Tax Preparation

THE TAX ATTIC with Jerry Coon — January 21, 2010

January 21, 2010 // 0 Comments

How to choose a tax preparer The big news last week was that the Internal Revenue Service was going to start regulating currently “unregulated” tax preparers. “Unregulated” tax preparers are defined as all tax preparers that are not enrolled agents (EAs), certified public accountants (CPAs), or attorneys. Those three classes of preparers are allowed to call themselves “practitioners,” as opposed to preparers. For that privilege, they have always been highly regulated and are held to a high standard of conduct. According to the IRS findings, there are currently 42,896 EAs, 646,520 CPAs, and 1,180,386 attorneys who actually prepare and sign tax returns. The IRS has a good handle on who these people are and the type of work they do. But according to the IRS, there are between 900,000 and 1,200,000 “unregulated” tax preparers preparing and signing tax returns. Conversely, they don’t really have a good picture of who these people are and if they are competent enough to actually be preparing tax returns. We are talking about some large numbers of tax returns here. About 61,800,000 tax returns were prepared by paid preparers last year. If the EAs, CPAs, and attorneys prepared half of those returns, that leaves 30,900,000 tax returns that the IRS has less control over. All of that will begin to change on January 1, 2011, when these new regulations take effect in earnest. With that 2011 date in mind, remember that the same old rules apply this year. Some preparers are regulated and some preparers are not regulated; 61,800,000 taxpayers are going to choose a tax preparer in the near future to prepare their return. What are the factors they should use to make that choice? My personal list goes like this: 1. Will the preparer sign the return? By law, anyone who is paid to prepare a return has to sign that return. If the preparer hedges on that point, there is something drastically wrong. As the saying goes, “Run, don’t walk; get away as fast as possible.” If the preparer won’t sign the return, that doesn’t absolve the taxpayers from what is on the return. 2. Is the preparer available year around? The tax business has grown into a year-round business, because our tax system is so complicated. […]

The Tax Attic with Jerry Coon — January 7, 2009

January 7, 2010 // 0 Comments

New tax season presents common situations It’s finally the beginning of the tax season. I say “finally” because those of us in the tax business have been building toward this date since September. That’s when we started going to seminars and learning how all of the new laws would interact with the tax returns we will be preparing in the next few months. That’s also when we started ordering the supplies and the various software packages that we use to prepare not only the many types of tax returns we file but also the various business reports we file such as W-2s and 1099s. A tax preparation firm like Action Tax Service uses technology to the fullest extent possible in an attempt to ensure that clients get the absolute best product that we can give them. However, all of the technology in the world won’t help us prepare a return if we don’t have the needed information at our fingertips. For the most part, employed taxpayers can’t file a tax return until a W-2 is received. Most retired taxpayers can’t file a tax return until a 1099-R or a Social Security SSA-GOV is received. We can use a last check stub to create an estimated tax return, but we are not able to finalize and actually file a return without those official documents. Let’s look at three common but troublesome situations. First, the majority of all W-2s and 1099s will be received by January 31, but what happens if a taxpayer does not receive that statement by January 31 or February 10 or even February 28? Second, what happens if the statement received is wrong? Third, and even worse, what can be done if the wrong type of statement, such as a 1099, is received instead of a W-2? What’s a taxpayer to do in these situations? Let’s discuss the first situation in which the W-2 or 1099 is not received. The reporting procedures for W-2s are different than those that regulate the reporting of 1099s. It is important to remember that even though employees are required to have their W-2s available by January 31, the employer is not required to submit these documents to the Social Security Administration (SSA) until February 28. Note that I […]

The Tax Attic with Jerry Coon — October 22, 2009

October 22, 2009 // 0 Comments

Recent developments in tax preparation In the tax preparation business, there are always recent developments. Things change frequently. I have determined that it is how tax preparers keep their minds young and limber. We have to follow the bouncing ball, so to speak, on a daily basis because we really don’t know where it’s going to bounce to next. Let’s discuss a couple of those recent developments. First, effective for returns that we will be filing in the coming tax season, there will be a box on all individual tax returns that will allow all or part of a refund to be diverted toward the purchase of Series I U.S. Savings Bonds. The denominations available will be $50, $100, $200 and $1,000. Unlike the old Series E bonds, which were purchased at a discounted dollar amount, you pay face value for the Series I bonds. It cost $50 for a $50 Series I bond. The bonds will be mailed directly to the taxpayers. In order to determine if buying one of these bonds is a good thing, we have to look at the interest the bond will be paying. The interest paid on a Series I bond is calculated by combining a fixed rate and an inflation rate. Both of these rates are determined in May and November of each year. All bonds issued between May and November will get the rates as published in May. All bonds issued between November and May will get the rates as published in November. Interest begins to accrue as of the first of the month in which the bond is issued. Series I bonds totally mature in 30 years. The same interest rate as determined at the time of issue will apply for all 30 years, unless the rules change, of course. As we all know, our U.S. government always reserves the right to change the rules. There is a minimum holding period of 12 months, after which the bond can be redeemed for cash. However, if it’s redeemed within the first five years of issue, there is a penalty of forfeiting three months of interest. The fixed interest rate that will apply to Series I bonds purchased from May 2009 to November 2009 is 0.1%. Yes, that […]