Category: Uncategorized

Posted on by Jan Roberg

Missouri Seniors May Want to File Separately

If you’re married and receiving a public pension or social security in Missouri, it may make sense for you to file your tax return as married filing separately instead of jointly.  It sort of defies the conventional wisdom of tax preparation, but it’s worth checking out.

Usually, as in 99.5% of the time, a married couple is better off filing a joint return, at least as far as their federal tax return is concerned.  But often times, especially when there are no dependents claimed on the return, the difference is negligible if anything.   It’s just natural to file a tax return jointly because it’s easier and usually cost effective.  But most tax software programs that do a “married filing jointly (MFJ) vs married filing separately (MFS)” comparison analysis usually don’t include the state results in the analysis. 

If you live in Missouri, and you both have a public pension, you’ll want to take a closer look at the potential difference.  Here’s why:  If you’re married and your combined income exceeds $100,000, your public pension exemption becomes limited.  If you change your status to MFS, you each are allowed income of $85,000 before any limitations kick in.    The higher your income, the more you’re going to want to consider splitting your return.  Now remember, this works for public pensions and social security, if you have a private pension, the rules are different and there’s no tax benefit to filing separately.

Public pensions are pensions from government organizations such as the military, the postal service, or state or local governments.  Teacher pensions are considered to be public pensions.  Private pensions are from corporations like Boeing or Nestle.  If you’re not sure what kind of pension you have, call your plan administrator. 

Let’s say for example that you and your wife are retired school teachers–meaning that you both have public pensions.  Your income is $70,000 and your wifes’ is $74,000.  Combined, you’re well above the $100,000 limitation.  Because you’ve exceeded the income limitation, your pension exemption is limited to $23,406.  If you filed separately, the income limitation would be $85,000–which you’d both be under, and you’d each get a pension exemption for $33,703 (or a total of $67,406.)  That’s a difference of $44,000!  Compute that out at the 6% tax rate for Missouri and you’ll have saved $2,610. 

That’s a big difference.  Using the standard “MFJ vs MFS” calculator for the federal return, I showed that with the married filing separately status, you’d owe an extra $12.  I’ll gladly pay $12 to save $2600.  But without doing the extra work, I wouldn’t have known there was that huge difference.

While the take home tax software products are really good, this is one of those situations where you can miss out on a major tax savings.  You have to know about the public pension exemption.  You have to know about the different income limitations.  And most importantly, you have to actively set up and do the work to make sure you don’t miss this opportunity.  If you think you might be missing out on important deductions like this one, maybe it’s time to set up an appointment with a professional.

Posted on by Jan Roberg

Tax Tips for Senior Citizens

senior citizens get hit with taxesThis year seems to be the year that seniors are getting slammed from all sides.  First, there was no increase in Social Security benefits, but the Medicare premium they had to pay was increased leaving them with smaller checks.  Last year we had a brief, additional federal tax deduction for real estate taxes which was specially designed to help senior home owners, but that was eliminated for this year. 

Here in Missouri, the state recently ended the Historic Preservation Credit, which helped control senior’s real estate tax bills.  And right now they’re trying to end the popular Property Tax Credit for seniors who rent instead of own their homes.  (Some seniors have already felt the bite of this as the credit is now denied to seniors of subsidized housing.) 

So instead of just harping on bad news, what are some tax tips and strategies that are available to senior citizens?  First, even if you don’t make enough income to be required to file, file a federal return anyway.  Why?  Two reasons, the first is that you’re on the radar in the event the government offers some sort of tax rebate or credit for senior citizens.  Many seniors missed out on the $250 rebate a few years ago just by not filing.  Second, and this is probably even more important, is that if you file a return, there’s a statute of limitations where the IRS can’t come back after you for more money.  If you don’t file a return, there is no statute of limitations.  I’ve had to deal with seniors who now have tax liens on their homes because they didn’t file a return and the IRS came up with something years later.  Had a timely return been filed, the IRS would have been too late to make the claim.

Another important strategy for seniors is planning their income.  Depending upon your marital status, your social security becomes taxable once you reach a certain income.  You don’t have much choice about how much you receive for your pension, and you’re required to take your minimum required distribution from your IRAs, but you have a lot of flexibility elsewhere.  Right now, during the early part of 2011 is a good time to plot out your strategy for your next year’s tax return.  If you’re anywhere near the borderline on taxable social security, planning is absolutely essential.  Some strategies include:  moving assets to a tax free munincipal bond fund, using the charitable donation option on your IRS to use your required minimum distribution, and selling stocks that have lost value to offset your capital gains. 

