Prep Now for a Smoother Tax Season
1/5/2018 1:27:15 PM
Tax Prep

It’s that tedious task everyone dreads but we all must endure – taxes. While we understand it’s not your favorite subject, we’d be remiss if we didn’t try to help you through the process with expert advice and valuable resources. In this section, you’ll find hints on choosing a tax preparer, tips to avoid an audit, and a heads up on tax season scams.

How to Choose a Tax Preparer

With the holidays behind us, tax season is nearly here. If you’re not planning to do your taxes yourself but you don’t have a tax preparer, now’s the time to pick one.

But there are so many options. How do you choose?
First, check out tax preparers’ qualifications: What training did they receive? Do they stay up-to-date by taking continuing education classes? Do they have a professional license?

According to the IRS, three types of tax professionals — enrolled agents, certified public accountants, and tax attorneys — "have met substantial proficiency requirements.” These tax preparers are also qualified to represent their clients before the IRS on any tax-related matters, including audits, payment/collection issues, and appeals. Ideally, none of those issues will apply to you, but if they do, you’ll probably be grateful to have a competent professional who can communicate with the IRS on your behalf.

Other types of tax preparers who participate in the IRS Annual Filing Season Program have what’s known as "limited representation rights.” This means they can represent clients before the IRS only on certain matters. In general, tax return preparers not listed in the searchable IRS online directory can prepare tax returns but wouldn’t be able to represent you with the IRS if there were problems after your return was filed. 

You should also check a tax preparer’s history for problems like disciplinary actions. The Better Business Bureau can help with this.

In addition, if someone promises you a much bigger tax return than you were expecting before they even look at your records, it’s probably a sign that something’s fishy. The IRS also recommends avoiding tax preparers who base their fees on a percentage of your refund or who ask to deposit your refund into their own account.

Make sure the preparer offers electronic filing. According to the IRS, "any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically.”

Finally, recommends asking any potential tax preparer for references and ensuring that the office will be open after your return has been filed in the event that you — or the IRS — have questions.

In case you need more motivation to find a competent, trustworthy professional, keep in mind that you, not your tax preparer, are legally responsible for all the information on your tax return.

If you’re still not sure where to start, ask friends, relatives, or co-workers for recommendations. Once you have a list of a few options, let the research begin!

IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications:

Make a Complaint About a Tax Return Preparer:

Better Business Bureau:

Beware of Tax Scams

Most of us think we’ll never fall victim to a tax scam. We’re too smart for that, right? 

Maybe not. Some tax scammers are incredibly savvy, and even those who aren’t can catch people off guard. The best thing you can do to avoid being scammed is to stay informed. 

One of the most common scams is an IRS-impersonation telephone scam, which the IRS calls "sophisticated.” Callers using fake names and false IRS identification badge numbers claim to be IRS employees. These scammers tell victims that they owe money to the IRS and that they must pay it right away through a gift card or wire transfer.

According to the IRS, "they may know a lot about their targets, and they usually alter the caller ID to make it look like the IRS is calling.”

The scammers often target recent immigrants and threaten them with deportation. Victims with limited English proficiency may be addressed in their own language.

Here’s how to tell you’re being targeted by an IRS-impersonation scam. The IRS:
  • Usually mails you a bill first if you owe taxes and will never call to demand immediate payment using a specific payment method.
  • Will not threaten to have you arrested.
  • Will not demand that you pay without giving you an opportunity to question or appeal the amount.
  • Does not ask for credit or debit card numbers over the phone.

The IRS won’t initiate contact with you via email either. This is important to remember, as some tax scammers target victims through phishing, or fake IRS emails that ask for your Social Security number or other personal information.

As TurboTax puts it, "think twice or three times before giving out credit card or other financial information online.”
Those are the major tax scams, but they aren’t the only ones. Beware of groups pretending to be charities to attract donations from contributors looking to make tax-free donations, for example. Be especially wary of groups with names that are similar to well-known organizations.

Also watch out for return preparer fraud. According to the IRS, "the vast majority of tax professionals provide honest high-quality service.” However, "there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft, and other scams that hurt taxpayers.”

Finally, trust your gut. If something feels fishy or underhanded, it probably is. When it comes to potential tax scams, it’s better to be safe than sorry!

To see the IRS’s "Dirty Dozen” scams, visit:

To report a tax scam, visit:

To check a charity’s tax status, visit:

Avoid the Audit
Red Flags to Watch For

No one wants to be audited by the IRS. Fortunately, most of us won’t be. According to the IRS, only about one percent of people who file a 1040 tax form are audited each year. For high-income taxpayers, however, the chances of being audited are much higher: More than 30 percent of those who earn over $200,000 a year and more than 12 percent of those making upward of $1 million are audited.

Regardless of your income, "you have to have good documentation for every single thing you report on your tax return,” says Kelly Love, manager at accounting firm J. Walker & Co. "That’s the most important thing.”

Here are some other steps you should take to reduce the likelihood that you’ll be on the receiving end of an IRS audit:

Double-check your return. It may seem obvious, but you should always check your figures. According to TurboTax, erroneous data entry is one of the most common red flags for auditors. It’s also easily preventable. If you’re preparing your own tax return, wait for all of your bank statements, income reports, and other paperwork to arrive before you start. If you find an error on a 1099 form you received, ask the company to issue a corrected one rather than letting the discrepancy stand.

Report all of your income. Don’t be tempted to keep any earnings "under the table” — even if you were paid in cash. If you underreport your income, an audit might be the least of your worries. You may get in legal trouble, too.

Be careful with deductions. Deductions can lower your tax bill — sometimes by a lot. But investment website, The Motley Fool, notes that "if you don’t have impeccable records supporting those deductions, you’re opening the door to trouble.” If you want to claim the home office deduction, for example, carefully track all your expenses related to the work you do from your home office. 

Side note: Be especially cautious with the home office deduction along with deductions for things like travel and business meals. These are easy to abuse, and the IRS keeps a close eye on them. Same story for the home buyer tax credit.

File your return electronically. The chances of making an error — and potentially triggering an audit — are substantially lower with electronically filed returns. According to the IRS, 21 percent of paper returns contain errors but only 0.5 percent of electronically filed returns do. So whether you’re filing your return yourself or using a tax preparer, e-filing is the way to go.

In a nutshell, be honest, be thorough, and use e-filing. Chances are you’ll avoid the audit, but even if you don’t, you’ll be prepared.
Posted by: Andrea Mongler | Submit comment | Tell a friend

Categories: Finances

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