Categories
Tax Returns

10 Tips to Help You Choose a Tax Return Preparer

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your federal income tax return this year, the IRS urges you to choose that preparer carefully. Even if someone else prepares your return, you are legally responsible for what is on it.

Here are ten tips to keep in mind when choosing a tax return preparer.

1. Check the preparer’s qualifications. All paid tax return preparers are required to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer belongs to a professional organization and attends continuing education classes.

2. Check on the preparer’s history. Check 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 directly.

3. Ask about service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers can. Also, always 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.

4. Ask to e-file your return. Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. IRS has safely and securely processed more than one billion individual tax returns since the debut of electronic filing in 1990.

5. Make sure the preparer is accessible. Make sure you will be able to contact the tax preparer after you file your return, even after the April 15 due date. This may be helpful in the event questions arise about your tax return.

6. Provide records and receipts. Reputable preparers 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.

7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

8. 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.

9. Make sure the preparer signs and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or altered a return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Download the forms on the IRS.gov website or order them by mail at 800-TAX-FORM (800-829-3676).

Categories
Taxpayer Representation

Common Sense Advice Regarding Offer In Compromise Scams

By now, everybody with a tax bill has heard the “pennies on the dollar” promises on radio and TV. Before handing over thousands of dollars to some Slick Rick salesman over the phone, here are some things you need to know about the Offer in Compromise program.

First and foremost: You probably don’t qualify. What’s that? How can I say that without even knowing you or your situation? Because the IRS statistics show that most people that apply don’t qualify, that’s why. In 2018, the most recent year for which data is available, the IRS outright rejected 59% of all Offer in Compromise applications that were submitted.

Secondly, the Attorneys General of several states, the Federal Trade Commission, and multiple class action lawsuits have been won over the common sales practice of promising tax relief, and not being able to deliver. More often than not, clients in those situations are sold an Offer in Compromise program for many thousands of dollars, and are then converted to an Installment Agreement (monthly payment plan to the IRS) with no refund of the price difference. This has been going on for years, and and many tax debt resolution companies have been sued for this and other egregious sales practices that are designed to do nothing but part you from your money.

There are probably tens of thousands of other OIC settlements sold by these companies every year that are never actually filed, so they don’t even go into that number that the IRS tracks.

If somebody is trying to tell you that you qualify for an Offer in Compromise without doing a thorough analysis of your financial situation, RUN! They will often say that you can settle your debt for some fraction of what you owe. That fraction is a totally made up number! The formula the IRS uses to determine your required Offer in Compromise amount has absolutely nothing to do with how much you owe — it’s entirely based on what you own and what you earn.

To determine whether you even qualify for an Offer in Compromise, you need to examine the value of your assets, including your retirement accounts, cash, equity in your home, your vehicles, the value of business equipment, etc. If all that stuff is worth more than what you owe the IRS, then you are most likely ineligible for an Offer in Compromise.

Also, take a look at your income and expenses. The IRS doesn’t allow all expenses in this calculation, so you have to do the math based on the IRS National Standards. Your income minus your allowable expenses is then multipled by a number of months, either 12 or 24, and then that amount is added to your assets. Again, if that number exceeds what you owe the IRS, you are not eligible for participation in the IRS Offer in Compromise program.

To help you determine eligibility for a reduced settlement with the IRS, use this Offer in Compromise Pre-Qualifier Tool directly on the IRS website.

Carefully consider all of these factors before giving anybody money to file an Offer in Compromise for you. There are reputable companies out there, but do your due diligence before spending that kind of money for help resolving your IRS tax debt. To get started, search our directory of carefully screen tax firms using the search bar at the top of this page.

Categories
Tax Returns

Can’t pay your 2019 tax bill by July 15, 2020?

If you have a tax bill for 2019 that you can’t quite pay, you do have options.