A flip side strategy for some seniors would be if you’re already in a situation where 85% of your social security is going to be taxed, go ahead and do even more taxable transactions.  This sounds crazy coming from me as I’m always trying to defer income and taxes, but hear me out.  When you’re in the “taxable social security zone”, you’re really paying a double tax.  If you’re in the 15% tax bracket, then you’re really paying 30% because that social security wasn’t taxable until you hit the zone.  If you’re pushed into the 25% tax bracket, that extra income is really taxed at 50%.  50%!  So, let’s say you have a year where you’ve already reached the point where 85% of your social security is going to be taxed.  Once you’ve crossed that line, the IRS can’t tax anymore of your social security for that year, the remaining tax will be at the regular rate (25, 28 or 32% so it’s a tax reduction now.)  It might just make sense to go ahead and do that extra income transaction now, if it will keep you from having to be in the extra tax zone next year.  It’s really going to depend upon your individual situation

Posted on by Jan Roberg

EITC Awareness Day: A Contrary View

Earned Income Credit Awareness DayJanuary 28, is EITC Awareness Day.  EITC is the Earned Income Tax Credit.  To find out if you might qualify for and Earned Income Tax Credit, you can go to the IRS website and check out the EITC Assistant.  It basically asks you questions and helps you figure out if you can get and Earned Income credit or not.  The site is:   http://apps.irs.gov/app/eitc2010/SetLanguage.do?lang=en

Last year, the IRS handed out $58 billion in Earned Income Tax Credits.  It’s estimated that only four out of every five people who qualify for an earned income credit actually claim it.  Some of the underserved categories of people who missed their EITC (also called EIC) are small business owners and farmers.  If you have self employment income, that still qualifies you for EIC. 

Another category of people who missed their EIC claims are grandparents who have custody of their grandchildren.  It seems that a few years back, when the IRS tightened up the rules about grandparents claiming their grandchildren there was the mistaken thought that grandparents could never claim their grandchildren.  That’s not the case.  If your grandchildren live with you, be sure to check the EITC eligibility page to see if you might qualify.

Okay, the IRS asked me to plug EIC today and that was the plug.  Here’s my side of the story.  As a tax professional, all year long I have heard what I consider to be veiled threats from the IRS to tax pros around the country about EIC.  They can come to our office at any time, pull our files and inspect to see that we’ve completed the proper due diligence on all of our clients.  The PTIN registration, which quite frankly only covers us “good guys who follow the rules” will be used to monitor our returns.  If one of our clients files a fraudulent EIC claim, the IRS can then pull all tax returns that have our PTIN number to check for fraud as well. 

Now I shouldn’t complain.  I don’t file very many EIC returns anyway and the ones that I do file, I’ve done the due diligence.  I have my paperwork in order so it wouldn’t be a problem if the IRS did an EIC audit of my office.  But I guess I’m just a little shocked that the IRS wants me, or anyone for that matter, to promote EIC. 

Here’s why I’m shocked:  of the $58 billion dollars that was handed out last year, the IRS estimates that $13 to $16 billion of that was erroneous payments.  Now let’s be realistic honest mistakes do happen, but a pretty fair chunk of that change is due to downright fraud.  We’re talking roughly 25% of the EIC claims are wrong.  That’s one in four EIC claims.  ONE IN FOUR!

Back in the old days, I used to do EIC audit work for a large tax company.  Many of the audit clients didn’t have their taxes done by one of our preparers, we were just the best place to go to once they got the audit letter.  Some of the “fly by night” operators who prepare those “erroneous” EIC returns disappear after April 15th and some vanish even sooner than that.  I learned a lot from that experience about what not to claim on a tax return.  Maybe this can help someone else.

Do not submit a tax return claiming head of household status if you have been incarcerated for the entire year.  Generally head of household status means that your children are living with you and most prison wardens don’t let you keep your kids with you overnight.  It’s estimated that 4 to 5 thousand fraudulent EIC returns were submitted from prisons last year.  Currently, the IRS does not have access to prison records so they can’t immediately identify those returns.

Do not submit a tax return claiming head of household status if you are in a nursing home.  Kind of like prison, the nurses don’t let you keep the grandkids overnight either.

Do not claim your live-in underage girlfriend as your “qualified child”.   (And please, there are just some things I don’t want to know.)

Head of Household status is a confusing designation.   According to IRS rules, a head of household is someone who is not married that is providing over half of the support for another person, usually a child, but it can be a parent, grandparent, or even a friend that lives with you.  You can’t claim head of household if someone else is supporting you.  Here’s a hint, if you only made $3,000 last year, you didn’t make enough money to support anybody.  Don’t claim head of household.  Its fine to claim single, and claim your child as a dependent and you’ll still qualify for EIC.  But if you claim head of household, it gets your tax return looked at even if it doesn’t change your refund.

