With W-2's, 1099's and other tax forms about to be mailed out for tax purposes, it is that time to start thinking about your 2011 year tax preparation.
Tips for Choosing the Right Tax Preparer-From Fox Business
With this year’s tax deadline fast approaching, taxpayers’ mailboxes are getting flooded with tax forms. Thanks to a complicated tax code and tedious forms, the task of calculating and filing taxes is less than appealing for most us and we opt to hire a professional to hit this year’s April 17 deadline.
“For a large majority of people, TurboTax or the Internal Revenue Service’s Free File is more than sufficient,” says Certified Public Accountant Jonathan Horn. “However, the tax code is so complex that you may not properly analyze all the deductions and credits available to you.”
Returns become difficult to complete when a filer has more than a W-2 and deductions for mortgage interest and children, says Larry Campagna, an attorney at firm Chamberlain, Hrdlicka, White, Williams & Aughtry. For those with deductions like extensive stock trades or real estate transactions, he says tax software may not be the best choice. “A lot of issues are subject to interpretation, and TurboTax may not prompt you with the right questions.”
To find a reputable tax preparer, experts recommend asking friends, family or a professional association for referrals.
Everyone’s tax situation is different. “You need to match the level of complexity of your return with the qualifications of the preparer,” says Sherrill Trovato, president of the National Association of Enrolled Agents. When evaluating potential candidates, know what special circumstances (ie: small business owner, trust fund…) you have on your return and make sure they have expertise with these issues.
Before hiring a tax preparer, conduct an interview to see if it’s a good fit, recommends Cindy Hockenberry, Tax Knowledge Center supervisor at the National Association of Tax Professionals.
Consider your comfort level for divulging your finances, says Trovato. If you’re looking to establish a longstanding relationship with a preparer, she advises working with a sole practitioner over a national firm like H&R Block and Jackson Hewitt Tax Service.
The IRS has guidelines in place to help protect consumers from fraudulent preparers. “All paid tax preparers are required to be registered with the IRS,” says Hockenberry. “Ask whether they have a Preparer Tax Identification Number (PTIN).”
The IRS issues PTINs to qualified tax preparers, and only preparers with PTINs can sign a return, according to IRS regulations. If a preparer receives any compensation to complete a return, they must also sign the return. PTINs are issued to enrolled agents (EAs), registered tax return preparers (RTRP), certified public accountants (CPA), and attorneys. “If your preparer doesn’t have a PTIN, walk away,” advises Hockenberry.
Registered tax return preparers (RTRP)
Each type of preparer has a different level of expertise. RTRPs are required to pass an IRS exam and attend 15 hours of continuing education every year, according to newly-established IRS guidelines. They are able to sign and prepare tax returns and represent clients to the IRS in limited circumstances, such as for an audit but not for an appeal. At the moment, there are no RTRPs on the market because the IRS recently created the exam and is in the process of determining a passing score.
Enrolled Agents (EA)
EAs can either sit for an IRS exam or have five years work experience for the IRS, according to IRS guidelines. They are also able to represent an individual to the IRS for any tax matter. EAs must complete 72 hours of continuing education every three years.
Certified Public Accountants (CPA)
CPAs have met state guidelines that include having bachelor’s degree with a designated amount of business and accounting courses, passing the state’s CPA exam, and working for an accounting firm for a certain period of time. Each state sets continuing education requirements for CPAs.
“An accountant has a broader picture of financial matters in that an EA is focused solely on the tax code,” says Horn. CPAs can also advise on retirement planning, estate and gift tax planning, and education expense planning.
Attorneys
“Attorneys can also help prepare taxes when there are more complicated and sensitive issues with a return,” says Campagna. Issues like distributions from foreign trusts or bank accounts, unreported income or overstated deductions in a current or prior years return, or legal fees, could make hiring a lawyer to file your return a good idea.
Because lawyers tend to have high fees, experts advise hiring one only when there are significant tax liabilities or refunds. “The average consumer doesn’t need a lawyer to do tax returns,” says Campagna.
What to Ask
Find out if the preparer is a member of a professional organization. An organization may require their members to adhere to a code of ethics or have more stringent continuing education requirements than what’s required by the IRS, says Trovato. Being a member of a professional organization also shows a level of commitment, adds Hockenberry.
