Why You Deserve An Enrolled Agent

Have you seen the new TurboTax commercial about how awesome you are?  It’s a great commercial.  And yes, you are totally awesome.


Turbo tax says that you are so awesome that you can do your own taxes.  To be quite honest, lots of people can. Some people shouldn’t. Here’s a video of someone who shouldn’t have.

Tim Geitner explaining his tax problems to Congress.


Here’s the thing.  Can you do your own taxes as well as I can do them for you?  No—probably not.  (Sorry, that sounds snobby but I’m really good at what I do.)


But can you do them well enough?  Maybe you can.  Pretty much, if you only have W-2 income and don’t itemize your deductions then you’re probably fine doing your own taxes.   There are some tax situations where no matter how good I am at taxes; I’m just not going to get you any more money back than you’d get for yourself.   (My mother would say, “You can’t bleed a turnip.”  Yes, my Mom said some weird stuff.)


Now,  you’re a “do it yourself” kind of person, and you don’t have complicated taxes, you can go straight to my 1040.com web-site and do it yourself from here:  https://fileonline.1040.com/1040/Home/?did=95443 It’s an alternative to Turbo Tax and it’s a little less expensive.  You can try it for free and see how you like it.  You don’t have to pay unless you actually file your return there.


But—if you are self-employed, have investment income, retirement income, rental income, education expenses, are divorced with children, are a high income earner, have cancelled debt, going through bankruptcy or a number of other issues—you can really benefit from the services of a qualified tax professional.


Here’s a couple of things that I don’t like about Turbo Tax:

  1. There are 4 ways to claim an education expense on your tax return.  TT doesn’t always give you the best one for you.  It usually does, but not always.

  3. TT categorizes you:  home owner, business owner, someone who owns stock or rental property, or someone in the military.  Many people fit into more than one category and I’ve got a couple that could claim “all of the above”.  A tax professional won’t pigeon-hole you.

  5. TT is not made for splitting a child’s exemption between divorced parents.  That’s a matter for an Enrolled Agent.

  7. If you’re a high income earner subject to Alternative Minimum Tax (AMT), TT will just compute the tax, it’s not equipped to help you find ways to reduce the AMT like an EA can.

  9. Here’s the biggest one:  most of the audit cases that I handle during the year come from people who prepared their own tax returns using Turbo Tax.  I appreciate the business, I really do, but taxes are complicated.  They shouldn’t be, but they are.  And sometimes you need help.

When I was a kid, my dad had a whole list of things I had to be able to do before I was allowed to go away to college.  One of those things was to be able to change a tire.  I can change a tire all by myself, thank you very much.  But, awhile back, I got a flat on Higway 44 during a snowstorm.  It was cold and blowing and the trucks were whipping past me at 70 miles an hour.  I was very grateful that I had signed up for AAA.


An Enrolled Agent navigating complicated tax rules is kind of like the AAA guy changing your tire for you during a snowstorm.  I kind of like changing a tire.  I know that sounds silly but I do.  But I’m also smart enough to know when I need help.


You’re awesome, you truly are.  You are so awesome, I think you deserve an Enrolled Agent.

IRS Letters – the CP 2000: Common Errors and How to Fix Them

Photo by 401(K) 2012 at Flickr.com


Have you gotten a letter from the IRS that says something like this?


“The income and payment information we have on file from sources such as employers or financial institutions doesn’t match the information you reported on your tax return.  If our information is correct, you will owe…”

That letter is called a CP2000—it’s from the Individual Automated Under Reporter Unit of the IRS.   In 2012, they issued 4.5 million notices with an average of $1,572 in additional taxes owed.  That’s over $7 billion dollars!


Just because you receive one of these CP2000 letters, doesn’t necessarily mean that you owe the IRS any money.  So before you go writing the IRS a check, you need to take a look at your tax return and the CP2000 letter very carefully to make sure you owe before you pay.  Let’s take a look at some of the most common things the IRS is asking about.


Missing W2:  You’d be surprised how many people forget a W2 off of their tax return.  It’s easier than you’d think.   You could have a Christmas season sales job at Macy’s in 2011 but get a pay check for one day in January 2012.   When you file that 2012 tax return in 2013, you’ve forgotten about that one paycheck.  If you moved during the year, you might never get your W2.  If you forgot a W2 on your tax return, usually it’s just best to sign the letter and pay the tax.


