Category: Tax Preparation

Posted on by Jan Roberg

When Can I File My Tax Return?

tax form changes will delay returnsIf you’re expecting a refund, you want to know just how soon you can file. For most people, the earliest day that the IRS will begin accepting e-filed returns is January 14th, that’s this coming Friday. It’s important to remember that you’re not allowed to file until you have all of your W2s and other income documents. Your employer isn’t required to send them out until January 31st, but if you receive them early then it’s okay to file.

Some people though, will not be able to file their tax returns until mid to late February because the IRS still has to change some forms due to the new tax legislation that was recently passed.

The more common troublesome forms are:

Schedule A: yep, if you itemize your deductions, then you’ll have to wait to file. The big hold up here is that Congress reinstated the state and local sales tax deduction which had previously been eliminated. Because that goes on the Schedule A, everyone who files a Schedule A will have to wait.

Higher Education tuition and fees deduction (Form 8917): This was a tax deduction that was also phased out but reinstated in the tax deal. This does not affect filing your return if you qualify for the American Opportunity Tax Credit (that’s what used to be called the Hope Credit but was changed last year) or the Lifetime Learning Credit.

Educator Expense deduction: That’s not even a whole form, that just line 23 of your 1040. What I find most amusing about this is that I get to see draft copies of IRS forms before they’re published. In November, the 1040 form still had a space for the educator expense deduction because the folks at the IRS kept thinking that Congress would reinstate that one. Well, nothing happened on that and there wasn’t any discussion about extending it so they finally pulled it in preparation for filing season. It was the right thing to do at the time. Now it’s back and the form has to be changed.  (If you meet an IRS IT technician in a bar, buy him or her a drink.  You’ll recognize them by the chunks of hair missing from their heads because they’ve been pulling it out from all the stress of crazy tax law changes.)

Just because you can’t actually file your return yet doesn’t mean you can’t have it prepared and ready to go once the IRS gives the okay.  Although it’s normally illegal for a tax preparer to “stockpile” income tax returns,  the IRS is allowing preparers to hold client returns until the IRS is ready to receive them.  And of course, if you’re preparing your own return, you can finish it and hold it until the release is given.  I’ll be posting that date as soon as I know it.

Posted on by Jan Roberg

File Your Taxes for Free Online

There’ve been  lots of ads about filing your taxes for free online.  That’s all fine and dandy, but if you’re not careful, it’s not really free.  For example, if you go to the IRS website, you can probably file a free federal tax return, but there will be a charge for filing the state return.  What tends to happen; is people go to the IRS site, file their federal return and then don’t file their state return because they have to pay for the state program.   They decide that they’ll get the forms from the library or someplace later and then they “forget” and then get a nasty little note from the state saying they owe money.  That’s when they wind up calling someone like me (or worse one of those “pennies on the dollar TV ad places”) and they pay much more for fixing their tax problem than they would have had to pay in the first place. 

So, is there really such a thing a totally free e-file?  Yes, but there are restrictions.  For example:  here in Missouri, you can go to the Missouri Department of Revenue site and get a free state and federal tax return program.  Generally, you’ll have to qualify for the Earned Income Credit, or be under age 20, or be in the Military.  You must access one of the tax providers from the Missouri website to get the free tax return.    Here’s the link:  http://dor.mo.gov/personal/individual/vendors.php#freeonline

The most important thing to remember is that you have to access the tax programs from the Missouri website in order to get the free filing!  The same holds true for other free file programs.  You must access the program through the government link in order to qualify for the free file, otherwise you will be expected to pay for the service.

Some states, like Illinois, will let you file your tax directly through their state website.  You’ll have to prepare your federal tax return first, but then you can file your state.  To find out if you qualify to the Illinois web-file, click on this link:  http://tax.illinois.gov/Individuals/StudentQualifications.htm

In a case like that, you’ll want to do the IRS free file first.  That link is: 

 http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=8

The IRS won’t have that site open until January 14th.  But once it comes open, there will be a list of free file providers and the requirements for using the service.  Generally, if your income is below $57,000 you should be able to find at least one service that will free file your return through the IRS website. 

