Jan 15
I have and will continue to post extensively on choosing a Tax pro. I am hopful everyone uses cation when doing so. If you haven’t read my post (several indivdual and a few series of. . .) please do so, for you. The IRS puts this out every year but not to the extent that your tax bloggers do.
Get started here, then please serch my blog and the web for what is being said on this.
Eight Tips to Help You Choose a Tax Preparer
Earlier this past week I noticed a post(1) from a blogging colleague. I mention this as although his said intentions were set and designed to inform taxpayers, I found not only a few things wrong with the post, but also felt like the post was an attack. The attack was not to just a good blogging friend and colleague, but to other such professionals as well. Moreover, I am not just referring to tax professionals.
Please, let me explain better.
There has been an ongoing, somewhat group, discussion about the pending and upcoming regulation of tax preparers. In the post referenced above it is clear that the subject is surrounding this topic.
Click to continue reading “A little Professionalism, if you please.”
by Nick Hodges
The Internet super-highway opens up marvelous opportunities for you to harvest tax advice and information from some of the greatest minds at reasonable prices from anywhere in the world. But it also emphasizes a crucial question: How do you know whom to trust? Sharing your intimate, personal financial information with a stranger is problematic at best.
Here are 21 questions to help anyone choose a tax and/or a financial professional you can trust.
Take the time to thoroughly interview the tax professionals you are considering to help you manage your taxes.
This simple step, interviewing a tax professional, could save you from creating sticky situations in the filing and management of your taxes.
Nick Hodges,
President of NCH Wealth Advisors
The above post was edited. I did so in order for this guest post to be relevant to all taxpayers looking for a tax professional. For more very relevant information please see my post Find a Tax Preparer that is right for you, Should I do my own taxes. . ., Choosing a tax preparer. . ., More on “finding a pro”. . .
Also check out my series on the subject that starts with Mistakes Made. . .
Jul 8
Okay, things have settled and for the most part organized. Taking up this blogging thing again as before; Monday, Wednesday, Friday, with a recap of the past week on Sunday’s. I have missed being active regularly and I have been missed, but things are going strong again.
For my readers who have hung with me thank you. I apologize in advance for the repost below but given everything, I find it necessary.
So much talk about hiring a tax professional and so much debate about who is a professional I want this out again.
The biggest point I want to make is that just because someone is a CPA, doesn’t automatically make them a tax professional.
Tax professionals are hard to find because as you may have heard, there is no accreditation from the AICPA (American Institute of Certified Public Accountants) that says “Tax Professional”.
Hope you enjoy my return to active blogging.
Repost of Who is. . .
As a tax preparer I am often asked what is the difference between a tax attorney, an accountant/CPA, a bookkeeper, an Enrolled Agent, and a tax preparer.
A Tax Attorney is not the same as an accountant. The accountant can work with the financial issues and has a general knowledge of tax laws; however a tax attorney is a specialist in all aspects of tax law. Although they often work closely together, they are two complete different services. Typically large and even small businesses will meet with a tax attorney once every quarter or once a year to ensure that they are making the best possible business choices with regards to investments and tax issues. Since the taxation laws change constantly, this is an important step.
A Bookkeeper is responsible for keeping accurate, up-to-date business records for proper cash flow management, balance sheet preparation, and developing expansion and investment plans. A bookkeeper also assists in filing tax returns with updated tax records. Accurate bookkeeping is a legal requirement and should be kept well within the standards that are set by local and federal tax agencies. A bookkeeper accurately records all of the financial transactions. It is the responsibility of bookkeeper to note all monetary transactions that are received and paid out. The records also include outstanding balances that the company owes to other parties and others who owe to the business. Business bookkeeping takes a lot of time and cannot be done in a hurry. At small businesses, bookkeepers also double as company accountants. Perhaps bookkeepers have the biggest responsibilities in the company as business planning, payroll management, and tax return preparations are dependent on accurate bookkeeping. Bookkeepers often do not have the qualifications or certifications of accountants, but the responsibility is not any less. Bookkeepers that have a great deal of experience can market themselves as accountants or managers. For that, they also need to supplement their profession with certificate courses, seminar attendance, and on-job training. All types of businesses require bookkeepers who are experienced in their specific business functions.
