What is your tax background? A slew of letters following a name on a business card doesn’t necessarily mean more qualified. It can mean that the person has passed certain tests or has specific tax training. So ask what those letters mean – and how they would relate to the preparation of your return. Don’t be blinded by the alphabet soup. Here’s a quick guide to help you sort it out in advance:
- A certified financial planner (CFP) is a designation for financial planners given by the Certified Financial Planner Board of Standards. A CFP must meet certain education requirements, pass an exam, have experience in the field, pass fitness standards and pay a certification fee: the coursework and exam do have tax and tax planning components as determined by the Board. A CFP may have tax experience but tax may not necessarily be the focus of their practice.
- A certified public accountant (CPA) is certified by the state to act as a public accountant. All CPAs are accountants but not all accountants are CPAs. To qualify as a CPA, candidates are required to pass an exam. Most states also require an ethics exam or course as well as continuing education credits. A CPA may specialize in tax but not necessarily: there’s a wide range of CPA services including accounting, auditing, financial planning, technology consulting and business valuation.
- An enrolled agent (EA) has earned the privilege of representing taxpayers before by either passing a three-part comprehensive IRS test or through experience as a former IRS employee. EA status is the highest credential the IRS awards. EAs must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
- AFSP (Annual Filing Season Program) participants are non-credentialed return preparers who have met voluntary requirements established by IRS. Those requirements include 18 hours of continuing education, (includes a six-hour federal tax law refresher course with an exam). AFSP participants who have met the criteria receive a Record of Completion and are included in a public database of return preparers on the IRS website.
- A JD (Juris Doctor) is a law degree: having a JD means that you’ve graduated from law school but does not always mean you’ve passed the bar exam. An LLM (Master of Laws) is a second law degree, kind of like a specialty (though ethics rules in many states won’t allow you to say that). An LLM could be focused on taxation but may not be (you could have an LLM in Trial Advocacy, for example). As with a CPA, JD candidates are required to pass an exam, an ethics exam or course and take continuing education credits. Having a law degree or two doesn’t necessarily mean that an attorney prepares returns or has tax experience (you don’t have to demonstrate competence in tax law to pass the bar in most states). Avoid a lawyer who promises to do your taxes, get you out of that DUI and help you with your divorce all in the same breath.
- A Volunteer Income Tax Assistance (VITA) volunteer is trained by the IRS to prepare basic returns.
- Other accountants, bookkeepers, and tax preparers may be able to demonstrate competence but may not have formal credentials. That doesn’t mean you shouldn’t give them a look. Ask about what they do and why they’re qualified to do it.
- Have you prepared a (fill in the blank) tax return before? Remember when I said there’s no one size fits all? That’s because tax returns are not all the same. Some tax preparers can do forms 1040-EZ in their sleep. Others are fluent in Schedules C (business) and/or E (rentals). Some may focus on pass-through entities, tax-exempt organizations or fiduciary returns. Tax preparers may focus on international taxpayers and expats or small businesses. There are as many variations as there are schedules and forms. It’s not uncommon for tax preparers – especially those that have been around for awhile – to have a pretty wide scope of knowledge. But nobody can do it all and don’t trust anyone who tells you otherwise. If you have special circumstances because of your investments, occupation or residency status, find a tax preparer who has experience with your specific situation.
- Do you know the requirements of the states and localities where I am required to file? Yes, federal income taxes know no boundaries – those rules don’t change from one state to the next. But that’s not true when it comes to states and localities. Your state or locality may have quirky filing requirements, especially for business owners. It can get even more complicated if you’ve moved from state to state during the year or if you live in one state and work in another. You may also need special guidance if you own a business or real estate in a state outside of your residency or if you are the beneficiary of a trust or estate in another state. Make sure that your preparer knows – and can handle – all of those filing requirements.
