A Week in Perspective

Posted by Bruce Mc on Oct 17, 2010 in Information, Week in review | 0 comments

With the end of the filing season now behind us I have taken some time off. I have post ready for next week ,but I am out. all the same. The week now past held its own with great post. As Always I can’t get them all to you but please be sure to read what’s here. I have gathered great post from great bloggers with information we all need to know. See you all next week.

My favorite post this week:

How Your Financial Life Will Change After Marriage – 7 Important Money Matters to Consider – While the most common subject of marital conflict is money, premarital counseling rarely discusses the practicalities of managing household finances. Money matters are even more challenging when people move from individual to joint finances, often with very different financial viewpoints/habits and financial baggage (like student loans and credit card debt). But this article is here to help, with seven important money matters to consider before you tie the knot:

Understanding Your W2 Employer-Employee Reporting Form For 2010 Taxes Filed in 2011 – W2 Changes in 2011 – The W2 form for 2011 is pretty much the same as 2010 expect that employers now have to report the cost of tax-free medical coverage under an employer-sponsored group health plan (this is optional for employers in 2011, but you may still see it). The reporting of this cost, mandated under the Obama’s health care plan, is intended to provide employees with greater transparency into their overall health care costs.

 Your taxes, now in plain language – It’s now law. Federal government documents must be in “plain writing.” And yes, that includes the Internal Revenue Service.

 The IRS and the latest licensing outrage -

Who would you rather prepare your taxes?  A professional tax return preparer with over a dozen years’ experience in preparing tax returns for taxpayers without incident.  Or me, an attorney who has never so much as taken a law school class or continuing legal education course in tax law, and gave up on doing his own taxes last year once he started needing to itemize his deductions.  You probably think you’d prefer the first option, but the IRS says you’re wrong.

 10 More Essential Skills You Didn’t Learn in College -

 IRS Prefers Snot-Nosed Harvard Law Grads Over Experienced Tax Return Pros – . . . are most attorneys really that much better qualified to prepare your taxes? Absolutely not. . . .most attorneys don’t have any special training or testing on tax law, let alone tax return preparation.

 Tax Return Preparer Regulation: What About Attorneys and CPAs? – In all fairness, Congress has created a tax law that rivals quantum physics in terms of difficulty, which surely makes attaining competence just that much more elusive, but that does not diminish the need for tax competence by all preparers. Demonstrating that competence ought to be accomplished by actual testing and not by erroneous presumption.

 33 Questions To Ask Customers – Are you providing a good customer experience? Here are some questions to ask your customers to find out:

 How regressive is YOUR state’s tax system?

 “Do you have a business…or a hobby?” – just because you spend a lot of time working on your creations doesn’t mean you have a business. While you may protest: “Hey, I’m working hard How is it not a business?!” it is worth taking a closer look at the true definition of a “business.”

 A List of Useful Twitter Stats and Analytics Tools – Just for You! –  Twitter happens to be a powerful tool to promote your brand, products or services on the internet. And these days, everyone seems to be busy tweeting! To measure whether you are making the most of this social media marketing tool, you should have a couple of useful analytics tools at hand.

 Benefits of Independent Contractor Status (vs Employee) – . . . the fact remains that there are a lot of benefits to hiring independent contractors instead of employees.

 IRS Independent Contractor Test – The IRS used to use something called the “20 Factor” test. But, under pressure from Congress and from representatives of labor and business, there have been some attempts to simplify the test. There are now 11 main tests that are organized into 3 main groups:

 Small Business News: The Business of the Future! – The future is here as far as small business goes. A rapidly changing economic and technological landscape has almost completely changed the idea of what it means to be in business including the trappings of a storefront location or office, a large bank loan and hiring and buying merchandise. (As we’ll see even the small business Website isn’t what it was a few years ago.) But the core values of running a small business, or any business, have remained the same: create value, operate efficiently, be profitable. Here are the ways small business has changed. It’s the wave of the future:

 Jobless After 50? You May Be Out Of Luck – The economy officially crept out of recession in June of 2009, but for many Americans, the economic markers that really count are the ones that come out each month from the Department of Labor: unemployment statistics.

 Finally a Tax Law Change That Will Make Our Lives Easier. Well, unless you are a stock broker or mutual fund company that is. 1099-B Reporting Expanded

 In other news:

There will likely be no increase in Social Security benefits (sometimes referred to as a “COLA” or “cost of living adjustment”) for 2011. That makes two years in a row since there wasn’t an increase in 2010 (though there was an above average increase – nearly 6% – in 2009)

Kay always has the best pictures.

IRS announces that W-2 reporting of 2011 workplace health benefits is optional

I’m Back with “Who is”

Posted by Bruce Mc on Jul 8, 2009 in Choosing a preparer, Opinions, Preparer, Re post | 0 comments

            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!

Things your tax pro may not tell you

Posted by Bruce Mc on Oct 17, 2008 in Choosing a preparer, Opinions, Preparer, Tax Preparation | 7 comments

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.

 Shop around.

In red comments are my own injections.