Accountants keep track of a company’s money. The company’s managers and people outside the company read their reports. Managers look at the accountants’ reports to see how well their companies are doing. There are four kinds of accountants:
Public accountants work for public accounting companies. They do accounting, auditing, tax, and consulting work. Some have their own businesses. They do many different kinds of accounting for people outside the company.
Management accountants keep track of the money spent and made by the companies for which they work.
Accountants generally work a standard 40-hour week, but some work 50 hours a week or more. Tax accountants often work long hours during the tax season, from January to April. Most accountants have a college degree in accounting. Public accountants have to take a special test as well, resulting in a certification. Public accountants also must have a special license from the State in which they live. Accountants are generally good mathematicians, and have good analytical skills.
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. “Enrolled” means to be licensed to practice by the federal government, and “Agent” means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department.
A professional Tax Preparer is an individual who prepares tax returns. A professional tax preparer can be a Tax Attorney, an Accountant/CPA, a Bookkeeper, an Enrolled Agent, or anyone who professionally prepares tax returns for clients. Most return preparers are professional, honest and provide excellent service to their clients.
So there you have it.
How do you choose the right one to prepare your taxes? There is no one factor to use in determining this. I suggest you read the IRS Tips for Choosing a Tax Preparer. Or my website page Finding a Qualified Tax Preparer. I would also hope you to read 5 Biggest Mistakes most taxpayers make when choosing a tax professional!
Friday I was interviewed and retained by a new client. This particular client has several issues that actually can fall in line with a great debate we have all been following.
First, a little background:
A young newly wedded (three years) couple has their tax return done by “pros” as they are not among those who follow the taxing world. We will call them Pat and Jody Taxpayer. Having just started their own Business they left HeRBert (the group who prepared their returns) for what to them was perceived as a tax professional. They retained a CPA to handle some general bookkeeping and complete tax returns.
Good choice?
Of course it is, “All but the militantly nefarious and hopelessly deluded concede that CPAs are experts at keeping books and records. There simply is no higher accounting “designation.” then CPA.
The CPA (Certified Public Accountant) maintained records by gaining access to Pat & Jody’s bank account using the online statements. The first tax season for this CPA came around and she completed the 2007 tax return. Another year passed, and she completed the 2008 return.
Several months ago, the IRS notified the Taxpayers that the 2007 return was under investigation. Seven lines on two different Schedule Cs were in Question.
Considering a CPA had prepared this return there should be no worries.
So how did I get this return?
When the time came for the audit with the “Tax Compliance Officer”, the CPA, had manufactured information to provide the IRS to validate two of the seven lines in question and did not show up to guide the Taxpayers through the 3 ½ hour long ordeal. Needless to say, the IRS found no substantial proof or validation for seven lines in question. P & J now are holding a bill from the IRS for over $10,000.00.
Not only are the taxpayers confused about what happened, but the “Compliance Officer” also looked at their 2008 return, they are about to undergo another audit.
“Because good accounting skills are a critical part of good tax preparation, CPAs are uniquely qualified to be tax preparers.”
So where is this CPA? Avoiding Pat and Jody.
This is a most uniquely “qualified” tax preparer?
I reviewed 2006 (again prepared by HeRBert – a fast food chain preparation service), 2007 and 2008 returns. (again, these two returns were prepared by the same “CPA”)
“Good tax preparation is about numbers. It’s about keeping good books and records.
In short, it’s about good accounting.
In fact, what is a tax return if it’s not an accounting?”
Hummmmm
if anyone needs a definition to “accounting” I have a link to the right for Merriam-Webster Dictionary or you can click this.
Good thing it doesn’t suggest an ability to add or subtract.
Same for Accountant.
What the 2008 return consisted of was a 1040A – Short Form, nothing more.