Missing stock trades:  This is probably the most common type of CP2000 letter that I see and they fall into two categories.  The first is employee stock options.  If you work for a company that issues employee stock options, when you exercise those options, you pay the tax through your payroll withholding.   Even though the stock options are accounted for in your paycheck, you still have to do additional paperwork on your taxes. If you don’t also report the employee stock options on a Schedule D, you’ll get an IRS notice.  Usually, if this is what happened, you won’t owe any additional tax, you just need to submit the missing paperwork.


The other category of missing stock options consists of trades that just weren’t reported.   Many people who made the election to receive their brokerage notices online didn’t realize that their 1099B notices were online also.  I think that’s one of the most common reasons I’ve heard for people not reporting their trades.  If you fall into this category, remember that the IRS doesn’t always include stock basis when they figure your tax.   If you have stock trades on your CP2000, you’ll need to prepare an amended return and be sure to include the basis of all our stock trades.  You may still owe the IRS money, but I’ve never seen one of these cases where the person owed the IRS the full amount that the IRS stated.


Mismatched documents:  This happens all the time.  For example, let’s say that you have three accounts at Bank of America.  One earned $10 interest, another earned $15, and the other earned $20 of interest.  You put $45 of interest down on your tax return.  And that’s right.  But the IRS may get the documents as 10; 15; and 20 and since it’s a computer and not a human that does the matching, you could get a notice saying you didn’t report your interest properly.  You can usually solve issues like that with a simple phone call.


These are just a few of the more common and easy ways to solve CP2000 issues.  If you receive a CP2000 letter and it doesn’t make any sense, or you just need some help, please call us.  That’s what we do.


Check out the IRS link as well: http://www.irs.gov/Individuals/Understanding-Your-CP2000-Notice

Should You Hire a Tax Professional that Wears a Funny Costume?

Taxes are complicated.  Although, some returns are fairly easy to do, with Congress changing the rules all the time, it really helps to hire someone who knows what they’re doing.


Okay, I’m going to toot my own horn here, but Enrolled Agents are licensed by the Department of the Treasury to represent people before the IRS in all tax matters.  We have to pass a test.  Actually, it’s nine hours worth of tests divided into three parts.  You have to pass all three before you can call yourself an EA.


EA’s are also required to take 72 hours of tax training every three years to keep their certification.  And we also have to pass a tax compliance check—meaning, the IRS takes a closer look at my tax return.


Most of those people at your big box chain tax stores are not EA’s.


There’s also a new preparer designation called a Registered Tax Return Preparer, or RTRP for short.  They also have to pass a test, take continuing education, and they have the ability to represent taxpayers before the IRS but it‘s limited.  At Roberg Tax Solutions, everyone who prepares returns is either an EA or an RTRP, meaning that we’ve all got the licenses to do our jobs.  The most basic tax preparer designation is a provisional PTIN holder-but even they must do the continuing education credits.


It’s important to know that because most tax preparers out there don’t have any credentials.   None.  Every day I hear stories about people who used a so-called “professional” and got in trouble with the IRS because the “professional” didn’t know the tax law, or perhaps chose to ignore it.


Okay, the IRS requires that I say this:  ‘The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov.’   Just wanted to make sure I got that in there.


Now I was going to write about how you don’t want to hire the guy in the crazy costume to do your taxes.  But I’m not in a position to say that.  You see, every Halloween, Roberg Tax Solutions dresses up and helps with the Maryland Heights Halloween parade.  We used to dress up for the Pujol’s Foundation Winter Carnival too until they discontinued that.


So, go ahead and hire the tax person in a crazy costume.  Just make sure that you check his or her credentials for doing taxes first.  (By the way, the guy in the Shark costume is Mike, our new guy.  He’s in the shark costume because, well–he’s the new guy.  And the shark dance?  Well, the little kids at the parade kept begging him to “Do it again!”  For what it’s worth, he’s better at taxes than he is at dancing.)

Is Your Tax Preparer a Phony?