Do not forget to file a state return!  I cannot stress that enough.  After the federal filings are all in, the IRS shares the information on your federal tax return with the state listed as your home address.  If you deserve a refund, the state will not notify you, and you’ll just miss out on receiving your refund.  If you owe, you will receive a notice showing your balance due, plus penalties for not filing and penalties for late payment, plus interest due on the amounts owed.  These notices will not take into account and deductions that you might be entitled to.  It’s definitely in your best interests to file your own return and not take the state’s bill at face value.

What do you do if your income or other circumstances prevent you from using the free e-file programs?  This is of course making the assumption that your tax situation is easy enough for you to file your own taxes.  (You are reading this Blog on a professional tax preparer web-site, if you can’t prepare your own return really you should be calling me, right?)

My recommended for pay “prepare your own taxes” website is here: 

Although much less expensive than having a professional prepare your return, this site is not free.  It’s actually through Drake software.  I use their professional version when I prepare income taxes for my clients.  I like the online software because as new issues pop up, the software is updated constantly.  You’re less likely to have tax return mistakes due to software issues when you use an online program.  Also, the online programs will determine which forms you need, 1040EZ, 1040A, or 1040.  The program will pick the easiest form you qualify for.  You also don’t need a credit card, you have the option of having your fees withheld from your refund if you’d like.   You can try it out for free, then if you choose to file with this program you can pay, otherwise just walk away.

What about the tax filing products that you buy at Sam’s Club and Office Depot?  The tax return products in a box are generally good products IF you remember to download and install the latest updates before you actually file your return.  If you fail to download and install your updates, those programs are close to worthless, especially this year with all the last minute changes made by Congress.  Be sure to buy the program that’s best for you. Don’t buy the “basic” when you need the “premium.”  Read the boxes carefully to determine what type of filer you are.  If after looking at the examples on the box you honestly don’t know which program to buy, you should have a professional prepare your return.  

One more tip for filing your own return:  Many tax companies will, for a fee, review a return you’ve prepared yourself.  I do it all the time.  This is especially helpful for people who don’t feel 100% comfortable with filing for themselves or just if you have questions.  It’s a low cost alternative to hiring a full professional service versus going it completely alone.  Be careful though, some companies use that as a ploy to get you to purchase their professional filing services.  They offer a cheap “review” rate then tell you you’ve missed something but won’t tell you how to fix it.  Reputable companies will tell you what’s wrong, why it’s wrong, and how to fix the problem.

Posted on by Jan Roberg

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.

Posted on by Jan Roberg

When Should I Do My Own Taxes?

I often hear the question, “When should a person do his/her own tax return?” Now nobody ever asks me that directly, as a professional preparer you’d think I’d say, “Always!” And yeah, that’s pretty much my general answer. But let’s face it, right now money is tight for everyone and if you can keep more of your money in your pocket by doing something yourself, maybe you should.

Here’s a clue: How long does it take for someone to do your taxes for you? I was reading in the paper today about a guy who whipped out tax returns for clients at an average rate of 15 minutes per return. If your preparer can finish your return in 15 minutes, that’s not tax preparation–that’s data entry. If you’ve just got a simple data entry type return, then you can probably do it yourself for free online.

Here’s an example: Peggy is a single person living in Missouri making $35,000 a year (roughly the median income for a single person her age.) Working a regular wage earning job, she’ll have $2,170 taken out for social security and $508 taken out for medicare taxes. Her federal income tax for the year will be $3,434 and her state income tax will be $1,225. So, for the year, she’s paying $7,337 in income related taxes alone. That’s almost 21% of her income.

If you’re going to spend 20% or more of your annual income on something, don’t you think it deserves more than 15 minutes of attention? If I were doing Peggy’s taxes, we’d be talking about her plans–does she want to buy a house? get married? go back to school? save for retirement? etc. We’d also talk about her job, what kind of benefits are available, is she taking advantage of those programs, etc. We’d also be talking about any ways that might be available for Peggy to reduce paying 21% of her income towards taxes.

It’s quite possible that there’s nothing there for Peggy. There are no possible deductions for her, she doesn’t care about retirement, she just wants her taxes to be filed and be done with it. Mr. 15 Minutes is good enough for her. In that case, why pay him when she can do it herself? Peggy would be a prime candidate for doing her own taxes.

Twenty percent of your income deserves more than 15 minutes of thought. If you’re going to a 15 Minute Man, that’s all you’ll get and you really would be better off doing it yourself.