My conclusion is this CPA stands proudly among those who are truly CPA tax professionals. You real CPAs who are tax pros, give her credibility she assuredly doesn’t need.
As for Jody and Pat, luckily they found a tax professional. I will help them through the amended returns, the audit up coming, and any and all IRS intervention that may come their way. If you wish to stay updated on their situation, I will create a blog page giving more detail information and will keep it updated.
However not all of you will see it this way. Why? Well, I am no longer a CPA. I am not an EA, nor am I an Attorney. What does this make me? I am an unenrolled preparer.
Unenrolled preparers, by definition, have no recognized credentials and are bound by no professional standards
And what are the unique qualifications of an unenrolled preparer?
Would someone please tell me?
Anyone?
The silence is deafening.
That’s because the answer is “none . . . nada . . . zero . . . zilch.”
The silence sir, is deafening because you are on your computer. But now, please, open your eyes fully, adjust your glasses, I want you to hear me plainly.
An unenrolled preparer is a unique person. Like a Lawyer, a CPA, or Doctor or any other profession, you are going to have unqualified hacks. My Credentials are useless in the taxing industry.
Or did you miss it?
The AICPA told a CPA/Tax Professional “We do not offer a credential in taxation. In general, our approach has been not to develop credential programs around areas for which the public already believes CPAs to ‘own’. In addition, we do not endorse a particular tax credential.”
An unenrolled preparer sees how others take advantage of the miss-conceptions of the designation and learns tax rules and regs to help people through what can be a very taxing time (no pun intended).
I question your thinking when you say a man with over 35 years in the tax preparation industry has no credibility. I only have 23 so I must not have any either?
Hummmm, let’s look at my background a bit:
a) A Masters in Accounting
b) Formally employed by this countries (at the time) Largest Accounting firms
c) Formally a CPA
d) 23 years preparing returns for taxpayers
Of the four listed in my mind, only qualifies me to call myself a tax professional. I can assure you it isn’t one of the top three.
“There simply is no higher accounting designation.”
Thus, if the Internal Revenue Code imposes an affirmative duty on taxpayers to maintain good books and records, doesn’t that alone explain why CPAs are uniquely qualified to prepare tax returns and why many CPAs are drawn to the field of tax preparation?
Of course it does.”
You Pompous arrogant ass. Is your head so high in the sky that you are not getting enough oxygen?
True enough, the IRC does affirm duty to taxpayers to maintain good and accurate records. Alone that tells me (a former CPA) should seek advice from a CPA on how to keep those records not how or where to put them on a tax return.
It is my opinion that a good majority of the CPAs that are drawn to taxation and preparation do so for the money.
(Not to get off subject, but are you actually a licensed Tax Attorney, and a CPA? I know a few Lawyers and I’ll have to ask, to be sure, but I think like the AICP, there is nothing out there for Lawyers to hold actual “tax” credentials. If I am wrong please correct me, do you have some designation that says you’re a Tax Lawyer? If so, what is it?
As for not being bound by professional standards, I find it hard to understand why I have to point out to a designated pro that we (The Unenrolled prepares) are bound by the same rules in Circular 230 as you are. Maybe you should read it some time.
A while back, I post Who is: a post that defines different titles. If you want to see the entire post please click on the link Who is: Below is a brief recap:
A Tax Attorney - Typically large and even small businesses will meet with a tax attorney once every quarter or once a year to ensure that they are making the best possible business choices with regards to investments and tax issues. Since the taxation, laws change constantly.
A Bookkeeper – is responsible for keeping accurate, up-to-date business records for proper cash flow management, balance sheet preparation, and developing expansion and investment plans.
Accountants – keep track of a company’s money.
Enrolled Agent – is a federally authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.
Tax Preparer – an individual who prepares tax returns.
Other post from the “taxguy” blog that may be related to the taxpayer issue mentioned in this post.
Choosing the Right Representative
5 Worst Things You Can Do if You Get an IRS Collection Notice a Guest post from Peter Pappas. . .
Jun 21
I have been asked and asked about taxpayer regulation, and why haven’t I posted about?
