We see many disastrous returns prepared by ill-trained preparers
iStock/Andrew RichWhen selecting a preparer, many people shop price and not experience. We don't like to knock the competition—however, the old axiom, 'you get what you pay for' is often true. There are some companies that put their newly hired preparers through a six-week, evenings-only tax course, and then turn them loose to prepare returns with very little oversight. In other words, the person preparing your return might have been styling hair or selling appliances six weeks ago. Just because someone claims they are a CPA doesn’t necessarily mean they know taxes. Ask about their background, what kind of practice they have, and if they’re familiar with your state’s tax laws.
Get organized before your appointment
Nothing is more frustrating than when clients show up with a box full of receipts and forms and say 'prepare my tax return.' Take the time to organize your tax items into something we can use—like a spreadsheet. At the very least, write everything down so we know what is included.
Keep a close record of all donations
Many taxpayers forget to track their non-cash donations. Those garbage bags of stuff you give to Goodwill can add up at tax time. Make sure you get a receipt and note exactly what you donated: “five pairs of women’s pants, three button-down men’s shirts, one child’s puzzle.” An excellent iPhone app, iDonatedIt (created by a CPA firm) can help you determine the value of your donated items.
If you do get audited (gulp!), never go it alone
Hire an accountant, enrolled agent, or tax attorney who has experience dealing with the IRS. Sometimes it can be as simple as providing additional documents or filing an amended return, but it’s best to work with a professional who knows what they’re doing.
When in doubt, ask
When in doubt, throw the receipt in the tax file, and we can discuss it. "I tell my clients, 'If I don't know you spent money for a tax deductible item, I won't claim it on your return,'" said Dennis Coomes, CPA. Tax filers need to talk with their tax preparers. We ask questions to try to get the information we need to file an accurate return, and to legally minimize the taxes our clients pay. However, we can't ask every question. Never assume something can’t be deducted as a business expense. Bodybuilders have written off baby oil, a junkyard owner deducted the cost of cat food for the felines she counted on to keep rats away, and an exotic dancer won a case against the IRS that allowed her to write off her breast implants. Your weekend side projects might count as self-employment, which means you’ll have to make quarterly estimated tax payments in addition to filing your annual return. Don’t forget that you can write off expenses for a home office, though the rules are very specific. For more information, go here.
Set aside money if you are self-employed
For those of you who are self-employed, it's critical to set money aside for taxes so you're not slapped with a massive tax liability at the end of the year. We see it happen all the time. If you're an independent contractor, you should be setting aside money for taxes equal to 35% to 45% of your gross pay, and you should be paying quarterly estimated tax payments for federal and state taxes. The self-employment tax is computed at 15.3% of your net income.
Don't complain about our fees
Please don’t complain about and/or negotiate our fees based on the fact that you or your business had a bad year. You’ll be surprised at how many clients try to do it. What most people don't understand is that the time and effort that it takes to complete a tax return does not change in relation to your annual income or loss. Please don’t call and ask what I’ll charge to do your taxes. The answer is always going to be, “It depends.” Do you have a home-based business? Children? Retirement income? Sales of stock? A second home? A Roth conversion? These really affect how complicated your return will be. Also, don’t assume that chains like Jackson Hewitt and H&R Block have the best prices. For preparing simple returns, independents often charge lower fees, and they’ll do some tax planning with you, too.
Don't spend the money on a CPA if your return is simple
You don't need to spend $200 on a CPA if your return isn't complex. By 'isn't complex' I mean you receive a W-2, you receive a couple of 1099s, you don't work in multiple states, you have no partnership income or other flow-through income, and maybe you itemize. If you have just a few issues, those can be easily researched on the web. If you earn less than $64,000 annually, many major tax-prep companies will give you their online filing guides. (For information, go here.) Also, H&R Block offers free online support for people ages 17 to 50 who earn less than $62,000.And if you're expecting a refund but need extra time, file an extension. There's no harm in filing after April 15th if you're expecting a refund. Sure you might want your refund now but if you take the extra time to learn how to prepare your tax return, you're likely to save money long-term.
Spend the money if your returns are complex
Don't be pound wise and penny foolish. If you have complex returns, trying to save money doing the return yourself may cost you more in the long run, through missed deductions or dealing with subsequent IRS tax notices about missed income or misapplied deductions. Also, remember that with free online programs, while the federal return is free, there are charges to prepare and electronically file state returns.
Don't always trust what you hear on TV
One of the most challenging issues we battle is the word of mouth shared by 'experts.' Just because they say it is deductible on TV or radio doesn't make it so. Nearly every deduction or tax credit has limitations, exemptions, and exceptions. "Clients will come in and say 'You know, I heard that I can deduct (insert here) from my taxes. I know this is true, because my brother's barber's sister's husband owns a business, and he has deducted it for years,'" said Coomes. Quite often the information is flat out wrong.