What's it worth?

In these tough economic times, everyone is trying to save a buck. So it's not surprising that tax season is a stressful time for some one who's not sure if they have to pay, what to expect at tax time, and last and sometimes, least - how to afford a good tax preparer. Many taxpayers are cutting back and looking to switch from they CPA or tax preparation firm to a more economical option. There are few options out there, but Caveat emptor - not all tax preparation options are created equal. Of course, we all want to be sure and safe, but the CPAs fees can be in range of hundreds of dollars, and that is not something everyone can afford these days, even for a peace of mind. Tax preparation firms that are not operated by a CPA can still be expensive - Enrolled Agents, Tax Attorneys etc are also highly qualified and extensively educated professionals who can command high fees. In addition, these firms almost always provide additional services. Even if you decide to use one of these professionals, do not be afraid to ask for their license number and check on them with the Board of Accountancy, IRS or State Bar. You may find their license is expired or revoked due to some reason or another. It's free to check and highly recommended.

Next option is a Franchise tax preparation firm, often called boutique or discount tax service, those are your H&R Blocks, Jackson Hewitts and Liberty Tax offices you see at strip malls. They are usually cheaper, however, if you have a complicated return they might still costs you alot, since these firms charge per-form, and the more forms you have, the more your return will cost you. They also are nor equipped to handle highly complex tax matters. In addition, the franchised tax preparation services have come under investigations and law suits, resulting from fraudulent return filings, overestimating deductions and falsely increasing refunds, and overcharging and not disclosing Refund Loan fees and interest rates. While in CA the tax return preparers have to be licensed, the franchises rarely offer any substantial training to their employees, and this results in very inexperienced employees who rely heavily on the software, and often don't know basic tax law that apply to specific taxpayers. I only recommend these places if your return is super simple with little room for error (and I haven't met many people like that...). Lastly, come April 16th, these offices are often closed till fall, and it's hard to get an answer if something went wrong. If more time has passed, the office will have new employees and sometimes new managers that don't know anything about you or your return, and that's if you're lucky - sometimes that office might not be there at all few years later. If there was a mistake or your got audited, you're on your own, scrambling to figure out how to deal with "friendly" IRS representatives or paying high fees to a tax attorney to get you out of the mess...

Next, we take a look at tax preparation software, readily available for purchase or online. Many services are free for a Federal return and only charge a small fee for your state return. These may seem like a good option, however, your return should be pretty simple to attempt it yourself. The software will walk you step by step through all the required parts of the return - Income, Deductions, Exemptions, Credits, and hopefully - refund! But, the software is only as smart as the person using it. While it's programmed to ask questions and detect certain errors and red flags, that's all it can do. It can't interpret the law, detect possibility of multiple scenarios and offer advice on how to proceed. It also can be misleading and cause the taxpayer to take deductions she doesn't qualify for, or quite the opposite, miss something when the taxpayer wasn't aware of the issue and didn't include something on the return. Many taxpayers will see an unfamiliar term or a complicated question, and skip it assuming it doesn't apply to them. This can turn out to be quite costly.

I always recommend using a qualified and licensed professional to prepare your tax returns. While anyone in the US can prepare taxes for a fee, only a few States have licensing requirements. Your tax preparer should be licensed if you live on one of those states - California is one of them. Check with CTEC on your tax prepares' license status. A preparer must be licensed if she is not a CPA, Attorney or Enrolled Agent. Licenses on those credentials can be checked as well through the issuing agencies. In addition, ask your tax professional about their education and experience. BS in Accounting is desired, any education higher than that is a plus. Any education in area of taxation can give you a peace of mind that your preparer put some effort in her field of expertise. Ask them how long they have been in the tax field, whether they receive alot of referrals or do their clients leave after one tax season? A competent tax professional will have their own tax software, and an office environment conducive to the high intensity of tax season.
Once you chose your tax professional, do not be afraid to talk money right away. Ask how much the return will cost, what are the payment procedures and options, and what are your options in case you are not satisfied with the service. The preparer should provide you with engagement letter which spells out the terms of services provided, costs, responsibilities of both parties and expectations. This tells you the preparer is serious and interested in clarity and understanding from both parties right from the start. In addition, ask what are the record keeping procedures, will you be offered an e-file, will you get a copy of the return. Many preparers might assume that you know the "rules", that is a mistake. Always approach a new professional relationship with caution and do your due diligence to find out as much information as possible to make it a good working relationship.
With some research and knowledge under your belt, you can find the best and most cost effective option suitable for you and your unique tax situation. As always I am available to answer any additional questions on the topic.

Lets have a stress-free tax season!

Year end. Time for Holidays, family and...taxes?

Year end is a crucial time for a company. The books area getting ready to close, and the taxpayers have to be aware of crucial steps they have to take before the clock strikes midnight on New Years Eve. While most tax advantageous avenues, like pension plans, have time until tax returns are due, when it comes to maximizing on business expenses and legally minimizing taxable income of a company, time is of the essence. Companies that carry inventory or products for sale may want to buy some stock ahead of Dec 31 to increase expenses. You pay want to prepay advertisement, subscriptions or other expenses that may have been due in January, to take the expenses in the current year. Payroll is important too, are you paying yourself enough and what is your salary/dividend/loan-to-shareholder ratio? With increased scrutiny from the IRS, it's important to know how much is too much or too little. Paying some payroll tax now is far less expensive than taxes, interest and penalties later, if your dividends get reclassified as payroll by the IRS. This can be quite painful...
Your accountant and/or tax professional will know the little things to look for and steps to take in time to ensure you're all set when tax time comes.

Happy Holidays!

New Due date for Partnerships

This year the Partnerships filing form 1065 only have till September 15th to file their 2008 tax returns, as opposed to October 15th deadline in previous years.
Per IRS.gov -
"Extension Due Date for Most 2008 Partnership Returns is September 15, 2009
Only a 5-month extension is available for 2008 partnership returns filed in 2009. See 2008 Form 1065 instructions page 4 "When to File" and the instructions to 2008 Form 7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and other Returns."
I am sure this is a way to accelerate tax revenues collection on accounts that are on extension and have not sent in estimated payments when they applied for the extension back in April. As we know, tax payments are always due on the due date, there are no extensions to pay the tax. But alot of people are confused and assume that the extension gives them time to pay as well as file. This results in penalties and interest added to the tax due, when the payments is finally sent with the return. I always advise my clients to send in what it due, or an estimate, to avoid fees later down the road.
This year the returns on extension have only 5 months instead of 6 to get the financial statements completed and ready to file. I provide timely bookkeeping service to my clients to ensure no extensions are ever necessary. Your current accountant should be sending you reminders and updates to ensure your books are up to date and ready to go in time.

until next time

Natalie