Ten Tips to Help You Choose a Tax Preparer

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your return this year, the IRS urges you to choose that preparer wisely. Even if a return is prepared by someone else, the taxpayer is legally responsible for what’s on it. So, it’s very important to choose your tax preparer carefully.

This year, the IRS wants to remind taxpayers to use a preparer who will sign the returns they prepare and enter their required Preparer Tax Identification Number (PTIN).

Here are ten tips to keep in mind when choosing a tax return preparer:

1. Check the preparer’s qualifications. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes. The IRS is also phasing in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney have met minimal competency requirements. Those subject to the test will become a Registered Tax Return Preparer once they pass it.

2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.

3. Ask about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.  Also, always make sure any refund due is sent to you or deposited into an account in your name.  Under no circumstances should all or part of your refund be directly deposited into a preparer’s bank account.

4. Ask if they offer electronic filing.  Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return.  More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990.  Make sure your preparer offers IRS e-file.

5. Make sure the tax preparer is accessible.  Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

6. Provide all records and receipts needed to prepare your return. Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items. Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 using your last pay stub. This is against IRS e-file rules.

7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

8. Review the entire return before signing it.  Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

9. Make sure the preparer signs the form and includes their PTIN.  A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.  The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 from www.irs.gov or order by mail at 800-TAX-FORM (800-829-3676).

Source: www.irs.gov

Taxpayers Warned of Changes for Tax Season

While 2011 ended without many last-minute tax law changes aside from the payroll tax cut extension, taxpayers should still be aware of a number of changes.

CCH principal federal tax analyst Mark Luscombe highlighted several tax provisions that will affect the 2011 tax filing season.

Provisions specific to individual taxpayers include:

• First installment of taxes owed on 2010 Roth conversions.  Individuals who did a Roth conversion in 2010 and elected to spread the tax payment over 2011 and 2012 will have to pay one-half of the tax owed on their 2011 income tax return. However, if a taxpayer took a distribution in 2011 from their 2010 Roth conversion, they may be required to pay more to cover taxes on the distributed amount. In addition, tax on any additional conversions done in 2011 will have to be included on the 2011 tax return.

• Changes to Form 1040. Changes affecting the 1040 include a new line (Line 59b) for repayment of the First-Time Homebuyer Credit. The repayment installment can be entered directly on Line 59b without the use of Form 5405 if the taxpayer continued to own the home and use it as their main home throughout 2011. In addition, there is no longer a line on the Form 1040 for the Making Work Pay Credit, which expired at the end of 2010.

• Changes for investors in reporting basis. Investors will see that Form 1099-B has been revised to provide for their broker to report the basis of transactions during the year. The IRS will check to see that this information matches the basis reported on the taxpayer’s return. Additionally, these transactions should now be reported on the new Form 8949, rather than directly on Schedule D.

• Carryover basis on inherited assets may be lower than expected for some. Taxpayers who inherited assets where the estate elected to use the 2010 estate tax repeal option will receive a Form 8939 in January or February from the estate executor providing the basis information for those assets.  Estates that used the 2010 estate tax repeal option will use as the basis the basis of the asset in the hands of the decedent, or carryover basis, unless a limited stepped-up basis is allocated to that asset. This carryover basis is often significantly less than the stepped-up basis – or the value of the asset at the time of the decedent’s death.

“An heir of a 2010 estate using the 2010 estate tax repeal option who sold the asset before receiving the Form 8939 may be surprised at the amount of capital gain owed from the sale,” Luscombe noted.

•  New requirements for reporting foreign assets. Foreign Account Tax Compliance Act (FATCA) reporting requires foreign assets to be reported if they have a total value of more than $50,000 ($100,000 if married filing jointly).  FATCA is broader than what is defined under the Report of Foreign Bank and Financial Accounts, or FBAR. For example, FATCA includes stock or securities issued by someone other than a U.S. “person,” any interest in a foreign entity, and any financial instrument or contract that has an issuer or counterparty other than a U.S. “person.”  In addition to the prior obligation to report FBAR accounts on Form TDF90-22.1, FATCA must now be reported on a new Form 8938.

In addition, two tax changes broadly affecting employers include:

• New W-2 reporting of employer-sponsored health care coverage. Although it is only optional for Form W-2s issued in 2012 (becoming mandatory in 2013 under the health care reform legislation) some employees may receive W-2s for 2011 that include a new code (DD) in Box 12 and amount for employer-sponsored health care coverage. This provides the IRS with information to determine if the employer and employee have complied with the health insurance mandates of health care reform. However, as those mandates are not yet in effect, this added information on the W-2 does not impact 2011 federal tax return filing requirements.

