Category: Accounting

Get Organized For Tax Preparation

Can a tax preparer take your refund?

Can you trust your tax preparer?

While many legitimate professionals prepare taxes, the IRS has been warning consumers to be careful when it comes to dealing with unethical preparers and fly-by-night outfits.

Sometimes a con artist will keep repeating the same old tricks and won’t be easily caught — such as the ongoing story of the door-to-door tax preparer.

Taxpayers are warned to choose their tax preparers carefully. Don’t just trust someone who is making big promises — or is the friend of a friend. Don’t get taken by outlandish promises on social media where some preparers claim to get you the biggest tax refund possible.

 

Millions of Americans are looking forward to a tax refund this year.

To receive yours as soon as possible, the IRS recommends filing your tax return electronically and choosing direct deposit. About 90% of taxpayers who use this method and are owed a refund get theirs within 21 days of submitting their return.

Many Americans are eligible for free federal tax filing, but if you earn freelance income or have an otherwise complicated tax situation, you will likely need to pay tax filing fees to prepare your federal and state returns.

If you use an online service, you can start preparing your return for free. Most tax preparers don’t require money up front; you’ll typically pay the fees once you’re ready to sign and submit your return.

The IRS estimates it takes the average person about four hours to complete and file their return. By the time you reach the screen asking for payment, you’re probably looking for the quickest exit route. Online preparers will give you the option to pay for their services via credit or debit card or through your refund.

If you check the box to pay through your refund, you don’t have to do anything on your end but simply wait for your share of the refund to be deposited in your bank account. Sure, that may sound easy, but be careful: Most preparers tack on an extra fee for this method of payment, and it’s not insignificant.

 

Paying your online tax preparer through your refund could cost you up to $40 extra

Online service each charge an additional processing fee of $40 if you agree to pay through your refund. That’s $40 on top of the fee you’re paying for the package you selected, meaning you could easily double what you expected to pay.

Efile.com and 1040.com, two of the best budget tax software options, charge an additional fee of $25 to deduct their fee from your refund. TaxAct charges its own fee plus bank fees.

That’s not to say these online tax preparers aren’t worth your time. In fact, they’re among the best options on the market. But if you want to make the most of your refund, don’t settle for the easiest option — take an extra minute to pull out your credit card and avoid the unnecessary processing fee.

If you can, use a rewards credit card to pay for online tax prep and filing instead of deducting the amount from your refund. There’s usually no service charge to pay via credit card; you’ll be able to earn rewards points or cash back, depending on the card you have; and you’ll get your tax refund in full.

 

Tax Return Preparer Fraud

Even if you hire a tax return preparer who you believe is professional and honest, tax return preparer fraud (also referred to as return preparer fraud and preparer fraud) or misconduct is something that can happen to anyone. For example: A tax return preparer (also referred to as a return preparer) might change your tax return after you’ve approved and signed it, altering income or credits to obtain a bigger refund and then keeping some or all of it.

In some cases, the return preparer might steal your whole refund by changing direct deposit information. Another common fraud situation is when the preparer files a tax return without your authorization. They might have your information from a prior year and use it to file a tax return for the current year. Or perhaps you met with a return preparer and then chose not to hire them, but the return preparer filed a tax return using your information anyway.

To avoid problems:

  • Be careful when choosing a tax return preparer;
  • Know what steps to take to protect yourself; and
  • Know what to do if you’re the victim of return preparer fraud or misconduct.

 

How will this affect me?

If you’re the victim of return preparer fraud or misconduct, you’ll need to show it to the IRS. If the IRS rejects your claim, you may face additional issues, including liability arising from the fraud or misconduct.

It’s important to get a copy of the tax return at the time you authorize the return preparer to file it on your behalf (see above on how to authorize) because later you may have to show the IRS that the return preparer altered your tax return after you signed it.

Following the steps in the “What Should I Do?” section will help you establish your case, especially providing the IRS with the signed copy of the tax return your preparer gave you, showing your correct bank account number and address.

If you’ve given the IRS the signed copy of the original tax return, the Taxpayer Advocate Service believes the IRS has sufficient guidance to take corrective actions, including issuing any refund still due to you. If the IRS doesn’t agree with this position, you should contact the Taxpayer Advocate Service and ask for help.

Four End Of Year Tax Planning Strategies

What is Tax Planning?

Everybody deals with finances—it’s often just done in different ways. One way to work with your finances is through tax planning. Tax planning is a process that helps you reduce the amount of taxes you’ll owe at the end of each year. There are a number of ways you can go about tax planning, but it primarily involves three basic methods: reducing your overall income, increasing your number of tax deductions throughout the year, and taking advantage of certain tax credits.