In my opinion all the talk about the regulation is just hype. Meaning, Our government, in my opinion is just trying to build up how they want to work for you. All well and good, but to actually implement something is going to be a whole other story. For now, everyone is just looking at the idea.
My friend Robert (a.k.a. The Wondering Tax Pro), has several post that if you really want my opinion then look to his as he and I see this the same. Below are links to the best gab on Tax Preparer Regulation. I recommend to everyone, to read them.
From Joe K. at Roth & Company, P.C.
From Robert F. at The Wandering Tax Pro
From Petter P. at The Tax Lawyer’s Blog
From Kay B. at Don’t Mess With Taxes
From Trish M. at Our Taxing Times
From Kelly P. Erb. at TAXGIRL
From Monica L. at The Tax CPA or Confessions of a CPA
From G.Christopher W at The Tax Law Report
From Dan M. at Tick Marks
Over all if you are wondering what I think, it is simple:
Everyone who hangs out a sign declaring they prepare tax returns (especially in my opinion Individual returns), should be regulated or licensed to do so. CPA’s, Lawyers, EAs, anyone and everyone.
Written By: Steve Sildon
For those running small or home-based businesses, you may have gotten in the habit of using a credit card to charge items for your business. The nice thing about using a credit card, especially a small business credit card, is that card issuers typically provide year-end expense statements that itemize and categorize expenses, nicely and neatly. Especially at tax time, this is a nice feature for a credit card to have.
There is some confusion, however, for some small business owners about what constitutes legitimate documentation for tax purposes on their business expense deductions. Simply put, is your credit card statement good enough to document your business expenses for the IRS? If you’ve been convinced that using your credit card statements as proof enough for your business tax deductions, depending on who you ask, you just might be in for a rude awakening at tax time.
Regarding business expenses, some tax preparers implore their clients to always save hard copies of their receipts, no matter what, of all their “ordinary and necessary” business expenses as proof of these expense deductions. Other tax preparers indicate that merely keeping your credit card statements, in most cases, should be satisfactory enough.
In fact, both may be right. To be safe, keeping hard copies of the actual receipts (preferably with notes about the specific purchase on the back of the receipt) is the safest and most defensible approach that you can take. Using just your credit card statements for documentation is generally not a good idea for a few reasons, but having them is certainly far better than having no documentation at all. In fact, in certain circumstances, credit card statements might just be enough proof. The IRS has warned tax professionals and businesses alike, however, that, at the very least, you’ll also have to have additional supporting documentation on top of the card statement itself to prove your tax deduction.
In some cases, your credit card statement might simply be the only documentation that you have, specifically for merchants and vendors ordered from online or by telephone where written order confirmations were not provided. In that case, you should keep your own notes and records about those purchases in your files, including the dates, the credit card used for the transaction, the items purchased, and the vendor used.
The IRS requires that any legitimate expense qualifying as deductible for your business must be “both ordinary and necessary.” An ordinary expense is one that is “common and accepted” in your specific trade or business type and a necessary expense is one that is also “helpful and appropriate” for your trade or business. Having an expense item on a card statement for purchases made at Staples, Office Depot or any local office supply store doesn’t automatically qualify the purchase as a legitimate business expense. That’s simply not proof enough. As far as the IRS is concerned, you could have easily just loaded up on iPod accessories, stereo equipment or video games (all of which are sold at Staples, Office Depot). The IRS suggests that business owners keep all the original store receipts that itemize the details of the items purchased. Ideally, the receipts should also have notes on the receipt indicating the business purpose for the items as well.
Scanning the receipts and storing them on a computer is another method that the IRS says is OK, but IRS knows about and fully understands the ease with which these digital files can be manipulated. If you are audited by the IRS and you show up with scanned images of your receipts, they will assuredly test their authenticity by cross-checking some of the scanned receipts with the original copies of the same receipts.
