YOU CHOSE WISELY - HOW TO CHOOSE A TAX PREPARER

choose-tax-preparer- wisely

Fun fact of the day: Did you know over half of US taxpayers hire a professional tax preparer when it comes time to file their taxes? It’s true (at least according to the IRS). Whether you use a tax preparer or not YOU are responsible for what’s on your tax return no matter who prepares it.

Tax Accountants are trust with our most personal information. Through your discussions and documentation they know about your marriage, your income, expenses, and social security numbers. That’s information your own family might now know. All of this sensitive information means that you need to choose your tax preparer wisely. To do that take a look these essentials

First let me say that most tax preparers do a great job. With that being said each and every year some taxpayers are hurt financially because they used an unscrupulous (or just uneducated) tax preparer.

Here are the tips to keep in mind when looking for a tax preparer:

  • Check to make sure your tax preparer has a PTIN. This is a Preparer Tax Identification Number. Only tax preparers who have a valid 2015 PTIN are authorized by the IRS to prepare and file federal tax returns. But this is only the first thing to look for because just because they have a PTIN does not mean they actually have the skills, education, and training to prepare taxes.
  • Representation Rights – Only CPA’s, attorneys and Enrolled Agents can represent you in front of the IRS. It’s one thing to prepare your return but can your preparer also represent you in the case of an audit or other tax issue. This lead directly into our next thing to look for…
  • Credentials – As I mentioned that main ones are enrolled agents, CPAs (Certified Public Accountants, and attorneys. There is also a new RTRP designation which means the tax preparer had to pass a text from the IRS to show a minimum level of competency. Along with this ask if your preparer keeps up on tax matters with continuing education credits and is part of a professional organization.
  • Fees – It’s ok to ask a preparer for an estimate of the cost. For new clients this will most likely be a range such as $200-$300. The range is because they won’t know your full tax situation until they get into the details of your tax return. Some tax preparers charge by the hour, some by the form, and others a flat fee. Try to avoid tax preparers that charge a % of your refund. This can lead to a conflict of interest. Since your tax preparer will get a bigger fee if you have a bigger refund they will be very aggressive in taking deductions, credits, etc.
  • This one should be obvious but make sure your refund gets deposited into your own account. Taxpayers should never deposit their refund into a preparer’s bank account.
  • Make sure your tax preparer is available after tax season and after you file your taxes. Tax Professionals might go on vacation after a long tax season but they shouldn’t close up for the rest of the year. Issues might come up that you’ll want your tax preparer to help with.
  • Records and Receipts – Ask what your preparer does with all the receipts and other tax information that they use to prepare your tax return. Good preparers keep digital copies of your information so that they can support the preparation of your return. This also provides you will a backup copy in case you lose or destroy your original tax documents.
  • Never Sign a Blank Return – Wait until your return is finalized and you have a chance to review it for accuracy before you sign. Ask if anything isn’t clear to you.
  • Make sure your tax preparer also signs the return and includes their PTIN. This is required by law and only unprofessional tax preparers will not sign a tax return that they prepare.
  • Make sure you get a copy of your tax return. Whether it’s a digital or printed copy you should keep a copy for your own records.

Follow these tips and you should have no problem finding a good tax preparer this tax season. Don’t be afraid to ask these questions of any potential preparer. After all it’s your responsibility to ensure your tax return is accurate. Or better yet ask us! PJF Tax preparers taxes for hundreds of tax clients and is still taking on additional clients for the 2015 tax season. Call or a quote today!

WHEN CAN YOU TAKE A TAX DEDUCTION FOR MEALS AND ENTERTAINMENT?

When you take a client to dinner or to a live entertainment venue, it may seem like you could deduct this from your taxes later. This is a common pratfall and has several rules attached before it can be counted as a deduction at the end of the year. In order for it to count in the first place, both meals and entertainment must be common practice in your industry and necessary to carry out. For example, a freelance programmer likely won't be taking a client to a baseball game, so it may not be deductible come tax time.

Regardless of whether it was a meal or an event, you will only be able to deduct 50% of the total expense at the most and there are exceptions, naturally. There are also two "tests" that the IRS applies when determining whether something you have listed can actually be a deductible or not. The first is called the "Directly Related Test" and the second is called the "Associated Test." If your deduction does not fit either of these two categories, it would be safer not to try to claim it at all.