Why is Tax Planning Important?

The reason why tax planning is important is simple: it saves money and helps you avoid overpaying your taxes. Aside from that, however, tax planning will help you better understand what you’re spending money on and how you can get rewarded for planning for retirement or advancing your education.

 

Strategic Tax Planning is something you most likely aren’t receiving from your CPA. There are a few reasons why this is true.

  • Accountants only understand a small portion of the tax code. Instead of being future focused, they are more interested in historical record keeping. While some may provide reactive tax advice, they are unaware of how to proactively and strategically make the tax code work in your favor.
  • Accountants are likely to have Type-A personalities. While that’s great for plugging numbers into boxes, it means they probably aren’t flexible or open to change. A strategic tax planner must take into account the small business owner’s lifestyle, short and long-term financial goals, and spending habits.
  • Accountants err on the side of caution. Though there are over 70,000 pages of green lights in the tax code, accountants tend to focus on the five pages of red lights to avoid being flagged by the IRS. It’s important to understand, however, that a green light is not the same as a “loophole.” It’s not a “red flag” to go through the intersection and it does not increase your risk of getting a ticket because you “used” this particular law to get through the intersection. Remember, the tax code was meant to be used, not feared.

 

A lower tax bill is within reach

So you want to pay less tax in 2019. Who doesn’t? The good news is, there are ways to reduce the amount of money that you send to the IRS — legally, without allegations of tax evasion. In fact, there are plenty of steps you can take to cut your federal and state tax bills. And, the sooner you start, the more things you can do to reduce the taxes you’ll owe.

Contribute as much as you can to retirement accounts

Want to set yourself up for the future while slashing your tax bill at the same time? Contribute to tax-advantaged retirement accounts such as a 401(k) and IRA. Unless you opt for a Roth account, you can take deductions for your contributions in the year you make them. This enables you to deduct a lot of money. You can contribute up to $19,000 to a 401(k) and up to $6,000 to an IRA in 2019. You can also make additional catch-up contributions of $6,000 to a 401(k) and $1,000 to an IRA if you’re over 50.

Take advantage of tax loss harvesting

If you have losing investments, selling them allows you to harvest your losses to offset taxes on investment gains or to reduce your taxable income by up to $3,000.

This strategy can be especially beneficial if your income is going to be higher than normal and you want to avoid being pushed into a higher tax bracket, or if you’re going to be selling investments that you’ll need to pay short-term capital gains on.

Keep track of your medical costs

If you incur substantial medical expenses, you may be able to take a deduction for the funds you spent.  In 2019, you can deduct unreimbursed allowable medical expenses only if they exceed 10% of your income — up from 7.5% in 2017 and 2018. You’ll need to itemize to claim this deduction — which doesn’t make sense for many tax payers due to the large standard deduction. Still, you should keep the bills you incur throughout the year. If your costs are high enough to hit the threshold for deductibility, you want to be able to take advantage of the tax savings to offset some of your big care expenses.

Put some cash into flexible spending plans

If your employer offers flexible spending accounts, you should likely take advantage of them.

You can make contributions to an FSA with pre-tax funds to pay qualifying out-of-pocket medical expenses. You could potentially also enroll in a dependent care FSA to pay for services such as child care or care for a disabled relative. It’s important to know the rules for FSA contributions. You’ll usually have to enroll in an FSA during open enrollment with your employer, and many plans are structured so if you don’t spend your contributions, you lose them. Still, if you know you’re going to have out-of-pocket medical costs or dependent care costs to pay, you should strongly consider putting some money into the FSA to reduce your taxable income and make these expenditures effectively cost less.

 

 

Smart Qualified Plans

On a more pedestrian note, business owners can often use tax deductible retirement plans much more to their advantage than is typically the case, if the objective (as it nearly always is) is to pile up tax deductions while putting way more dollars in owners’ accounts than for employees. I say pedestrian because this is really business tax planning 101, straight down the fairway, but I am continuously amazed at how often it is missed by even high-dollar tax advisors. I recall a case where a Manhattan CPA advised a fellow to use a SEP, with deductions in the $20K range. Mind you this client lives near NY and pays NY State and municipal income taxes on top of the Federal burden, meaning he really got whacked. We showed him how, in his fact pattern, using a 401(k) would more than double his CPA-suggested deduction, but that what he really needed (and eventually did) was a defined benefit plan, boosting deductions to about $150K a year. The guy saved pushing $100K a year in taxes, like waving a wand.

