IRS Regulating More Tax Preparers
H&R Blockheads. The IRS wants to save you from your rogue tax accountant. - Being subject to extensive regulation and continuing education requirements as a CPA, I can't share this writer's sentiment that IRS is overstepping its bounds by requiring other "mom and pop" tax preparers to be regulated and take update courses.
I do share the writer's sentiment that the trend towards having the State and Federal governments prepare tax returns for people is not a positive development because of the extreme conflict of interest that entails.
Who uses ACORN for tax work?
Why is ACORN giving tax advice? Started with shakedown of H & R Block – That was the first thing I was wondering while watching the clips of the ACORN rep giving advice to a pretend pimp and hooker on how to handle the taxes for a child sex slave business. I have long known about their organized crime and voter fraud activities, but was ACORN also in the tax preparation business?
I thought they may have been part of the IRS’s VITA program, which is designed to provide free tax help for lower income people in the community. That’s where I started my tax career in the early 1970s. I don’t recall their policy on who we could prepare free tax returns for; but I am guessing that an illegal alien child sex slave business would have been off limits.
Which brings me to the other thing running through my mind while watching those undercover videos. What would other tax professionals do if confronted with new clients like the ones James O'Keefe and Hannah Giles were portraying? I doubt that any reputable tax pro would accept them as clients and give the kind of illegal advice the ACORN rep was presenting, even in these tough economic times. The proper response would be to either kick them out of your office or even to call the police on them.
IRS considers regulating tax preparers – Long overdue quality control over those of us who are not already regulated as CPAs, attorneys or Enrolled Agents. (Thanks to the always useful Lucianne.com for this.)
The Silver Lining
Upper-Income Taxpayers Look for Ways to Sidestep Obama Tax-Hike Plan – As I have long been saying, electing a Marxist president would be the biggest boost to our business ever as more people see the need to stay out of his cross-hairs. It’s only a matter of time before that $250,000 threshold is reduced, bringing in more and more victims of Obama confiscation to see us about using income smoothing strategies, such as C corps.
Interestingly, I have noticed that the creative team at Tax Coach Software realized this money making opportunity as well and have been adding more and more Obama defense warnings and strategies to their arsenal over the past several months, with new ones showing up constantly.
Slightly Easing Off on Tax Preparers – Interesting look at the “more likely than not” issue from the latest edition of Practical Accountant.
Comparing tax prep methods...
Taxes, Three Ways – Thanks to Ed Lyon from TaxCoach Software for the link to this interesting article comparing three different ways to have your tax return prepared. It was featured in his latest weekly email bulletin, which anyone can subscribe to, even if you don’t subscribe to the full TaxCoach service.
The gist of the article is just what I have always said. Those of us in this profession who stay up to date on tax savings opportunities for our clients have absolutely nothing to fear from do it yourself software or the assembly line tax prep services. I have never considered either to be any kind of competition.
To be quite frank, anyone not savvy enough to understand the benefit of paying someone like me one or two thousand dollars in fees in order to reduce their annual tax bill by $10,000 to $20,000 from what it would be with the other kinds of tax returns isn’t really the kind of person I want to work with. Of course, those kinds of fees are more for timely advice and strategic planning assistance, while the assembly line firms’ fees are just for filling in forms, as it is for do it yourself software.
Tax Preparer Danger Signs
This latest news release from the Calif. Franchise Tax Board, titled "FTB Reminds Taxpayers to Select Tax Preparers Wisely" has some good advice, along with a link to download their brochure on how to select an income tax preparer.
The following part of the news release sounds like it could be part of a Letterman Top Ten list; but it is unfortunately a true indication of the quality (or lack of) with some people in our profession.
Some common signs that a tax preparer may be abusive include:
· Claiming they can get bigger refunds than other tax preparers. Someone unfamiliar with your financial situation cannot make such a guarantee.
· Basing their fee on a percentage of the refund amount rather than the complexity of the tax return.
