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Archive for the ‘Tax Preparation’ Category

The day I left my suburban life in Kansas City and decided to spend the next 30 months in Rio de Janeiro is something that I don’t regret. I was carefree and loved having left behind my American ways and embracing their exciting culture. Little did I know that I still had to pay my taxes, nor that Foreign Earned Income was even a sentence that my life would revolve around!. The knowledge hit me like a ton of brick. Who haven’t heard of IRS nightmares that consist of every aspect of your life spiraling out of control? I had visions of the IRS levying my bank accounts and being subjected to audit reviews.

My initial thought was to do my research to get an idea of how deep a hole I’ve dug for myself. First thing I discovered was that all American citizens are taxed no matter where they are. Secondly, there is no statute of limitations on tax collections if you never file your return. The deadline for filing the forms is still on April 15 but the IRS allows for an automatic two-month filing extension. I read about this foreign earned income exclusion and this thing about foreign tax credits but I’m at a loss on how to decipher it, much less compute it. I don’t even want to get started on form 2555 or the bona fide residence test.

The Dilemma – Tax return preparation

To say that I was scared would be putting it mildly. I was downright terrified of being asked to pay IRS penalties and IRS interest charges that are far beyond what my savings could cover. If I’m found to have willfully violated the requirements to file, I could go to prison for a minimum of five years. I don’t take that lightly and I didn’t want to take the risk of being held accountable for my ignorance.

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I placed calls to the IRS and attempted to negotiate with them myself. I soon discovered that unless I had an expertise in tax matters then I wouldn’t be able to get a word in. That’s when a friend of mine recommended that I get in touch with a CPA – of course first I had to understand: What is a CPA?. Working with him was the finest decision I’ve made over this whole fiasco.

The Solution to my tax return preparation woes

I hired a tax accountant. On our first online meeting, he instantly put all my fears to rest. I learned that if I meet the income threshold then I’m required to file a tax return – even if I live overseas. He gave me a rundown of the credits and exclusions I would qualify for. It turned out that after the deductions, I only owed the IRS a minimal amount. If I didn’t have the money to pay for my taxes, I would have had to make an offer in compromise and negotiated for a payment plan that suits me. Clearly, that would have placed a huge burden on my career and my current lifestyle, not to mention a trip back to the US.

Hiring a CPA to do my taxes is better, based primarily on the fact that they know more about the laws than I do. I found out when I was doing my research that tax laws are not static and that changes do occur quite often. CPAs are updated with the recent changes and the complexities, while daunting, are things that they’re exposed to on a regular basis.

Besides, it takes several hours to figure out my taxes and all the breaks that apply to me. The CPA got it done correctly at a fraction of the time it would take me. One mistake and I could be compelled to pay a penalty or not get my refund at all.
Of course, good luck finding a tax preparer CPA that will allow you to file taxes online…. My previous tax preparer (from when I was back home), literally told me he did not want to deal with e-mail or let alone Skype. I found many options for tax preparation services, but I did not want to do this alone, and the CPAs I found were unresponsive and did not seem in tune with the latest technology. I did find a good page to file income taxes online, ran by Certified Public Accountants that allows you to work through the internet and I’m sticking with it (They will prepare your tax return or help you prepare your own.)

Looking Forward

From now on, I intend to pay my taxes on time. In fact, my CPA has already given me tips on what I should do or avoid that would minimize my tax exposure – Little bit of tax planning has saved me tons, specially planning my trips around the physical presence test to meet the 330 days. Most of all, I get a sense of security from getting a professional do a task that’s very sensitive.

Everyone’s tax problem is unique and after admitting that I’m unable to brave the twists and turns of the tax laws, I asked for help — which I got and which I’m very grateful for. You shouldn’t have to be under financial stress when the solution is really right under your nose, except that you didn’t recognize it for what it was. To get out of the mess and clear your head of any misgivings, let the professionals do what they do best.

Despite common reminders from the tax preparation industry to retain tax records and prior year returns, individuals often consider this directive as more of a suggestion. When a situation arises requiring copies of past year tax returns, taxpayers turn to their tax return preparers.

