One month left until tax day; who should prepare your tax return?

There’s about one month left to file your 2013 taxes. You may notice that there are lots of places soliciting to prepare your taxes these days. Every time you pass a strip-mall you likely see some type of gimmick, from air dancers, flags, and a person dancing on the corner with a sign. These gimmicks were formally found at a used car lot to attract your attention, but competition can be tough these days. Just like buying a car, you want to make sure you don’t get a lemon when it comes to choosing a tax preparer.

These strip mall tax centers are virtually everywhere. Just because they are everywhere, does not necessarily make them better. The quality and expertise of these types of tax preparers rests entirely on who specifically within the pop-up shop prepares your tax return. There really is a spectrum in the quality and experience you may encounter at one of these shops because these companies are often so big and/or individually owned and franchised.

On the one hand, you may be trusting your taxes with a seasoned tax preparer who’s a licensed accountant, really knows what they are doing, and will work closely with you to ensure your returns are accurate. On the other hand, you may be risking doom with someone using the franchise’s own do it yourself software, who’s simply answering the Turbo Tax type questions for you. So the key when trusting your returns with these types of tax preparation shops is to consider the complexity of your tax returns and to ask about the experience and qualifications of the specific person who is actually going to prepare your tax return.

Court Shoots Down IRS Return Preparer Certification Program

If you follow current events in the world of tax relief and tax preparation, you probably heard about the federal district court decision permanently enjoining the IRS from enforcing its 2011 tax return preparer regulations.  The U.S. District Court for the District of Columbia ruled that the IRS lacked authority to regulate tax return preparer certification programs — 
such authority would have to be granted by Congress.

The IRS Return Preparer Initiative would have required thousands of non-professional return preparers across the country to pass minimum competency exams, pay a fee, and complete minimum education requirements.  In fact, many return preparers did take the exam and pay the fee, all for naught apparently.  The initiative did not seek to regulate the CPA, tax attorney, or enrolled agent.

Large tax prep companies like Intuit (TurboTax), Jackson Hewitt, and H&R Block disapprove of the decision; you can probably guess why.  They will tell you that it hurts taxpayers who unwarily hire incompetent return preparers, but we know their only concern is the bottom line and weeding out as much competition as possible.  Of course, the “mom & pop” tax prep firms see this court decision as a big victory.

Some believe that voluntary certification is a better solution.  Voluntary certification would still raise the bar for tax preparers and the industry in general, but in a more “free market” sort of way.  Tax preparers would decide on their own to certify, or not to certify.  And individuals seeking tax help would decide on their own to hire a certified preparer, or take their chances with someone else.

At this point it is not clear whether the IRS will appeal the decision.  Read the IRS official statement here.

Common Tax Prep Errors

Today’s IRS Tax Tip (Number 2012-58) warns about common tax prep errors.  The bottom line?  To avoid tax problems, double-check everything, especially the numbers.

You’re not likely to misspell your last name, jot down the wrong address, or forget to claim one of your children.  But entering a wrong number here or there is a typical mistake.  Whether it be in the transposing of the number or the computation of the number, it is critical that you take your time and double-check.  In fact, it’s a good idea to get a second set of eyes to go over each form if possible.

So, where do the most common number errors show up?

  • social security numbers
  • bank account numbers
  • adjusted gross income figures

Some tax prep errors can result in a tax return being returned, adjusted, or audited.  Be sure you spell names correctly, use the correct income figures from 1099 and W-2 form(s), and always, always be sure to sign your return.

Tax Preparation Franchise Comparison

New York Times business writer, Tim Gray, with the help of his dog, recently conducted an experiment involving the tax prep software from three leading companies: H&R Block, TurboTax, and TaxAct. He tried to claim his dog as one would claim their child, just to see if the software would allow it. The unstated hypothesis is that tax prep software companies should steer taxpayers away from errors that may result in an audit and potential tax debt.

