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10 Things You Should Look For in A Tax Professional

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Let’s get to today’s topic:  10 Things You Should Look For in A Tax Professional.  Or like I like to say, what makes someone more qualified than you to prepare your tax return and charge you a nice chunk of change for the privilege?Picture1

Number 1. Do they have a PTIN? A what? OK, a PTIN is a Preparer Tax Identification Number. It is issued by the Internal Revenue Service.  Anyone wanting to prepare a tax return and charge a fee for their service is required to register with the IRS, pay a fee and obtain a PTIN.  PTINs must be renewed each year.

Number 2.  What is the Preparer’s History?  Just having a bunch of letters after your name doesn’t necessarily indicate the experience or quality of the individual.  You can and probably should check with the Better Business Bureau, State Board of Accountancy for Certified Public Accountants, your State Bar Association for attorneys and the IRS Office of Enrollment for enrolled agents to find out if there have been any complaints or disciplinary actions taken against your prospective tax preparer.  Ask them questions, both about their experience and about your specific tax situation.  Just because someone is an attorney, a CPA or an Enrolled Agent, doesn’t necessarily mean they have the experience you need to handle your personal or business tax situation.

Number 3.  Don’t hesitate to ask questions or interview a prospective preparer to ensure you are comfortable with their understanding of specific orspecialized needs you have?  Do you need someone with expertise in military member tax situations?  Business?  Retiree?  Income from multiple states or countries?  Ask questions until you are satisfied the individual you are going to work with understands your tax situation and can navigate the Tax Code to address your specific or specialized needs.Hand Holding Cash and Credit Cards
Number 4.  How do you charge?  Avoid preparers that base their fees on a percentage of your refund.  First, this is NOT an ethical best practice.  Second, you want to ensure your preparer isn’t looking to inflate their fee by bending, stretching or ignoring rules resulting in you getting a bigger refund than you are legally entitled to so they can charge you a higher fee.  Also avoid preparers that claim they can get you a bigger refund than some other preparer.  Also, be careful in shopping around for the lowest price.  I am a firm believer in you get what you pay for – especially if what you’re paying for is low cost support.  Would you shop for the cheapest cancer care doctor or brain surgeon if you needed one?  Probably not.  Don’t settle for the lowest cost tax preparation service just because they were the cheapest.  Now, I’m not saying you should have your tax return prepared by an attorney or a CPA because their rates are higher than other places.  Some people may need the types of services these professionals provide.  Many taxpayers can find more affordable options as their situations do not require the type of specialized expertise of a tax attorney or accountant.efileNumber 5. Do they offer electronic filing?  Any reputable tax preparer can easily meet IRS suitability requirements to be Electronic Return Originators.  An electronically filed return is more secure, and results in less errors than manual paper filed returns.  Electronic filing speeds up refund processing tremendously.  Which there’s less of a chance of your return getting lost and you will get your refund in hand much quicker than if you mail it in.  Many times, errors that can delay or derail you getting your refund for weeks can be immediately identified with an electronically filed return and quickly corrected.  There just is no reason in this day and age to use a tax preparer that doesn’t electronically file tax returns.  While there are still some instances where specific forms or types of returns may not be eligible to be electronically filed, but they are few and far between.

Number 6. What information do you need to provide?  Understand up front what you need to provide to have your tax return prepared accurately.  The preparer should ask you for copies of prior year tax returns to identify any items that need to be reviewed for impact or inclusion on this year’s return.  The preparer should require all records and receipts necessary to accurately prepare your return.  Preparers should not encourage you to file your return before your W2 or investment documents come out.  This is a bad practice.  While you might be able to save some time in getting your tax return filed, you are significantly increasing the chance of receiving a dreaded IRS letter because they have information that doesn’t show on your return because you filed before all your paperwork was received.  This can result in anxiety when you get a letter, and having to pay additional fees for someone to amend your return to address the missing items.  You also may end up having to pay hundreds if not thousands of dollars in additional taxes, penalties and interest for incorrectly filing your return in the first place.  If you are filing a joint return, the preparer should involve both taxpayers in the preparation of the tax return.  While it may be common for one spouse to deal with financial or tax issues more than the other, the preparer should ensure they do not rely on information only provided by one spouse.  A joint return signed by both spouses makes each spouse jointly and severally liable for the accuracy of the return.  You want a preparer that treats each spouse as an equal party to the return.april 15 cleanNumber 7.  What do they do after April 15th?  You want to know if your preparer is going to be available after April 15th if you have any questions or correspondence related to the tax return they prepare.  Understand up front how to you get help after the return is filed and  after the April 15 deadline.  Many preparers are part time or seasonal employees until April 15th.  You want to know who and how any tax issues that may come up after April are handled.