Another legitimate concern of business owners is fading that occurs on the original receipt paper, a fairly common occurrence. In addition to scanning the receipts, you can also make copies and file them alongside (or stapled to) the original receipts for your records as added insurance for record-keeping purposes.
While saving credit card receipts is preferred and certainly the most defensible method, there are instances, however, when a credit card statement will suffice. For example, many small business owners who take out their customers for coffee, meals or other entertainment purposes might not have all of their actual receipts because of disorganization or simply because they might have misplaced or even lost some of these receipts. Just because you’ve lost receipts does not mean that you cannot legitimately deduct them as business expenses. If you have a car expense or vehicle mileage log that tracks your mileage and vehicle expense items or an entertainment expense item log, you can use those as supporting documentation for the items in question on your credit card statement. To be legitimate and verifiable, however, business owners will need to verify who, what, why, where and how the items in question were purchased. What was the specific item? Where was it purchased? With whom and for what purpose were the items purchased? If you can provide answers to those questions and support it with documentation, you can legitimately expense the items.
The bottom line is that, as a business owner, you should make it a general practice to save all of your credit card receipts, no matter what. There’s no doubt that the physical receipt is the most ideal and simply the best evidence that you can provide for legitimizing any expense. In some instances, however, you just might not have a hard copy of the actual receipt. You can legitimately deduct these items in question, but if, and only if, you can provide sufficient supporting documentation in lieu of an actual receipt for items that you purchased.
Steve Sildon is a Senior Contributing Editor for Credit Card Assist. Steve writes about a wide variety of personal finance and credit-related topics, including credit cards, debt consolidation and credit repair.
Be sure to check out the Carnival of Pecuniary Delights No. 1: The Madoline Hatter Pecuniary Art Edition. it is a must read for us all.
Forms, Schedules and Worksheets – A very special offer for tax professionals, a taxguy review.
From the desk of Robert D. Flach of TAXPRO SERVICES CORPORATION and ROBERT D. FLACH, LLC tax preparers are given a great offer. Robert is also THE WANDERING TAX PRO.
If you are not a professional tax preparer I say so what, you’ll find the majority of these very useful to you as well.
All professional preparers have forms and worksheets we use for various reasons. What store did you buy yours from? Mine are a mix from Greatland and the NATP store. I have a few of my own and have been working on my own client questionnaire for a few years now. Still mine has many bugs to fix as it has far too many pages.
What Robert has created here is more.
Robert has these forms, schedules and worksheets designed wonderfully for their purposes.
The Cell phone log is perfect for taxpayers to log the cost of their business use of their phone. I don’t know about you but I have several clients that send me the years bills and pay to have me sort this out. With the cell phone log, they won’t be paying me for an hour or two, as they’ll have the expense at hand and all I will need to enter the amount. They have a reference form in case of an audit.
Ever need to add a supplement to Schedule A? In this collection there is one made out perfectly.
The Medical Expense Worksheet has lines for insurance premiums, long-term care insurance, doctors, dentist, therapist, nurses, hospital bills, Lab Test, prescription and just everything that sure you could run across including breakdowns of your mileages and other medical traveling expenses.
The Charitable Contribution Listing worksheet is exactly what taxpayers need to document their donation/s. Including instructions as to what is and what isn’t deductable. As there are several types of deductions, there are several types of worksheet for taxpayers to use in this package.
Do you have continuing education expenses? Do you file Schedule C? Need a mileage log? A business travel record? What about an employee time card? Do you need or have a comprehensive worksheet for clients who have a home office? Need a worksheet to have cost basis lined up? Do you own rentals – A multi-family building? How well is your worksheet for figuring AMT?
The point?
Robert Flach has been preparing taxes for a great many years (over 35) and is very knowledgeable in his profession proven time and time again in the articles he writes for his blogs/websites as well as others including here. The TAX PROFESSIONAL FORMS, SCHEDULES AND WORKSHEETS that are being offered are a great resource for preparers and taxpayers alike.