The H&R Block and TurboTax software did not allow him to claim his dog because no social security number was entered. The TaxAct software allowed him to claim the dog, but warned him that there was a problem.

He seemed to like the Block software for the customer support, but preferred TurboTax for most other reasons. Interesting tax preparation franchise comparison article.

The Misguided Appification Efforts of TurboTax and IRS

For some reason I just can’t let it go.  Tax smartphone apps are not as amazing as some would have you believe!

I came across a press release issued on behalf of this morning praising IRS2Go and TurboTax’s mobile tax software called SnapTax. IRS2Go is a free app that allows users to quickly access the IRS on Twitter and YouTube, check the status of a tax refund, order transcripts, and obtain IRS news and tax tips. SnapTax costs $9.99 and apparently makes it possible to do your taxes “on the go.”

Here’s what says about SnapTax:

Look, apps are where it is at now. Pretty soon, many people won’t even be using browsers any more, and will be viewing a lot of their content through apps. I know Bill Harris, the guy who started Turbo Tax. He and his company he created ChipSoft, which were acquired way back from Intuit, have been THE leader in this field since Day 1. I am thrilled they are ahead of the curve on this as well.

Ok, maybe apps are where it’s at, but it’s not where taxes should be. I don’t know much about SnapTax, but I cannot imagine why anyone would prefer to do their taxes on their phone as opposed to sitting down at their computer. Most people have what they need to file by the end of January. Are we that busy that we can’t find a couple hours between Feb 1st and April 15th to plop down in front of our computer and knock it out? Are people really going to file their taxes “on the go” in between turns in Words With Friends? I’m not sure if TurboTax is ahead of the curve on this one or if they made a wrong turn.

Here’s what says about IRS2Go:

With these helpful apps, taxpayers can now spend a ton less time and money filing their taxes and more time focusing on improving their finances, things like their monthly budget, credit score, and chipping away at debt

Really RoadFish?  Did you even look at the app? How does it save you tons of time and money?

Sign me up when there’s a tax relief app with a “Pay Less Taxes” button. When it comes to apps, only 1 in 10,000 is truly useful (or fun, or serves its intended purpose). Most apps are pointless because, even though everybody wants to push their goods or services with the newest technology, you really can’t appify EVERYTHING.

IRS Offers Advice on Interacting with Tax Preparers

You can often avoid tax problems early on if you select a competent tax preparer. This post is based on “IRS Tax Tip 2012-06″ published by the IRS earlier today.

The title given by the IRS was “Ten Tips to Help You Choose a Tax Preparer,” but I think you will agree that this is not an accurate title. I think the author started off listing tax preparer selection tips, then ran out of suggestions by #8 or so, but really wanted to have a nice round 10 items on the list. Not that numbers 8-10 are bad suggestions, they just don’t exactly qualify as things you can do to help you choose a tax preparer. Numbers 8 and 9 will probably come into play only after a bad tax preparer has been hired. And number 10 has nothing to do with selecting a tax preparer other than the fact that you most likely would not select an abusive tax preparer two years in a row.

Here’s the list in abbreviated form:

  1. Check the tax preparer’s qualifications: PTIN, certifications, professional organizations, etc.
  2. Check the tax preparer’s history: get on the internet and poke around a little
  3. Find out as much information as you can about their fees
  4. Make sure they will file electronically
  5. Make sure the tax preparer is accessible
  6. Make sure the tax preparer asks you enough questions and asks for enough information/documentation to be able to legitimately prepare your return
  7. Never sign a blank return
  8. Review the return before you sign it (you are ultimately responsible for what is on the return, even if you get a professional to prepare it)
  9. Make sure the tax preparer signs the return and includes his/her PTIN
  10. Report abusive tax preparers to the IRS

Hot off the Press: New IRS Publication 17

IRS Publication 17 contains a whole host of information on filing your 2011 individual federal income taxes. It is the number one source for basic tax filing information, especially handy for those who plan on filing their taxes themselves (without hiring professional help). This publication has been around for over 60 years, but was recently updated for the 2012 filing season.  In a nutshell, Pub 17 covers the topics of Income, figuring you income, deductions, and credits.  But there is also information on taxpayer rights and how to obtain tax relief if you cannot pay what you owe.

