Why Use a CPA?
WHETHER YOU ARE AN INDIVIDUAL OR A BUSINESS, TAX PLANNING & PREPARATION
FORM A WINNING COMBINATION TO DEVELOP TAX STRATEGIES
THAT TAKE ADVANTAGE OF TAX LAWS & LEGISLATION
Preparing your own income tax return can be a task that leaves you with more questions than answers. According to a study released by the US Government's General Accounting Office, most taxpayers believe they have benefited from using a professional tax preparer. Whether we like it or not, today's tax laws are so complicated that filing a relatively simple return can be confusing. It is just too easy to overlook deductions and credits to which you are entitled OR to miss the opportunity of getting a more favorable tax result by treating an item of income or expense in a different manner.
Do you trust tax software programs or online services to understand every nuance of your finances, even though touted as being low cost and able to do it all? Do you trust someone who took a brief training course for a seasonal tax prep franchise job? Maybe you should be using a CPA, a dedicated professional who really knows the business of taxes & finances and who is available all year round, not just during tax season. There's no substitute for the assistance of an experienced CPA.
HELPFUL TIPS TO CHOOSE YOUR TAX PROFESSIONAL:
The IRS urges people to use care and caution when choosing a tax preparer. Remember, you as the taxpayer are ultimately responsible for all the information on your tax return, even if it was prepared by another individual. Most tax preparers provide honest service to their cleints; however, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. That is why it's important to find a qualified professional.
- Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
- Avoid preparers who base their fees on a percentage of the amount of the refund OR who will give you a Refund Anticipation Loan (RAL). Tax returns processed subject to an RAL may have a higher rate of error and/or fraud. Since RAL-related fees are often based upon the amount of the expected refund, there is a financial incentive to take improper tax return positions in order to inflate refund claims inappropriately. In many instances, tax preparers who sell these products tell the taxpayer that, without an RAL, they will have to wait several weeks -- even months -- to receive their refund from the IRS. In fact, the average wait for a refund from the IRS having your tax professional use e-file and direct deposit is less than two weeks from the date of filing, with many taxpayers receiving their refunds in as few as 8-10 days.
- Use a reputable tax professional who signs your return(s) as required by law & who provides you with a complete copy, even when the return(s) are electronically filed.
- Never sign a blank return. Avoid tax preparers who ask you to do so.
- Choose a professional who you know will be around to answer questions about the preparation of the tax return months, or even years after the return has been filed. Be sure it's not someone who just sets up a storefront office for a few months at tax time, or someone who will only meet you in your home or somewhere with no established office location.
- Check the person's credentials. Only certified public accountants (CPAs), attorneys and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collections and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
- Be sure that the preparer is affiliated with professional organizations that provide its members with continuing education & resources and hold them to a code of ethics.
- Check to see if the professional has any questionable history with the state's board of accountancy for CPAs, the state's bar association for attorneys, or the Better Business Bureau.
- You may hate the idea of providing your receipts and/or records, but reputable preparers may ask to see documentation and will ask multiple questions to determine your total income & whether expenses, deductions or other items qualify. You may think they are acting like "IRS advocates", but by doing so, they are trying to help you avoid penalties, interest or additional taxes that could result in the event of an IRS audit examinaton.
DO THESE SOUND TOO GOOD TO BE TRUE? . . . Recognizing Illegal Tax Avoidance Schemes
Promoters often advertise at investment or tax seminars, through the local media or on the internet. If the promotion sounds too good to be true, it may be an illegal tax avoidance scheme. There are a large number of tax avoidance schemes out there everywhere. These schemes are typically promoted with the promise of reducing or eliminating income and other types of taxes.
- Questions to ask yourself . . . . . Is this tax promotion asking me to:
- Underreport my income?
- Intentionally omit income?
- Overstate the amount of my deductions?
- Keep two sets of books?
- Deduct all or most of the cost of a personal residence for business purposes?
- Deduct personal travel, meals, & entertainment under the guise that "everyone is a potential client"?
- Deduct excessive car or truck expenses when the vehicle is used for BOTH business & personal use?
- Deduct personal items, entertainment equipment (e.g. Wii systems), children's computers etc?
- Make false entries in my books & records?
- Claim false deductions?
- Hide or transfer assets or income?
If you answered YES to any of those questions or questions like them, then you are probably involved with an illegal tax avoidance scheme. The IRS prosecutes the preparers of fraudulent claims, and participating taxpayers could be subject to civil and/or criminal penalties. Tax evasion is a risky crime, a felony, punishable by up to five years imprisonment and include a fine up to $250,000.....or both. With tough economic conditions effecting people in all walks of life, don't be surprised to hear about some of these.
"Never Pay Taxes Again. Don't Withhold Taxes From Your Wages." Promotors may suggest that you, or your employer, NOT withhold federal income tax or employment taxes from wages paid to you or other employees, which will allow you to take home most or all of your pay. This scheme is based on an incorrect interpretation of the tax law; the courts have rejected all variations of this scheme.
"I Can Get you a Big Refund.....for a Fee!" Refund scheme promoters may ask to "borrow" your Social Security Number or give you a phony Form W-2 so it appears that you qualify for a big refund. They may promise to split the refund with you. The IRS catches most of these false refund claims before they go out. If a refund is issued, it is usually discovered and the participant ends up paying back the refund, along with stiff penalties and interest.
"I Don't Pay Taxes -- Why Should You?" Promoters talk about how they don't file or pay taxes and then charge people a fee to share their "secret". The secret they don't reveal is that many of them actually do file and pay taxes -- they just won't publicly admit it.
"So New, Your Tax Professional Doesn't Even Know About It!" Promoters use this phrase to discourage you from seeking professional advice about new tax laws. However, if there is a new tax law that could reduce your taxes, a legitimate promoter should encourage you to seek a second opinion. You should even ask for a government reference just in case your tax professional really does not know about it yet. If the investment cannot stand the scrutiny or the review of an unbiased third party, it is probably one you should avoid.
"Put Your Money in a Trust and Never Pay Taxes Again!" Promoters of abusive trust schemes may charge a fee for "trust" packages. The fee enables taxpayers to have trust documents prepared, to use foreign and/or domestic trustees as offered by promoters or to use foreign bank accounts and corporations. If a trust is legitimate, ownership of the trust assets is completely separate from your control and benefit.
Multiple Trusts, Partnerships, LLCs or Other Entities Involved. Multiple levels of entities in an investment does not necessarily mean there is anything wrong -- there may be valid business purposes for each of the entities. However, be wary of schemes that use multiple levels of entities with no apparent business purpose other than concealing the true ownership of assets and income.
When the IRS identifies an unethical tax preparer, they will select the returns completed by that preparer for scrutiny and/or audit examination. If a tax preparer recommends that you claim deductions for what would normally be personal expenses, you should be very suspicious. It would be highly advisable to find a new tax professional . . . a CPA . . . immediately.