Number 8.  Understand who has access to your information.  Privacy and data security issues are in the news almost daily.  Identity theft is one of the fastest growing crimes in the world.  We are surrounded by technology most of us haven’t a clue how they work.  Is my data in the cloud?  What does that even mean?  Reputable preparers will have security measures in place to protect the papers, records and receipts you provide to prepare your return, the data on the computers used to prepare your returns, the communications channels used to transmit your return data from the preparer’s computer to the IRS, credit or debit card information related to paying for your services and any physical records required to be retained by the preparer after your return has been filed.  The preparer should not provide your information to anyone outside the normal processing without your written permission. Ask questions on how your information, both records and receipts and the digital files are safeguarded by the preparer and their firm.

Number 9.  Find out who will actually sign the tax return.  If someone other than the preparer is the one that signs the return, you may consider having these conversations with that person as well.  In fact, if someone else is going to sign your return, maybe that’s who you want to deal with in the first place.  Avoid the middleman.

Number 10.  What happens if “gulp” you’re audited?  While the taxpayer is IRS logoresponsible for what they sign for on the tax return, it is best to know up front what audit support is available if you receive the dreaded letter from the IRS or state on your tax return.  Be comfortable with the level of audit support offered compared to the complexity of the issues on your tax return.  Be comfortable with the professionalism, expertise and experience of the preparer that they will ask you enough questions and conduct what is known as sufficient due diligence to prepare an audit proof return.  No preparer should guarantee your return will not be audited.  There certainly are procedures that preparers should follow to reduce the likelihood of you being audited.

I have to admit, I have a vested interest in people using paid tax preparers to prepare this year’s income tax return.  Can you prepare your own return?  Probably.  There are many resources available in the marketplace today to aid taxpayers on preparing and filing their tax returns at little or no cost.  Should you prepare your own return?  My advice to you is use some common sense.  While most tax software is pretty easy to follow, with simplified steps for ease of use, it is also very easy to prepare a bad tax return.  Anyone is capable of preparing a tax return either on line, with other software or by hand and filing a totally incorrect return.  The mistake you make may merely cost you by overpaying tax you otherwise didn’t owe or it may be a costly error resulting in misreported income and underpayment of tax that results in hundreds or thousands of dollars in additional tax, penalties and interest.

Jeff Randall is a Principal Tax Advisor for  Tax Break and a coach for Faith-based Financial Fitness.  Reach him at jeff.randall@fulcrum6.com.

3 Huge Tax Deductions New Home Buyers Can Use to Put More Money in Their Next Paycheck

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The American Dream is to own your own home.  This is an exciting time for you if you are a first time home buyer.  Congratulations!  You may have decided to buy your new home for many reasons – new addition to the family, better neighborhood, or improvement in your quality of life.  Your new home may be sitting on hundreds if not thousands of dollars.  How?

mortgage-295211_1280Most homes purchased in the United States are financed with home mortgages that carry interest payments that can be deducted on your income tax return each and every year.  With your new home mortgage you have the key to unlock valuable tax deductions that will reduce the amount of your hard earned income that is taxed by the US Government and the State. Like the excitement and satisfaction you get when you turn the key in the front door of your new home, you can experience the same excitement and satisfaction knowing you are saving money every day on your income tax.

What many new home buyers do not know is that can take the tax savings from their new home and put more money into their paychecks NOW.  When I purchased my house, I saw HUGE tax savings and got a refund of over $10,000 the first year.  Then I figured out how I could UNLOCK that $10,000 a year in tax savings and put more moneyu into my take home pay each payday and not wait until the end of the year to get my refund.

