Righteousness in Designation?
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”)
- 2006 had 6 errors resulting in a $213 refund to Pat and Judy (I can say this because I have already amended this return)
- 2007 has 21 errors - three missing forms (associated with errors) and if that wasn’t bad enough, 5 of the errors are mathematical.
“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.
- 2008, well is just wrong. I say this because nothing changed from 2007 through 2008.
- 2007 consisted of
- 1040 Long Form
- 2 Schedule Cs
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. . .
How to Avoid IRS Penalties and Interest
Picking A CPA With Too Much. . .
Find a Tax Preparer that is right for you
When opening your mail in January and February, you probably will receive a lot of documents with descriptions and/or warnings about this information being “Important Income Tax Information!” Soon you will have to decide how to deal with last year’s income tax situation.
So, do you try to prepare and file your own income tax returns, or are you thinking about hiring a tax professional?
If you are thinking about hiring a tax professional ask yourself “why would or do I need a tax preparer”. If you feel that you need a preparer there are four basic needs for tax preparation services:
1. speed,
2. accuracy,
3. creating a customized tax strategy, and
4. managing a complex tax situation with accuracy and professionalism.
Everyone wants their tax returns to be accurate. All tax professionals, even those at national franchises, should guarantee the accuracy of their work.
If you have a particularly complicated tax situation, you should seek a tax professional with substantial experience to help you.
If having your taxes done quickly is most important, you’ll probably go to one of the nationwide tax franchises. Although I don’t recommend this, the employees at these companies are trained to get your taxes done quickly. Every year I hear from new clients and non-clients who are/were dissatisfied at the level of accuracy and professionalism encountered there.
Tax laws can be complicated and usually change from year to year, so it’s important to find a preparer who has the knowledge and experience to prepare your returns correctly. A lot of states do not require tax preparers to be licensed; however, many preparers are licensed, certified, and belong to professional organizations that require a certain level of education. Find one of those.
Also, services vary considerably from preparer to preparer, so you’ll also want to find one who offers the services you need.
Before you hire a preparer, call around to a couple of tax offices and take the time to ask these questions:
What kind of formal tax training do you have?
Do you hold any professional licenses or designations, such as certified public accountant (CPA)?
Do you belong to any professional organizations?
Do you take continuing professional education classes each year?
How long have you been preparing tax returns?
Have you ever done a tax return dealing with my situation?
Are you open for business year-round?
Have you ever been disciplined by any government authority for malpractice?
Are you authorized to and will you represent me in an audit or collection matter with the IRS or state Department of Revenue if necessary?
How much do you charge, and how do you calculate your fees?
Ask what their price range is. Prices for tax preparation will vary depending on how complex your tax return is. Some professionals charge by the hour, or by how many tax forms you need to fill out, or even a flat fee for all work.
Ask about any guarantees the tax preparer offers. The tax preparer should be willing to guarantee the accuracy of the returns, be willing to amend the tax return if there was a mistake in the tax prep, and be willing and able to assist you in an IRS audit.
Also, be careful of tax preparers who claim to know “the secrets” of obtaining unusually large refunds. Most preparers charge rates based on their time or the complexity of your return, and you should avoid anyone whose fees are based on a percentage of your refund. (This practice is illegal.) Incase questions arise after your return has been filed, find out if, and where, your tax preparer can be contacted in future weeks or months.
Never sign a blank tax form for any preparer.
Remember that you are ultimately responsible for your tax return, so be sure to choose your tax preparer carefully. If you want to find competent, licensed tax professional I suggest you visit The IRS web site Authorized IRS e-file Providers for Individuals then/or go to Search the NATP Member Directory, then call around and ask questions.
Friends and family can be of additional assistance.
What You’ll Need:
◊ All your current year tax documents
◊ Photo identification
◊ Social Security cards for yourself and your dependents
◊ Checkbook for direct deposit of your refund/direct debit for any amount due
◊ Copy of last year’s tax return
Tip: Little known fact is that local CPAs and EAs and other Tax professionals charge only slightly more than a franchise service and will provide much more personalized service.
Tip: Be sure to ask if your preparer is an enrolled agent (EA), CPA, or has received advanced tax training.
Tip: All tax professionals specialize. Find a CPA or EA who has the experience, knowledge, and skills you are looking for.
Tip: Some franchises will try to sell you an enhanced guarantee to cover additional taxes and penalties in case of an audit. This is practically a guaranteed profit for the franchise.
Some more Tips:
¤ A CPA is a professional accountant licensed by the state. Best for corporate accounting, tax audits, and business consulting.
¤ An Enrolled Agent is a tax professional licensed by the IRS. Best for complex tax issues, tax audits, and responding to tax collectors.
¤ A Tax Preparer may be registered by the state. Best for straightforward tax returns.
¤ The national Tax Franchises are H&R Block, Jackson Hewitt, and Liberty Tax. With offices nationwide. Often fast, courteous, and convenient. But some employees will be less trained than others. Be sure to ask for a senior-level tax preparer.