These documents are in MS Word format and thus cannot only be used as much as you need, but can be edited to best fit your practice and/or needs. I will be using several as is, and making slight changes several others. $5.00 is very gracious considering the time these will save everyone. Not to mention the time that was put into creating them. Every reader of TWTP needs a copy of these, even if just to check yourself and/or your practice.
Yes everyone. Robert advertises them for tax professionals, but it is my opinion those taxpayers who are busy doing their own will benefit as much as any tax preparer.
For information to get yours now, go to A VERY SPECIAL OFFER FOR TAX PROFESSIONALS. The information for getting your copy is there.
This is another addition to the series “Mistakes made when choosing a paid tax preparer”. The author is anonymous.
Things your tax preparer may not tell you
“The big name doesn’t mean superior service.”
Roughly 135 million Americans file tax returns, and of those, two-thirds pay for help. Though solo acts like CPAs and so-called enrolled agents have plenty of clients, almost 20% of taxpayers go through a big franchise like H&R Block, Jackson Hewitt or Liberty Tax Service to get their refunds — last year an average $2,255 per return.
The problem is, tax preparation and advice depend on the preparer, and in a system of franchises, that means thousands of seasonal employees and limited quality control. The results can be dangerous. When staffers from the Government Accountability Office (GAO) went undercover to get returns done by the big chains, they found “nearly all of the returns prepared for us were incorrect to some degree,” according to the report.
Worse yet, lawsuits allege that the owners of 125 Jackson Hewitt franchises cost the government $70 million in tax fraud and created an environment “in which fraudulent tax-return preparation is encouraged and flourishes,” according to the Department of Justice. Jackson Hewitt says it stands behind its compliance procedures as well as its nationally standardized educational curriculum.
“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 asleep,” complains Sen. Chuck Grassley, R-Iowa, who took the agency to task for inaction last April.
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. How to find out if your CPA’s been disciplined? Visit the agency’s Web site.
“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.
“What are your qualifications?”
Every April, Grassley calls IRS officials before the Finance Committee to grill them on taxpayer protection. He’s increasingly concerned about unethical, unlicensed tax preparers and what he calls “sharks in the water.” “Anyone can call himself a tax preparer,” Grassley laments. Many do. There’s no mandatory national licensing, and Oregon and California are the only states that require tax pros to take a test. That means as many as 600,000 tax preparers are unregulated, according to the National Taxpayer Advocate, the taxpayer assistance wing of the IRS. Some may set up shop in a local real-estate office, but many work for the big chains.
Translation: There’s no universal standard for qualification. Licensed preparers, who are usually CPAs or enrolled agents, are tested and must meet ongoing education requirements. Unlicensed preparers do neither.
“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 Feb. 1. 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.
That means you should be talking to tax preparers in October and November. 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.
“You hired me, but your return is being done by someone else.”
Some accounting firms have begun outsourcing return preparation. That means your data might be sent as far away as India — or as close as a local H&R Block, since the chain contracts with CPA firms to do returns. Either way, your accountant isn’t obliged to tell you. Your most sensitive information may have gone halfway around the world, and you have no idea.
Indeed, sending Social Security numbers, names, addresses, birth dates and account numbers overseas electronically makes some people uneasy. For while the origins of identity theft are often hard to pinpoint, returns contain so much in one bright, package — that’s a great gift to the identity thief.
The number of outsourced returns is still small, but they’re becoming increasingly common. An overseas company can process a return overnight for as little as $50, much less than a CPA’s hourly rate.
“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 enrolled agents 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.”
A recent law 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 ever 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 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 the 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.
In red comments are my own injections.
Sep 28
To quote the beginning of an article from TWTP titled ANOTHER GOVERNMENT UNDERCOVER STUDY OF TAX PREPARERS “The office of the Treasury Inspector General for Tax Administration has prepared a report titled “Most Tax Returns Prepared by a Limited Sample of Un-enrolled Preparers Contained Significant Errors” based on an “undercover” operation conducted during the recent tax filing season.” If you wanna no more you need to read the whole piece. For my 2 cents read the comments.
