Court Strikes Down IRS Tax Preparer Registration Program

Posted on by William A Olson, CPA

Here’s an article from the Journal of Accountancy explaining what happened to the tax return preparer registration program.

It was always important to be careful who you get to do your taxes… make sure they’re qualified. This article from About.com can help you find a qualified professional to help you with your taxes… here’s a short excerpt from that article.

Taxpayers of all types can benefit from hiring a tax accountant. But before you spend your hard-earned cash, here’s some simple steps you can take to protect yourself, to find the right professional for your situation, and some questions to ask.

Understand Why You Need a Tax Accountant

You should take some time to focus on exactly what you need your tax accountant to do. Here are some common situations:

  • Preparing your own taxes is time-consuming, stressful, or confusing.
  • You want to make sure your tax returns are accurate.
  • Your tax situation is pretty complex, and you need specialized advice and tips.
  • You would like to pay as little taxes as possible, and need detailed planning and advice.
  • You are facing a tax problem, such as filing back taxes, paying off a tax debt, or fighting an IRS audit.
  • You run a business, invest in the stock market, own rental property, or live outside the United States.

Common Small Business Mistakes

Posted on by William A Olson, CPA

According to the U.S. Small Business Administration (SBA), a small business is one that employs fewer than 500 employees, a definition that applies to a wide swath of companies. In fact, the SBA says that small businesses account for 99.7% of employer firms, making them a significant sector of the economy. There are many challenges for small businesses, however. If you are a small business owner or have plans to be one, the Oregon Society of CPAs offers these tips on three common mistakes to avoid.

Mistake # 1: Act First, Plan Later

Forging ahead without knowing where you’re going is always a bad idea, but it’s especially true with a small business. Whether you’re launching a start-up or thinking about the near-term prospects of an existing company, it’s wise to set down a formal business plan or strategy for the near term. The plan will be essential for new ventures that are seeking outside financing, and it can also provide a crucial reality check that will help clarify your goals and decisions no matter how long your company has been around. It may also be a good idea for a mature company to create a new business plan if, for example, you need additional funding or investments, if you are experiencing a meaningful rise or decline in demand or new competition or if you’re considering a change in management or a merger or acquisition. The plan should include financial statements that give you a sense of where you stand and insights into the company’s strengths and weaknesses, as well as an overview of the market for your products or services and the competition you face, among other things. It should also describe your business, including your top executives and other key employees and their experience. The plan elements may vary depending on your goals, which may include making strategic decisions, attracting investments or financing or recruiting new employees. The SBA offers details on business planning that can introduce you to the process. For help in crafting a plan customized for your organization and understanding how to put it to work in your business, turn to your CPA.

Mistake # 2: Fail to Set Goals

Your business plan offers a blueprint of your organization, all that it has going for it and the challenges it may face. Many people drop it in a drawer once it’s done, but that’s a tremendous waste of valuable information and insights. Instead of setting your plan aside, use it to set near- and long-term goals and to diagnose any roadblocks that may stand in the way of future success. Your business plan can be the centerpiece of a strategic planning session in which your company executives, and perhaps your investors, plot a course for your future. Remember that including your CPA in this planning session can provide you with valuable financial and market insights. If the company is a solo or very small operation, consider sharing your plan with trusted advisors, including your CPA, to gather their input.

Mistake #3: Forget Your Purpose

When you launched your company, you probably had very clear goals in mind. Are you still on target to meet them? Sometimes, given the day-to-day demands of running a business, it’s possible to forget the reason you started the company in the first place. Or perhaps a challenge in one area of the business has made you lose sight of opportunities or threats in other areas. If you’re not sure that your company is still on the right path, an objective observer, like your CPA, can offer some worthwhile perspective.

Turn to Your Local CPA

CPAs work hand in hand with hundreds of thousands of small companies across America, offering them advice and information that enables them to meet the challenges they face and achieve their goals. Be sure to consult your CPA with all your financial questions.

Dollars & $ense is a regular column on personal finance prepared and distributed by certified public accountants, produced in cooperation with the Oregon Society of CPAs (www.orcpa.org) and the American Institute of CPAs (www.aicpa.org).