· Filing schedules where the information is fraudulent or lacks documentation to support the income or deductions.
· Refusing to sign the tax return as the paid preparer or not providing a copy for the taxpayer’s records. The preparer is required by law to sign the return.
· Require you to sign a blank return or in pencil.
· The preparer is not properly licensed or registered.
Outsourced tax prep work...
I’ve written several times on the trend for USA tax preparers, including some large CPA firms, to secretly farm out their tax return preparation work to much lower paid workers in India. I even added this issue to my points to consider when selecting a tax pro. As long as this is all disclosed to the clients, and they don’t have any problem with not being able to personally interact with their actual tax return preparer, I guess it’s okay.
This goes completely against the very personal style of tax prep work I do with my relatively small list of clients; but I guess it makes sense for the big impersonal assembly line operations that measure their success in quantity rather than quality. However, when this is done covertly without the clients’ knowledge, it’s nothing less than fraud in my opinion.
As an indication that this outsourcing trend is still growing, I recently received the following email from someone promoting their service. I haven’t independently verified his claims; but it seems that all clients and preparers need to be more open and honest in fully disclosing if they are using a sub-contracted service in India for their actual prep work.
Subject: Help Wanted Tax Returns - I'm looking for work
My name is KC Truby; I have been a marketing and advertising consultant to accountants for over 25 years. Four years ago I opened an office Bangalore India where we do tax returns.
The accountants who use us (last year we did about 3,500 returns) are paying me a low of $45 for a 5 page 1040 up to $100 for a complicated corporate or partnership return of 25 pages on average.
The 35 firms using us now are charging these returns out at 10 times to 20 times what they pay me to do them. (We have references of course)
If you would like more details send an email to me at firstname.lastname@example.org and I’ll send you an invitation for the next teleconference we do. You’ll see exactly how this works in less then 20 minutes on documents, quality checks, security, skill set, turn around and cost.
PS No $5,000 minimum like Xpitax, we’ll do a test run of 10 returns so you can see how good we are for yourself.
Finding good tax help...
Hello Kerry,Can you give me some examples of what I can pay my corp. for to transfer income as you mention. I am in the roofing and remodeling business and yes I am am working with a tax pro. I need help with ideas to get me thinking in the right direction.Is the sample chart of accounts in the industry specific quick books pretty close to what I need to use?Thanks,
As I have discussed on numerous occasions, there are several very easy ways by which to shift income between your corp and yourself. What is best for your particular situation is something your personal tax pro should be helping you determine. If your tax pro is unfamiliar with how to do this, you obviously have the wrong tax pro and need to find one who is more well versed in this very common and useful strategy for reducing taxes. The fact that you feel a need to ask a stranger this question instead of your own personal tax advisor is disconcerting.
The standard chart of accounts that comes with QuickBooks is the best place to start; but then should be modified to suit your needs, as well as those of your professional tax preparer. My personal style is to make the QB income statements match as closely as possible their tax return schedules, so I do a bit of tweaking to the charts of accounts my clients send me in order to achieve this.
I realize that I may sound like a shill for QuickBooks, but it is the easiest and fastest accounting program I have ever worked with in regard to making any kinds of modifications to the chart of accounts. Your personal tax pro should be part of your design process for the chart of accounts that will work best for your particular situation.
Remember that you will have one company QBW file for your corp and a separate one for your personal info; each coordinated to match up with your tax returns. An experienced tax pro should have no problem in helping you set both of them up properly.
Kerry,Thanks for answering me back so soon. Yes it is disconcerting I have to ask you a net guy, but I've learned a lot from the internet and from your site. I've spent $thousands on accountants/CPA's and lawyers, it's frustrating. You probably know from talking to so many people about this, but there are more bad tax pro's than good one's at least in my experience. But I'm searching for a better tax man/woman now. Another thing where your site and your answers help, is helping educate us to know what to talk to our tax guys about. After sleeping on shifting income idea I came up with a couple ways that are specific to my situation and I'll speak to my current accountant about these.Thanks again Kerry, keep up the good work.
