Which Tax Professional is Right for You

                                                                                  

 

Many taxpayers are starting to receive W-2 statements, 1099 and other forms in the mail to report income earned in 2013.   Many taxpayers have begun to organize their documentation to prepare to file their taxes as early as this month.  There are many options available for taxpayers to file taxes such as: filing by paper and mailing your returns, filing electronically, hiring a tax professional or doing your taxes yourself. There are so many tax preparation software packages and tax professionals it can become overwhelming and confusing trying to decide which one is best for you. According to FranchiseHelp Holdings there are approximately 38,287 tax preparations companies in the U.S. Approximately 144 million taxpayers filed tax returns last year. 

They are several types of tax professionals: certified public accounts (CPAs), tax lawyers, enrolled agents (EAs) and people who learned how to prepare taxes on their own with or without appropriate education or training.  Prior to preparing your taxes you need to perform an assessment to see what type of tax professional you need or if you can file your taxes on your own using tax preparation software. 

Tax preparation software has all the tax laws integrated into the tool and can be helpful if your taxes are complicated such as running your own business or claiming tax credits or deductions. However, there may be some deductions that you are missing out by using a tax preparation software.

Accountant vs CPA

An accountant has to abide by specific rules and regulations, including Generally Accepted Accounting Principles (GAAP). CPA's are accountants who have passed a licensing examination in a state. All CPA's are accountants, but not all accountants are CPA's. An enrolled agent is not a CPA or accountant. They take classes, pass an exam and earn a certification from the IRS. 

An accountant or CPA can offer suggestions to minimize your tax liability that a tax preparation software may not be able to anticipate or inform you of.  An accountant or CPA can answer any questions you have throughout the year not just during tax time. An accountant or CPA is very familiar with the tax laws and can quickly perform research on a tax issue or question versus spending hours by someone who does not have the same education and training. 

If you are self-employed, have tax credits or deductions, have multiple income streams or investments, are itemizing or owed taxes in the past you should hire a CPA. Ask bank employees, lawyers, co-workers, friends or relatives for recommendations. 

I recommend using a CPA who specializes in tax preparation. Consider hiring a smaller CPA company that focuses on your particular demographic.  Large CPA companies usually focus on corporate taxes, court cases, audits and other complicated tax issues. They charge a higher fee for tax preparation and may not be willing to prepare taxes for an individual.

Tax Preparation Companies

Some tax preparations companies recruit students, stay-at-home moms or retirees to help them during tax season who may not be qualified to prepare taxes. Some may even call them data entry experts. The most popular tax preparation companies are H&R Block and Jackson Hewitt.  Not all employees at these types of companies are CPAs or accountants. Due to this you may miss out on deductions and credits. Mistakes may be made and you may be at higher risk for an audit.

Some tax preparations companies use a similar version of tax preparation software that taxpayers use. They ask clients questions regarding standard tax forms and enter the data.  These companies in some cases overcharge for their services charging per hour while some charge per form.  In some cases hiring an accountant or CPA is cheaper than going to a chain tax preparation company.

If you decide to use a tax preparation company and don’t want to pay their fee, you don't have to pay. You can take your paperwork, leave and look for another company to prepare your taxes.

Some chain tax preparation companies put a protection clause or an arbitration clause in their contracts which prevents taxpayers from suing them in court, and prevents taxpayers from filing a class action lawsuit due to mistakes made.

Avoid chain tax preparation companies that offer to sell you additional productions such as “rapid refunds”, “refund anticipation loans” which comes with a fee. In addition, these methods require approval, are not guaranteed and you are better off using direct deposit to get your tax refund faster. No one can guarantee when you will get your tax return back, not even the IRS.

 If a mistake is made by a chain tax preparation company you may be accountable for the mistake and it may cost you money. However, some chain tax preparation companies may sign your tax returns on your behalf or may offer a service to review your taxes to ensure you are not at risk for an audit - however this should be included in your tax preparation instead of an additional fee.  If you have not been audited it doesn’t mean you never will. The IRS can take up to 3 years to perform an audit or go back further if major issues are detected.

If a tax preparation company offers a short course on how to prepare taxes run. You cannot learn how to efficiently prepare taxes in one day or by taking one course. CPAs have extensive education, have to pass a test and have to keep their license active by taking continuing education classes. 