Photo by Brandon Koger at Flickr.com

One of my biggest complaints is about fake tax preparers.  They’re all over the place.  They magically appear during tax season and then disappear on or before April 15th.  When the IRS letters start showing up, they’re nowhere to be found and their victims wind up paying me (and people like me) lots of money to get them out of the jam they’re in.


For example:  One year I had to assist five different people who received audit letters and all of them had had their returns prepared by the same woman.  Besides the fact that all the tax returns were wrong—the thing they had in common was that all of them said they had been “self-prepared,” even though all five of the people who came to me stated that this woman had prepared their returns and that they each had paid her $200 for the service.  I’ll never know how many bad returns that person did—but if five of them walked through my door, I‘m guessing that there were a whole lot more.


So how do you know you’ve got a lemon preparer?  The best way to know is to see if he or she has something called a PTIN number.  (PTIN stands for Preparer Tax Identification Number.)  A real preparer signs her name on your tax return and puts her PTIN number on it.  A fake preparer does not sign your return and your return will say “self-prepared.”


Most folks don’t know that professionals are required to have PTINs.   Unless you were burned by a bad preparer in the past, it’s not something that would ever be on your radar.  It’s on my radar because I have to tell people they’ve been burned on a regular basis.  It’s never a fun conversation.


So how do you know if you’ve got a real tax professional instead of a fake?  Well now there’s a directory and you can look your tax preparer up.  All you have to do is go to:  http://www.ptindirectory.com/


You can type in your preparer’s name and if they’ve got a PTIN, you can find them there.  For example:  my last name is Roberg and I work in Missouri.  If you wanted to check my credentials, you’d go to the site and type those in and I’d be there.


Or say you don’t have a tax preparer and you’re looking for someone.  You can go to the website and type in your zip code and it will give you a whole list of preparers in your area.  For example, I work in the 63146 zip code area.  If you type that in, well of course I’m on that list, but so are a whole bunch of other tax folks who work in my area as well.


Click on a name and it will give you the person’s credentials and business address.  EA means enrolled agent (that’s what I am.)  EAs are licensed by the Department of Treasury to represent clients before the IRS.  CPAs are Certified Public Accountants and RTRPs are Registered Tax Return Preparers.  RTRP is the new tax professional designation, it means the person has passed a test demonstrating competency is basic tax return preparation.  Persons with PTINs but no credentials will just have their names listed.


Will hiring a professional with a PTIN prevent you from ever getting audited?  No, I can’t promise that.  But it does show that you’ve hired a professional who’s serious about obeying the law, and that’s something you want in your tax preparer.

Is Your CPA Qualified to Do Your Taxes?

Adding machine

Photo by Paul Miller at Flickr.com

Is your CPA qualified to do your taxes?  Now that seems like a pretty dumb question right?  Obviously CPAs do taxes and they’re smart so they can, right? So the answer should be yes.  But to be honest, the real answer is:  not always.  And that’s been a pretty hot topic lately among tax professionals.


Here’s the story—The IRS has cracked down on tax preparers.  They’ve started a new program where all preparers (even CPAs) must have something called a PTIN (Preparer Tax Identification Number) that goes on every tax return so they can be identified.  They’ve also started a program that all tax preparers need to pass a test in order to get paid to prepare income taxes.  People who pass the test are called Registered Tax Return Preparers (RTRPs).  In addition to passing the test, RTRPs are required to take 15 hours of Continuing Professional Education credits every year.


Some people who do taxes do not have to take the RTRP test.  Enrolled Agents (that’s what I am) don’t have to take the RTRP test because we already passed a series of tests that is more complex than the RTRP test.  We’re licensed by the Department of Treasury, and we are required to take 24 income tax continuing education credits per year.  Our licenses come up for renewal every three years, and we basically have our personal tax returns reviewed by the IRS before they grant us a new license.  Because of our training, we can do things that RTRPs aren’t allowed to do.  If you hire an EA, you know that person has had quite a bit of tax training and should be up to date on all the tax laws.