Even if you can’t pay in full, I’d highly encourage you to file your return on time, which has been extended from April 15 to July 15 this year due to the pandemic and resulting recession. This way, you avoid the late filing penalties that can be added on to your tax liability, which can add up to 25% of your balance due. Also, try to pay as much as you possibly can with your return. If you are going to be filing an extension, pay as much as you can with your extension.

The IRS is currently charging a 5% annual interest rate, compounded daily, on all tax debts. On top of that, you will be subject to a failure to pay penalty, which will further increase your tax debt.

It may be worthwhile to consider using credits cards or a loan to pay your tax bill. When you consider the extensive penalties the IRS charges, your credit card interest rate may actually be quite a bit lower.

If you absolutely cannot pay your tax bill this year, then use either the online payment agreement request system at irs.gov, or complete Form 9465 to request a payment plan. You are not required to wait until the IRS bills you before requesting a payment plan.

The most important thing to remember is that, in order to avoid the wrath of IRS Collections, it’s in your best interest to be proactive about managing your tax debt. Don’t wait for the IRS to come to you: Take the high road, and address it head on.

If your tax debt is simply too large for you to pay in any reasonable amount of time, it’s worth considering your other options. One of our vetted and verified tax firms near you can provide complete guidance for resolving your back tax liabilities, particularly if your situation is more complex, such as multiple years worth of tax debt to address. Search our directory using the box at the top of this page.

Don’t give the IRS the upper hand. Stay on top of your tax situation and address the issue long before the government starts coming after you.

Categories
Real Estate Tax

Challenging Property Tax Assessments

Your annual property tax bill is based on your county government’s valuation of your property. Assessed values are often very different from the actual fair market value of your home. If your county assessment is too high, resulting in a property tax bill that is more than it should be, you can contest the property valuation in an attempt to reduce your tax bill.

The fair market value of your property is represented by the price that a typical home buyer would be willing to pay for your house. Arriving at the fair market value of your home without actually selling the house is accomplished by comparing your home to other houses that have sold. A proper comparison requires that the other houses be as similar to your house as possible. The best comparable properties will have nearly the same square footage and number of bedrooms and bathrooms as your house. In addition, they will be in the same neighborhood and will have sold within the last few months. This process is very similar to how appraisers determine the vale of your home.

There are two types of assessed value that local governments use to determine your property tax bill: Market assessed value and tax assessed value. Market assessed value is the government’s estimate of the fair market value of your home. This valuation is often based on the last sale price of the property, adjusted occasionally for appreciation. Since many counties multiply all properties by the same appreciation rate, the assessment may not take into account unique features of your home, location, or the modern realities of your local real estate market. Some localities will further multiply your market assessed value by some other fraction in order to arrive at the tax assessed value, and then apply your local tax rates to this number.

When the assessed value on which your property tax bill is based is higher than the actual fair market value of your your home, you may end up paying too much property tax. Most counties offer informal hearings at which you can challenge the assessed value. To prove your case at this hearing, you should be armed with an appraisal, a Broker Price Opinion from a licensed real estate agent, or your own list of recent comparable sold properties. You may also have the option of appealing the assessment valuation to a review board. In rare cases, you may need to take your case to court in order to have the proper value of your property assessed.

Even if you disagree with your property tax bill and are challenging the valuation assessment, it is advisable to still pay your property tax bill. Failure to pay your property taxes can result in a lien being placed against your home. This lien takes precedence over all other liens against your property, including federal tax liens and your mortgage. The danger here is that your property could end up being sold to a tax lien investor, further complicating your tax situation, and running you the risk of losing your home if the lien is foreclosed on. Your challenge against the tax assessment may take time, and it is thus best to pay your property tax bill during the time you are challenging it.

Categories
Tax Returns Taxpayer Representation

How to Choose a Tax Firm for Complex Needs

Choosing a tax professional isn’t an easy task anyway, but mix in the coronavirus tax extension deadline and current economic recession, and this process just got a whole lot more complicated. Keep reading for all you need to know about how to choose a tax firm for your complex accounting, tax planning, and taxpayer representation needs.