Here’s 3 of the biggest tax deductions you can unlock.  Your new home may be sitting on hundreds if not thousands of dollars in tax savings that you could be putting put into your paychecks.

padlock-303617_1280    Home Mortgage Interest and Points

The Internal Revenue Code is often used to provide incentives for economic activity.  Providing taxpayers a tax deduction for mortgage interest and points paid has long been used as an incentive for sustaining or increasing activity in the home construction market.  Purchases of new homes or existing homes.  There were nearly 5 million home sales in 2014 with a median home value of $208,000.  That’s a lot of economic activity!

Interest paid by you (and/or your spouse) on a home loan for either your primary (principal) or secondary residence is deductible in the year paid as an Itemized Deduction.

1098 FormThis interest is commonly reported to you on either a Form(s) 1098 by your bank or lender and on a HUD1 form when the property is initially purchased or refinanced.

Points are prepaid interest often required by a lender to secure or as a condition of financing.  Points paid in the year of initial property acquisition are fully deductible; points paid when refinancing can only be deducted over a period of time equal to the mortgage period.  Points paid are commonly reported on the Form 1098 and the HUD1.

padlock-303616_1280    State and Local Taxes

Money Down the DrainThe Tax Code can be considered a pay-as-you-go system.  This means that income tax is due to the Federal and State (and local, in some cases) Government as income is earned throughout the year.  The Internal Revenue Code provides taxpayers protection from being taxed on the same income more than once.  Taxpayers are allowed to deduct the amount of State (and local) income tax that they pay during the year as an Itemized Deduction on their Federal income tax return.  If amounts deducted are refunded by the State or local government when their annual returns are filed, the refunded State tax may need to be reported as income on the following year’s Federal income tax filing.

Taxes that you pay during the calendar year for State (and local) incomes taxes may be through withholding from paychecks, estimated tax payments or to settle a balance due on a prior year state tax return can be claimed as an Itemized Deduction to reduce income subject to Federal income tax.

If no state income tax was paid during the calendar year, a deduction for sales taxes paid during the calendar year can be claimed instead.

State Income Taxes paid can usually be found on your Form W2 and on last year’s state income tax return.  Income taxes are required to be withheld in accordance with either a table or formula that factors gross pay for the work period, frequency that you get paid, the filing status you claim and number of exemptions you claim.

Income taxes withheld from each employee will certainly vary as the relevant factors vary significantly from taxpayer to taxpayer.   Employers withhold income taxes from their employees and deposit them with the State (or local) tax authority in each taxpayer’s account.

 

padlock-303615_1280   Real Estate Property Taxes

Home owners like yourself, as well as the owners of other private real estate in your community – shopping centers, apartment complexes, factories – are assessed real estate property taxes to provide funds necessary to support functions that benefit the community at large.

Property TaxTaxes are assessed on your new home, by local governments based on a formula levying a tax amount for public schools, local infrastructure and other approved common services.  Typically, real estate taxes are based on periodic valuations of real property by the local government and the amount of tax is approved by elected representatives each year. Real estate taxes support functions like police and fire protection for your home and your neighbors’, public schools, public utilities, street maintenance, and local government expenses.

Real estate taxes are assessed by the local government to be equal across the same classes of real estate.  Your new home, for example, will have the same rate assessed as similar homes in your community.  Factories will have the same rates assessed as other factories in the community, etc.

Real estate taxes are typically paid in arrears  – tax paid in the current period is for last year.  Real estate taxes are paid either annually or semi-annually and many homeowners have an amount added to the monthly mortgage payment to be set aside in an escrow account to accumulate to the amount of real estate taxes that will be due in the next period.

While your principal and interest payment should remain fixed, your monthly mortgage payment is often adjusted each year to account for changes in the cost of insurance or taxes being paid by the lender on your behalf out of escrow.