• Employee retention credit. This credit related to 2010 hiring, however, it required retaining the employee for at least 52 weeks to qualify for the credit, thereby moving eligibility for the credit to 2011 tax returns. To qualify for the credit, the employer must have paid wages in the last 26 weeks equal at least to 80 percent of the wages for the first 26 weeks. The credit is claimed on Form 5884-B and is the lesser of $1,000 or 6.2 percent of the retained worker’s wages during the period.

In addition, taxpayers should know about two new regulations affecting tax preparers for 2011:

• E-filing mandate. Starting with tax returns filed in 2012, tax preparers must e-file if they are filing 11 or more returns. This is up from more than 100 returns for the last filing season. There are limited exceptions: clients may in writing instruct their preparer that they want to opt out of e-filing; and a preparer can apply to opt out due to hardship by notifying the IRS via Form 8944.

• Tax preparer exam. The IRS now requires paid tax preparers other than attorneys, CPAs and enrolled agents, to take and pass an exam. These preparers have until December 31, 2013 to pass the test.

Separately, the Internal Revenue Service also highlighted a number of changes Wednesday:

Two extra days to file and pay. Taxpayers across the nation will have until Tuesday, April 17, 2012, to file their 2011 income tax returns and pay any taxes due. Taxpayers have extra time because April 15 falls on Sunday, and Emancipation Day, a holiday in the District of Columbia, is observed the following day on Monday, April 16. By law, filing deadlines that fall on D.C. holidays are extended to the next day that is not a Saturday, Sunday, or holiday.

The April 17 deadline applies to any return or payment normally due on April 15. It also applies to the deadline for requesting a tax-filing extension and for making 2011 IRA contributions.

Limited Nonbusiness Energy Property Credit available in 2011. This credit generally equals 10 percent (down from 30 percent the past two years) of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down from the $1,500 combined limit that applied for 2009 and 2010). In addition, the energy standards are increased for most property; windows, exterior doors and skylights, for example, must meet Energy Star Program requirements.

Because of the way the credit is figured, the IRS noted, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2011. That’s because homeowners must first subtract any nonbusiness energy property credits claimed on their 2006, 2007, 2009 or 2010 returns before claiming this credit for 2011.

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not. See Form 5695 and its instructions for details.

Standard mileage rates up in 2011. The standard mileage rate for business use of a car, van, pick-up or panel truck is 51 cents a mile for miles driven during the first  six months of 2011 (January through June) and 55.5 cents a mile for the rest of the year, up from 50 cents for 2010.

The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents a mile from January through June and 23.5 cents a mile after that, up from 16.5 cents per mile in 2010.

The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

AMT exemption increased. For tax-year 2011, the alternative minimum tax exemption increases to the following levels:

• $74,450 for a married couple filing a joint return and qualifying widows and widowers, up from $72,450 in 2010.
• $37,225 for a married person filing separately, up from $36,225.

• $48,450 for singles and heads of household, up from $47,450.

Health insurance deduction for self-employed people. In 2011, eligible self-employed individuals and S corporation shareholders can use the self-employed health insurance deduction to reduce their income tax liability. Eligible taxpayers still claim this deduction on Form 1040 Line 29. Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. In addition, premiums paid to cover an adult child under age 27 at the end of the year, also qualify, even if the child is not the taxpayer’s dependent. However, the deduction from self-employment income for determining self-employment tax, which was available only in tax-year 2010, no longer applies.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. For details see Publication 17 and the instructions to Form 1040 (including a worksheet).

Change for HSAs and MSAs. Starting in 2011, the additional tax on distributions from a health savings account (HSA), not used for qualified medical expenses, increases from 10 percent to 20 percent. Report on Form 8889 . Similarly, the additional tax on distributions from an Archer medical savings account (MSA), not used for qualified medical expenses, rises from 15 percent to 20 percent. Report them on Form 8853.

Source: www.accountingtoday.com

Filing season begins and FREE tax preparation is available

The filing season for tax year 2011 is here. To get help with tax preparation and find out about possible tax credits and deductions, you should take advantage of IRS sponsored free volunteer tax preparation programs. The Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs are free for qualified people.

Qualifications for free assistance:

VITA offers free tax preparation help for people with incomes of $50,000 or less. With more than 5,000 VITA sites nationwide, the IRS continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services.