Do not claim your neighbor’s child on your tax return no matter how often she sleeps over and eats at your house.  The child is not yours and she doesn’t really live with you—it just feels like it.

Do not make up a fake business to claim income for the EIC.  If you have a real business, bring your receipt books and your expense ledger with you to your appointment.  The IRS is on to that.  Professional preparers are now required to look at your books and see some type of evidence that your business is legitimate.

And finally, do not claim a child on your tax return just to make life difficult for your ex.  If you have a legitimate claim, that’s one thing, but if you don’t and you’re just trying to punish someone, don’t go there.  It will land you in a heap of trouble that’s not easy to crawl out of.

Posted on by Jan Roberg

Tax Tips for Gay Couples

tax tips for gay couples

Even if you're legally married, federal tax law doesn't recognize your marriage.

There’ve been a lot a changes this past year with some states legalizing gay marriage, some authorizing civil unions, and of course the end to “Don’t Ask Don’t Tell” in the military.  But despite all these changes, US federal tax law still does not recognize gay relationships in tax law.  Even if you’re in a state where your marriage rights are fully recognized, you’ll still be considered unmarried for federal tax purposes and social security benefits.  These tips are for couples who are legally married, or would be legally married if they lived in a state that allows gay marriage. 

There are two main issues here that you have to deal with.  The first is working to reduce your current tax liability and the second is to ensure that you’ve got sufficient coverage for both of your retirements.  To that end, you need a tax professional and a financial advisor that can sit down with you and your partner to develop some long term and short term strategies.  Right now, if you’re thinking, “I’d never even tell my tax guy I’m gay,” then it’s time to hire a new advisor. 

Couples where both partners earn wages and have similar incomes:  are pretty straight forward for tax purposes.  You can both take advantage of IRA contributions, you’ll both receive equal social security benefits from your wage earning, you won’t lose any tax benefits from the married filing separately status, and your tax rates will be fairly comparable to folks filing as married.   In this situation, many couples just split everything evenly and that’s a pretty fair arrangement.  But, it may make sense to load all of the deductions onto one partner and let the other partner take the standard deduction. 

For example:  let’s say that Jen and Gina together would have itemized deductions of $13,000 a little more than the $11,400 they would claim as a standard deduction if they could file as married.  Filing as single they can each claim a standard deduction of $5,700.  If they’re splitting the itemized deductions, they can each claim a deduction of $6,500.  But, if we load all of the deductions onto Jen and have Gina claim the standard deduction, then together they’d have a combined deduction of $18,700 and that would save them a substantial amount of money.

Now, remember, it’s not that perfectly even.  In most cases, part of the $13,000 would be state income tax, you can’t load that onto your partner’s return, but with planning, you can put your mortgage, real estate tax, and charitable contribution deductions all on one person and enjoy a substantial tax savings.

Couples where there is self employment income:    The biggest tax issue facing sole proprietors is paying the self employment tax.  If you’re already in the 25% income tax bracket, and you add that 15% self employment tax to that, then you’re paying 40% tax on your income.  Anything you can do to reduce your self employment tax is a good thing. 

One possibility is to hire your partner as an employee.  This in itself doesn’t really eliminate your self employment tax as you’re just shifting it to your partner and paying the employer’s share.  But, hire your partner and provide health care benefits and now you’ve got something.  For example:  let’s say Jack and Dean have been together for 10 years.  Jack has modest income from a part time job but spends a lot of time helping Dean with his small business as a professional entertainer.  Dean is fairly successful and averages about $100,000 a year in income.  Jack books appointments for Dean and makes sure that Dean is where he needs to be at all times.   If Dean were to have to hire someone to do Jack’s job, he estimates that it would easily cost him $15,000 or more.  So instead, he hires Jack as an employee.  Instead of taking a salary of $15,000, Jack chooses a smaller wage but wants health insurance benefits.  Because Jack would be Dean’s only employee, Dean can afford to have his employee package include health insurance benefits.  And, more importantly, Dean could provide a health care plan that covered Jack’s partner (which happens to be Dean.)  Now Jack and Dean have just excluded all of their health care costs from self employment tax. 

Here’s why:  Health care benefits reduce the employer’s taxable income.  Health care benefits are not included in the employee’s taxable income.  It’s a win/win situation for both of them. 

Everyone’s tax situation is unique and the laws keep changing so you have to stay on top of things.  Right now though, with the tax laws as they are, doesn’t it make sense to take advantage of them instead of letting them take advantage of you?