Directly Related vs. Associated

In order for something to be considered "directly related," you must prove three things:

  1. The purpose of the event was to conduct business first and foremost.
     
  2. During the event, you conducted some sort of business with your client.
     
  3. You had more than just a general expectation that taking your client to the event would help gain income or a business-related benefit in the future.

Fortunately, you don't have to devote more time to business than pleasure during the event, just prove that taking your client to the event was with the intention of conducting business. The IRS also states that the event should be set in what they call a "clear business setting" to be considered Directly-Related. Examples of this include entertainment at an industry-related convention, a price rebate on the sale of your products, such as a restaurant giving a customer the occasional free meal, and almost any event designed to gain publicity.

The IRS does frown upon, and therefore may not acknowledge, certain venues and events. These include nightclubs, theaters, sporting events, cocktail lounges, country clubs, vacation resorts, athletic clubs and, despite what Hollywood might imply, golf clubs. If your meeting takes place at any of these places, there is a high chance it will not be considered "Directly Related," but it could still be considered "Associated."

For a function to be considered "Associated," you need to prove that it was associated with your business's active conduct and that it came directly before or after an important business discussion. The first point goes back to how normal it is in your industry as a whole to have such meetings in the first place, but the second point is a bit trickier. This is determined on a case-by-case basis, but you need to show that you actively participated in the business discussion or transaction. Once again, there are no constraints on time or even that the discussion took place during the meal or entertainment. The IRS's main concern is relevance.

What you Can and Cannot Deduct

The IRS's general definition of "entertainment" is pretty much what you would expect with the addition of everyone's needs, including room, food and transportation. The entertainment category is a bit tricky depending on your particular business, and will likely be outside your business's norm. If you are a gun maker and hold a gun show, this is not entertainment. If you are a gun maker and hold a concert for your employees, however, that's entertainment. One form of entertainment that is always deductible is a holiday party for your staff, so long as it isn't limited to a certain group of people within the company.

Be aware that if you and your business associates take turns paying for expenses for personal reasons, none of you can claim it as a deductible. You also cannot claim club membership fees, expenses for an entertainment facility that you own, such as a yacht, a swimming pool, a vacation resort and so on, or expenses for you, your spouse or your client's spouse. You also cannot deduct something if it is too lavish. For example, you can't claim a luxury limousine when all you needed was a standard rental car.

FINALLY, A SHORT GUIDE ON HOW TO (PROPERLY) TAKE THE MILEAGE DEDUCTION....

Ok, I'm going to clear up a couple things on one of the most often misunderstood tax deductions of them all...mileage.

This robot isn't worried about the mileage deduction because he works with PJF Tax

First off I am specifically referring to business mileage as this is the most often used type of mileage deduction (there is also charitable and medical).

There are three types of mileage, Business, Commuting, and Personal. You can ONLY deduct business mileage. Business mileage is any mileage after you get to your main place of work. This means your drive to the office and your drive back to the office are NOT considered business mileage but commuting mileage and therefore are not deductible.

Let's go through an example to clarify. 

Joe works at the local bank. He drives from his home to the bank which is 5 miles away (commuting). Joe has a client that he is meeting at the client's office. He drives 6 miles to get there (business). He has the meeting, it goes well, and he drives back to the bank, another six miles (business). After work he drives back home, another 5 miles (commuting). After he get home he goes to the grocery store for a gallon of milk. The store is 3 miles away (personal). In total Joe drove 25 miles. Of that only 10 is deductible but all of it has to be tracked. He needs to take notes on his business mileage to prove that it was business related. He should keep the addresses, name of the client, and the time/day he visited the client.  

Other fun things to consider:

- If you have a home office you can usually take a lot more business mileage because you are generally always driving to a client location. Keep in mind your home office must be your MAIN place of business and not a secondary office.

- Travel between your home and a temporary work location is deductible

- Working during your commute (work phone calls for example) or placing advertising on your car does not make commuting mileage deductible.

- You can only ever take mileage or actual auto expense (gas and repairs), never both.

- There are apps, like mileage bug, which will help you track your mileage. Remember you NEED to have support for any deduction you are taking, including mileage. A mileage log is a good way to do so.

Here is our mileage tax organizer that we use for clients to help track mileage.

2014 Mileage and Auto Expense Worksheet

Do you need some more help with tracking your mileage properly? Contact us or schedule an appointment to have your taxes prepared today!

Death and Taxes – How to deal with Deceased Taxpayer (Decedents)

When someone passes away the last thing you want to be thinking about is taxes. But the IRS can be cold-blooded and ruthless – when they want their money they are going to get it. So it may be your responsibility to file a final tax return for the decedent. Below is some help to make this process a little easier.

