Tax Preparation Tips Your CPA Forget to Mention
If you seek out professional help to complete your income tax return each year you are not alone. The IRS estimates that 80 million taxpayers, a full 56 percent of the people who file individual tax returns, use a paid preparer. Most say the complexities of the tax code and its ever-changing nature prompt them to hire someone to do the job when their taxes are due.
Many people turn to a Certified Public Accountant, or CPA, at tax time to complete their return. But it still takes a little work and knowledge on your part to give your CPA all the necessary tools to complete the best return possible. Before you drop off your financial information for the year take a look at the tax preparation tips your CPA forgot to mention.
A CPA isn’t Necessarily a Tax Expert
All CPAs are accountants but not all accountants are CPAs. When you begin selecting someone to do your taxes look carefully into their qualifications. It is a rigorous process to become a CPA. It starts with meeting all the educational requirements, then sitting for and passing all four sections of the national CPA exam. Add in the real-work experience requirement and you know anyone with a CPA behind their name has worked hard to get the title.
Not all CPAs are trained in tax preparation services. Some CPAs have specialties in corporate accounting or maybe even auditing. One of our tax preparation tips is to find out if your CPA has either specialized in tax services or spends the bulk of his or her licensing continuing education studies in the personal tax sector.
Your CPA is Very Busy During Tax Season
CPAs with robust practices might file thousands of tax returns between the end of January and the April 15 deadline. That’s why your CPA might not be available to promptly answer every single email question you have during that time. One of our tax preparation tips is to plan ahead by organizing yourself and your information and your questions. The first week of January is a much better time to ask your CPA specific questions about your situation than say, the first weekend in April.
CPAs also like to emphasize that they are available to their clients 12 months a year. CPAs love to be involved in tax planning, savings planning, and retirement planning. Your CPA is a great resource to help you reach your financial goals not just at tax time – but all the time.
How Will Your CPA Get Paid?
Before you enter into a relationship with a CPA you will want to find about the fee structure. Some CPAs charge a flat rate for returns of different sizes or complexities. Some CPAs work like attorneys and bill by the hour for time spent meeting with you and completing your return.
You will want to find out if your CPA expects a retainer, or down payment before beginning your return. Some CPAs expect to be paid in full before they will electronically file a return. Other CPAs will send invoices after the return is complete. Some CPAs automatically deduct their fee from any expected refund.
One of our tax preparation tips is to find out from your CPA how the billing process works before your return is started.
Your Box of Papers is More Than Your CPA Can Stand
By nature, your CPA is an organized person. So please don’t show up to your tax planning meeting with a shoebox crammed with receipts and calculations on cocktail napkins. Respect your appointment time and make the most of it by turning that disorganized shoebox into a meaningful file. Our tax preparation tips include moving your documentation into labeled file folders or a similar system where you can store things by type. Our tax preparation tips include not showing up for your meeting with a year’s worth of checking account statements in envelopes expecting your CPA to make sense of every transaction. Unless you have also hired your CPA to do all your bookkeeping, categorizing items on the statement is up to you.
And if you are sending your documents electronically, don’t send your CPA 36 different emails all with a single attachment. Those random blasts of information aren’t easy to corral in your folder. Consider putting all of those documents onto one portable storage device. Or set up a secure spot in the cloud where you can store your files and your CPA can work with them.
Can I Get My Refund Right Away?
Some CPAs offer Refund Anticipation Loans for their clients. That means they give the taxpayer the amount of their refund, minus interest, as soon as the return is complete. This type of instant refund isn’t coming from the IRS. One of our tax preparation tips is that the tax preparer is fronting the money that is due as a refund for this type of loan.
Only consider a Refund Anticipation Loan is you absolutely have to have the money right away. The interest charged eats into your refund and thanks to direct deposit the IRS estimates that most taxpayers will have their refunds within a matter of weeks anyway.
Are You a Likely to be Audited?
The truth of the matter is that thanks to staffing levels at the IRS, personal financial audits are not all that common these days. The IRS reported that it audited 1 Million returns for the calendar year 2017. A million sounds like a lot but statistically, that is .5 percent of all the returns that were filed. Some returns are audited at random, but the most likely scenario for an audit is some of the reported numbers are outside of statistical norms. The automated software at the IRS that scans each and every return is programmed to stop and pause at large irregularities between what a taxpayer makes and spends.
Taxpayers who make more than $500,000 a year are more likely to be audited than taxpayers who make less than that. Reportable cash transactions of $10,000 or more can also raise red flags.
One of our tax preparation tips is that more than anything the IRS is looking at numbers that just don’t add up. If a taxpayer reports earning $30,000 a year but claims that $25,000 of that went to charity, automated software will question that before a human agent gets involved.
Is Your CPA Sticking With You During an Audit?
If you do end up in the midst of an audit are you going to have to go it alone? Make sure that your CPA is signing your return and is available at an hourly or project rate if you have to fulfill an obligation to meet with the IRS.
Most audits these days are handled through the mail but you can request face-to-face interaction.
Need a Tax Preparation Firm? Find it With Taxry!
Get all the help you need.
What if MY CPA Makes a Mistake?
Tax law is complex and mistakes can happen. One of our tax preparation tips is to make certain before your return is completed that your CPA will submit an amended return if you uncover a mistake.
