Friday, February 22, 2013

Finding the Right Help - Part 5

Now that we've discussed the Who, What, Where & Why of how to find the right help, when to find your tax help is the next step. As in most things of importance, the logical answer is before you need help. In an ideal situation, it would be most beneficial to be able to sit down and discuss your tax needs and be able to have a meaningful conversation either in person or by phone, prior to the tax filing season.

In the real world, however, this usually is impractical as most of us wait until we can't figure it out ourselves, or the tax filing deadline is fast approaching, and we need help now. Given that most preparers work between 60 - 80 hours per week during the filing season, no one is going to be thrilled to get into a long conversation as to how they could best help you. They will most likely have their secretary book an appointment, and you will be very lucky to even have a conversation with the preparer prior to your tax appointment.

Your best option is to be as thorough and prepared as possible, so as to get right to the heart of the matter and take as little time as possible. Here you might have an advantage  by sending in your return or by creating pdf files and sending it via a secure server or an email attachment. When I am able to review all the documentation required, and the prospective client utilities the organizer I send to them, it makes my life much easier, as then I can call with any questions; and there are always questions. It makes for much less stress for each of us, and cutting back on the time an office visit takes usually results in a lower bill. In this case, each of us wins.

Finally, I will briefly discuss the how of finding your professional preparer. The best advertising is always by word of mouth, so start with your circle of friends, family, and perhaps most importantly, business associates. If your tax issues more or less mirror a trusted colleague, chances are the preparer he or she uses will have experience in the area you need most. If you have your own business, the preparer your retired uncle who was a school teacher all his working life, may not be familiar with the issues a business person has. If the person recommended is unable to accommodate new clients, by following the guidelines outlined over this week, you should be able to find someone to your liking on your own. As a last resort, you can always file for an extension of time to file before the April 15 filing deadline. Just be certain to estimate your tax to see if you will owe anything. Remember, the extension is for filing, not paying your taxes. Good luck, and next year, please start earlier!

Thursday, February 21, 2013

Finding the Right Help - Part 4

Now it's time to consider the questions you may wish to ask a prospective preparer. Please keep in mind that many criteria exist, and your priorities may be different from mine. Here are some of the things I would ask, and the reasons for each.


  • How long have you been practicing? The reason this is important to me is nothing trumps credentials like experience. I can't think of a year when someone didn't have an issue that I'd never encountered before. In my opinion, the more experience the better.
  • What type of taxes do you prepare? Often times people will specialize in one area and not have too much experience in other areas. As an example, many practitioners don't prepare Fiduciary returns, corporate returns, etc.
  • What do you limit your practice to?  As an example, although I prepare a few Schedule Fs (farming), if someone came to me with a 5,000 acre ranch running cattle with 17 employees, I would pass. I simply have no experience in this area. Another area, if it pertains to you, would be tax deferred exchanges. If you exchange property often, you would want someone with this type of experience.
  • How large is your firm? It helps to know if you're dealing with a single practitioner or an office with many preparers. There are pros and cons to each. In a larger firm, your tax will likely be run through the office in a matter of a few days to a couple of hours. Although there is nothing wrong with this, sometimes it's nice to be able to take the time to think about a client's particular situation prior to finishing the return. A larger firm does, however, provide more people to run ideas across. A smaller firm may have more time to work on your tax, and not feel the pressure of getting a number of returns out the door in an arbitrarily set turn-around time. Some of my best clients came to me after using a large firm. The larger firms consider a company that only grosses say $5,000,000 as very small, and quite often turns it over to their junior employees. 
  • If you (the prospective preparer) should suddenly be taken ill, (or worse) what contingency plans do you have? Here is where a larger firm may have an advantage, as there should be several capable people to take over. In a smaller firm, you need to ask. In my case, my husband is also an EA, so we can cover for each other.
  • What are your fees? Some firms charge by the hour, some by the form, and some, such as myself a combination of both. As an example, if I have a minimum fee which includes Form 1040, Schedule A (itemized deductions) and Schedule B (interest and dividends) which is what clients typically have, it isn't fair for a client with 2 W-2 forms, 2 1099-Int and 1 1099-Div to pay the same amount as a client with 17 W-2 forms, (think the film industry here), 5 1099-Int and 12 1099-Div forms. So if this is a concern, ask for an estimate. They most likely will be unable to do so until they actually see the type of paperwork you have and the number of forms involved. When a new client comes to me, I can always give them an estimate, and if they don't like it, I return the paperwork with no hard feelings either way. Neither of us like surprises.
These are just a few issues you may wish to consider. I suggest before calling anyone, write down of list of questions important to you so you won't forget to ask.

