Most Popular Articles
Stacey Said:What are the main sources available to help people prepare their taxes.....?
We Answered:Learn how to prepare your tax return by reading publication 17 and/or the 1040 booklet that comes with your form 1040, which you can pick up at any public library starting in January of any given year. Also, it might behoove you to inquire at your local junior college to see if an income tax preparation course is available.
As to an audit decision, the only recourse that I can think of off the top of my head is to go to court if you are unable to reach a compromise or resolution with the IRS.
Lucille Said:Do I need special certification to prepare taxes for other people?
We Answered:First off - stay away from H & R Block! Not only are they inexperienced (2 week training for employees) but they were fined last year by the government for cheating on their taxes! Their fine was in excess of 3 million!
If you want to provide personal tax services to people, you do not need a certification. The client would need to understand that should the IRS question their tax return, they are on their own. Even though you would prepare it for them, they would be the signer of the actual documents. Unless the clients are personal friends of yours, not many people would want to pay for tax filings that are not guaranteed.
If you decide to do taxing for a living and want to make a career out of it, you should study for the EA exam...Enrolled Agent. The testing is offered only in September of each year and generally runs 2 days. If you type "enrolled agent" into your browser, you will have plenty of links that can go into great detail.
It is not illegal to provide tax preparation for people without certification. However, remember that if they pay you, you must report is as "other income" on your 1040. They in turn, would report any amount they paid to you on their Schedule A.
Good luck to you. I hope I have helped, even if a little.
By the way, avoid paying a company to "walk you through" or "educate" you in the EA. Most companies will try to lure you by telling you that they will provide you with a list of questions from past EA exams...don't buy these. That information is free at www.irs.gov/taxpros/agents
Cindy Said:Get someone to prepare my taxes, or use software?
We Answered:This is very long, but probably the best answer since I don't know your exact situation. Gives a pretty good breakdown on all of the options.
If you do it yourself:
If you earn most of your income from wages and you take the standard deductions (raised for 2005 returns to $10,000 for a married couple filing jointly or $5,000 for singles), or if you have few itemized deductions, completing the 1040EZ, 1040A short form, or even the 1040 long form should not be too difficult. And, there's no shortage of places to turn for help:
Books. They include "Taxes 2006 for Dummies" and J.K. Lasser's "Your Income Tax 2006" (for 2005 taxes), which can be bought for less than $15 each, and often provide more guidance than the Internal Revenue Service's own instruction booklets.
The Internet and phone help. The IRS Web site, www.irs.gov , provides some help and is a convenient source for publications and forms as well as links to state-government tax sites. Forms and information taxpayers need to file their returns is consolidated under the 1040 Central link on the home page. This year, the IRS has added a calculator, called the AMT Assistant, to help taxpayers determine their AMT liability on their own. Check www.irs.gov/app/amt . The IRS taxpayer assistance hotline at 800-TAX-1040 also offers help. However, some studies have found hotline help inconsistent. The IRS also operates Taxpayer Assistance Centers that can help you solve individual and small-business tax problems. You can check your local phone directory for one in your area. States also have tax help lines, as does AARP, some public libraries, and social-service agencies. The elderly can turn to a number of free services: AARP, Volunteer Income Tax Assistance (VITA), and Tax Counseling for the Elderly (TCE), which are available in most communities. To find them, call the IRS branch near you.
Software programs. Best sellers include TurboTax Deluxe, $39.95, which this year incorporates a free download of one TurboTax State product, and H&R Block TaxCut Deluxe, $29.99, also including one state program. This year, neither company is offering rebates, though Intuit will honor rebates for TurboTax bought before October 13, 2005.
Web-based tax-preparation services. These are proliferating, blurring the distinction between doing it yourself and hiring a pro. At H&R Block, for instance, you can have your taxes calculated online for $19.95 ($5.95 if you file a form 1040EZ) with a software program. Or you can have your taxes reviewed, edited, signed, and e-filed by a professional after you enter your data online for $79.95. Prices include preparation of federal form 1040 only; extra schedules and state and local tax forms add to your bill. There are more and more Web-based services. Some use TurboTax software; others use their own proprietary software. Most Web operations allow you to file your return electronically with the IRS. Doing so may cut the time it takes you to get your refund to less than two weeks.
Before using any Web service, check its privacy and security policies to see how well the company plans to protect your information. Ideally, your information should not be shared with anyone without your specific permission. Consumer Reports will be testing both software and other tax preparation services in the future.
You will have to invest more time and brainpower than ever before. A dozen years ago the IRS said it took the average taxpayer 9 and a half hours to complete the 1040. This year you can expect to spend 16 to 22 hours, including preparation of materials and assembly, depending on whether you do it by hand or use computer software. That total doesn't include preparing state and city tax returns.
A bigger drawback to doing your own taxes is that you may make errors and/or overlook legitimate deductions. Depending on the tax references or software that you use, you also could miss out on valuable tax-planning advice, how to reduce your future tax bills by increasing before-tax contributions to your 401(k) or 529 College Savings Plans, for example. "Do-it-yourself software can't give you wisdom and judgement," says John Henry Low, a financial planner in Pine Plains, N.Y. If you figure your taxes without benefit of tax software or online calculators, you also risk making mathematical errors, so check your arithmetic carefully. Even if you use a computer, inputting errors occur, so check each field carefully to make sure your figures correspond to withholding and expense records. (Don't overlook this step even if you have your return professionally prepared.) Occasionally, glitches also show up even in reputable tax programs.