- What records and other documentation will you need from me? While you shouldn’t be expected to haul in the contents of your entire home office, a reputable preparer should insist that you provide your forms W-2, 1099, 1098 and other verification of income and expenses in order to prepare a proper return. You shouldn’t use a preparer willing to e-file your return just by using a pay stub (that’s against IRS rules). A tax preparer should be able to explain what will be needed for special schedules, forms or circumstances. If a preparer isn’t inclined to do the necessary due diligence (especially for something like the Earned Income Tax Credit) in the beginning, it should give you pause about what other corners the preparer might be willing to cut later – at your expense.
- How do you determine your fees? Note the wording on this one. I didn’t say ask how much the fees would be but how the fees are determined. Prices may vary based on the complexity of your return, whether you require additional schedules (such as dividend and interest on Schedule B, business information on Schedule C, capital gains, and losses on Schedule D and/or rental income and losses on Schedule E); supporting forms (such as those for the child tax credit or additional charitable donation information); or whether your return has out of the ordinary line items (like Roth IRA conversions). Some preparers offer reduced costs for federal return but add on for state and local returns: make sure you understand the total cost. Finally, be wary of preparers who base their fee on a percentage of your anticipated refund: they have a financial incentive to encourage inappropriate credits and deductions.
- What about the extras? There’s nothing wrong with paying for the extras: just make sure that you know what those might be ahead of time. When asking about fees (see #6), be sure to ask about the cost of extra services, like the cost to fix any mistakes or to file electronically (see #7). A tax preparer should not charge you extra for a copy of your return when the return is prepared (though charging you extra for additional copies may be appropriate).
- Can I file electronically? More than 1 billion individual tax returns have been processed since the debut of electronic filing in 1990. It’s the fastest way to get your refund and tends to result in fewer math errors. It may also be required: a paid preparer who prepares and files more than ten client returns must generally file returns electronically unless the client opts out.
- Who will sign my return? Remember that your preparer must have a PTIN (see again #1). The PTIN and the preparer’s signature need to appear on your tax return. Don’t trust a preparer who refuses to sign a return or asks you to sign as self-prepared.
- When will I receive a copy of my return? It’s not unreasonable to leave your preparer’s office without a copy of your completed return; assembly may be required. However, you should receive a complete copy of your return within a reasonable amount of time following your appointment. If your preparer can’t offer a window of time to expect the copy, it might be indicative of a time management problem. If your preparer can’t promise you a copy at all, run, don’t walk away: you will need a copy for your own records.
- How do I find you if I have a question or a problem after tax season is over? I’m not a fan of tax preparers with shops that pop up on street corners during tax season and then go missing for half the year. Clients often receive requests from taxing authorities for additional information in October or November: make sure that you know how to contact the tax preparer after your return has been filed. If your tax preparer won’t be around, consider taking your business elsewhere.
- What happens if I get audited? Nobody wants to think about an audit when filing a return. But you need to ask: find out how the tax preparer handles audits or examinations from IRS. Will he or she respond to those questions? Can the tax preparer represent you in front of IRS or Tax Court? Remember that attorneys, CPAs, and Enrolled Agents are the only tax professionals with unlimited representation rights, meaning they can represent their clients on any matters including audits, payment/collection issues, and appeals in front of the IRS. AFSP participants have limited representation rights, meaning they can represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. For 2016, PTIN holders without an Annual Filing Season Program – Record of Completion or other professional credential are only be permitted to prepare tax returns. That doesn’t have to be a deal breaker (there are professionals who focus on audits if you need to hire someone later) but you should understand the scope of services and representation before you agree to become a client.
Tag Archives: EA
Who Will Prepare Your Tax Return?
As the start of tax filing se
ason approaches, the Internal Revenue Service is reminding taxpayers to start thinking about who will prepare their 2016 federal tax return. The IRS will begin processing tax returns on Monday, January 23. Many software companies and tax professionals will accept and submit tax returns before the IRS systems open on January 23.
In 2016, more than 131 million individual and family tax returns were e-filed, the most accurate, safest and easiest way to file. The rest of the returns received by the IRS, numbering over 19 million, were either prepared on a computer and printed or prepared by hand then mailed.
Is This You?