Expect to pay from $150 to $450, depending on how complicated your tax return is.
Year-End Tax Planning
As the end of the year approaches, it’s time to consider strategies that can help you reduce your tax bill. But most tax tips, suggestions, and strategies are of little practical help without a good understanding of your current tax situation. This is particularly true for year-end planning. You can’t know where to go next if you don’t know where you are now.
So take a break from the usual fall chores and pull out last year’s tax return, along with your current pay stubs and account statements. Doing a few quick projections will help you estimate your present tax situation and identify any glaring issues you’ll need to address while there’s still time.
Withholding
If you project that you’ll owe a substantial amount when you file this year’s income tax return, ask your employer to increase your federal income tax withholding amounts. If you have both wage and consulting income and are making estimated tax payments, there’s an added benefit to doing this: Even though the additional withholding may need to come from your last few paychecks, it’s generally treated as having been withheld evenly throughout the year. This may help you avoid paying an estimated tax penalty due to under withholding.
Of course, if you’ve significantly overpaid your taxes and estimate you’ll be receiving a large refund, you can reduce your withholding accordingly, putting money back in your pocket this year instead of waiting for your refund check to come next year.
Alternative minimum tax (AMT)?
Originally intended to prevent the very rich from using “loopholes” to avoid paying taxes, the alternative minimum tax (AMT) snags more and more middle-income taxpayers every year, since (unlike regular income tax) it doesn’t keep pace with inflation. The AMT is governed by a separate set of rules that exist in parallel to those for the regular income tax system. These rules disallow certain deductions and personal exemptions that you are allowed to include in computing your regular income tax liability, and treat specific items, such as incentive stock options, differently. As a result, AMT liability may be triggered by such items as:
Large numbers of personal exemptions
Large deductible medical expenses
Large deductions for state, local, personal property, and real estate taxes
Home equity loan interest where the financing isn’t used to buy, build, or improve your home
Exercising a large incentive stock option
Large amounts of miscellaneous itemized deductions such as unreimbursed employee business expenses
So when you sit down to project your taxes, calculate your regular income tax on Form 1040, and then consider your potential AMT liability using Form 6251. If it appears you’ll be subject to the AMT, you’ll need to take a very different planning approach during the last few months of the year. Even some of the most basic year-end tax planning strategies can have unintended consequences under AMT rules. For example, accelerating certain deductions into this year may prove counterproductive since AMT rules may require you to add them back into your income. See a tax professional for information on your specific tax situation.
Timing
The last few months of the year may be the time to consider delaying or accelerating income and deductions, taking into consideration the impact on both this year’s taxes and next. If you expect to be in a different tax bracket next year, doing so may help you minimize your tax liability. For instance, if you expect to be in a lower tax bracket next year, you might want to postpone income from this year to next so that you will pay tax on it next year instead. At the same time, you may want to accelerate your deductions in order to pay less tax this year.
To delay income to the following year, you might be able to:
Defer compensation
Defer year-end bonuses
Defer the sale of capital gain property (or take installment payments rather than a lump-sum payment)
Postpone receipt of distributions (other than required minimum distributions) from retirement accounts
To accelerate deductions into this year:
Consider paying medical expenses in December rather than January, if doing so will allow you to qualify for the medical expense deduction
Prepay deductible interest
Make alimony payments early
Make next year’s charitable contributions this year
Gifts that Give
If you itemize your deductions, consider donating money or property to charity before the end of the current tax year in order to increase the amount you can deduct on your taxes. As an aside, now is also a good time to consider making non-charitable gifts. You may give up to $12,000 ($24,000 for a married couple) to as many individuals as you want without incurring any gift tax consequences. If you gift an appreciated asset, you won’t have to pay tax on the gain; any tax is deferred until the recipient of your gift disposes of the property.
LET UNCLE SAM SUBSIDIZE YOUR RETIREMENT SAVINGS
{OOPPPs! Didn’t tell you, The Wondering Tax Pro and I have decided to switch our compatible/complimentary posts spots. Meaning TWTP’s discussion of the Credit for Qualified Retirement Savings Contribution appears here at taxguy and my post on this, appears over at TWTP titled ANOTHER CREDIT – FORM 8880.- This is a small break from my series. Enjoy.}
LET UNCLE SAM SUBSIDIZE YOUR RETIREMENT SAVINGS
by Robert D Flach – The Wandering Tax Pro
TAX GUY Bruce has provided a good overview of the Retirement Savings Contributions Credit, aka “Saver’s Credit” in his post “Another Credit – Form 8880″ which appears today over at THE WANDERING TAX PRO.
The recent Ninth Annual Transamerica Retirement Survey revealed that only 17 percent of full-time American workers with annual household incomes of less than $50,000 are even aware that the credit exists.
