Our Taxing Times

What You Don't Save May Cost You.

I’ve said it over and over again; keep copies of your tax returns and the supporting documents. That means the state return too. It can save you both time and money.

Here’s the situation. I was asked to help respond to a notice from the Kansas Department of Revenue but the clients didn’t have a copy of the KS-40 return they filed (I didn’t prepare the return.) So, I sent in a request for a copy of the return or transcript info and a copy of a Kansas Power of Attorney. Today, I was told that since I didn’t send in payment for the info I requested, KDOR won’t send anything. A month after I sent my original request, I had to fill out the special form and write a check for $5.00 to get the information I need.

This mess illustrates two lessons. Taxpayers need to keep a copy, paper or electronic, of their tax returns. All returns. And state revenue departments are hard up and previously free information may now come with a price tag. Don’t assume because the IRS doesn’t charge for transcripts and account info doesn’t mean that that your state won’t require payment for that info.

 

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I Survived Tax Season 2013!

I remember when…

This will be a year that tax pros will remember for a long time. Whether we are chatting online on a forum or having a drink together at a conference, tax season 2013 will come up. Some newbie will complain about an inconvenience or a strange procedure and those of us who have been in the business for a while will mention all the changes and procedures we have seen; doing returns by hand and paper filing them, putting client info on data entry sheets and waiting for a printed return (corrections had to be sent back), installing our tax software from a stack of small floppy disks, and tax season 2013…

What a year!

We begin with Congress putting off dealing with expiring tax provision until after the first of the year. This was despite two warnings from the IRS that Congressional  delay could cause the start of tax season to be delayed. And it was. Originally, electronic filing was to begin on January 22^nd but the start was pushed back to January 30^th. Even then, we had forms that couldn’t be filed. Two major forms (4561 and 8863) couldn’t file until mid-February. It was March before we could file all returns.

Because of the delays, no Feb. 29^th, and the season actually ending on April 15^th, there were fewer filing days in 2013. This made for a more intensive 3 months and the most hectic season end that I have ever seen.

A minor inconvenience was the lack of a refund chart. For years, the IRS had given preparers a chart which gave up a refund target date based on when the return was electronically accepted. With the expansion of Modernized e-File and CADE2, there was no way to know how fast the refund would come back. Clients told me of IRS refunds in 4 days to 10 days.

The big tax software companies had their issues in 2013. Minnesota had issues with how Turbo Tax was handling items on the state return and banned the software until TT resolved the problem. Then the IRS announced that 10% of returns with Form 8863 (Education Tax Credits) were delayed because of errors on the form. H&R Block was the biggest culprit because of the way their software was handling the new check boxes.

On April, 10 the IRS took the Modernized e-File system down for maintenance. Not something you want to do to stressed tax pros needing to file returns and extensions. Even after the system was back up, there were delays getting acknowledgements for the filed returns.

Then at 6pm on April 15^th, I couldn’t get my last few returns to file. Drake Software was having connectivity issues. I ended sitting around the office, reading a book, and attempting to file the returns every 15 minutes or so. Finally about 9:30pm, they went through. I wasn’t too worried since all my extensions had been filed earlier in the day and most of the returns were refunds but it wasn’t how I wanted to spend the evening.

Factor in some really crazy weather, Tax Season 2013 will be one will be talking about for years to come. Maybe we should get tee-shirts that say “I Survived Tax Season 2013”.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Referrals - A Double Edged Sword.

Most of my new clients come from referrals. Which is good for me because the new clients come in predisposed to trust me and listen to what I have to say. And most “how to pick a tax pro” list suggest you talk to friends and family about recommendations. But there are some disadvantages to referrals.

First, what is the recommendation? Why do they suggest me? I’ve had taxpayers come in telling me that Joe recommended me because I got him a big refund. It’s implied that I will get the new client a big refund also. Sometimes that’s not possible. Everyone’s situation is different. The same goes for price and other services. When I can’t meet the new client’s expectations, they are disappointed and less likely to be a repeat client. It doesn’t help that I can’t explain specifically why their friend got a better refund or price because of confidentiality. All I can do is offer generalizations.