Don’t automatically pay your IRS Notice (CP2000)

Posted on by William A Olson, CPA

The IRS attempts to match items on your tax return to the amounts reported by third parties (e.g., wages reported on your 1040 to the forms W-2 you received from your employer). When there is a discrepancy, the IRS sends you notice CP 2000 which shows proposed changes to your income tax return. This proposal is based on a comparison of the income, payments, credits, and deductions reported on your tax return with information on these items reported to us by employers, banks, businesses, and other payers. The CP 2000 also reflects any corrections made to your original return when the IRS processed it.

The notice will often reflect a balance due but it could also reflect a refund if you under-reported your withholdings. If it shows a balance due, you may not owe the full amount reported especially if the CP 2000 relates to under-reported proceeds from the sale of stock on form 1099B. The IRS assumes your cost basis in the securities sold is zero, the holding period is short term, and assesses tax on the short-term capital gain calculated. Your cost basis is very likely greater than zero and your holding period could be long term. Both of these will reduce the amount of tax calculated by the IRS and may even result in a refund.

If you disagree with IRS, you should send in documents supporting your position and, if necessary, amend your Federal and State returns to reflect any items that were not originally reported.

11 Tax Audit Red Flags

Posted on by William A Olson, CPA

According to CNN Money, the following are 11 tax audit red flags to avoid:

  1. You have a sketchy tax preparer. Regardless of what your preparer may tell you, the taxpayer is legally responsible for for all the information on their return. In addition, paid tax preparers are all required to have a Preparer Tax Identification Number (PTIN) so customers can verify that they are legitimate. Make sure this number is listed on your return as well as verifying all the information being submitted.
  2. You make stupid mistakes. Whether you accidentally omitted information or you slipped up when doing subtraction, making errors on your tax return will cause the IRS to take a second look.
  3. You have a big mouth. Beware of trying to cheat on your taxes.  The IRS offers whistleblowers a reward of up to 30% of any additional tax or penalties it collects from tax cheaters. With information widely available and verifiable on the internet and social media, any suspect activities can now be easily uncovered.
  4. You’re extremely charitable. When giving small items to Goodwill or thrift stores, report the estimated resale value, not the original value. And make sure you keep track of when donations are made and hold on to receipts. It also doesn’t hurt to take photos of the donated items for your records. Be realistic on the value of the items and don’t over-inflate the worth of donations.
  5. You didn’t file your taxes. If you’re required to file a return and you don’t, the IRS will hunt you down.
  6. You own a business. The IRS tends to look extra closely at taxpayers reporting businesses on Schedule C forms because there’s more room for fudging. Make sure your records are up-to-date and organized. You may also want to think about incorporation for your business instead of filing as a sole proprietorship.
  7. You’ve been audited before. If you have been audited once, your chances are much higher of being audited again. Better to play it extremely safe for the first three years following an audit since the IRS will be monitoring you extra during this period.
  8. You have a home office. Deducting a home office can always be a red flag, because many taxpayers consider any part of the house where they do work to be an office — even if they do other things, like watch TV or cook, in that same area. To qualify for a home office deduction, you must use the office exclusively for work and it must be your primary place of business — not one of several offices. If this is the case, make sure you document expenses like housekeeping, alarm systems and other items you plan to claim — down to the share of utilities you use in just the office itself — in case the IRS decides to check it out.
  9. You’re rich. Being rich isn’t always a good thing. Your chances of being audited increase dramatically the more income you report. The more income you have, the more important it is to make sure you have a qualified tax professional handling your return.
  10. You have foreign assets. Foreign bank accounts have been a huge focus for the IRS in recent years. In an effort to reel in taxpayers with illegal overseas accounts, the agency has launched initiatives that waive certain penalties for taxpayers who come clean. This year, the IRS introduced a program that gives taxpayers a reduction in penalties — and no jail time — if they fess up to any undisclosed overseas accounts for an indefinite window of time.
  11. You guess on investments. The IRS is now getting data directly from brokers. If the information on your return doesn’t match, there will be an issue. Be sure to report your exact purchase dates and prices.

eFiling Popularity Ends IRS Business Mailings

Posted on by William A Olson, CPA

With the popularity of eFiling, the IRS continues to expand on the list of forms which are no longer mailed to businesses and only available via PDF from the IRS website. Perhaps the most notable form no longer being mailed is the Form 941, Employer’s Quarterly Federal Tax Return. A more comprehensive list of forms now only available electronically from the IRS (or from your tax professional) can be found here.