Real estate taxes paid can be identified either from a Form 1098 from your bank or from your local government property tax invoice/office.

home-209172_1280What most new home owners don’t know is that you can unlock those savings TODAY – without waiting to file your income tax return next spring.  You can put the dollars your new home saves you in tax deductions into your paychecks NOW without waiting for your tax refund next spring.  The IRS collected $274 Billion from over 101 Million taxpayers last year and refunded that money only after people filed their income tax returns.  If you wait until you file your tax return to unlock the tax deductions your new home qualifies you is like giving the IRS a loan – at ZERO per cent interest.

Jeff Randall shares in his eBook Give Yourself a Raise : 7 Tax Deductions Every New Home Owner Can Unlock to Put More $$$ in Each Paycheck how you can use your new home to lower your income tax this year AND how you can take those savings now and put more money into your next take home paycheck.

Jeff Randall coaches individuals, couples and entrepreneurs on money management based on Biblical principles, and personal and business tax strategies. He is an Enrolled Agent licensed to practice before the Internal Revenue Service.  He provides representation services to individuals, couplJeff Randall background transp w logoses and businesses to resolve back tax issues.  His Refund Planning and Prescription (RP Rx) process helps hundreds of clients across the US and in 16 countries put the most money into each paycheck and not owe tax at the end of the year when they file their income tax returns.

Jeff is founder and Principal Advisor of Tax Break  http://www.taxbreak.tax.  He is the author of numerous tax and entrepreneur advisory resources and host The Tax Break Radio Show. Click Let’s Talk to send questions or feedback..

10 Things You Should Look For When Needing a Tax Professional

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Promo Pic

Or like I like to say, what makes someone more qualified than you to prepare your tax return and charge you a nice chunk of change for the privilege?

#1 Do they have a PTIN? A what? There you go Jeff, using all those fancy letters. OK, a PTIN is a Preparer Tax Identification Number. It is issued by the Internal Revenue Service. Anyone wanting to prepare a tax return and charge a fee for their service is required to register with the IRS, pay a fee and obtain a PTIN. PTINs must be renewed each year.

#2. What is the Preparer’s History? Just having a bunch of letters after your name doesn’t necessarily indicate the experience or quality of the individual. You can and probably should check with the Better Business Bureau, State Board of Accountancy for Certified Public Accountants, your State Bar Association for attorneys and the IRS Office of Enrollment for enrolled agents to find out if there have been any complaints or disciplinary actions taken against your prospective tax preparer. Ask them questions, both about their experience and about your specific tax situation. Just because someone is an attorney, a CPA or an Enrolled Agent, doesn’t necessarily mean they have the experience you need to handle your personal or business tax situation.

 #3. Don’t hesitate to ask questions or interview a prospective preparer to ensure you are comfortable with their understanding of specific or specialized needs you have? Do you need someone with expertise in military member tax situations? Business? Retiree? Income from multiple states or countries? Ask questions until you are satisfied the individual you are going to work with understands your tax situation and can navigate the Tax Code to address your specific or specialized needs

#4. How do you charge? Avoid preparers that base their fees on a percentage of your refund. First, this is NOT an ethical best practice. Second, you want to ensure your preparer isn’t looking to inflate their fee by bending, stretching or ignoring rules resulting in you getting a bigger refund than you are legally entitled to so they can charge you a higher fee. Also avoid preparers that claim they can get you a bigger refund than some other preparer. Also, be careful in shopping around for the lowest price. I am a firm believer in you get what you pay for – especially if what you’re paying for is low cost support. Would you shop for the cheapest cancer care doctor or brain surgeon if you needed one? Probably not. Don’t settle for the lowest cost tax preparation service just because they were the cheapest. Now, I’m not saying you should have your tax return prepared by an attorney or a CPA because their rates are higher than other places. Some people may need the types of services these professionals provide. Many taxpayers can find more affordable options as their situations do not require the type of specialized expertise of a tax attorney or accountant.

 #5. Do they offer electronic filing? Any reputable tax preparer can easily meet IRS suitability requirements to be Electronic Return Originators. An electronically filed return is more secure, and results in less errors than manual paper filed returns. Electronic filing speeds up refund processing tremendously. Which there’s less of a chance of your return getting lost and you will get your refund in hand much quicker than if you mail it in. Many times, errors that can delay or derail you getting your refund for weeks can be immediately identified with an electronically filed return and quickly corrected. There just is no reason in this day and age to use a tax preparer that doesn’t electronically file tax returns. While there are still some instances where specific forms or types of returns may not be eligible to be electronically filed, but they are few and far between.