Be wary of people or companies that brag about getting you large refunds without ever seeing your taxes or knowing anything about you. When looking to hire a tax professional things to consider are:  qualifications, licensed in your state (some tax preparers will prepare taxes even if they are not licensed in your state), experience, past references, work hours, professional reputation, trustworthiness, professionalism, professional memberships, your specific tax needs, comfortability and capability.  

Tax Lawyer

You should hire a tax lawyer if you have received any notices from the IRS to appear in court, a lien or judgment has been filed against you by a tax authority, you owe a large sum of money to the IRS, you are a business owner with partners or investors, you need to raise capital for your business, or you founded a non-profit company. 

Last Minute Tax Tips

Even though the deadline for filing taxes has passed, many taxpayers have not filed their taxes. If you are getting a refund you have to file within 3 years from the current tax year but you do not need to file an extension. After that, the penalty for not filing your taxes is forfeiture of your tax refund.

If you don’t file and you are getting a refund will receive a letter from the IRS reminding you to file your tax return, especially if W-2 or 1099 forms were reported to the IRS by your employer.  If you owe taxes and don’t file you will get a letter from the IRS reminding you to pay.

To determine if you have to file taxes 3 things are considered:  your filing status, your age and your income.  Once you reach a certain income level, the law requires you to file. Older individuals and blind individuals must determine if they need to file a Form 1040.

Children file when taxes when: they earned income as a salary, wages or tips or earned a taxable scholarship or fellowship grant; or earned income from investment interest or dividends, capital gains, unemployment benefits and some distribution of a trust fund.

For 2011, if you are under 65: single and earned $9,500, head of household and earned $12,200, married filing jointly and earned $19,000, widow/widower and earned $15,300 or married filing separately and earned $3,700, sold your home or are self-employed you have to file taxes. For more information review the 2011 IRS Publication 17.

Here are 3 tips if you can’t pay your taxes:

1. You can setup an installment agreement and pay the amount owed in 3 years. 
2. Request an extension and request the maximum extension time of 6 months.
3. Request an Offer in Compromise.  An offer in compromise allows you to settle your tax debt for less than the full amount if you meet certain requirements.

Here are 4 ways to file your taxes for free:

1. Free Software.  If your adjusted gross income is $57,000 or less you can use free tax software such as:  Turbo Tax, Free TaxAct, Tax Slayer or H&R Block’s Free File.
2. Use Free Forms.  Anyone can use free file fillable forms from freefilefillableforms.com.  The site provides online versions of paper federal tax forms.
3. File Electronically. Efile (electronically) your tax return for free by using direct deposit or pay your taxes online for free.
4. Paper forms.  Use paper tax forms to file your taxes and mail them to the IRS.  The only cost is postage.

 Legal action can be taken against you by the IRS if you owe taxes and don’t pay: it will be reported on your credit report, you can receive a tax lien, garnishment, judgment, lose your property at a tax auction or other means. Therefore, it is best file your taxes every year.

8 Crucial Steps to Filing Your Taxes

Every year Americans have to file their taxes unless they don't earn enough income to qualify having taxes taken out of their income. There are heaps of free tools available to help you prepare your taxes and determine if you will get a refund or owe money.

Some of the most widely used tax preparation tools are Turbo Tax, Tax Cut and Tax Act and tax calculators available on top sites like Bankrate.com, MSN.com or CNN.com/money.

One of the reasons many Americans miss out on claiming deductions or end up owing taxes or is because their financial documents are not in order. Many throw away, misplace receipts or falsify documents because the original documents cannot be located.

Using tax preparation software has all the tax laws imbedded in the tool which makes it easier for you to see what deductions you are eligible to claim. Here are 7 crucial steps to help you get organized and file your taxes.

1. Gather. Gather all receipts, gather monthly, quarterly and yearly statements, medical bills, student loans, credit card statements, prescriptions, financial statements, etc. and place in one easy to find location.
2. Categorize. Categorize all receipts such as medical, loans, financial statements, purchases, business expenses, income, etc.
3. Plan ahead. Avoid waiting until the last minute. You can use an automated tool to track your spending and deductions or use a piece of paper, or Word or software such as Excel or Access to enter your data electronically.
4. Automate. Use a software package like Quicken or Quick Books to record all of your deductions. Use basic column headings: Item, Date Purchased or Sold, Cost, Quantity, Total Cost.
5. Deductions. Identify all items that can be used as itemized deductions and put them in one folder. Determine if the standard deduction for your tax bracket is greater than your itemized deductions. If not, calculate your itemized deductions.
6. Go Green. File your taxes electronically. You will receive your refund in approximately two weeks from the date of filing and you help save the environment.
7. Be Patient. Don't get a tax refund anticipation check or refund anticipation loan. You are charged a fee to get your refund faster than waiting the normal waiting period due to a high interest rate charged for the loan. Save yourself some money.
8. Free Filing. If you salary is less than $57,000 or less you can file your taxes electronically for free.