Start Getting Your 2013 Tax Return in Shape

Posted on by William A Olson, CPA

“Procrastination is like a credit card: it’s a lot of fun until you get the bill.”
~ Christopher Parker

We may have barely made it past the 2011 filing deadline, but taxpayers should already be doing a few quick checks to make sure their current year financial information is in order. A little bit of planning and organization now can help prevent headaches, not to mention saving valuable time and money in 2013. Here are a few tips from the IRS on things taxpayers can do to be proactive:

  1. Adjust your withholding Why wait another year for a big refund? Now is a good time to review your withholding and make adjustments for next year, especially if you’d prefer more money in each paycheck this year. If you owed at tax time, perhaps you’d like next year’s tax payment to be smaller. Use IRS’s Withholding Calculator at www.irs.gov or Publication 919, How Do I Adjust My Tax Withholding?
  2. Store your return in a safe place Put your 2011 tax return and supporting documents somewhere secure so you’ll know exactly where to find them if you receive an IRS notice and need to refer to your return. If it is easy to find, you can also use it as a helpful guide for next year’s return.
  3. Organize your recordkeeping Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time.
  4. Review your paycheck Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.
  5. Shop for a tax professional early If you use a tax professional to help you strategize, plan and make financial decisions throughout the year, then search now. You’ll have more time when you’re not up against a deadline or anxious for your refund. Choose a tax professional wisely. You are ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at www.irs.gov.
  6. Prepare to itemize deductions If your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2012 may pay off. An early or extra mortgage payment, pre-deadline property tax payments, planned donations or strategically paid medical bills could equal some tax savings. See the Schedule A instructions for expenses you can deduct if you’re itemizing and then prepare an approach that works best for you.
  7. Strategize tuition payments The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires. For more information, see IRS Publication 970, Tax Benefits for Education.
  8. Keep up with changes Find out about tax law changes, helpful tips and IRS announcements all year by subscribing to IRS Tax Tips through www.irs.gov or IRS2Go, the mobile app from the IRS. The IRS issues tips regularly during summer and tax season. Special Edition tips are sent periodically with other timely updates.

Tips listed are from the IRS Special Edition Tax Tip 2012-07, April 30, 2012.

Get your 2012 tax refund now.

Posted on by William A Olson, CPA

A big tax refund sure feels good… almost like you’ve won the lottery. But this doesn’t always make good financial senses. You could have put that money to work either investments or just a plain vanilla savings account earning interest over the year instead of giving Uncle Sam an interest free loan.

However, paying in isn’t only an inconvenience, it could also be against the law. If you owe more than 10 percent of your total income and other taxes, it can lead to criminal penalties, including a $1,000 fine and, in the most egregious cases, one year in prison.

Ideally, you want your refund or payment due to be no more than 5 percent of your total tax burden. So if your taxes are $10,000 (income taxes, self employment taxes, etc.), you’ll want a refund of no more than $500 or to pay in no more than $500. Here’s how to tweak your taxes now to make the next tax filing season less stressful… and better for your bottom line.

Here’s how to do it if you are an employee (i.e., not self employed). Fix your W-4. You probably haven’t seriously thought about your W-4 (the form that determines how much is taken out of your paycheck each month) since you started your job, but you can change it at any time. The IRS has a handy tool on their website that lets you input your marital status, wages, and other types of income and adjustments that affect your status. After that, it spits out a recommended change to your allowances, which is the number between 0 and 10 that tells payroll how much of your paycheck the government gets. The site even predicts what kind of refund you can expect in 2013.

If you’re self employed, you’ll want to estimate your income at various points throughout the year (e.g., quarterly) and adjust your estimated payments. This calculation is a bit more tricky so you may want to consult a tax adviser for advice.