To be honest, taxpayers shopping for price and refund size may not be a client I want. I want their priority to be an accurate return. The best price and least tax are important but they shouldn’t be the only reason to choose me or any tax pro even when a friend makes a recommendation.

On the other side of referrals are the bad recommendations. A taxpayer asks a friend about me and their friend goes on about how awful I am. I understand that. I can’t please everyone. They don’t like their refund, my price or that I wouldn’t do what they wanted me to do. Or they post a review on one of the many online sites like Yelp or Merchant Circle. I can generally respond to an online review if I see it but again I’m limited to generalizations. I can’t breach confidentiality.

A few weeks ago, a client was all upset with their child’s other parent who claimed the child as a dependent. The client was madder at the return’s preparer than at the other parent. They wanted me to say that the other preparer was wrong in filing the return that way. I couldn’t because I don’t know what that preparer was told. Clients lie sometimes and there is nothing a preparer can do about it. I told this client that but I don’t think it will stop them from bad mouthing the other preparer. So, as you ask about a tax preparer, listen to what is being said between the lines.

Referrals can be a double edge sword. They can help a taxpayer find a new tax pro but the taxpayer needs to listen to what they are being told and ask questions. Don’t assume that what the tax pro did for your friend will work for you. Read between the lines of what you’re being told. It might be a good idea to visit with the recommended preparer before you trust a return to them.

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Finding a Tax Pro

Tax time has been delay a little this year because of the last minute changes Congress made to the tax code. But it’s still approaching fast and I’m getting a lot of calls from taxpayers who are beginning to think about filing their tax returns. Some taxpayers will be doing it themselves or they have a tax return preparer they intend to stick with. But if you are looking for a tax pro, I have a few suggestions to make the process easier. It’s always amazed me how many people walk into my office and hand me their W-2s because I was the first open office they found. You are entrusting a lot of personal information to a stranger, it’s worth a little time and effort to check that person out.

What do you need? Take a step back and think about what you need in a preparer. How complex is your return? Be honest. I don’t know how many times a caller will tell me they have a simple return and it turns out that the return was very complex. Look at a prior return. And look not just the forms added to the Form1040 but the line entries. There are some complex tax calculations done behind the scenes. Taxable Social Security comes to mind.

How much can you spend? Notice I asked “how much can” not “how much to you want”. Come up with a reliable idea of what you can spend. You may have to spend much more but having a target many protect you from a good talker upselling later in the process.

What other requirements do you have? Is location an issue because of transportation? What about the times you’re available? Are there accessibility or language issues?

Once you have an idea of what you need, ask family and friends for suggestions. Who do they use? Do they recommend them? Get two or three possibilities if you can. Learn about each preparer from your family and friends and then supplement that with info from ads and the internet (websites, Facebook, Google+). No recommendations, then work from ads and internet to create a starter list. Be wary of websites that list preparers. Some are built from yellow pages info and list most everyone. Other sites are promotional not objective. The preparer signs up with the website and can edit their profile and sometimes edit reviews too. Use the info from these sites for general knowledge but not to make a final decision. For that, you need to talk to the preparer.

What does the preparer have to say? Once you have a short list and an idea who each preparer is, give them a call and ask some questions. Besides giving you information to make a decision, you can get a feel for the person and the office. My suggestions are below but you probably have questions of your own to add to the list. And watch out for expectations. Just because your previous preparer did something a certain way doesn’t mean that another preparer will run their office the same.  Expectations.

• Are they taking new tax return clients?
• What is their designation? Are they an EA, CPA or general preparer? The differences are discussed here. By the end of 2013, all preparers will be licensed but currently a great preparer may not have any initials after their name. But they will have a PTIN (preparer id number).
• What experience do they have? How long have they been preparing returns and what training have they had?
• What tax returns do they do? Some preparers don’t do complex returns or returns with EITC or certain forms.
• How do they charge? Any idea on average cost? What payment options do they have? Do they bill? Please note: if they charge by the size of the refund, hang up. That is illegal and could mean that they are falsifying the return to generate a higher fee. But don’t expect the preparer to quote you an exact price over the phone. Also be aware of “extras” like fees to have the preparation charges come out of the refund and audit insurance.  
• What are their hours? What about after April 15^th? Will they be available if you need them?
• What other services do they offer? Some offer refund programs others may sell investments or insurance.
• What are their office procedures? Do they require appointments? Do they take drop-offs? Who will actually be preparing the return? How long will it take to get your completed return?
• What guarantees do they have? What happens if you get audited? What are the extra charges?
• These and the questions you come up with should help you make an objective and informed decision about a new tax pro. The next step is getting your tax return prepared. Good luck!