Do I even need an accountant or tax firm?

According to the Internal Revenue Service (IRS), every taxpayer is entitled to representation. The taxpayer may either represent themselves, or with proper written authorization, have someone else represent them. However, this representative can’t be just anyone. They must be a licensed attorney, Certified Public Accountant (CPA) or Enrolled Agent. Each individual may verify a representative’s eligibility.

Why would I want a representative?

You may want a representative (such an accountant or tax firm) to represent you for a number of reasons. These include a specific tax problem, a notice from the IRS or a tax audit. For most taxpayers, the chances of being audited are less than 1 percent. Those most likely to get audited are among those in the highest income brackets and those in the lowest. If this happens to you, your representative can help to interact with the IRS on your behalf as well as provide information and explanations. They can also enter into agreements with the IRS once you reach them. However, it is important to select your representative carefully because, in the eyes of the IRS, the representative is the person they are interacting with.

Taxpayers have a right to representation, and a qualified, knowledgeable, and experienced representative can ensure that you get the best outcome. If you’re unsure of the process, they help to streamline it and eliminate many of the pressures that come with it. To authorize a representative, you’ll sign a Form 2848, Power of Attorney and Declaration of Representative. This allows the IRS to recognize the representative in your case instead of you personally. 

Understanding professional roles  

Choosing a tax professional can be a difficult process, especially if you’re not sure what the difference between them are. Seeking the best person to prepare your tax return will ultimately land you in a different place than looking for someone to skillfully represent you in front of the IRS. Here’s what you need to know.

CPA: A CPA is a certified public accountant that must be licensed by the state. They earn this designation only after they have passed the Uniform CPA Exam that is comprised of four parts and administered by the State Board of Accountancy. They’re a trusted financial advisor for individuals, businesses, and organizations who help them reach their goals in a variety of ways. They may do bookkeeping, financial planning or prepare financial documents like tax returns and profit-and-loss statements.  

Enrolled Agent (EA). An EA is a tax professional licensed directly by the US Treasury Department. In order to become an EA, an applicant must successfully past a 3-part exam covering individual taxaxtion, business tax law, and IRS policy and procedure. In addition, they must have a clean criminal record, and complete a minimum of 72 hours of continuing education every three years. Just like attorneys and CPAs, an EA has unlimited representation rights in front of the IRS. But also like CPAs and attorneys, not all EAs are experienced in every aspect of taxpayer representation — each tax professional has their own areas of expertise and specialization. You will need to take this into account when choosing a tax firm.

Tax preparer: According to the IRS, anyone can be a paid tax return preparer as long as they have an IRS Preparer Tax Identification Number (PTIN). Tax return preparers will have differing levels of education and expertise. Thus, it’s wise to check their qualifications prior to hiring them. You can use our directory of carefully selected tax firms to help you. Beware that tax return preparer fraud is a common tax scam. You can lodge a complaint if you have been financially impacted by a tax return preparer’s misconduct or improper practices.

Tax representative: Not everyone can be a tax representative, unlike a tax preparer. These individuals must be a tax attorney, certified public accountant (CPA) or enrolled agent. Tax representatives are helpful when you’re corresponding with the IRS.

I’m good for 2019. How do I start tax planning?

If you’re squared away for 2019, you may already be looking forward. After all, tax planning can really benefit you in the long-term. Tax planning is the analysis and arrangement of a person’s financial situation in order to maximize tax breaks and minimize liabilities in a legal and efficient manner.

Step #1: Understand your tax bracket

Plan for the future by looking at where you’re at today. The United States operates within a progressive tax system which means that people with higher taxable incomes have higher tax rates (and vice versa for lower incomes). There are seven income tax brackets. You can view the 2019 versus 2020 tax brackets here to determine which one you’re in for planning purposes.

