as well as your local accountant, the register really lights up only when they persuade you to take a loan, open a retirement account or buy insurance. Chances are you don’t need what they’re selling, but the sales pitch may blur the issue. GAO staffers reported that when they visited the big-chain tax preparers, loans were described as “options” or “bank products”; on one visit a customer was asked to sign a loan application without being told what it was. RAL means Refund Anticipation Loan.
Worse, these extras can do you more harm than good: More than 80% of those who opened an “Express IRA” at H&R Block, for example, paid more in fees than they earned in interest, according to a lawsuit filed by the New York attorney general. (H&R Block says most Express IRA accounts opened between 2001 and 2005 have yielded “positive net tax savings benefits and interest earnings,” even as the company “has lost money operating this program.”)
CPAs, too, are in the sales game, ever since the AICPA allowed members to sell insurance products. When commissions can be $20,000, it’s easy to get greedy.
“If I screw up, I’ll pay up.”
Worried about an audit? H&R Block and Jackson Hewitt are happy to ease your mind — for a price. Both offer the option of buying a geared-up guarantee that promises to cover any back taxes you owe, plus interest, fees and penalties.
Here’s what they don’t say: You don’t need the extra protection. If it turns out you owe back taxes, the big chains’ basic (read: free) guarantee already covers fines, penalties and interest. Many CPAs and EAs and RTRP will do the same; they often have insurance for that very purpose. Just be sure to ask about it before one does your return. But what about the back taxes?
True, they could amount to a bigger expense than the fines and penalties, which may be why some chains can sell that extra guarantee. But H&R Block and Jackson Hewitt will cover you only up to $5,000 and exclude the most complicated returns. If you’re tempted, know there may be an unintended consequence: If someone pays your taxes, the IRS considers that taxable income.
In other words if you buy the guarantee, and H&R Block ends up paying your back taxes, expect to get a 1099 next January.
“Tax preparation is an art, not a science.”
Recent law changes (EIC to name one) tightened penalties for tax preparers who play fast and loose with the tax code, taking far-fetched positions because they know 99% of returns never get audited. That said, for anyone with a complicated or unusual financial life, there’s still lots of wiggle room, I’ve never heard “It’s about 10% black, 10% white, and everything else is in the middle.”
Chances are good you have room to maneuver if you have income in a category the tax code treats flexibly — you’re self-employed, for example, or own rental property. Ditto if you’ve earned big capital gains or incurred high or unusual medical expenses. In short, if you’re attaching a schedule to your return, a good tax preparer will pay for himself.
Now, that may mean raising a red flag with the IRS, and a good preparer should explain if he’s taking risky positions. If you can’t stomach the specter of an audit, you’ll want a pro to travel on the side of caution.
Think twice before paying someone to look for loopholes if your income picture is relatively simple. If you’ve got one W-2, you don’t need someone fancy, there’s not a lot we can do for you.
“You’d be better off.”
Maybe you’re hiring a tax preparer because you’ve got better things to do with your weekend or numbers make you dizzy — more power to you. But if you’re hiring a pro because you think he’s smarter than you, think again. On average, tax preparers make more mistakes, and costlier ones, than John Q. Taxpayer does.
According to a study of IRS data, 56% of professionally prepared returns showed significant errors, compared with 47% of those done by the taxpayer. And audited taxpayers who used preparers owed an average of $363, while those who filed themselves owed $185.
Of course, tax preparers often see more-difficult returns, which could lead to more errors.
For a family with one W-2, mortgage interest and a couple of kids, TurboTax is just fine. If, on the other hand, you’re attaching a schedule for self-employment income or capital losses, consider getting help. And even then, if a return is made complicated by a one-time event — say, the birth of a child or the acquisition of a rental property — you might need only one year’s worth of advice. If nothing changes, you should be able to copy it from year to year, so long as you keep up with tax law changes to your situation.
“You should shop around.”
There’s no standard price for doing taxes. Some preparers charge by the hour, others by the form; either way the cost depends on where you live, the complexity of your situation and the qualifications of your tax pro. Consider: The average H&R Block customer pays about $150; a CPA may charge 15 times that.
People rely too much on word of mouth; they don’t shop prices. If they did, they might be surprised. A licensed local pro may not cost much more than a national chain.
I charge by the form, and a simple return could cost just under $150.00 – not much more than what you might pay at a big chain.
Even among franchises, prices vary. The return that cost $90 to prepare at one big store cost more than three times that at another, according to a GAO study. To be fair, it may be hard to know what your return will cost before the preparer actually spends time on it. Ask for estimates using last year’s return — that’ll give you a point of comparison to find the best price.
Shop around.
Related articles
- Using the Title “Registered Tax Return Preparer”?!