Individuals need old tax returns for many reasons. Cases where this information is necessary include application for a bank loan, refinancing a mortgage, and qualifying for college financial aid. Fortunately, tax preparer resources are available that permit obtaining prior year tax information from the IRS.

As expected, plenty of security measures are in place for obtaining a copy of an old tax return. The IRS requires completion of Form 4506 and payment of a fee. As of 2011, the cost is per tax return.

Obtaining a copy of the requested tax return is not instantaneous. Customary delivery is by regular mail about two months after payment. Taxpayers needn’t bother requesting the tax return right away by email or fax. However, individuals located in federal disaster areas normally can obtain free copies of prior year tax returns. People in disaster areas get additional tax preparation help by receiving a grant of extra time for new tax return filing.

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Tax returns are available from the IRS for only the past six years. That explains why tax preparer duties include instructing people to retain tax information for seven years. After that period, the IRS no longer investigates timely filed tax returns.

Sometimes, a copy of an entire tax return is unnecessary. When only the key numbers are needed, a tax return transcript is satisfactory. These provide the highlights on a return, such as the totals for various categories of income as well as adjusted gross income, total deductions, and taxable income.

There is a distinction between two types of transcripts. A tax return transcript shows most line items from a tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after filing the return. A tax account transcript shows any adjustments after original filing. This includes corrections by taxpayer amendment and IRS adjustments. That type of transcript shows only basic data, such as marital status, type of return filed, adjusted gross income and taxable income.

A tax preparation business will often need a transcript of the prior year for a new client who doesn’t have a copy of last year’s tax return. This permits the professional tax service to locate any tax figures from the past year that affect compilation of an accurate return for the current year.

Transcripts are only available for the preceding three years. There is no cost to obtain a tax return transcript from the IRS. Taxpayers can complete Form 4506-EZ to request that the IRS send a transcript directly to a third party, such as a Registered Tax Return Preparer. A transcript is normally received within 10 days of a request by phone or on the IRS website.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Summer is a common time of year for people to move. Children are out of school and the weather is more conducive to trekking across any significant distance.

Summertime is also ideal for starting a tax preparation business. Beginning this process at mid-year permits an individual to complete all arrangements for a successful opening next tax season. A tax practitioner usually begins income tax preparation courses in late summer and studies throughout the fall. By year-end, the Registered Tax Return Preparer examination should be ready to pass.

Whenever a move occurs related to a job, the moving expenses are usually a tax deduction. All individuals who move because of work qualify, not just anyone starting a tax preparation career. Taxpayers who are eligible to deduct moving costs are not even required to itemize deductions in order to benefit.

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Finding taxpayers who have moved is a sound strategy for building clientele of a federal tax preparation service. Both new and experienced tax practitioners can use the end of summer as an opportunity for reaching out to those who moved this year. Now is the time to remind them about retaining records of moving expenses that they will need when their tax returns are prepared.

Costs for travel to the new location are among the deductible expenditures. This includes transportation expenses for all family members. A standard mileage rate is applicable for each vehicle used as transport. Only one trip per person is allowed. The cost of lodging during travel is counted as moving expense, but not the cost of meals while traveling.

Deductible moving expenses also include costs for packing, transporting, and in-transit storage of household goods. Individuals who move can also deduct the cost of disconnecting utilities at former homes and connecting at new homes.

Other costs related to moving in at a new location are not deductible. Also, anyone who is partially reimbursed by an employer for moving expenses should retain records of the reimbursements, which reduce the tax deduction.

In addition to a move having a connection to work, the IRS has two requirements for taxpayers to meet in order to deduct moving expenses. First, the new job location must be at least 50 miles farther from the former home than was the previous job location.

Secondly, full-time work in the new area must last for at least 39 weeks of the first 12 months after moving. This requirement is 78 weeks during the first 24 months for the self-employed. Sometimes moving expenses are deducted on a tax return that’s due before this requirement is met. In that case, tax preparer ethics require mentioning to taxpayers that the requirement must be eventually satisfied.

Tax preparer duties when moving expenses are deductible involve gathering the records of eligible expenses as well as calculating the distance and time tests. Then, Form 3903 is completed. A tax preparer should also assist taxpayers by completing Form 8822, which notifies the IRS of the address change.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

The Internal Revenue Service wants to set new rules on income tax preparers nationwide.  IRS Commissioner Doug Shulman issued a proposal on January 4, 2010 citing federal regulation will help reduce fraud, improve compliance and close the tax gap.