Employee vs. Independent Contractor – My 20 point check list
Mistakenly classifying an employee as an independent contractor can result in significant fines and penalties. There are 20 factors used by the IRS to determine whether you have enough control over a worker to be an employer. Though these rules are intended only as a guide-the IRS says the importance of each factor depends on the individual circumstances-they should be helpful in determining whether you wield enough control to show an employer-employee relationship. If you answer “Yes” to all of the first four questions, you’re probably dealing with an independent contractor; “Yes” to any of questions 5 through 20 means your worker is probably an employee.
1. Profit or loss. Can the worker make a profit or suffer a loss as a result of the work, aside from the money earned from the project? (This should involve real economic risk-not just the risk of not getting paid.)
2. Investment. Does the worker have an investment in the equipment and facilities used to do the work? (The greater the investment, the more likely independent contractor status.)
3. Works for more than one firm. Does the person work for more than one company at a time? (This tends to indicate independent contractor status, but isn’t conclusive since employees can also work for more than one employer.)
4. Services offered to the general public. Does the worker offer services to the general public?
5. Instructions. Do you have the right to give the worker instructions about when, where, and how to work? (This shows control over the worker.)
6. Training. Do you train the worker to do the job Continue reading
Is it a Gift or Entertainment?
Each year I’ll have several clients roll up with some pretty hefty receipts for what they will call “client gifts”. They are usually shocked to hear that there is a $25.00 limit on such gifts. Meals and entertainment will usually yield you a greater deduction, if you can swing it that way. Here it is in a nut shell.
Packaged Food: If you give packaged food or drink to a business associate, where the item is intended to be consumed at a later time, it is a gift. Continue reading
What the new U.S. fiduciary rule means for you
After years of debate, the U.S. Department of Labor issued a new rule on Wednesday that requires financial advisers who handle retirement accounts to act as “fiduciaries,” which means putting the best interests of their clients first.
The ruling is complex, but the following are some answers to some of the most basic questions on retirement savings, fees and the kind of advice you should expect in the future.
- If I do not have a financial adviser, am I affected at all?
The new rule focuses on retirement savings. As a result, it will impact Continue reading
Bees are buzzing on rooftops at 7 San Francisco hotels
San Francisco (AP) – At the Clift Hotel in San Francisco, there are more than 370 rooms inside and 100,000 bees buzzing above in rooftop hives outside.
Yes, honeybees.
Aware of the well-publicized environmental threats to honey bees that have reduced numbers worldwide, 7 San Francisco hotels have built hives on the rooftops. The sustainability efforts also benefits the hotels as the bees produce honey for cocktails, food and spa treatments. It’s the latest in a series of environmental programs at hotels that includes low-flow toilets and aggressive recycling programs.
“This is not about making money, it’s really about raising awareness about sustainability”, said Melissa Farrar, spokesman at the Fairmont in San Francisco. “There’s not one solution so we wanted to do our part to help. It’s part of the bigger effort for helping the planet.” Farrar said the four hives on the rooftop garden support about 250,000 bees and produce about 1,000 pounds of honey each year.
Kristin J. Bender
The Importance of Having a Will
Most recently, Prince joins a list of celebrities who died without a will. Tupac Shakur, Bob Marley, and so many other legendary musicians have passed without securing their estates.
It begs the question: Why?
It seems like such a basic concept; everyone needs a will. Otherwise the laws of the state you live in determine who receives your assets and controls your legacy after you die. Without a will, you have no say in what happens, and the chances of a family fight increase dramatically.
Even though a will is relatively simple to create, studies consistently show that Continue reading
Review your W-4: Bigger refund or bigger paycheck?
Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your tax professional when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund. Newport Beach Tax and Financial can help decide which credits can get you the biggest refund. When you start a job, your employer asks you to complete form W-4. This tells your employer how much federal income tax to withhold from your paycheck. The more allowances you claim on the form, the less income tax will be held back. This will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year). Claiming fewer allowances on your W-4 will mean smaller paychecks, since more tax will be withheld. This increases your chances of over-withholding, which leads to a bigger tax refund. That’s why it’s called a “refund:” you are just getting money back that you overpaid to the IRS during the year.