 #6. What information do you need to provide? Understand up front what you need to provide to have your tax return prepared accurately. The preparer should ask you for copies of prior year tax returns to identify any items that need to be reviewed for impact or inclusion on this year’s return. The preparer should require all records and receipts necessary to accurately prepare your return. Preparers should not encourage you to file your return before your W2 or investment documents come out. This is a bad practice. While you might be able to save some time in getting your tax return filed, you are significantly increasing the chance of receiving a dreaded IRS letter because they have information that doesn’t show on your return because you filed before all your paperwork was received. This can result in anxiety when you get a letter, and having to pay additional fees for someone to amend your return to address the missing items. You also may end up having to pay hundreds if not thousands of dollars in additional taxes, penalties and interest for incorrectly filing your return in the first place. If you are filing a joint return, the preparer should involve both taxpayers in the preparation of the tax return. While it may be common for one spouse to deal with financial or tax issues more than the other, the preparer should ensure they do not rely on information only provided by one spouse. A joint return signed by both spouses makes each spouse jointly and severally liable for the accuracy of the return. You want a preparer that treats each spouse as an equal party to the return.

 #7. What do they do after April 15th? You want to know if your preparer is going to be available after April 15th if you have any questions or correspondence related to the tax return they prepare. Understand up front how to you get help after the return is filed and after the April 15 deadline. Many preparers are part time or seasonal employees until April 15th. You want to know who and how any tax issues that may come up after April are handled.

 #8. Understand who has access to your information. Privacy and data security issues are in the news almost daily. Identity theft is one of the fastest growing crimes in the world. We are surrounded by technology most of us haven’t a clue how they work. Is my data in the cloud? What does that even mean? Reputable preparers will have security measures in place to protect the papers, records and receipts you provide to prepare your return, the data on the computers used to prepare your returns, the communications channels used to transmit your return data from the preparer’s computer to the IRS, credit or debit card information related to paying for your services and any physical records required to be retained by the preparer after your return has been filed. The preparer should not provide your information to anyone outside the normal processing without your written permission. Ask questions on how your information, both records and receipts and the digital files are safeguarded by the preparer and their firm.

 #9. Find out who will actually sign the tax return. If someone other than the preparer is the one that signs the return, you may consider having these conversations with that person as well. In fact, if someone else is going to sign your return, maybe that’s who you want to deal with in the first place. Avoid the middleman.

 #10. What happens if “gulp” you’re audited? While the taxpayer is responsible for what they sign for on the tax return, it is best to know up front what audit support is available if you receive the dreaded letter from the IRS or state on your tax return. Be comfortable with the level of audit support offered compared to the complexity of the issues on your tax return. Be comfortable with the professionalism, expertise and experience of the preparer that they will ask you enough questions and conduct what is known as sufficient due diligence to prepare an audit proof return. No preparer should guarantee your return will not be audited. There certainly are procedures that preparers should follow to reduce the likelihood of you being audited.

I have to admit, I have a vested interest in people using paid tax preparers to prepare this year’s income tax return. Can you prepare your own return? Probably. There are many resources available in the marketplace today to aid taxpayers on preparing and filing their tax returns at little or no cost. Should you prepare your own return? My advice to you is use some common sense. While most tax software is pretty easy to follow, with simplified steps for ease of use, it is also very easy to prepare a bad tax return. Anyone is capable of preparing a tax return either on line, with other software or by hand and filing a totally incorrect return. The mistake you make may merely cost you by overpaying tax you otherwise didn’t owe or it may be a costly error resulting in misreported income and underpayment of tax that results in hundreds or thousands of dollars in additional tax, penalties and interest.

There’s my Top 10 Things You Should look for when you are looking for a paid tax professional to prepare and file your tax returns this year. I welcome your questions and comments. You can call Tax Break at 703.365.0105 or email us attheradioshow@taxbreak.tax.