California and Oregon are the only states that have set tax education requirements for its income tax preparers.  In 2009, New York passed legislation to require its tax preparers register with the state; however, it does not enforce education or insurance requirements.

In California, paid income tax preparers who are not a licensed attorney, certified public accountant (CPA) or IRS enrolled agent (EA), are required by law to register with the California Tax Education Council (CTEC).  All TEC-egistered ax reparers (CRTPs) must complete tax education courses each year and obtain a surety bond before they can prepare tax returns for a fee.

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In Oregon, all paid tax preparers must be licensed through the Oregon State Board of Tax Practitioners.  Oregon tax preparers have to pass a competency exam before they can prepare tax returns professionally.

“Compliance is a big issue with tax pros,” said Mary Beth LaMunyon-Jones, CRTP and CTEC board member. “Nationwide there are the good ones and the bad ones.  There are the ones who care and the ones who don’t.”

Proponents of the IRS proposal believe enforcing tax education and professional licenses for tax preparers is a necessary step in order to increase the protection of taxpayers.  Skeptics argue it is not tax preparers who are entirely to blame, but the complex tax code that is causing issues and mistakes.

“From CTEC’s standpoint, the reasoning has always been that some education is better than no education,” said Celeste Heritage, CTEC administrator.

Federal regulation of tax preparers has been a topic of discussion for at least five years.  The question of how to fund a national tax preparer program has been one of the biggest hurdles for the IRS and even some states that want regulation.  Maryland passed legislation in 2008 to license its tax preparers; however, the program has been postponed due to budget constraints.

Unlike Oregon, New York and Maryland, the registration requirement in California is not managed by the government.  The state decided to privatize its tax preparer program in 1997 by transferring the responsibility from the California Department of Consumers Affairs to CTEC as part of a “grand experiment” to save money.

Today CTEC is a nonprofit quasi-public benefit corporation that is run by a board of directors, three staff members and is funded by CRTPs who pay an annual registration fee.  CTEC has never once received funding from the state.

“It will be interesting to see how it all plays out.”

A vital step in tax preparer work is providing information that assures a smooth process. The objective is for taxpayers to present accurate details and obtain optimal tax results that are easily understood.

The first matter covered in the delivery of tax preparation services is the documentation people should bring. Redundant or irrelevant information slows down the entire operation. An efficient tax preparation checklist notes all the types of income and corresponding deductions. Individuals who incorrectly group income and deductions are not actually helping their tax preparers. An explanation of the checklist by a Registered Tax Return Preparer avoids having details presented in a confusing fashion.

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A high quality tax practitioner shows taxpayers essential elements to include for preparing their tax returns. In addition to learning about available deductions, taxpayers are informed by an efficient tax preparation business about items that are not deductible. People need to realize the danger in reporting invalid deductions.

However, individuals mostly miss taking legitimate deductions due to lack of sound records. Also, a deduction is occasionally not available due to income limitations. Adept registered tax return preparer work involves sharing tax-saving opportunities with people about slightly rearranging their financial affairs. Often, these cases simply require avoiding income from extra events such as IRA withdrawals or capital gains.

The best RTRP guidelines include measures for explaining how a tax liability or refund is calculated. A tax preparer should methodically show the sources of income and the types of deductions. No detailed explanations of the mathematics on specific forms are required. But pointing out the basic essentials permits a double-checking of the information. The process is also an opportunity for the RTRP to demonstrate knowledge and competence.

Explaining a tax liability is especially important. Many people who owe a tax balance are unaware of the circumstances. They need help knowing how to avoid a surprise tax bill next year by increasing their paycheck withholding or paying estimated taxes.

Even a tax return showing a refund demands a general review process between taxpayer and paid tax preparer. It assures that information has been accurately conveyed. The result is prompt receipt of the refund with no delays at the IRS in processing the tax return.

The final reminder to a taxpayer from a tax return preparer is when to expect a refund. Tax professionals know approximately when to expect refunds. They can also provide individuals with knowledge about how to use resources on the IRS website for checking the status of a refund.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.