 

Invest in Registered AccountsTax-Free Savings Account (TFSA)

In addition to investing in a TFSA of your own, consider making a gift to your adult family members or spouse to enable them to contribute to a TFSA. All the investment income in the TFSA grows tax-free and future withdrawals are not taxable. Further, there will generally be no income attribution, regardless of who funds the account. If gifting to your spouse, attribution will not apply so long as the funds remain invested in the TFSA.

Registered Retirement Savings Plan (RRSP)By investing in an RRSP

you can deduct the amount of your RRSP contribution from your taxable income, up to your annual RRSP deduction limit, thereby reducing the taxes you will have to pay. In addition, funds in an RRSP grow on a tax-deferred basis. The investment income and capital gains generated in the plan are not subject to tax until you make a withdrawal in the future.You may also want to consider contributing to a spousal RRSP for your low income spouse to equalize future retirement income. In doing this, the high income spouse utilizes their RRSP contribution room when making a contribution and is able to claim the deduction on their return. The RRSP/RRIF withdrawals will be

Must Know What Is The Benefit Using Accountant

Tips to Choose an Accountant for Your Small Business

Be Selective

You need an accounting professional on your team. Interview at least three candidates before you select your accountant. You need to choose an accountant that is a fit for your small business. If you hired an accountant that does not feel like they are on your team, move on. While you might feel some short-term discomfort while doing this, you will get long-term benefits for your business. You need up-to-date financial information to make the best business decisions. This starts with professional accounting services.

Ask About Reporting Frequency

It is important for you to know how often you will get financial statements from your accountant. Frequent communication is vital between you and your accountant, especially when you are growing your business. You want to use your accountant as a business advisor, not just to get help during tax season. So, set expectation about the frequency of reporting and communication in advance, and choose an accountant who meets your requirements.

Check If the Accountant Uses Cloud Technology

More and more accountants are switching to cloud computing. It is because of the number of benefits they can get, such as data security, remote data accessibility, flexibility to do work, and many other features like electronic invoicing, and ACH wire transfer. At all times, you want to have access to your accounting data. Plus, you want the accountant to be available to discuss urgent matters any time. This is possible when the accountant has opted for cloud services.

Ask About Accounting Software

Before you choose an accountant, you’ll want to ask what software they recommend for their small business customers. You may find some accountants who are using the same old desktop accounting software. They do not want to switch to the latest online accounting solutions. You want to invest in an accounting software system that you can grow into in 3-5 years. You also want an accountant who can teach you how to use your software and set up your initial chart of accounts. You should also inquire about whether they could help you get a discount on your accounting software.

Leverage Social Media

These days most accountants are active on different social media platforms. In fact, having a profile on LinkedIn should be a must for any working accountant or accounting firm. You want to see if they have a profile and if they have any recommendations from customers. That is social proof that they have an active business and are highly recommended for their expertise by at least a few customers.

 

Businessman working in the office

Choosing the Right Accountant for Your Business

Choosing the Right Accountant: Hiring a Firm Versus an Inside Accountant

Many entrepreneurs who launch their own businesses start out by wearing the accountant’s hat and doing your own taxes, in addition to doing just about everything else in the business, too. It’s become easier for a layperson to keep track of a business’ finance with the advent of simple bookkeeping software, such as QuickBooks, Quicken, and Microsoft Office Small Business Accounting. But there comes a time in a growing enterprise when it makes sense to hand over responsibilities for taxes, accounting, and the rest of the financial functions to specialists.

Choosing the Right Accountant: When Is It Time?

Many small businesses don’t have the volume of financial transactions that necessitate hiring a full-time — or even part-time — bookkeeper or accountant on staff. Then again, the financial situation of their business is such that they could benefit from more regular financial review and planning and up-to-date accounting — instead of leaving every invoice, receipt, and ledger to hand off to the tax preparer at the close of the fiscal year.

Inside accountant

When the business grows in revenue and the transactions become more complicated, it is time to consider hiring a full- or part-time inside accountant. Since the outside accountant’s fee grows with the size of the business, the owner may see some cost savings by bringing some of the work in-house.

