4 Critical Things You Should Demand From A Tax Professional

by: Sean Schiraldi


1. COMPETENCE AND CREDIBILITY

It is very important that you research the credentials of the person you have preparing your taxes. Look for credentials such as enrolled agent or CPA, which will give you some assurance that the preparer has had adequate education and meets ethical standards. Also, make sure that the tax preparer you choose can and will take the time to research any issues they may not be familiar with. They need to be able to call an expert, or have access to technical resources that can help answer any questions they may have.

In addition, use a reputable tax preparer that signs your tax return and provides you with a copy for your records. Also, consider whether the individual or firm will be around to answer questions about the preparation of your tax return, months, even years, after the return has been filed.

2. TECHNICAL EXPERTISE AND EXPERIENCE

While most tax preparers know a little about tax laws, many know almost nothing about technical issues. They need to have the technical knowledge to even know where to look, and the experience to know what to look for.

CPAs, accountants, and bookkeepers, without a tax specialty, may not have the time, experience, education, insight or technical skill to deal with the technical analysis and identification of issues necessary to effectively prevent avoidable tax overpayments.

It is important that the tax expert you choose not only has a number of years of experience tackling technical issues, but also a good technical knowledge base to draw from.

3. THOROUGH KNOWLEDGE OF THE LAW

In this industry, it is what you don’t know that costs you money! There are literally volumes and volumes of laws that can potentially affect the amount of taxes you end up paying - and those laws change constantly. What most taxpayers don’t realize is that even small changes can affect your taxes in a big way. Money Magazine’s tax test has shown that unfortunately, very few tax preparers actually take the time to learn the hundreds of new tax laws released every year.

This is a total disservice to the taxpayer because the result is a representative who is unable to identify a tax issue, tax law, or fact that could support and justify a reduced tax liability. For this reason, the tax expert you choose should have thorough knowledge of current laws and stay continually educated on all new and updated tax laws and guidelines.

4. ATTENTION TO DETAILS

Most CPAs prepare tax returns for approximately three months out of the year and spend the balance of the time preparing books, records and financial statements. This makes it very difficult to keep up with the ever-changing tax law, especially on a part-time basis. Between February 1st and April 15th, the average tax preparer completes about 480 returns. With this overwhelming workload it is nearly impossible for an accountant to take the time during tax season, to thoroughly evaluate your tax situation and find all the latest tax laws and guidelines that can be applied, to help reduce your tax liability.

Find a tax expert that not only keeps up with current tax laws and changes, but also is not under the same time crunch and pressure. This way they can take the time to closely scrutinize your tax situation and aggressively look for every deduction that can be applied.

One of the best ways, however, to ensure that your tax preparer is doing the best possible job for you, is to get a qualified second opinion from a ‘tax expert” who specializes in reviewing taxes and looking for areas where you may be overpaying.

“The March of Tax Changes in Recent Years Has Made It Easier to Err, and the New Tax Law Will Only Aggravate the Problem.”(US News and World Report)

Taxes may be one of the things you can be sure of in life, but the same can’t be said of tax laws. They change constantly. The recent tax law changes include the most sweeping changes in 15 years. The new legislation makes 441 tax law changes spread through 189 sections of the Internal Revenue Code.

“In June 2001, for instance, President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001. The Act significantly alters the tax treatment of several major financial issues, including income, retirement savings, educational savings and estate planning. It’s a complex law that amounts to over $1 trillion in tax cuts, but most of those cuts are being phased in (and in some cases phased out) over a 10 year period, and the entire act itself will end in 2010. Between now and then, however, Congress may pass other measures that either extend provisions in the Act or eradicate them once the law sunsets.” (money.cnn.com/Personal Finance, Oct. 2002)

Now, It’s More Important Than Ever To Get A Second Opinion On Your Taxes to Ensure You Are Not Cheating Yourself and Giving Uncle Sam a Windfall.

A second opinion will not only give you the peace of mind that your tax preparer is doing the best possible job they can for you, but more importantly will ensure that you are not paying one penny more than your fair share.

The IRS has $4.8 billion dollars of taxpayers’ overpaid taxes, sitting in a trust fund in the U.S. Treasury – but it is not necessarily gone for good. Taxpayers can file amended returns up to three years later, and any money refunded is paid back with interest. (ABC News, April 12, 2002)

Tax Reduction Tips

by: Richard A. Chapo


In the rush to get tax returns prepared and filed by April 15th, many overpay their taxes. Following are a few tax reduction tips that could help you save a bundle.

Tax Credit For Starting A Small Business Pension Plan

Establishing a pension plan can help you retain important employees. What many business owners don’t realize is a tax credit can be claimed if the business has 100 or fewer employees. Meet this requirement and you can take a tax credit of up to $500 in each of the first three years of the plan. Tax credits are extremely valuable because they are deducted directly from the taxes you owe, not gross revenues.

The credit is 50% of certain start up costs you incur in each of the first three years. The costs include the expenses incurred in establishing and maintaining the plan. They also include the cost of any educational retirement planning programs you provide for employees.

For example, first assume that you spent $1,500 starting a pension plan for your employees in 2004. Next assume that you will spend $1,200 in both 2005 and 2006 for maintaining the program and educating your employees. In this scenario, you would be eligible to claim a tax credit of $500 in 2004, 2005 and 2006.

Personal Loans To Business

Many business owners lose track of loans they make to their business. As a result, they incorrectly classify the proceeds of the loan as part of their gross revenues. This artificially raises the gross revenues of the business and adds to the tax liability. Closely review your records for 2004 to make sure you are not making this mistake. Pay particular attention to charges on personal credit cards. You will be surprised how quickly the numbers add up.

SUV Deduction Wounded, But Still Alive

Much has been made about the “SUV Tax Deduction” that allowed purchasers of SUVs over 6,000 pounds to immediately deduct up to $100,000 of the cost. Many mistakenly believe that the American Jobs Creation Act of 2004 eliminated this deduction. It did not. Instead, it reduced the deduction to $25,000 with the remaining amount allocated to depreciation. This is still a significant immediate deduction. If you purchased a non-SUV truck that weighed over 6,000 pounds in 2004, you are not restricted to a “mere” $25,000 deduction.

Tsunami Relief Contributions Paid in 2005

Millions of Americans contributed to charitable organizations providing relief to Tsunami victims. Typically, charitable contributions are deducted in the year they are made. New legislation, however, allows you to deduct Tsunami contributions you made in January 2005 on your 2004 tax returns. Alternatively, you can wait and deduct the donation on 2005 returns. Unfortunately, you cannot deduct the contribution on both!

Sales Tax Deduction

If you itemize deductions, you have a choice of deducting your state and local income taxes OR your state and local sales tax. This option is available for the 2004 and 2005 tax years. If you live in a state that does not collect income tax, the optional sales tax deduction should be claimed for significant tax savings. See IRS Publication 600 for more information.

Deduction for Discrimination Lawsuit Costs

If you were required to pay attorney’s fees and court costs associated with a discrimination lawsuit, you may be able to claim a tax deduction. The deduction is available only for costs and fees incurred after October 22, 2004 in relation to a judgment and settlement. The deduction is not limited by the alternative minimum tax. Realistically, this deduction will be more viable for the 2005 tax year, but a few taxpayers may be eligible this year.

There are numerous deductions and credits available if you take the time to look for them. Taxes can be confusing, but the savings justify the time and effort of finding all available deductions and credits.