Ask about a tax preparer’s fees. Fees for a national firm may not be cheaper than what a sole practitioner may charge, and sole practitioners generally have lower fees than accounting firms, says Horn.
According to the National Society of Accountants, fees per form can range between $233 for an itemized Form 1040 and Schedule A that’s filed by an individual to $695 for a Form 1120 that’s filed by a corporation.
Ask whether a tax preparer charges by the hour. “If the preparer is not familiar with your tax situation, you don’t want to pay to get them up to speed,” says John Ams
In any case, it’s illegal for a tax preparer to charge a fee equal to a percentage of your refund.
Ask how long the tax preparer has been in business. “Experience equals knowledge because the laws keep changing,” says Hockenberry. Contact your state’s Better Business Bureau or licensing board or the IRS to check for complaints or disciplinary actions against the tax preparer.
Ask whether the preparer works year round. “Since questions arise all the time that affect your return, such as marriage, divorce, death, starting or closing a business, or buying or selling properties, I would rather get a call before someone does something instead of in March, during tax season,” says Trovato. A tax preparer can help prevent unexpected tax liabilities if you seek their advice before making major financial decisions.
Ask whether a preparer has professional liability insurance. If there is an issue with the return, the taxpayer is responsible for any amounts due, but a preparer’s insurance policy may cover any penalties and interest owed because the preparer made a mistake on the return, according to Hockenberry. If the preparer does not have a policy and you owe penalties and interest because of a mistake in your return, you may have to take them to court.
Once you choose your tax preparer, there are a few tips to follow. While the return is being completed, your tax preparer should ask for documentation and receipts, says Hockenberry. Once the return is complete, make sure your tax preparer signs the return and writes their PTIN.
“Never sign a blank return,” says Horn. “You’re responsible for what’s on the return.” Once tax forms are completed, everyone advises that taxpayers spend time reviewing their returns to see that the numbers make sense based on their income and expenses.
2) In the Markets today:
Stocks finished slightly higher as investors shrugged off three tepid readings on the state of the U.S. economy and focused on the coming rush of corporate earnings headlines.
Stocks finish higher after late-day recovery-From USA Today
Stocks rose in trading Thursday as investors balanced news of a spike in jobless claims and tepid retail sales against optimism about strong bond auctions in Italy and Spain.
The Dow Jones industrial average rose 21 points to 12,471. The Dow started the day lower, falling as many as 64 points in the first hour of trading. It recouped those losses shortly after noon and broke through into positive territory late in the session.
Stocks got an added boost from falling oil prices. Oil prices dropped below $100 per barrel for the first time this year on rumors that Europe will delay an embargo of Iranian oil.
Materials and industrial companies led the afternoon recovery. Caterpillar and Alcoa rose the most in the Dow.
Rising stocks outnumbered falling ones 3-to-2 on the New York Stock Exchange. Volume was lighter than average at 3.5 billion shares.
Chevron (CVX) fell 2.6%, the most in the Dow, after the world's second-largest publicly traded oil company said its income will be "significantly" below its fourth-quarter results in the prior quarter because of narrower margins on refining and selling fuels.
The S&P 500 was up 3.5 points to 1,296. The Nasdaq rose 14 points to 2,724.
It was the latest day of quiet trading in the stock market. There have been six consecutive days with moves of less than 1 percent in the S&P 500, the quietest stretch since May.
Ralph Fogel, investment strategist and partner at Fogel Neale Partners in New York, said the moderate moves in the market were a healthy sign following the steep rises and sudden declines that were typical of last summer. "This is a much healthier market than we've seen."
Unemployment benefits spiked last week to the highest level in six weeks, mostly because companies let go of thousands of holiday hires, the government reported. Retail sales barely rose in December and were lower than analysts were expecting.
Despite the mixed news on the economy, investors are starting to focus on the U.S. corporate earnings season, which got under way this week with Alcoa Inc. The aluminum maker predicted stronger demand for its products this year and surprised the market with revenue that was higher than analysts were expecting.
"There's a fair amount of pessimism out there but I also think that investors are slowly becoming immune to the bad news," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
"As long as the stuff you can sink your teeth into, like corporate profit, is improving, I think it bodes well for the markets this year."