- Help Me Prepare My Taxes
- A Cpa For Taxes-does It Make A Difference?
- Preparer Registration Wastes Time and Money – Guest Post by Joe Kristan
Estimated Tax, Do you need to pay?
What Is Estimated Tax?
Estimated tax is the method used to pay tax on income that is not subject to withholding, such as self-employment income, interest, dividends, rents, alimony, etc. In addition, if you do not elect voluntary withholding, you should make estimated payments on other taxable income, such as unemployment income and the taxable portion of Social Security benefits.
Who Needs to Pay Estimated Tax?
In most cases, you must make estimated payments if you expect to owe at least $1,000 in tax in 2011 and you expect your withholding and credits to be less than the smaller of:
- 90% of the tax shown on your 2011 tax return, or
- 100% of the tax shown on your 2010 tax return. Note that exceptions apply for higher income taxpayers (see below). Further, if you did not file a 2010 tax return or if your 2010 return did not cover the full 12 months, the 100% rule does not apply.
Higher Income Taxpayers.
If your adjusted gross income for 2010 was more than $150,000 ($75,000 if your filing status for 2010 is married filing separately), substitute 110% for 100% in Rule 2. This rule does not apply to farmers or fishermen.
Farmers and Fishermen.
If at least two-thirds of your gross income for 2010 or 2011 is from farming or fishing, your required annual payment is the smaller of:
- 66% (.6667) of your total tax for 2011, or
- 100% of the total tax shown on your 2010 return. (Your 2010 tax return must cover all 12 months.)
Don’t hesitate to contact us if you’re not sure whether you need to pay estimated tax. We’ll evaluate your situation and let you know.
Haven’t Filed an Income Tax Return?
Filing a past due return may not be as difficult as you think.
Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.
Here’s What to Do When Your Return Is Late
Gather Past Due Return Information
Gather return information and go visit a professional tax preparer. You should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.
Payment Options – Ways to Make a Payment
There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.
Payment Options – For Those Who Can’t Pay in Full
Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise.
Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.
- A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.
- A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. In terms of how to pay your tax bill, it is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. You should pay as much as possible before entering into an installment agreement.
- A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
What Will Happen If You Don’t File Your Past Due Return or Contact the IRS
It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.
Please contact us if you have any questions.
Last-Minute Tax Deductions for 2011
With tax day just around the corner, here are some ideas that can maximize your tax returns this year:
Invest more money in your retirement account – Your retirement funds actually aren’t taxed until that money is taken out of your retirement account. Contributions to retirement funds can be made as late as April 15th, and the taxable limits for 2011 are $5,000 for an IRA (this does not include catch-up contributions for those 50+) and $16,500 for a 401(k). Not only will you be saving money on your taxes this year, but you’ll be bolstering your retirement fund for the future.
Make charitable donations – Although you can only deduct donations given in the taxable year of 2010, now is the time to pull out those receipts and bank statements. If you haven’t been keeping track of the charitable donations you make in a year, remember to keep your receipts next time, or ask for Tax ID numbers. Not only do monetary charitable donations count: old clothes, books, furniture, appliances, and other odds given to charitable organizations qualify as deductions, too – to the benefit of your community! If you have any property that has appreciated in value from the point you bought it, donating it can let you deduct more than you originally paid. Using a simple tax calculator online can give you an estimation of the impact your donations have on your overall tax refund.
Consider a Roth account – While you don’t get a tax break when you put money into a Roth, the money you invest gets to grow tax-free as long as the account is open. Regardless of rising tax rates in the future, you have a haven to place your money where it can still accumulate growth.
Write off the interest on your student loans – That’s right. If you have qualified loans out for the purpose of pursuing higher education, you can get up to $2,500 in deductions towards paying off the interest on your loans. This type of deduction is not an itemized deduction, but it is used to calculate your AGI.
Casualty and Theft Loss – If you and your family were the victims of a natural disaster, theft, or even a car accident, it’s possible to get up to $100 back per occurrence as long as they are not covered by your insurance. A few examples include the loss of a bank account due to the fault of your bank; fire, flood and storm damage, including hurricanes and tornadoes, and even the replacement cost of trees and shrubs damaged in fires or storms.
There are numerous options to help you optimize your tax returns this year. Make sure you are getting back money wherever you qualify for it, and be mindful of the smartest ways to invest your money for the future.
Olivia Mungal is an award-winning writer with pieces of her work archived in the Library of Congress. With a background in Law, she tackles convoluted economic issues in entertaining and engaging ways.
Missing Your W-2?
You should receive a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2010 earnings and withheld taxes no later than January 31, 2011 (if mailed, allow a few days for delivery).
If you do not receive your Form W-2, contact your employer to find out if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.