CPAs are another group that does not have to take the RTRP test.  Once again, they’ve already passed the CPA exam—which is an even nastier test than the EA exam.  (I often get into the EA versus CPA debate but I will concede that their test is harder than the EA exam.)  CPA stands for Certified Public Accountant but one of my CPA friends says it stands for “the test is so awful I Couldn’t Pass it Again.”  It is a bear of a test.  CPAs are licensed by their respective states.  They are also required to take continuing education credits to keep up their licenses—but here’s the problem—CPAs aren’t required to take any income tax education to maintain their licenses and  do tax returns.  None.


Many CPAs who prepare taxes take tax classes for their CPE credits—at least an update class.  Update classes are important because the government changes the tax laws so frequently.  There are hundreds of tax law changes every year—sometimes it seems like we get daily reports of new laws from Congress.  Anyone who doesn’t at least take an update class every year shouldn’t be doing tax returns.


And that’s where the problem with CPAs doing tax returns lies—the ones who don’t keep up with the tax law.  For every year that a CPA doesn’t update his tax education—there are more and more mistakes that happen.  Sometimes it’s a little thing like a $30 telephone tax credit, maybe it’s a little bigger like missing a $400 making work pay credit.  It was quite awhile ago now that the IRS changed the definition of a qualifying child for EIC purposes—you get that wrong on your tax return and you could be in big trouble.  It was back in 2005 that the IRS changed the “uniform definition of a child” and I’m still seeing returns being prepared under the old rules.  2005!


I had a little “conversation” with someone who had incorrectly prepared my client’s tax return.  (I was representing the fellow in an audit, but I hadn’t done the return.)  “Well Missy, I’ve been doing taxes for over 20 years now and I think I know what I’m doing.”  That was the problem—he didn’t know what he was doing, that’s why the client was being audited.  The tax rules today are not the tax rules of 20 years ago.  Heck!  They’re not even the same rules as last year!  (By the way, don’t call me Missy either.)


So how do you know if you’ve got yourself a CPA who knows taxes or not?  Unless the IRS decides to monitor CPA training or licensing, the only way to protect yourself from a CPA who doesn’t really know taxes is to ask questions, the big one being—did you take a tax update class this year?  Any CPA who takes tax season seriously did.  Any CPA who didn’t take a tax update class doesn’t—and you should walk away.


There are competent, qualified CPAs out there who do a great job of preparing tax returns.  Right now, there’s no way to tell who they are unless you take the time to ask questions.  Until the IRS decides to officially identify the CPAs who are qualified to do taxes, asking questions is your only defense.

When to Hire a Professional Preparer

Friendly, neighborhood, professional tax preparer

Okay, you’re reading this on a professional tax preparation website and  I’m an enrolled agent.  Are you really expecting to see any answer other than, “Always?”  So you’ve been warned.  But seriously, many people are perfectly capable of preparing their own income taxes and they do it quite well.  For those people, the question is, when do you get a second opinion?  Here’s my list:

Whenever you have a major lifestyle change, like getting married, having a baby, buying a house, starting a new career, retiring.  You get the picture.  Many of the big life style changes have tax implications that go with them, it’s a good time for a professional.

Whenever you start a new business—many of the biggest tax problems occur during the first year of business.  Even if you’ve started a new business before, the rules are constantly changing.   You would be amazed at how many people prepare the wrong tax form for their business. 

Whenever you’re dealing with two or more states on your tax return—most home software programs don’t handle multiple states well.  Some of them can handle two states.  Even with my professional tax software, if there are three or more returns, I’m often re-computing  the figures by hand.   If you hire a company that sells an accuracy guarantee, always purchase that agreement for a multistate return.   Most tax preparation firms focus on the federal return and the state information automatically flows through from the federal.  There isn’t a lot of training for state returns, the assumption is that the software will handle it.  The problem is, the software is only as good as the person using it.  Multistates require someone with experience.  (Ah, like me, just saying.)

If you’ve had stock options-I put this in because one year I represented several people who all worked for the same company.  They received stock options and didn’t report them correctly on their tax return.  They all received scary IRS letters saying they owed thousands of dollars in taxes.  Once I was done with their amendments, they all received refunds, but they shouldn’t have even had to have gotten letters in the first place.

Finally, I recommend having your taxes reviewed every three years, even if you don’t experience any of the above.   Let’s say you’ve been doing your taxes on your own and a law changed and you missed a big tax deduction.  You only have three years to file an amendment to get your money back or you’ve forfeited the refund.