Math errors don’t require submitting an amended return because the IRS will catch calculation mistakes. It’s not necessary to file an amendment if a schedule wasn’t included with your filing. The IRS will send a letter asking for the missing document or documents. Common mistakes that require amendments are incorrect Social Security numbers or filing statuses.
Generally the IRS allows amended returns going back three years.
Your Home Office Deduction Isn’t What You Think It Is
There is a lot of remote work going on out there in the work force which leads a lot of people to believe they can take a robust home office deduction when they prepare their taxes. But that deduction isn’t as large as most people believe it is.
The IRS has strict guidelines for what constitutes a home office. The space has to be used exclusively and regularly to conduct business. It also has to be the principal location where you do business. You might take that Friday morning conference call in your dining room, but that doesn’t mean you can deduct the dining room as your home office.
In 2013 the IRS established a simplified square footage formula for deducting a home office. You can deduct $5 per square foot up to 300 square foot for a space in your home that is used solely for business purposes. There is no set definition for what constitutes a business. That is left to the discretion of an IRS auditor if necessary.
There is also a school of thought that believes simply taking a home office deduction is an audit trigger.
A Refund is a Good Thing -or Not?
Tens of millions of Americans will be getting a tax refund this year. But that might not be such a good thing. There are taxpayers who consider their refund a first-quarter bonus each year or who look at the refund as a way to force them into some savings.
The average tax refund for the 2018 tax year was $2800. One of our tax preparation tips is to consider whether that money would be more useful if a bit more of it came home with you in every paycheck instead of as a lump sum after your taxes are complete. Ask your CPA to analyze what your employer is withholding from your paycheck or to recalculate your estimated quarterly tax payments. Instead of giving the government an interest-free loan on your money, aim to get closer to a break-even point on taxes paid versus taxes owed.You want to be somewhere between getting a refund and having taxes due.
Spend Time With Your CPA All Year Long
While you may only think of your CPA at tax filing time, your tax professional is a resource to you all year long. Your CPA can analyze your withholdings or estimated quarterly tax payments to avoid a tax deadline surprise. Your CPA can look at your debt to income ratio. Your CPA can help sort through major purchasing decisions.
The end of a calendar year is also a great time to meet with your CPA. He or she might suggest making the January mortgage payment by December 31 to land the interest paid in the prior calendar year. A CPA might have some advice about timing for certain medical expenses. And for the self-employed a CPA might advise to go ahead and make purchases of equipment or supplies before the end of the year for tax purposes.
You Might Not Need a CPA
While you may be intimidated by tax preparation you might not need someone else to do it for you. If your financial reporting includes a W-2 form from an employer and a 1099 form or two for miscellaneous income, you can probably file your taxes on your own.
CPAs aren’t the only professionals qualified to complete a tax return. There are accountants who haven’t passed the CPA exam and there are Enrolled Agents who are registered with the IRS. At some of the chain tax preparation locations, employees need only pass the company’s unique course to begin preparing tax returns.
That doesn’t mean you have to download the paper forms and fill them out yourself with a calculator. One of our tax preparation tips is to look into the tax software options that are out there for doing it yourself.
If your family income was less than $69,000 you can use the IRS Free File Tool to file your tax return. If your family makes more than $69,000 a year you could be eligible to use the IRS Free File Fillable Forms. Those forms are downloaded by the taxpayer to be filled out and filed
The IRS Really Has All The Answers
You may be intimidated by doing your taxes and feel like you need to have a CPA on the case but you can probably find most of the taxation answers you need on the IRS website. The IRS site is a very robust resource. On it, you can find downloadable forms, questions and answers, and even your refund status.
The IRS website is the very first place to stop anytime you have a tax-related question.
The Earned Income Tax Credit
One of our tax preparation tips is to investigate whether you might qualify for the Earned Income Tax Credit or EITC. This credit is designed to reduce or eliminate the tax burden on low-to-moderate income workers, especially those with children.
You have to have earned at least $1 of income in the tax year. Unemployment and pension payments don’t count as earned income. You don’t have to have children to qualify for the EITC, but the credit becomes larger with each child. For the tax year 2019, the EITC ranges from $529 to $6557.
Because of the complexities of qualifying for the EITC, the IRS has an EITC Assistant to help taxpayers know if they are eligible to receive the credit or if their child or children meets the requirements to be an eligible dependent. The EITC Assistant can also give you an estimate of how much credit you can expect after qualifying.
Conclusion
Preparing a tax return can be a daunting job. That is why millions of Americans turn to CPAs to allow the experts to file for them. One of our tax preparation tips is that before you hire a CPA, do your research and find out if that CPA is knowledgeable in the personal income tax realm. Recognize that every CPA is very busy during tax season and to ensure maximum efficiency you should arrive at your tax prep meeting with all your documents completely organized.
Before the return is even started find out how and when your CPA wants to be paid for the work. If you usually receive a refund ask your CPA if you should adjust your withholdings or your payments to get closer to your tax obligation. If you’d like a Refund Anticipation Loan, find out if your CPA offers them. The odds say you aren’t likely to be audited, but find out how your CPA handles customer service during audits. And don’t just think about your CPA at tax time. He or she is a valuable financial resource all year long.