Posted on by Jan Roberg

1099 Rules for Landlords and Small Businesses

1099 Rules for Landlords and Small Businesses

 

Are you confused about the rules for small businesses and landlords issuing 1099’s for anyone that they’ve paid over $600 to?  Has a company asked you to fill out a W9 form because you or your business is doing some kind of work for them?  It seems like everybody is a bit confused, even the IRS.  But here’s help.

 

UPDATED JANUARY 2016
The rules have changed several times since the original post. If you’re preparing 1099s or tax returns for tax year 2016–these are the updated rules.

 

The  1099 law is actually part of the Affordable Care Act although it has nothing to do with health care.  Is your head spinning yet?  Seriously, the 1099 law states that businesses will be required to issue 1099 forms to contractors that they have paid over $600 to.

 

So who gets a 1099 MISC?  Basically, if you own a business, or are a landlord, you need to issue a 1099-MISC to anyone  that you’ve paid over $600 to for labor.  So, let’s say you pay a computer programmer to set up your office system – you’d issue a 1099 MISC.  But if you buy a computer for $1000 – then you don’t.  Confused yet?

 

Okay, here’s another situation – you issue a 1099 MISC to individuals and LLCs, but not to corporations.  So, let’s say Roberg Tax Solutions prepares your business tax return for $800.  Roberg Tax Solutions is an LLC, so you think okay, I’ve got to issue a 1099 – BUT, Roberg Tax Solutions has elected to be taxed as an S Corporation.  Say what?  Now you don’t have to issue me a 1099.  How do you keep track of that?  By looking at the W9.  Make sure all contractors you work with complete a W9 form.  It will tell you if they are a corporation or not.

 

If you need to prepare 1099s, here’s a link that will give you information on how to do it: How to Prepare a 1099

 

If you’re a landlord or small business owner you should expect that you will need to file 1099 forms for your contract laborers this year.  Start collecting information from them now so that you’ll be prepared come January.  You’ll need a W9 form, here’s a link:  W9

 

Print it out and have all of your vendors sign one.  You can be hard-nosed about this too.  No W9, no payment.  It’s that easy.

 

If a business that you provide a product or service to asks you to complete a W9 form, it is a legitimate request.  If you’re a sole proprietor and don’t have an EIN number, you may want to apply for one so that you’re not giving out your social security number all over the place.  If you’d like more information on EIN numbers, read my other post:  Free EIN

 

You can get an EIN number directly from the IRS for free.

 

One question that I’m always asked is, “Is there any way to get out of having to issue a 1099?”  The answer is, “Yes.”  If you pay a vendor with a credit or debit card, you do not have to issue a 1099.  The reason is, when you use a credit card to pay a vendor, the credit card company will be issuing a 1099K statement showing the payment you made.  So, it you want to reduce the 1099s you have to issue, use your credit card more often.

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Posted on by Jan Roberg

Making Work Pay Tax Credit

Craig

Once again this year, most taxpayers will need to file a Schedule M in order to claim the Making Work Pay Tax Credit.  Its worth up to $400 for single taxpayers and up to $800 for married filing jointly couples.  It’s the same schedule M form that you had to file last year to receive the credit; it just hasn’t gotten very much publicity lately so some people might forget about it.

Most tax software will automatically calculate it for you, but if you’re preparing a return by hand, you need to remember to include the form.  Here’s a link:  http://www.irs.gov/pub/irs-pdf/f1040sm.pdf

Most people who earned wages or were self employed qualify for the Making Work Pay tax credit, although if your parents claim you as a dependent then you won’t qualify.  Also, persons filing a non-resident return or persons filing a return without a work-valid social security number won’t be able to claim one either.  There are also restrictions for high-income wage earners as well.

If you need more information, here’s a link to the instructions for the form.  http://www.irs.gov/pub/irs-pdf/i1040sm.pdf

Posted on by Jan Roberg

How to Stick it to My Ex with the IRS – divorce issues

Photo by Dr. John Bullas

You wouldn’t believe how often I am asked, “How can I stick it to my ex?”  People going through a divorce or breakup are so angry and hurting that it’s natural to want to strike back.  While I feel deeply for peoples’ pain and suffering, the best advice I can give to that question is don’t.  Here’s why.

The easiest way to mess up someone else’s tax return is to claim their children on your tax return before they can file theirs.  It’s that simple.  Once the children’s social security numbers have been claimed on a tax return, they can’t be used on another return.  That means your ex can’t e-file a return and can’t get the refund she’d get with the kids.  It sounds pretty nasty, but there’s a very important downside.