But wait, before you click on the link and hit “Print,” you should be aware that this is a lengthy document.  The index alone is over 20 pages long.  The total page count is just over 300, so you’d be better off just saving the link. Besides, if you print it then you lose some of its functionality — Pub 17, in its electronic form, is full of links that (1) help you navigate those 300 pages quickly, (2) help you find additional information on key topics, and (3) take you to other forms and publications you may need when preparing your 2011 taxes.

Preparing your taxes yourself is not always the right choice for everyone. But if you do, you should definitely consider reading Pub 17 or at least keep it on hand as a reference tool.

Worst Idea of All Time

Think of all the bad ideas in America’s past: Smell-O-Vision, Leisure Suits, New Coke, Hydrogen-Filled Blimps, Barney, dare I say tax liens.  I guess the Land of the Free is a breeding ground for horrible ideas because the list is LONG.

And it should come as no surprise that the mother of all bad ideas was cooked up recently by a bone-headed politician. I speak of Rep. Jim Cooper’s proposal to let the IRS prepare our tax returns. Once you’re finished laughing hysterically, dry your eyes and try to compose yourself for a moment longer. But don’t think there’s any more to it than that. There is no “catch” here. He literally wants the IRS to “save us the time and money” expended in preparation of the returns ourselves. Nevermind the money we would lose by “asking the fox to watch the hen house.” The IRS would rob us blind!

The proposal may possibly be considered by the (as Newt Gingrich calls it) “maniacally stupid” debt reduction supercommittee. However, it seems unlikely that it will become part of their final proposal since its only proponents appear to be Rep. Cooper and Pres. Obama.

Bad Deductions in Iowa

Who: Tax preparers, Howard & Jill Musin

What: Judge ruled in favor of government, stating that the Musins (on their clients’ behalf) “took numerous, unrealistic positions as to business deductions for … quintessentially personal expenses.”

How Much: $21 million in bad deductions

More Info: The couple has already been prohibited from practicing before the IRS; they now face further sanctions.

IRS Chasing Ghosts

The Internal Revenue Service (IRS) recently announced it will be sending letters to taxpayers who appear to have had tax preparation assistance by ghosts. Such “ghost preparers” are paid tax preparers who attempt to elude IRS oversight programs by not signing the tax returns they prepare. The IRS warns taxpayers that they should never rely on a paid tax preparer that refuses to sign their tax returns and fails to enter a Preparer Tax Identification Number (PTIN).

In the letter to be sent to taxpayers, the IRS will inform such taxpayers of how to file a complaint against their paid tax preparers who failed to sign their returns and explain how to choose a legitimate tax preparer in the future. According to the IRS, the goal of the letters is to protect taxpayers by ensuring that all paid federal tax return preparers are registered with the IRS, and that such authorized preparers sign the tax returns they prepare, and use their identifying number when required to do so.

Additionally, on July 7, 2011, the IRS began to send approximately 100,000 compliance letters to tax preparers who failed to comply with regulations governing third-party tax preparation. All compensated tax return preparers must obtain a PTIN and, when required to do so, sign their names and include their PTINs on the returns and refund claims they prepare for compensation. Compensated tax preparers who are not tax attorneys, certified public accountants, or enrolled agents, must pass a competency exam and suitability check.

The approximately 100,000 paid tax return preparers under scrutiny may have used outdated PTINs or social security numbers as identifying numbers on returns they prepared this past filing season. The letters sent by the IRS explain a new oversight program and informs preparers of how to register for a new PTIN, or how to renew an old PTIN.