Comparing tax software
Interesting article from the Journal of Accountancy reporting on the results of their survey of professional tax preparers’ opinions on software. Very handy side by side comparison of the features in the different programs in this pdf file.
I just received a copy of the 2006 Drake program and will be taking it for a test spin to see if it’s a suitable replacement for Lacerte after I make it through the October 15 crunch.
Bad experiences with tax preparers?
I am scheduled to have a phone interview tomorrow with a writer for SmartMoney on the subject of being smarter about looking for tax pros, which is obviously a topic I have long been very vocal about.
The writer is also interested in hearing from others on this topic. Specifically:
Also, I'm looking to talk to some people who have been dissatisfied with a tax preparer's service (including but not limited to CPAs, enrolled agents, joe shmoes, & storefronts). Can you think of anyone I might get in touch with, or would you be willing to post a query on your blog?
When we talk tomorrow, I plan on giving her some examples of tax preparer screw-ups I have seen. When we first relocated here from the SF Bay Area, it was like shooting fish in a barrel, correcting huge expensive mistakes that other preparers had made and recovering hundreds of thousands of dollars for people.
Anyone else – tax pros, as well as clients – who would like to contribute to this article by sharing their bad experiences getting their taxes done should contact Janet Paskin via email at email@example.com
Should tax advisor be in same state?
Subject: Illinois CPA Recommendation?
Would you happen to know a good Tax Advisor in Chicago, IL.
I am starting my new business and would like to start in the right foot.
I appreciate your feedback,
The only names I have are on this page.
As I say in my tips for selecting tax advisors, geographic location shouldn't be the main basis for selection. Most good professionals have clients all over the country.
I hope this helps. Good luck.
I believe your point of view on selecting the best Tax Advisor not necessary being close to client's location. But I was thinking in the view that my business will operate in the State of Illinois. Wouldn't I need a tax advisor in the state of Illinois for State Taxes?Also can you help me in your perspective about incorporating in Nevada? I heard many advantages incorporating in Nevada than in Delaware or Illinois. I would like to start on the best route for my start-up company. I am thinking about choosing C-Corp as my entity because of the tax deductions and tax bracket compare to LLC and S-Corps. Can you provide me with your insight on this?I am excited to start thinking as an Entrepreneur and not as an employee. There is a lot of benefits that an average employee does not have. I been reading and listening to audio books on RichDad by Robert Kiyosaki and as well as other Leadership and Tax benefits audio books. But mainly its my passion to service my clients in Computer Information Technology Services because that is what I do best.
Thank you for your quick response to my first question
While it would be nice to have someone intimately familiar with your state's tax system by being located within the state, that's not as critical as you think. Most tax pros routinely handle out of state tax issues. Back in my California CPA practice, I had a CPA on staff who we gave all non-California tax returns to do by hand. Now, the Lacerte tax software has added several state programs to its mix, so I use it to prepare several different state tax returns every month.
Since you are considering operating a Nevada corp, that brings up the issue of who would handle its taxes if being within the state is critical. Would you have one tax pro for your Illinois activities and a different one for your Nevada operations? While dividing the workload can sometimes make sense, you will generally find that working with one firm that can better appreciate the big picture will be more efficient.
I do have extensive experience with Nevada corps and have actually written about it several times on my blog and website; so I don't have time to rehash everything here. That is another key issue you need to work on with your personal professional tax advisor.
I will warn you about the number one misconception I constantly encounter. Just establishing a corp in Nevada will do nothing to reduce your Illinois income taxes if you actually conduct your business operations inside the borders of Illinois. You will still need to file Illinois income tax returns and pay taxes to that state. Depending on how your business activities are handled, there may be ways in which to source the income to Nevada and legally avoid having any Illinois tax obligation. That is something that you need to work on with an experienced professional tax advisor because if you do it incorrectly, you could subject yourself to some serious penalties.
Good luck. I hope this helps.