First, if don’t have custody of the children and they haven’t lived with you for at least six months, well then you’d be committing tax fraud.  Depending upon the severity of the fraud (especially if you received an Earned Income Credit) it’s even possible that you could see some jail time.  How badly do you want to mess with your ex?

But let’s forget the possible jail time.  Let’s examine what would happen in a regular dependency dispute.  Your ex, if she were smart (or had at least hired someone like me), would still submit her tax return claiming the children.  She’d have to mail the return in, because e-file would no longer be available to her.  Then because there would be two returns claiming the same children the IRS would issue dependency audits to both of you.  That audit letter is around eleven pages long listing several items that you’re going to have to come up with to prove that you are really the custodial parent.  The information is fairly easy for a custodial parent to access, downright impossible if you’re not.

So, although you’ve dealt your blow and messed up her refund temporarily, in the end she’ll get the money and you’ll lose the audit.  Not only will you have to pay back the tax money you received from the IRS, there will be fines, penalties, and you’ll probably be forbidden from claiming and Earned Income credit in the future (even if you would really be entitled to it.)

So, back to the original question, “Is there a way to stick it to my ex?”  The answer is yes, but it will hurt you worse.

Posted on by Jan Roberg

Get Your Refund Faster

Rapid refundYou may have noticed that it’s harder to get a Refund Anticipation Loan (RAL) these days.  Between actions by the IRS and some bank regulations, the RAL money is pretty hard to come by.  You will still get your income tax refund, it just won’t be as fast without the RAL.  On the bright side, RAL charges are really expensive and the money you save could be worth the wait.

You’ve probably heard advertisements on TV that say you can get your refund in as little as 8 days.  It’s true, but you need to know the whole truth, it could be 8 to 14 days.  Also, if you do one of those Refund Anticipation Checks (RACs), that’s where the fees you  pay to a preparer are taken out of your refund, then that could add another 1 to 3 days onto the timeline.  I believe in “truth in advertising.”  I’m hearing a whole lot of “Get your money in as little as 8 days” and “without even paying anything up front” but I’m not hearing about the extra time added for doing that, or the extra cost.  You need to know the whole story.

One thing you should know about is timing.  Thursday is the important day.  The IRS issues checks on Thursdays.  The cutoff for determining what checks get written is the Thursday before check writing day.  That means, if you have your taxes prepared and submitted on Wednesday, and you’re doing a DIRECT DEPOSIT into your personal bank account, then you’ll receive your IRS refund in 8 days;  one week from the Thursday cut-off.  If you have your taxes prepared on a Friday, then you’ll get your refund almost two weeks later instead.     

Remember, the cycle runs on Thursdays; your refund will be computed on the first Thursday and the check will be cut on the second Thursday. 

So, the best day of the week  — in order to get the fastest refund – is Wednesday.  Now, if you file your taxes on Thursday morning, you might be okay.  If the filing is received by the IRS by noon, you’ve made the cut-off and you’ll receive your refund the next week.  The catch here is you might go into an office, file your return and have it sent before noon, but there are things called “batch systems” that may prevent your return from actually being received before noon by the IRS.  If you file on Wednesday, all those batches will be processed before noon on Thursday and you’ll receive your refund the Thursday after that. 

I always recommend filing on Wednesday over Thursday morning just to avoid the risk of being held up in the batching.  (Most preparers have no control over that.)   Of course, the important thing is to just file when you’re ready.  Don’t file before you have all of your documents.  Remember, your employer isn’t required to have the W2’s completed until January 31st.  If you happen to get your paperwork early, consider yourself lucky.

Just because the IRS issues checks and does its DIRECT DEPOSITs on Thursday doesn’t mean you will receive your money on Thursday.  If you are doing a RAC, where you had your fees withheld from your refund, then your IRS refund is going to go to a bank that works with your tax preparer and then the bank will direct deposit the money into your account.  There’s a time lag there that can be for as long as three days.  You need to keep those things in mind when you’re looking for your money.

Keep your money in mind also as you listen to those TV commercials.  “You can have your refund with no money due from you when you file.”  That’s all fine and dandy, but how much money are they keeping?  There will be a fee for the tax preparation, plus a fee to the bank for bank processing, plus a fee for completing the paperwork required by the bank.  Make sure you know how much you’re spending for that convenience.  Depending upon your situation, it may be well worth it to pay the charges, it may not be.  Ask questions, know what you’re buying so that you make an informed decision.

The fastest way to get your income tax refund, without using a loan program, is to e-file your taxes on a Wednesday and have your refund DIRECT DEPOSITED by the IRS into your personal bank account.

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.