First off, a personal representative of the deceased’s estate, generally called the executor or administrator, is in charge of the decedent’s property. This person has the responsibility of filing the final income tax return of the decedent called an estate tax return when it’s due (Most years on April 15th). For additional info on the responsibilities of a personal representative can be found in the IRS guide Survivors, Executors, and Administrators Publication 559.

deceased-taxpayer

As odd as it sounds, the filing requirements for the deceased are the same as they are for the non-deceased (If that makes sense). Think of it this way, if the person were still alive would they need to file a tax return? If the answer is yes then the personal representative will have to file a tax return for them.

The final tax return should show only the items of income the decedent actually received and that were credited to his or her account during the year or that were made available to them without restriction prior to death. As well the final return can claim deductions for expenses the decedent paid before death. This all assumes the taxpayer/decedent used the cash basis method of accounting which is also the most common. If you are not sure, odds are the taxpayer was on the cash basis, although I cannot guarantee it. If you know they were not using the cash basis then you need to use that method when filing the final return.

When filling out the tax return write the word “DECEASED,” on the top of the tax return along with the decedent’s name and date of death. If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. If not filing jointly write the decedent’s name in the name field and the personal representative’s name in the address field. If the deceased taxpayer is due a refund you might have to file an additional Form 1310 with the tax return - If you are a surviving spouse filing a joint return or a court-appointed personal representative filing an original return for the decedent you do not have to file a Form 1310. Court certified representatives must attach a copy of the court documents stating the appointment to the tax return.

As for signing the actual return, an appointed personal representative must sign and if it’s a joint tax return, the surviving spouse must also sign.

If you are the surviving spouse and there is no appointed personal representative, you need to sign the tax return and write “Filing as surviving spouse” in the signature area.  Surviving Spouses can file a final joint return in the tax year in which the death occurred.

If there is not an appointed personal representative and no surviving spouse the person in charge of the decedent’s property must file and sign the tax return as a “personal representative.”

You can use this handy link to find out if you even have to file the deceased’s tax return Do I Need to File a Tax Return?

FAKE CHARITIES ON TOP OF IRS "DIRTY DOZEN" TAX SCAMS FOR 2015

Tax Preparation Services in Plymouth MN

The IRS just came out with a warning for charitable minded tax payers. There has been an uptick in groups masquerading as a charity. It actually makes their Dirty Dozen Tax Scams List of 2015. A list, compiled annually, showing the most common scams that taxpayers may encounter. These scams always seem to pick up during filing season. 

IRS Commissioner John Koskinen advises taxpayers to maintain vigilance when donating money. "When making a donation, taxpayers should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities RS.gov has the tools taxpayers need to check out the status of charitable organizations."

I found the tools Mr. Koskinen was referencing here

Illegal scams carry harsh penalties, interest, and possibly jail time. The IRS teams up with the department of justice to shut down these scams and prosecute the criminals running them.

TIPS WHEN MAKING CHARITABLE CONTRIBUTIONS.

  1. Watch for Charities that have similar sounding names to large national organizations. For example Instead of Salvation Army maybe its Salvation Navy....Or American Cancer Society instead is American Cancer Club. Either way stay cognizant, even though you think you have heard of them before make sure its the legitimate organization.

  2. Don't Give our your personal information - especially financial information like social security numbers, passwords, etc. When making donations you might have to provide some info but think about what they are asking for and why they would need it. Note it is common to use a credit card to make a donation so you just have to be even more certain when making a charitable contribution this way.

  3. Don't give cash. Both for security reasons and because you need to keep records of your donations for tax purposes, cash is not a good way to donate. Use check, credit card, or some other way that provides documentation.

Along the same lines fake charities tend to pop up right after natural disasters and other tragedies. Scam artists create fictitious charities or just impersonate well known charities to get money and information from well intentioned taxpayers. These people will call and email people in an affected area, even stooping so low as to call on victims of the disaster. Fake charity websites also tend to start up during these times as well.

Remain cognizant and perform some due diligence before giving away your hard-earned money.

I didn’t file my Tax Return – Am I going to jail?

Tax Preparation Jail Picture

What really happens if you don’t file your tax returns?

If you haven’t filed your federal and state income tax return for this year or previous you could be in big trouble. Don’t mess with the IRS. But you’re in luck, here is what you need to do to get back in the IRS’ good graces.

Step one FILE YOUR FLIPPIN’ TAXES!

