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Happy New Year to you all and welcome back to our 2018 Newsletters!
With every newsletter and tax topic we bring to your attention, we urge you to look for help from tax professionals. With the recent surge of all sort of tax scams, you need to be extra vigilant in your choice of a tax professional.
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Even though most tax return preparers are professional, honest and provide good service to their clients, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients by filing false or fraudulent income tax returns.
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- Let us first clarify who these tax professionals are.
Tax Professionals is a generic term describing a variety of professions including Enrolled Agents, Certified Public Accountants, Financial Planners, Accountants, Tax Preparers, and some Lawyers.
An enrolled agent (EA) is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service. An EA has to pass the Special Enrollment Examination, or must have worked at the IRS for five years in a position which regularly interpreted and applied the tax code and its regulations. The IRS conducts a background check as well as a review of the applicant’s tax compliance. Also, the IRS requires ERs to complete 72 hours of continuing professional education every three years.
A tax preparer is an individual who has been given limited training, usually 3-6 weeks, on the tax forms, types of income and expenses and how to use tax software. Thanks to recent law changes they must be licensed and receive annual training to ensure familiarity with the most recent laws.
A CPA has general knowledge in all accounting disciplines such as audit, cost, revenue, preparation of financial statements and tax. A CPA may specialize in one or more area, so it is important to understand what areas of accounting they have practical experience.
A tax attorney has a law degree and also has an accounting degree usually with a CPA specializing in tax. Many tax attorneys focus on corporate and/or partnership taxes, acquisitions/divestitures, real estate or representing a defendant in an IRS audit.
A financial planner is a practicing professional who prepares financial planning for people covering various aspects of personal finance which include: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners). All of this is commonly known as personal financial planning designed to create a financial plan, a detailed strategy tailored to a client's specific situation, for meeting a client's specific goals.
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Of course there is a lot more to be said about these professionals and their expertise. But maybe equally important is to know if and when you need to enroll any of their services.
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| The generally agreed upon advise is to use the following points to assist you when selecting a tax return preparer: |
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- Be wary of tax return preparers who claim they can obtain larger refunds than others.
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- Avoid tax return preparers who base their fees on a percentage of the refund.
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- Ensure you use a preparer with a preparer tax identification number (PTIN). Paid tax return preparers must have a preparer tax identification number to prepare all or substantially all of a tax return.
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- Use a reputable tax professional who furnishes his PTIN, signs the tax return, and provides a copy of the return to you (as required).
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- Consider whether the individual or firm will be around months or years after the return has been filed, to answer questions about the preparation of the tax return.
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- Check the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other tax return preparers may only represent taxpayers for audits of returns they actually prepared.
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A paid tax return preparer with primary responsibility for overall substantive accuracy of a return is required, by law, to sign the return and include a preparer tax identification number (PTIN) on the return.
Even if enrolled agents, certified public accountants and tax attorneys are already required to be licensed, pass an exam and fulfill annual continuing education requirements, beginning January 1, 2011, all paid preparers must have a Preparer Tax Identification Number before preparing returns.
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The annual PTIN requirement is part of the IRS’s ongoing effort to enhance tax administration and improve services to taxpayers.
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Remember that, although the tax return preparer signs the return, you are ultimately responsible for the accuracy of every item on your return.
Also, you should be aware that having a PTIN is an IRS requirement and does not necessarily attest to the professional qualifications of the tax preparer. Therefore, when you choose a tax professional, make sure they belong to a professional organization and attend continuing education classes.
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Check on the preparer’s history with the Better Business Bureau to see if the preparer has a questionable history. Also check for any disciplinary actions and for the status of their licenses. For certified public accountants, check with the state boards of accountancy. For attorneys, check with the state bar associations. For enrolled agents, check with the IRS Office of Enrollment.
Make sure any refund due is sent to you or deposited into an account in your name. Taxpayers should not deposit their refund into a preparer’s bank account.
A thorough preparer will request to see your records and receipts. They will ask you questions to determine your total income and your qualifications for deductions, credits and other items. Do not use a preparer who is willing to e-file your return by using your last pay stub before you receive your Form W-2. This is against IRS e-file rules.
Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form. Review the entire return before signing. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
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Report abusive tax preparers to the IRS. Some of the red flags include the failing to sign tax returns they prepare and receive payment for; failing to use a Preparer Tax Identification Number or using an invalid PTIN; failing to provide clients a copy of their tax return; failing to return a client's records; creating false exemptions or dependents; creating false expenses, deductions or credits; creating or omitting income; using an incorrect filing status; altering documents; embezzling a client's refund; using off-the- shelf software or IRS Free File instead of professional software; falsely claiming to be an attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary.
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You can report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit.
No matter what your tax situation looks like, you need to have all of your papers and information ready and well organized.
If you have basic filing needs with just one or two W-2s and no deductions other than standard deductions, the do-it-yourself approach may work for you just fine. You can use online software programs or even buy one of them for the federal return; most states have online applications for filing the state return as well.
Even so, online filing can be time consuming and minor/common mistakes in figures can lead to a plethora of complications.
If you value your time and are not too comfortable with handling figures, tax laws and new software programs, a tax preparer my be right for you. The price is not high and it could save you a lot of headache.
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| If, by any chance, you get audited by the IRS, an enrolled agent can represent you before the IRS. |
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| Your tax returns can get more and more complicated with any or several of the following situations: |
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You have a mortgage, children and some investments;
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You have income from real estate, Partnerships, S-Corporation, foreign income and acquisitions or divestitures; |
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You are self-employed or own your business; |
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You have financial transactions that may impact your tax situation, like forgiveness of debt, transferring an asset, swapping of an asset, disposition of an asset, giving money or assets to family members or charities and estate planning; |
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You are facing a life change, such as re-location, marriage, divorce, a new child, a kid heading off to college, or retirement.
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This list is somehow simplified, there are of course other situations that require specialized help and, unless you’re a professional yourself, if you want to succeed financially, you should be willing to pay for good financial and tax advice, especially from a CPA or financial planner.
You may also want to remember that we are here to help you in any way we can.
Choose wisely, be safe, and come back to our website for more news and useful information. |
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