Note that your taxable income isn’t necessarily equal to your salary. You’ll need to subtract out any deductions to determine your taxable income. Once you’ve found that, don’t just multiply by the tax rate, the government divides your taxable income into chunks and then multiplies it by the corresponding rate.

Step #2: Differentiate between tax deductions and tax credits

This is a crucial step in tax planning because you can create strategies to help you reduce your tax bill. This is also where a tax expert can come into play because they are likely to know more about the available deductions and credits than you will.

  • Tax credits – a dollar-for-dollar reduction in your tax bill
  • Tax deductions – specific expenses that you’ve incurred that you’re able to subtract from your taxable income

Step #3: Plan for standard deductions versus itemizations

Another big impact on your tax bill is deciding whether to take the standard deduction or to itemize. When you take the standard deduction, it’s a flat-dollar, no-questions-asked tax deduction that Congress sets every year. This makes you preparation go a lot faster and a lot of taxpayers prefer it because it’s easier. However, you can also choose to itemize your tax return which means you add up all the individual deductions that you qualify for. People normally take this route if it will be more advantageous financially. Evaluating which direction to go can take some time and math!

Step #4: Learn about popular tax deduction and credits

Learning the most popular tax deductions can help you to save some cash. Make it part of your tax planning to learn about them. Your tax firm can help you with this.

Step #5: Know what records to keep

Keeping tax returns and documents is essential for your own records and if you’re ever audited. When you decide this, know that the IRS has three years to decide whether they want to audit your return, so don’t throw it out before that.

Step #6: Select a firm to help

Knowing what you do about the three roles above, look for a firm that has individuals focused on what you need the most help with. For the majority of individuals and businesses, this is likely to be a tax firm that can help with proactive planning while also serving a critical support role in other areas of your business or personal finances.

Categories
Tax Returns

Quick Guide to Late Filing, Amended Returns, and Late Payment Penalties

In most years, April 15 is the deadline for the majority of Americans to both file their tax return and pay any taxes that are due on that return. If you don’t file on time, you potentially face one set of penalties. If you don’t pay by this date, there’s another set of penalties that applies.

Here’s the good news for individuals that are unable to pay by the normal due date: The late payment penalty isn’t nearly as stiff as the late filing penalty.

The reason for this is because the IRS is far more interested in knowing how much you owe rather than having you pay it on time. They rely heavily on people filing their tax returns in order to make the proper tax assessment (never let the IRS do your tax return for you). Knowing how much you owe them starts a well defined process, but when the IRS doesn’t know how much you owe, they can get pretty grumpy about it.

Of course, the more you pay with your tax return or extension, the lower your penalty and interest charges are going to be in the long run. This is because all of your penalties and interest are a percentage of the unpaid balance due after April 15th.

The penalty for not filing a tax return is typically 5% per month or part of a month. One day is considered “part of a month”. This penalty caps out at 25% of the unpaid balance. Do note that if you properly file an extension, and pay the balance with the extension, then there is no penalty. The extension form essentially gives the IRS the same bottom line “amount due” number that they are looking for, just without the math showing how you came up with it. With your extension, you must pay at least 90% of the balance due on the final return in order to avoid penalties.

As already mentioned, the penalty for not paying is far less than the penalty for not filing. This amount is one half of one percent per month (or part of a month).

If you are subject to both the non-filing and non-payment penalty in the same month, the combination of the two penalties together is capped at 5%. If you file your return more than 60 days after the April 15th deadline (or after the extension deadline), then the minimum penalty is the lesser of $135 or the entire balance due.

Moral of the story: File your tax return on time, even if you’re unable to pay the balance due.

What should you do if you already filed your federal tax return and then discover a mistake? That’s where our friend 1040-X, Amended Return, comes in.

Amended returns allow you to correct errors, change filing status, add or remove income and deductions, and do all the other things you’d normally do on a tax return. Most tax firms can recount numerous stories of correcting tax returns that were prepared incorrectly, even by licensed tax professionals. If you have any doubt at all about the accuracy of your tax return, get a second opinion.