 

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Refund Loans

Now is the season for tax ads. The national chains, independent preparers, software companies and online filers are trying to get the attention of taxpayers who are waiting on their W-2s and other tax documents. And many are dangling money to attract clients. After all, they’re trying to make money and they need warm bodies in the door or at the computer. That means it’s up to the clients to make sure they understand all the rules of these enticements.

It doesn’t matter what a company calls their program, if they discuss getting money in fewer than 21 days, it’s a loan not just your refund. The IRS isn’t giving tax pros a refund chart as they have in previous years. Their talking point is that most refunds are issued within 21 days. This gives them a little room for checking some returns more closely if the need arises. For a tax preparer to suggest that they can get it faster probably means they have a loan program.

Refund Anticipation Loans (RAL) have been around since electronic filing began. They were a carrot to tempt taxpayers to try e-filing. Getting a refund in 3 to 4 days when everyone else had to wait 6 to 8 weeks was a great idea for many taxpayers. As more people e-filed, the IRS got faster at processing returns and the wait time went down. (Despite the IRS’s generous 21 days wait, I won’t be surprised to see most direct deposit refund to take only 8 to 10 days.) But these loans have fallen out of favor (regulators don’t like them) and are mostly gone on a national level.

But that doesn’t mean that a taxpayer can’t find someone to loan them some money based on their projected refund. Finance companies have gone after this market. Some team with tax preparers or their own employees use computer software.  And some preparers have their own bank. But the taxpayer must be careful they understand what is happening. They have to ask questions.

• Who is the lender and what relationship is there with the tax preparer?
• Are they preparing a return or just using W-2s or pay stubs for loan info and the taxpayers will still have to prepare a return?
• If they’re preparing and filing a return, does the tax preparer have a PTIN (preparer id number)? If they don’t, consider another tax preparer.
• How is the loan paid back? Is it coming out of the refund or does the taxpayer have to pay it back directly.
• When is the loan due back? What are the fees if it’s not paid back on time?
• What are the fees? Make sure the tax preparer gives you all the add-on fees and not just the “basic” charges. And I’d get it in writing.
• Will you get a full copy of the tax return and a copy of anything you signed if they are filing a return? (IRS requirements) Check these papers and make sure numbers match and when a refund is issued, check them against the refund.

There are a lot of great tax preparers out there who won’t mind answering these questions. However, the tax business has attracted a lot of fly-by-night groups who are trying to make a fast buck off trusting taxpayers. Last year, the Justice Department issued injunctions against the owners of Instant Tax Service and several of their franchisees. They used refund loans to get taxpayers in the office and them took huge fees and changed returns to increase refunds which went into their pocket. Taxpayers need to check out who they do business with and ask these questions to protect themselves.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Thank You!

I wanted to take a minute to thank everyone for their support of Our Taxing Times in 2012.

I started the blog in April of 2004 not expecting a big following. I was doing it for me. It was a way to express what I was thinking about taxes and to explain to clients what they should know about income tax and the tax preparation process. It’s grown beyond my dreams.

Our Taxing Times has given me more than an outlet for my ideas and knowledge. I have learned so much from fellow bloggers. It’s kept me studying so that I had material to write about. It’s made me think about taxes in different ways. That’s always a good thing.

I didn't do this completely alone. I have a great audience who have shared my blog with their friends. I want to thank loyal readers for their “Likes” (Thanks Cindy and Valerie). And I especially want to thank those who read my posts and share them with others. This includes fellow bloggers and twitters that link and retweet my posts. I have not been good about thanking them. So, thanks to NATP (@natptax), Robert Flach (@rdftaxpro), Joe Kristan (@joebwan), Bruce McFarland (@bruce_taxguy), and David Fazio (@davidfazioea) for their retweets and including me in their buzzes and posts. And I’m sure that I have missed some people and I do appreciate your recommendations. So many times I’ve clicked on a Twitter link to find that it was my post. Thank you!