European markets mostly rose after Italy and Spain held highly successful bond auctions, easing worries about Europe's debt crisis. Italy's benchmark stock index rose 2%.
In Italy's first bond auction of the new year, the country was able to sell one-year bonds at a rate of just 2.735%, less than half the 5.95% rate it had to pay last month. That's a signal that investors are becoming more confident in Italy's ability to pay its debts.
Spain was able to raise double the amount of money it had sought to raise in its own bond sale as demand for its debt was strong. Both auctions were seen as important tests of investor sentiment.
Investors have been worried that Italy and Spain, the third- and fourth-largest countries in the euro area, might get dragged into the region's debt crisis. Greece, Ireland and Portugal have been forced to get relief from their lenders after their borrowing costs spiked to levels the countries could no longer afford.
The euro rose nearly a penny against the dollar, to $1.28, as worries eased about Europe's financial woes. The currency, which is shared by 17 European countries, fell to a 16-month low against the dollar the day before.
Meanwhile, the two leading European central banks held their interest rates Thursday, with the European Central Bank keeping its rate at 1% and the Bank of England maintaining its lending rate at a record low of 0.5%.
Among stocks making big moves:
— Casino operator Wynn Resorts (WYNN) fell after the company disclosed in a regulatory filing that its vice chairman has filed a lawsuit against the company. Kazuo Okada claims that Wynn has refused to give him access to records relating to a $135 million donation the company made to the University of Macau and other matters.
— CA Inc. (CA) jumped after hedge fund Taconic Capital disclosed in a regulatory filing that it has taken a 5.1% stake in the business software and technology company and is pressing CA to return more cash to shareholders and increase its profit margins.
3) Top financial story of the day:
The number of Americans applying for first-time jobless benefits rose on Thursday, reversing a recent decline and suggesting the labor market remains brittle.
Jobless claims rise sharply to 6-week high-From Reuters
Retail sales rose at the weakest pace in seven months in December and first-time claims for jobless benefits moved higher last week, signs the economic recovery remains shaky despite a pick-up in growth.
Total retail sales increased 0.1 percent after rising by an upwardly revised 0.4 percent in November, the Commerce Department said on Thursday.
"The retail sales (data) suggests that spending isn't really picking up any momentum," said Sean Incremona, economist at 4Cast Ltd in New York.
Economists polled by Reuters had forecast retail sales climbing 0.3 percent last month.
The upward revision for November sales suggests consumers likely frontloaded their holiday shopping before cutting spending at the end of the year at department stores and on electronic gadgets. The government had initially estimated retail sales gained 0.2 percent in November.
In a separate report, the Labor Department said initial unemployment claims jumped to 399,000 in the first week of 2012, the highest in six weeks, from an upwardly revised 375,000 in the prior week.
The four-week average of claims also marched higher to 381,750 from 374,000.
The U.S. unemployment rate has fallen sharply in recent months and was 8.5 percent December, but some economists worry the drop has been due in part to discouraged workers dropping out of the labor force.
U.S. stock index futures pared gains after the data, while U.S. Treasury prices turned positive.
Some Federal Reserve officials earlier this week signaled more help for the U.S. economy may be necessary despite recent data that suggested the recovery was picking up steam going into 2012.
Still, the U.S. central bank is not expected to take any action on its next meeting on January 24-25.
Within the retail report, spending at electronics and appliance stores fell 3.9 percent in December, while shopping at department stores slipped 0.2 percent.
Fueling the overall increase in retail sales during December, receipts for motor vehicles and parts increased 1.5 percent, adding to the prior month's 0.9 percent gain.
Excluding autos, retail sales fell 0.2 percent, the first decline since May 2010.
Sales at food and beverage stores fell 0.2 percent in December. Also holding back the overall gain in sales, receipts at gasoline stations dropped 1.6 percent last month after rising 0.9 percent in November.
Core retail sales, which exclude autos, gasoline and building materials, dropped 0.1 percent in
December after advancing 0.3 percent the prior month.
Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.
4) Quote of the Day from Dave Ramsey.com:
It is hard to fail, but it is worse never to have tried to succeed. — Theodore Roosevelt
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