TCE provides free tax help to people who are age 60 and older, specializing in questions about pensions and retirement unique to seniors. TCE is operated by AARP and other community organizations that receive grants to run these programs. With more than 6,000 TCE sites nationwide, you are sure to find one close to you.

Both the VITA and TCE programs provide free basic income tax return preparation to qualified individuals in local communities. Trained and certified volunteers can inform you about special tax credits for which you may qualify, such as the Earned Income Tax Credit, Child Tax Credit, and Credit for the Elderly.

In addition to the traditional face-to-face tax preparation services offered in previous years, IRS is launching a service which is available at select VITA and TCE locations for the upcoming filing season. Some sites will offer the opportunity for qualified taxpayers to prepare and e-File their own returns, with the help of an IRS-certified VITA/TCE volunteer, using popular, easy-to-use tax preparation software. Whether you prefer to have a volunteer prepare your return or choose to do it yourself with the help of a volunteer, these FREE services will give you the help you need.

You can typically find locations and hours for these volunteer tax preparation sites through city hotlines and local community organizations. Beginning in February, you’ll be able to search on www.irs.gov, keyword VITA, and find the VITA site nearest you. You can also call the IRS toll-free at 1-800-906-9887.

To find a site operated by AARP Tax-Aide, visit www.aarp.org or call 1-888-227-7669.

Note: April 17 is the due date for filing individual tax returns, (April 15 falls on a Sunday and Monday, April 16, is Emancipation Day, a federal holiday).

Source: www.irs.gov

Where to get IRS forms and publications to prepare your taxes

If you are getting ready to file your taxes and looking for the right tax forms without having to go to an IRS office, look no further than your own computer. The IRS website has every possible tax form you’ll ever need to complete your federal tax return. You can also place an order anytime you want for FREE.

                         

                        Internet - IRS tax forms and publications are available for FREE download 24 hours a day at www.irs.gov. You can also order them through an Online Service

                         

                        Written request - Receive your tax forms and publications by mail. Just send your written request to Internal Revenue Service, 1201 N. Mitsubishi Motorway, Bloomington, IL 61705-6613.

                         

                        Community locations – Taxpayers can also pick up some of the most-requested forms, instructions and publications at many public buildings. Some libraries, large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.

                         

                        Telephone - Call 1-800-TAX-FORM (1-800-829-3676) to order current and prior year forms, instructions and publications by mail. You will usually receive your form(s) within 10 days.

Due to the continued growth of electronic filing, the IRS is no longer automatically issuing paper tax packages. Take advantage of electronic filing and all of the free options that are available to help you prepare your taxes today!

Source: www.irs.gov

You can get copies of your tax return and tax account information online

Automated self-service applications make ordering copies of your tax return transcripts and tax account transcripts convenient and easy. Whether you choose the online option or the automated phone service, you will find these self-service options available any time, day or night, when it’s convenient for you.

To order online go to www.irs.gov, select the Individuals tab and click on the topic, Need a Copy of Your Tax Return Information? Next, click on the Order A Transcript link and follow the three easy steps. You must provide your Social Security number or IRS Individual Taxpayer Identification Number, date of birth, street address and ZIP Code or postal code.

To order by phone, call 1-800-908-9946, an IRS automated phone line and follow the voice prompts. You must provide your SSN or IRS ITIN, date of birth, street address and ZIP code or postal code.

You may also order transcripts by mail using IRS Form 4506T, Request for Transcript of Tax Return available on www.irs.gov. You will find instructions and mailing addresses on page two of Form 4506T.

A tax return transcript shows most line items from your tax return as originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.

A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.

The IRS does not charge a fee for these transcripts, which are available for the current tax year and the past three tax years. You should allow 5 to 10 business days for delivery when ordering online or through the automated self-service phone line. The IRS provides processing times on Forms 4506T.

Source: www.irs.gov

Tell One Person

Tell someone you know about the Earned Income Tax Credit – or EITC – and ask them to pass it on.

EITC is a tax credit that can return as much as $5,751 to people earning less than $49,078. The Internal Revenue Service estimates four of five eligible workers claim and get their EITC. Help us increase awareness and make that five of five, because, EITC is not automatic.

To get their credit, workers must file federal income tax returns, even if they are not otherwise required to file, and specifically claim the credit. So, tweet about EITC, blog about it, talk about it on your Face book page, or just tell a friend. Grab-and-go social media products make it easy.

Your simple act of spreading the word could mean more workers get what they have already earned.

Source: www.irs.gov