Choosing the Right Accountant: The Key Qualifications

After determining whether you will hire an inside or outside accountant, you need to determine what qualifications your accountant should have before beginning your search. A non-certified accountant may be precisely what you need to handle your business’ financial statements, analysis, and bookkeeping.  However, when it comes to tax advice and return preparation, business owners usually look to accountants who are certified and licensed. Here are some of the qualifications you may look for:

Choosing the Right Accountant: Finding a Referral

For an outside accountant, find out who and/or which firms your friends and colleagues are using. Ask people in similar industries for names or referrals. Mention that you are looking for an accountant at the country club or health club. “Word of mouth is one of the best ways to identify good candidates for your business,” Chamberlain says. “Maybe your corporate attorney can make a recommendation. Your industry trade association also can be a good resource.”

 

tips for small businesses on selecting the right accountant

  • Make finding an accountant one of the very first things that you do when starting your business. Working with an accountant during the startup phase is the best way to ensure that your company is in compliance in terms of taxes. Your accountant can also help you manage any expenses related to getting your company up and running.
  • Choose someone who is qualified. These accounts in Hounslow recommend that you consider hiring an accountant who belongs to a group like ICAS, ICAEW, or ACCA. In order to become members of these organizations, accountants have to prove that they are qualified.
  • Look for an accountant who is familiar with your industry. An accountant who has experience working with other small businesses in fields similar to your own can usually do a better job of providing you with knowledgeable advice. For instance, if you are a freelancer, you should avoid hiring a general accountant. Instead, look for someone who specializes in situations like yours.
  • Evaluate the fees. When hiring an accountant, take a look at the specific fees that they charge and how those fees are calculated. Some companies charge a flat rate on a monthly or annual basis. Find out if there are any start-up fees or fees if you close your account. Discuss extra charges for services that aren’t included in the typical workload of the accountant.
  • Consider the services that the company offers. All accountants offer standard services like managing payroll, handling annual accounts for limited companies, and managing HMRC. Look at some of the specialized services that they offer, as well. For instance, will they help you with your self-assessment returns or do they offer IFA services?

 

TIPS ON WHAT TO LOOK FOR WHEN CHOOSING AN ACCOUNTANT

TEAM

how many members of staff work for him? Does he have enough numbers to service your needs? What is the level of experience and qualifications of the team members? Does the accountancy practice network with other accountants, tax advisors, niche tax practices or independent financial advisors?

BE WARY OF DUPLICATED WORK

If you are being charged on a time basis then make sure that there is no duplication of work. You do not want to pay for the same job done twice or even worse to be charged for errors made by your advisor (this is applicable to both solicitors and accountants). Always ask for a predictive cost of the service to be provided (I always do this with my solicitors) and also set a ceiling of fees on time charged services. It is important that this ceiling is agreed together with your professional advisor BEFORE any work is done as this will avoid unnecessary arguments in the future. If this ceiling is to be breached by your advisor then simply ask for a reason and also a breakdown of their time sheet so that you can analyse where and how time has been spent.

SERVICE

What are you getting for your money? Cheap fees will inevitably reflect on the service. If you only want compliance work then choose a basic cost effective accountant but if you want the best tax advice then never select on the basis of fees. Always look for the right balance, any advice that you pay for MUST always make or save you more money than the fees being charged, otherwise you are wasting your money.

OFFICES

Do they have any or do they simply work from home? If they do have offices how expensive are they to run and maintain. Having expensive, plush offices in Central London may look fancy on the letter head but it will obviously be reflected in the charges so beware.

UP TO DATE

Does he really know his stuff? Does he go to seminars to update his knowledge in the areas that you want to receive advice from? Is he passionate about increasing his knowledge in taxation? Does he network with other niche tax practices and Independent Financial Advisors to assess if there are any other products in the market that can genuinely support your business needs?

 

How to choose an accountant for your small business

Why should I hire you?

Hiring an accountant can be “even more important” than taking on a member of staff, says Clive Lewis, head of enterprise at The Institute of Chartered Accountants in England and Wales (ICAEW). “If you get the wrong person, you can miss out on things you should know,” he explains, “and that can be very costly.”

Could my money work harder?

James Richardson is a company director at Metric, an accountancy firm specialising in start-ups. He says most people believe an accountant will just be looking after annual accounts and tax compliance. However, “that’s only a small portion of what a good accountant can – and should – be doing for you.”

Are we a good match?

The right accountant will have more than just prestige – it’s important they understand small business needs, and are able to offer relevant insight.

Are things working out?

Once you’ve chosen an accountant, measuring their performance is an ongoing process. Chung says a great way to do this is to hold monthly meetings where you can ask for their view on the business and its finances. “If their view is close to yours, that’s a good sign,” she says. “But you do still want to see a degree of challenge and initiative – if you only hear what you expect, that’s not a good sign.”