So, on to 2013. I hope everyone has a safe new year and a great tax season!

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Congressional Con

I honestly believe that tax pros and taxpayers are being held hostage by many in Congress to save face.

Yesterday, as I’m sure you know, Rep. Boehner pulled his “Plan B” House bill because he couldn’t get enough support from his own party to pass it and told the White House that they (the WH) needs to come up with a new plan. (Actually, the WH has a plan on the table Mr. Boehner. Negotiation protocol means the next proposal should be one that your people support.) Then the House closed up for Christmas. Who knows if they’ll do anything when they get back to work after Christmas. But I bet they’ll get right to work after the first of the year and the Bush tax cuts have expired. They need to make the con look good.

After January 1, 2013, the tax increases many Republicans won’t even consider will become tax cuts that will make them look so good to taxpayer voters. On January 1st, tax rates and the rest of the extenders revert to 2001 levels. Everyone’s taxes will go up. Everyone’s taxes. Then Congress can do what it has put off all year and extend the lower rates for almost everyone. The only questions will be what will the highest rate be and what will the thresholds be on that rate? That fixed, our politicians can con tell everyone, with a straight face, how wonderful they are for cutting taxes.

As for the Alternative Minimum Tax (AMT) patch that is tied in with the Bush extenders, Congress can quickly pull it out after Christmas break and extend it or leave it with the tax provisions that die on December 31^st. AMT has already expired and will be a major problem when taxpayers file their 2012 taxes if the patch isn’t continued. If Congress doesn’t pass the AMT patch in 2012, many middle class taxpayers will find their 2012 taxes are higher than estimated. (An estimate I did a few weeks ago showed an AMT of $615 for a family of 4 with $75,000 in income.) Of course, if I was really cynical, I would say that some in Congress are playing with AMT to make their tax “cuts” look better as taxpayers forget all the details and focus on their pocketbook.

In the spirit of Christmas, I hope I’m wrong about what some in Congress are thinking. If I’m not, I really hope that they will deal with AMT separately. But right now I’m not optimistic at all. It seems like a con job to me.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

EIC Interview Sheet

I had several requests for the interview sheet I use for EIC. I just did a quick update to last year's sheet and have a link below.

Please remember that this was developed to jog my memory and make sure that I ask everything I should and it's being posted to help you develop your own guide.

2013 EIC Interview Sheet

CAF Down

The IRS has announced that the Centralized Authorization File (CAF) computers will be down for maintenance from Dec 26^th through Jan 2, 2013. CAF is where the IRS keeps the records of Power of Attorneys (Form 2824) and Tax Information Authorizations (Form 8821).

Because of the shutdown, the IRS will not be adding Forms 2848 and 8821 submitted during that time until they are back on line. But it also means that e-services can’t be used to submit the forms or to get information from the transcript delivery system. Tax pros needing to contact the IRS for a client during this time will need to have a signed copy of the Form 2848 or 8821 to fax to the agent since they will not have access to CAF to verify authorization.

 McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

No Refund Chart This Year?

Nothing directly from the IRS yet, but according to the Nov.21^st Kiplinger Tax Letter the IRS will not be giving refund dates for 2012 returns.

The IRS has always published Pub. 2043 which gave tax pros target dates for refunds. Based on when the return was electronically accepted by the IRS, we would get a target releases date for both direct deposited and mailed refunds. This was when the IRS would release the money to the bank or when they would mail the check. But because of the problems with refunds last year, the IRS looks to be defaulting to a “within about 21 days” time frame.

The 2012 filing season (2011 returns) was a mess. First, fraud filters worked too well and delayed many of the first returns filed. Then many early February returns were caught in a bottleneck caused by the new Modernized e-File system. The MeF worked well but other systems couldn’t handle the faster processing and bogged down. Once all these issues were resolved, some taxpayers still had to wait longer than projected for their refunds.

So for 2013 filing season (2012 returns), it looks like all we will get is a general 21days time frame until the return is being processed and appears in the “Where’s My Refund” database.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.