These are the options if you have someone else do it:
Regardless of whom you hire, we recommend you follow these precautions:
Never choose a tax preparer based on a promise of a large refund. (With proper tax planning, your tax liability should match withholding and other taxes paid during the year. Getting a big refund means you gave an interest-free loan to the government.)
Reach an agreement on a fee up front. The fee should never be based on the size of the refund.
Ask for referrals from friends and business associates.
Find out if the preparer's risk tolerance matches your own, ask how many returns he or she does that are similar to yours, and how many clients have been audited.
Never sign a blank tax return or form.
Ask the preparer what precautions he or she takes to protect your personal data. Ask whether the firm conducts criminal background checks on employees and how they dispose of old returns (they should be shredded, burned, or pulverized) and protect computer files.
Check the return carefully for errors (including names and Social Security numbers) before signing it. Retain a copy for your records.
WHICH TYPE OF PREPARER IS RIGHT FOR YOU?
Here are the various types of tax preparers and their qualifications, from least to most expensive:
Your moonlighting friend or relative.
Pros and cons: Convenient, but no quality control. He or she could be well trained, highly credentialed, and up-to-date on tax law, but most likely isn't.
Storefront tax preparers and national chains.
Cost: Varies regionally, but usually less than full-time tax pros. Generally, there's a fee for each form, and you could pay $200 or more for itemized state and federal returns with additional schedules. H&R Block says the average its storefront clients paid in the 2005 tax season was $150.
Pros and cons: Convenient but not always inexpensive. The chains offer in-house tax training, but the minimum credential required for part-time seasonal staff is usually a high-school diploma. Pros with more expertise may work side-by-side with new recruits. And as chains try to become one-stop financial shops, you're likely to be pitched everything from high-cost refund anticipation loans to second mortgages (H&R Block alone managed 812,288 active brokerage accounts and serviced 435,290 mortgages in 2005. Consumers Union, the publisher of Consumer Reports, has advised consumers to steer clear of high-cost refund-anticipation loans.)
Tips: Get the most qualified person available. Ask about year-round tax help. Refuse refund-anticipation loans, which come with astronomical interest rates. If you need money fast, use the IRS's e-file program instead. If you're pitched other investment, insurance, or loan products (such as IRAs or second mortgages), compare them with similar products at banks and brokerages. Preparers should be licensed to sell insurance or securities if they offer them. A prospectus must accompany an investment offer.
Cost: Usually more than a chain-store tax preparer, less than or comparable to a certified public accountant.
Pros and cons: Enrolled agents are the only federally licensed tax specialists. They must pass a national qualifying exam and take 24 hours of continuing education on tax law each year in order to renew their license every three years. Many are former IRS agents or employees. They can handle complicated individual returns as well as those of small businesses and corporations. Some are also credentialed as financial planners. But there are only 40,000 enrolled agents, or about 1 for every 8 CPAs.
Tips: You can find an enrolled agent by going to www.NAEA.org or the National Association of Tax Professionals, which includes enrolled agent members, at www.natptax.com or by calling NAEA at 800-424-4339.
Certified public accountants.
Cost: $100 to $300 per hour or more.
Pros and cons: CPAs have been trained in business and accounting, passed a state-licensing exam, and met other statutory requirements. They're qualified to prepare financial statements as well as income taxes. But not all CPAs specialize in taxes. Some are credentialed financial planners; more and more CPAs also sell investments and insurance.
Tips: Seek a CPA with tax expertise and familiarity with your occupation. If the CPA wants to sell you investments, annuities, or life-insurance products for tax-planning purposes, evaluate them against similar products sold elsewhere. To find a CPA in your area, go to the Web site of the American Institute of Certified Public Accountants, at www.aicpa.org/states/info/index.htm , or the National Association of Tax Professionals, at www.natptax.com , or check the phone directory. Ask the CPA for references to check before you settle on the professional you want.
Cost: $200 to $400 per hour or more.
Pros and cons: Tax attorneys have passed a state bar exam and trained in the field of tax law. Most don't prepare individual income-tax returns, but they can plan your estate, draw up wills and trusts, and structure business deals to reduce tax liabilities. They also represent clients in disputes with the IRS and other agencies, and defend them in court.
Tips: You probably won't need a tax attorney except for estate planning or business advice. Find an attorney through your state bar association, but ask for references before making a final choice.
Marion Said:Can a person prepare their own taxes and fill out an ITIN form too?
We Answered:I have never had anyone else prepare my taxes. But I used to prepare other's.
If your taxes are simple (standard deduction, W-2 income, nothing "weird"), it is best you do it yourself. Otherwise, get a good book, read Pub 17, or tax a course.
Donald Said:What is the best way to learn how to prepare taxes?
We Answered:If you have your CTEC certificate, you should know how to prepare basic tax returns. The H&R Block course would teach you what you already know. If you want to move up and become an enrolled agent, check out Gleim publications at https://www.gleim.com/