Like everything with the IRS, there are deadlines for filing an amended return. You must file 1040-X within three years of the date you filed the original return, or within two years of paying the tax if you owed. It is not uncommon for individuals to be owed a refund on an old return, but they can’t claim it because they caught it more than three years later. Don’t miss out on potential refunds by waiting too long to amend.

Amended returns must be printed and mailed — they cannot be electronically filed. As such, it can take two to three months for the IRS to process these returns. If you are working with a Revenue Officer on an existing tax debt situation, the Revenue Officer will usually request that you file original and amended tax returns directly with them for faster processing.

We hope that this quick primer on late filing, penalties, and amendments will help save you some money. In summary:

  1. File a return, or at least an extension, by April 15 every year.
  2. If you owe, or expect to owe, pay as much as you can by April 15th in order to minimize penalties.
  3. File amended returns within three years of the original due date in order to avoid losing potential refunds.

For professional assistance with addressing penalties or preparing an amended return, search for a reputable, vetted tax firm near you in our directory.

Categories
Taxpayer Representation

5 Reasons to Hire a Professional Tax Firm to Represent You In Front of the IRS Collection Division

Over the years, there have occasionally been bursts of media attention placed on the “tax debt relief”. In past years, the FTC has taken down companies such as American Tax Relief, the California Attorney General came down hard on Roni Deutch, and the Texas Attorney General won a massive civil judgment against Tax Masters. In the wake of such regulatory actions, the American consumer is likely left with the impression that all tax attorneys and tax resolution firms are just as bad as used car salesman.

While it’s true that these companies, and numerous others, have created a bad name for the tax resolution industry as a whole, the fact of the matter is that these companies are the exception, not the rule. There are dozens of companies with horrible BBB records and numerous reports on Ripoff Report and other web sites. However, for every one of those bad apples, there are dozens of reputable, hard working firms that are just as big as the con artists, and for every one of those firms there are literally hundreds of independent practitioners out there, including tax attorneys, IRS licensed Enrolled Agents, and state licensed Certified Public Accountants. Any of these licensed professionals are allowed to represent  taxpayers in front of the IRS.

The FTC recently posted a consumer alert telling people to handle their IRS disputes themselves. As an Enrolled Agent myself, I’m obviously biased in opposition to the FTC’s statement, but there is also a logical side to it. Look at it this way: You have one Federal agency telling you NOT to exercise your right to representation in front of another Federal agency.

Here are five reasons you should use professional representation to resolve your IRS tax debt:

  1. First and foremost, you should hire professional representation when dealing with the IRS for the exact same reason that you would hire an attorney if you got a DUI: The professional knows the laws, knows how the system works, and deals with it every single day, you don’t. It’s the same reason you call a plumber when the pipes burst, or the fire department when the house catches fire. These professionals are experts at what they do, in the same way that you are an expert at what you do.
  2. In the same way that attorneys talk to attorneys on a slightly different level than the rest of us do, IRS collections agents, auditors, and other staff are financial and accounting people, and they will speak differently with another accounting professional than they do with you. This benefits you in a number of ways, including avoiding miscommunications and helping to cut off issues before they arise.
  3. Your tax professional is unique because they speak multiple languages: Tax law, accounting, negotiation, and probably a few others. These languages are important to speak when addressing the IRS. Again, it comes down to doing what you do best, and hiring out the rest.
  4. Your tax firm understands all your options and what to do in different circumstances, you don’t.
  5. A CPA, Enrolled Agent, or tax attorney is YOUR representative, and is looking out for YOUR best interests. The IRS agent on your case is not your friend, and is there looking out for the best interests of the government.

Keeping the above things in mind,  choose carefully when it comes to hiring a tax firm to represent you in any IRS matter. Exercise your right to representation, and don’t let the IRS bully you around just because you don’t know the laws and aren’t an accountant.

In my next post, I’ll discuss what you should look for when choosing a representative, and questions you should asking before sending any money.