There’s all sorts of tools and resources available on our website but also on the IRS.gov. They have an Interactive Tax Assistant (ITA), FAQs and Tax Trails.

But Tax Man, I’m not sure if I even need to file my taxes. Ok, well then you had better go here and figure that out firsts. Visit Do I Need to File a Tax Return or check out Pub 17, it’s not a hip new beer joint, it’s a document called Your Federal Income Tax for Individuals. Read it if you’re still not sure.

But Tax Man, what if I can’t pay the tax I owe. Ok, so if you are required to file a return, but you can’t pay the full amount of tax due, the IRS might allow you to get on a payment plan. For more info on your payment options, refer to this handy IRS guide.

If you don’t file it will cost you.

If your return was not filed by the due date (including extensions of time to file), you may be subject to the failure to file penalty (unless you have reasonable cause for your failure to file timely). If you did not pay your tax in full by the original due date of the return (regardless of extensions of time to file), you may also be subject to the failure to pay penalty (again unless you have reasonable cause for your failure to pay timely). Additionally, you could also be charged interest on the taxes you haven’t paid by the due date, even if you filed an extension. Remember an extension is only an extension to file not to pay. And finally to add insult to injury, interest is also charged on the penalties.

There’s some good news. If you don’t owe any tax and are instead due a refund there is no penalty for failure to file. But, don’t wait. If you delay in filing your return and claiming your refund, you are at risk of losing your refund altogether. The original return which claims a refund must be filed within 3 years of the due date in order for a refund to be allowed (in most instances). After the three-year window closes, the refund statute prevents the issuance of a refund check and the application of any credits, which includes overpayments of estimated taxes and/or extra withholding taxes. However, the IRS plays by different rules. The statute of limitations for the IRS to assess and collect any outstanding balances does not start until a return has been filed. If you file your return the statute of limitations starts and is ten years. Another reason to get that return filed ASAP.

Finally, if you need help actually preparing and filing the return that’s what we do here at PTF Tax – Help people file and prepare their tax returns. Contact us or schedule a meeting today to see how we can help.

MISSING W2? NO PROBLEM. HERE'S WHAT YOU NEED TO DO.

help with lost tax documents

You should have received your W-2 Tax Forms (the ones that show your earnings and tax withholdings) by the end of January. You will need one of these for each job that you worked at during the year (unless you were a contractor in which case you will receive a 1099). These will be necessary to file your taxes. If you haven't received all your W-2's by the end of January I would suggest giving it a little more time to account for mailing time or your employer may have just been late in filing. But if you haven't received these forms by the middle of February it's probably about time to start looking into it. Here's what you need to do:

  1. Contact your Employer - This should always be your first step and will probably be much easier then calling the IRS. Ask your employer's HR department for a copy or if it's a small business you might have to talk directly to the owner. While your at it you should check to make sure they have the correct address. This is the most common reason tax forms are never received.
  2. If, for whatever reason, you can't get a copy from your employer you can call the IRS. Their phone number is 800-829-1040. The IRS will then send a letter to your employer requesting the information. Make sure you have the following info before calling:
    1. Name, Address, Social Security Number, and Phone Number
    2. Employer's Name, Address, and Phone Number
    3. The Dates you worked for the employer
    4. An Estimate of the wages and federal income tax withheld during the year. Note: If you have pay stubs they should show the year-to-date amounts which will be very close to what would show up on your W2.

FILE YOUR TAX RETURN ON TIME

Your tax return is due on April 15th even if you have not received your W2. You can extend your return by filing Form 4868 which will give you until October 15th but remember this is only an extension to file not to pay any tax that you might owe. If you still don't have your W2 but are ready to file you can use a Substitute W2 Form 4852.  Estimate your wages and tax withholdings as best you can. The IRS will take more time to verify 

FILE AN AMENDMENT TO MAKE CORRECTIONS LATER

If you file your tax return with estimates and receive your W-2 later you are required to amend your tax return if the information is different. You can do this by filing form 1040X. This is not as hard as it sounds - you just show the differences from one return to the next and then calculate the tax effect of the changes. 

MISSING HEALTH INSURANCE FORM?

Since we are on the topic of missing tax forms, if you purchased health insurance off the exchanges you should be getting a form 1095-A. This is new this year which is why I'm reminding you. This form is also required to fill out an accurate tax return and could be beneficial if you are eligible for a tax credit.  If you didn't receive this form you should contact your marketplace.  For those of you in the great state of Minnesota you'll want to contact MNSure