Recent surveys report that nearly half of American households are not saving at all for retirement and two thirds are not saving enough. This credit, which was first introduced in the Economic Growth and Tax Relief Reconciliation Act of 2001 and made permanent by the Pension Protection Act of 2006, is an excellent way to get low income individuals and those just starting out in the workplace to save for their retirement.
Under this credit a lower-earning individual can get the federal government to subsidize from 10% up to over 80% of his/her retirement savings, depending on the individuals AGI and tax situation.
For 2008 the Modified AGI amounts for determining the Retirement Savings Contribution s Credit are:
SINGLE, MARRIED SEPARATE, QUALIFYING WIDOW(ER)
$ 0 – $16,000 = 50%
$16,000 – $17,250 = 20%
$17,250 – $26,500 = 10%
HEAD OF HOUSEHOLD
$ 0 – $24,000 = 50%
$ 24,000 – $25,875 = 20%
$ 25,875 – $39,750 = 10%
MARRIED FILING JOINT
$ 0 – $32,000 = 50%
$ 32,000 – $34,500 = 20%
$ 34,500 – $53,000 = 10%
To determine “Modified” AGI for purposes of this credit you start with AGI and add back any exclusion or deduction for foreign earned income, foreign housing cost, and income from American Samoa or Puerto Rico.
Let us look at an example of how this credit works –
Jane Q Taxpayer, a single parent with one dependent child, will earn $24,963 in taxable W-2 wages for 2008. This is her only taxable income for 2008. She does not contribute to a 401(k) or other pension plan at work.
If Jane were to contribute $1,000 to a traditional IRA for 2008 she would be able to claim a deduction for the contribution on her 1040A. This $1,000 would reduce her AGI to $23,963. As a Head of Household with a “Modified” AGI of less than $24,000 she is eligible for a full 50% Retirement Savings Contributions Credit on her $1,000 IRA contribution.
By making a deductible contribution to an IRA Jane saves $100 in federal income tax (10% tax bracket) and gets a credit of $500 – a total savings of $600. So “Sam” has paid 60% of the IRA contribution.
Jane could file her return early in the season so that her refund would arrive before April 15th and she could use part of her tax refund to fund the IRA contribution.
If instead of an IRA contribution Jane participated in her employer’s 401(k) plan and made a total of $1,000 in employee contributions to the plan she would realize an additional $160 savings from an increased Earned Income Credit (the EIC is based on taxable W-2 wages, which would be reduced by her $1,000 contribution to the company plan). Now 76% of her retirement savings has been “subsidized” by “Sam”.
If Jane had two dependent children the EIC savings from a $1,000 contribution to her 401(k) would save $211 – bringing the government subsidy up to 81.1%.
Jane could revise her W-4 withholding so that the 401(k) contributions did not reduce her take-home pay. On her limited income she could not afford to lose $1,000 in income, but she could handle $189.00.
In the above cases Jane would recognize the tax savings as an increase in her refundable Child Tax Credit.
Unfortunately if your standard or itemized deduction(s) or dependents wipe out the tax liability you get no benefit from the Savers’ Credit. It is not a refundable credit (we have enough of those already) and cannot be carried forward.
The most difficult year to start a retirement savings account is the first year you begin work. This is also the best time to begin. If you can discipline yourself to do it as soon as you start to work it will be easier to continue each year thereafter. The Retirement Savings Contributions Credit can help to reduce the actual cost of your first year’s contribution.
Here is another example –
John Q Taxpayer (who is over age 17) graduated from school in 2007. He started a full-time job in 2008 and will receive taxable wages of $17,350 for the year. He will also have $25 in bank interest for 2008. His tax liability would be $863.
If John Q contributes $1,406 to a deductible IRA his AGI would now be $15,969 and he would be eligible for a 50% credit. His tax liability would be “0″. John Q is “out of pocket” only $543. “Sam” has paid for over 61% of his retirement savings. As in the earlier example, John Q can use all or part of his resulting tax refund to fund the contribution if he files his return early enough in the season.
Of course John Q could contribute more than $1,406 to an IRA. He could contribute $2,000 and treat $594 as a nondeductible contribution on Form 8606. Or he could contribute $1,406 to a traditional IRA and up to $3,594 to a ROTH IRA.
Here is another idea. John Q’s parents and/or grandparents could gift to him an IRA of $1406 or more. In addition to giving him a start on a retirement account for the future they are also putting an additional $863 in his pocket, which he could contribute to his IRA for 2009.
TTFN
{The series I started will continue on Friday with a Guest post from Gina please visit her blog (Tax Tips Blog) http://glgcpa.com/blog}
Again, I want to invite any and all guest post on this subject. I want to hear from all bloggers or just readers with their own input. Let’s see what you see I am missing. If you have some words of wisdom on this subject please let us share it with everyone, if it is something that has already been covered, so what, I am looking for others to tell what they know or have learned about finding a paid preparer. Repetition drives the point home.
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