“Most people have some degree of financial concern in their lives. How will I pay the bills? What will happen if I’m suddenly injured and unable to work? What if I lose my job?” Trent covers this fantastically in his post Addressing Financial Worries in a Healthy Fashion.
In the finial post over at THE FLACH REPORT we must say good bye to a blog. For those of you not familiar with this blog it covered Sole proprietors and one-person LLCs who file a Schedule C with a great deal of valuable information. Robert states that although he’ll no long post in this blog but leaves it active so those in need can find the valuable information within in the archives. Please see the last entry in a post called ANOTHER ONE BITES THE DUST.
The Tax Foundation brings us a “Joke of the Day” You’ll either see it or you won’t. For those of in the biz, (at least from my point of view) this is very funny.
“What many seem to forget is that a fortune doesn’t consist of just one thing. A million dollars isn’t acquired all at once or not at all.” This is a line from the post From Pennies One Million Dollars Grow written by Penelope Pince over at Our Fourpence Worth. This is a fantastic look at money. I would encourage all to go have a read. Penelope, I like the charts you made.
Out of the mouths of children. A shocking statement is made by a son as to what he would do if he received a large amount of money (a bonus). Children are truly the best, their minds are wide open and depending on the situation, so honest in their thoughts.
For another look at the bail out (in my opinion one that is optimistic) check out the Guest post over at $aving to Invest, titled The Trillion-dollar bailout and why it will be profitable for taxpayers by Tony Parker. Once again, I had to put my two cents in. Read the comments, all of them.
Like Kelly over at TAXGIRL, I have received a lot of questions about losses from dying stocks as the market drops only to rise a bit then plummet further. Her post Some Straight Talk On Capital Losses fills in the information most will need for the situation. Great Job Kelly taking us back to work. Thanks.
Everyone wants to save money. This coming tax filing season those of you who insist on doing your own and use a PC to compute/figure your return then the news is out; Free e-filing for all?, First free filing shoe indeed drops, and my personal favorite- More e-filing fees evaporate. Be sure to check out all three post from Kay over at Don’t Mess With Taxes. And remember, if you are going to do your own I recommend TurboTax. (Which TurboTax Is Right For You? )
Ever wonder about the FDIC, and what would happen if they went under? Ihave a few times. For a bit of insight on this check outIs the FDIC a memberFDIC?A post fromGerald Prante atThe Tax Policy Blog.
Also from The Tax Policy Blog, Joseph Henchman writes Did 1997 Capital Gains Tax Exclusion for Housing Contribute to Economic Crisis? If your are wondering, I think there is indeed a link.
“The United States Patent and Trademark Office has undertaken a practiceof granting patents on so-called “tax strategies,” legal plans for avoidingtaxes.” If you want the whole story go check it out at theTaxProf Blogat this link.-Wolfman:Patenting Tax Strategies.
Tiny leaks and evaporation put a constant drain on your resources. Penelope fills us in on 101 Ways to Save Money in Your Everyday Life. Yes I did learn something
Dealing with market volatility? If so, then Kay Bell over at Don’t Mess With Taxes has a great post titled Taking the sting out of stock losses at tax-filing time. She points out several other tax blogs with links to what their saying (nope not taxguy) about the turmoil. Then she list what Melody Kump of the Raymond James & Associates office in Austin Texas has to say about it.
We have all heard the story or stories on how our government pays outrageous prices for things (like toilet seats, plungers, or hammers) in a report from Peter over at The Tax Lawyer’s Blog find out how one taxpayer went the next step to pay his tax bill in this post Taxpayer Pays IRS Bill With Toilet Seats. I think this is a great idea, only . . . Did it work?
Trent over at the simple dollar reminds us all of our largest investment in his post Looking at Your Career as an Investment. Go check out views on this.
I have had a great turn out for my series Mistakes Made… see you tomorrow for TWTP guest post. Wednesday’s guest post is from Peter of at The Tax Lawyer’s Blog and Friday I am glad to have Living Almost Large here with a guest post. With Much more to come from other great bloggers. (you can find them all in my blog roll/s to the right)
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