Wednesday, February 20, 2013

Finding the Right Help - Part 3

When you first speak with a prospective professional, he or she will need to understand how they can best help you. It will be to your benefit to be as forthcoming as possible. Try to articulate why you need their help. This can be as simple as responding to a notice from various taxing authorities to seeking a long term relationship for tax preparation and tax planning purposes.

In order to help you as much as possible regarding income tax preparation and planning, there are many questions we need to ask. Usually the vast majority of information needed can be obtained from prior year's tax returns, so be prepared to bring up to 5 years of returns to your first meeting, especially if you have passive or capital loss carryovers.

Another thing needed will be the tax basis of any assets you have sold during the year. This includes the cost basis of any securities sold, possibly the tax basis of securities inherited, from either the estate tax return, if any, (filed for the deceased) to a letter from the estate attorney listing the basis reported. Escrow settlement statements from real property purchased along with escrow settlement statements from property refinanced is also necessary.

If you have rental properties or other business assets, prior year depreciation schedules are necessary. If you happen to file state tax returns that don't recognize federal rules, such as California, there should be separate depreciation schedules for the state. This is very necessary as when these items are sold, your tax basis is likely to be higher for the state than it is for the federal return. You certainly don't want to pay more tax then necessary if a gain should result.

This may also be true if you have a different basis in your IRA in the state as compared to the federal return. There were years where some states did not allow a full deduction for your IRA contribution. For example, back in the 1980's. if you contributed the maximum allowed by the IRS of $2,000, CA only allowed you to deduct $1,500, resulting in a basis of $500 for each of the years in question. When you start withdrawing your IRA, it is quite likely some of the withdrawal will be tax free on your state return.

This list can go on and on and is not at all inclusive, but should give you a good idea of the items needed to do a proper job. If in doubt, ask!

Tomorrow I'll cover some of the questions you should be asking a prospective tax professional.

Tuesday, February 19, 2013

Finding the Right Help - Part 2

Now that you know who you are looking for, let's look at where you might find this person.

Only you will know the reason you are looking for help. Perhaps your former preparer retired and you are seeking a replacement, or perhaps you have always self-prepared, but currently need help. Here it helps to know yourself. If you are only comfortable with a one-on-one consultation and need to discuss each piece of paper as it crosses the desk, and generally want lots of hand holding, you'd be best to find your professional in the general vicinity of your location.

If you are the self-sufficient type who has always handled the finances in your family, can articulate your needs and wants verbally, or can write a cognizant email, can handle simple computer tasks such as attaching a pdf file to an email or scanning documents, then literally the whole world is open to you.

Most of my clients are in the latter category. They are very busy people, and or simply want to do more "fun" things than sit at my desk. Most of them have some sort of small business and simply don't have the time. Time is money, as the saying goes, and if you can make more if it doing what you do best, why take the time for a visit? The vast majority of my taxes arrive in the mail, by a delivery service, and more recently, by pdf file. Isn't technology great!

Tomorrow we'll discuss possible ways to articulate what you need.

Monday, February 18, 2013

Finding the Right Help - Part 1

Q.  After struggling with Schedule D, Forms 8949, and Form 4797. I've decided to throw in the towel and find a professional to prepare my taxes. This is a job I have always done myself. Can you advise me in how to find a competent tax professional?

A.  This is an excellent question, and I hope you won't mind me answering your question over more than one day. Actually there are several competent professionals you can turn to. Let's review the best 4 options.


  • Tax Attorneys
  • Certified Public Accountants
  • Enrolled Agents
  • Registered Tax Preparers
Most tax attorney's limit their practices to estate and fiduciary returns, however, you may find one in your area who prepares individual tax returns. They are licensed by the state they practice, and are required to complete competency courses each year.

Certified Public Accounts (CPA's) are another excellent choice. Each CPA is licensed in the state they practice, however, they may have reciprocity in more than one state. The vast majority of CPA's work in big accounting firms and do not necessarily prepare returns for individuals, but act solely as accountants. CPA's preparing individual and business returns are plentiful, however, and can easily be found in the yellow pages or through any reliable search engine. CPA's also have required competency courses in both accounting and taxation each year.

Enrolled Agents (EA's) usually limit their practices solely to the practice of taxation. EA's are licensed by the US Department of Treasury, and as such, may practice in any state or US Territory.  As with any professional, you should have no trouble finding one that prepares individual and or business returns. Since many EA's are not accountants, if you have a return than requires a balance sheet, be certain they have had accounting courses and are knowledgeable in basic accounting principals. EA's also have required competency courses in federal taxation each year.

Registered Tax Preparers are the newest of the above four designations. These individuals must register with the IRS and complete competency courses each year.

To be continued. . .