If you still do not receive your W-2 by February 15th, contact the IRS for assistance at 1-800-829-1040. When you call, have the following information handy:
- the employer’s name and complete address, including zip code, and the employer’s telephone number;
- the employer’s identification number (if known);
- your name and address, including zip code, Social Security number, and telephone number; and
- an estimate of the wages you earned, the federal income tax withheld, and the dates you began and ended employment.
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a “reissued statement.” Be aware that your employer is allowed to charge you a fee for providing you with a new W-2.
You still must file your tax return on time even if you do not receive your Form W-2. If you cannot get a W-2 by the tax filing deadline, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement, but it will delay any refund due while the information is verified.
If you receive a corrected W-2 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.
If you have questions about your Forms W-2 and 1099 or any other tax-related materials, please call or email my office.
Try TaxCalculator/excel1040 2010
A look at an Income Tax Calculator
Doing it yourself? This spreadsheet is free.
To save money many taxpayers, roughly 31% of those who don’t e~file, are completing their own tax returns. By hand, on paper. Several years ago I came across a wonderful item to help those “paper do-it-yourselfers”.
It is called simply enough Microsoft Excel spreadsheet income tax calculator.
I first knew it as excel1040
You start with entering your data:
By clicking on the images you can see them larger. You need to notice all the tabs across the bottom. Shown above is the sheet where you and your spouse enter your W-2 information. As you can see there is enough space for up to four W-2′s each. With a very nice look at your total separately and together. The numbers I entered are fictitious so that you can see how it works.
As you can see below the information from the W-2 screen has moved completly to the 1040 Form:
As you look at the form, further, if there is information you need, the spreadsheet has what you need written in red before it will calculate:
If work sheets are needed, those are here as well:
Included in this free Microsoft download are Form Sch/s
I have links above to the forms, but you can also find links to each form and Form instructions at the bottom of each form in the spreadsheet:
This is a must have for you the do-it-yourself tax filers who don’t buy the flawed tax software.
Although E-filed returns account for about 80% of individual tax returns filed, that leaves a lot of American Taxpayers filing by paper. If you’re one of those filing on paper, get this spreadsheet. It’s Free!
If you have questions about completing your return contact your tax professional. If you don’t have a tax professional, find one. Even if you don’t have them complete your return, spend the money to find out what you need to know to get your return completed correctly. An hour at a tax pros office, could save you in so many ways on so many levels.
Complete your Federal Income Tax Form 1040 using this Microsoft Excel spreadsheet income tax calculator. It is a wonderful tool and you’ll not find a better aid for the paper filer who does their own.
A lot of folks who use Turbo-Tax, look for a spreadsheet. You’ll be happy to have found this worksheet.
The average cost of hiring a professional to prepare a federal and state tax return with no itemized deductions is $129, while the average cost for an itemized federal and state return is $229so says the National Society of Accountants says.
That is not counting what all comes with this spreadsheet download.
Be sure to read what others have said about it on the front page of the site. Microsoft Excel spreadsheet income tax calculator
Although this is a free download consider donating to this as it will help to get this for years to come.
Thanks for another great download Glenn.
Filing Status – What You Need to Know
Your federal tax filing status is based on your marital and family situation. It is an important factor in determining your standard deduction and your correct amount of tax, and whether you must file a return.
Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.
There are five filing status options:
- Single. Generally, if you are unmarried, divorced, or legally separated according to your state law, and you do not qualify for another filing status, your filing status is Single.
- Married Filing Jointly. If you are married, you and your spouse may file a joint return. If your spouse died during the year and you did not remarry, you may still file a joint return with that spouse for the year of death. This is the last year for which you may file a joint return with that spouse.
- Married Filing Separately. Married taxpayers may elect to file separate returns.
- Head of Household. Generally, you must be unmarried and paid more than half the cost of maintaining a home for you and a qualifying person for more than half a year.
- Qualifying Widow(er) with Dependent Child. You may be able to file as a qualifying widow or widower for the two years following the year your spouse died. To do this, you must meet all four of the following tests:
- You were entitled to file a joint return with your spouse for the year he or she died. It does not matter whether you actually filed a joint return.
- You did not remarry in the two years following the year your spouse died.
- You have a child, stepchild, or adopted child (a foster child does not meet this requirement) for whom you can claim a dependency exemption.
- You paid more than half the cost of maintaining a household that was the main home for you and that child, for the whole year.
After the two years following the year in which your spouse died, you may qualify for head of household status.
I can definitely help you determine which filing status is best for your situation. Just send an email.
Prepare your taxes on-line With L & R Tax Preparation
L & R Tax Preparation
Tax Preparation, Payroll, and Accounting,
Including online services.
E=MC2 or use QuickBooks