It's Not to Late to File Your Taxes

This time of year accountants get very happy because they are busy with many customers. Everyone is not so happy unless you are getting a refund. A lot of the laws from last year have changed so please be sure to read the instructions when filing your 2009 taxes. Here are 6 tips to help you file your taxes. Thanks.

1. Gather all receipts, monthly/quarterly statements, medical bills, student loans, credit card debt, etc.

2. Be cautious when purchasing a tax preparation software. Research the credibility of the company and verify if the software provides automatic updates to tax laws contained in the software. Go to Better Business Bureau website to check out a company's history. Click on the Business Link under the Check It Out section. Use a software package like Quicken or Quick Books to record all of your deductions. If you don't have this software then you can use an Excel spreadsheet with these basic column headings, Item, Date Purchased or Sold, Cost, Quantity, Total Cost. If you don't have the Excel software program just use plain old pencil and paper.

3. Identify all items that can be used as itemized deductions and put them in one pile. Determine if the standard deduction for your tax bracket is greater than your itemized deductions. (The list of items you gathered in step 2 and verified against the tax form instruction manual as items that can be itemized). If your standard deduction is greater than use the standard deduction, if not, use the worksheet included with your taxes to calculate your itemized deductions.

4. To save money file your taxes electronically. You will receive your refund in approximately two weeks from the date of filing.

5. Don't get a tax refund loan or refund anticipation loan. This is a waste of time and of money. You usually have to pay a fee to get the refund loan which usually have high interest rates and associated fees. See the article discussing this issue.

6. If you are owed taxes this year and are unable to pay your taxes by April 15, 2010, file an extension no later than April 15, 2010 or setup a payment plan. If is never wise to owe taxes because the interest and penalties fees that accrue each day will put you further into debt.

Tips to Prepare For Filing Your 2006 Taxes

It's that time again. The dreaded tax year. A lot of the laws from last year have changed so please be sure to read the instructions when filing your 2006 taxes. Also here are 7 tips to help you get organized to file your taxes. Thanks.

1. Gather all receipts, monthly/quarterly statements, medical bills, student loans, credit card debt, etc.

2. Use a software package like Quicken or Quick Books to record all of your deductions. If you don't have this software then you can use an Excel spreadsheet with these basic column headings, Item, Date Purchased or Sold, Cost, Quantity, Total Cost. If you don't have the Excel software program just use plain old pencil and paper.

3. Identify all items that can be used as itemized deductions and put them in one pile. Determine if the standard deduction for your tax bracket is greater than your itemized deductions. (The list of items you gathered in step 2 and verified against the tax form instruction manual as items that can be itemized). If your standard deduction is greater than use the standard deduction, if not, use the worksheet included with your taxes to calculate your itemized deductions.

4. To save money file your taxes electronically. You will receive your refund in approximately two weeks from the date of filing.

5. Don't get a tax refund loan or refund anticipation loan. This is a waste of time and of money. You usually have to pay a fee to get the refund loan which usually have high interest rates and associated fees. See the article discussing this issue.

6. If you salary is less than $52,000 or less you can file your taxes electronically for free.

7. Be cautious when purchasing a tax preparation software. Research the credibility of the company and verify if the software provides automatic updates to tax laws contained in the software. Go to Better Business Bureau website to check out a company's history. Click on the Business Link under the Check It Out section.

Bonus Tip. File your taxes on time. If you are owed taxes this year and are unable to pay your taxes by April 15, 2007, file an extension no later than April 15, 2007 or setup a payment plan. If is never wise to owe taxes because the interest and penalties fees that accrue each day will put you further into debt.
Your goal for this year is to get out of debt and be on your way to be debt free life. Good luck!

For more tips and information purchase my book, How to Get Out of Debt: Get an "A" Credit Rating For Free, ISBN 1933949430 at Walden Books, Borders, Barnes & Noble, Amazon.com, Books A Million, Overstock.com, Target and Walmart.