Over-Taxed and Overwhelmed by Tax Law Changes?

By Eleanor A. Wagner, CPA, MST, Senior Tax Manager

Reprinted from Community Health Magazine - Spring 2011

When most people consider their health, they think about factors like diet, exercise and stress. But March is the perfect time to start thinking about your financial health, as well, specifically your personal income taxes.

The IRS tax filing deadline is April 18 for 2011, so if you haven't gathered your annual tax records yet, now is the time to do it  (your state deadline may not have changed and still be April 15).

Getting ready for tax filing can be a challenge. Every year, people's lives change — they buy and sell houses, take new jobs, have kids, and buy and sell stock. Those are just a few factors that will help you determine if you need help with your taxes or if you can go it alone.

If you meet the following circumstances, you can probably do your taxes by yourself:

• You work for only one employer who gives you a W-2 each year.
• You rent your residence, and don't own a home or vacation property.
• You don't have kids or other dependents.
• You don't have complex investments, such as a partnership, trust or extensive stock holdings.
• You like numbers, and are willing to investigate annual changes to the tax code.
• You're comfortable doing computations by calculator, by hand or using tax software.

For do-it-yourselfers, the Internal Revenue Service's Free File program is aimed at helping taxpayers prepare and e-file their federal tax returns for free. You can learn more about the service at www.irs.gov, select Free File  (the program is generally for filers with adjusted gross income less than $58,000).

But not everyone should prepare his or her own taxes. It generally makes more sense to get help if:

• You're buying or selling property.
• You own a business or rental property.
• You get regular income from a trust or partnership.
• You trade investments frequently or have a complex portfolio.
• You've undergone a major financial impact during the previous tax year, such as a divorce, the death of a spouse, an inheritance or a move of more than 50 miles for a job.
• You’re supporting a college student or a parent/grandchild who is living in your household
• You don't have time to prepare your return
• You are subject to the alternate minimum tax (AMT)
• Your income has changed by a considerable amount from the previous year
• You do not care to understand the new tax law and just want to know whether you qualify for some of the benefits

Even with professional help, you are still legally responsible for your return. That is why it is important to choose a qualified preparer and to decide why you need tax help-is  it time, complexity, some future events, a new business.  Match your needs to the right preparer.  IRS and other suggestions for finding the  right preparer:

• Ask how they charge: Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are done correctly, everyone should derive similar numbers.
• Don't believe promises: If a preparer guarantees results or bases fees on a percentage of the amount of the refund, be suspicious. Tax preparers aren't allowed to charge a contingent fee.
• Ask what preparers will need: Reputable preparers will expect you to provide receipts and other paperwork to justify the return and will ask questions
• Make sure you know exactly who's doing your return: It's OK if your preparer has on-site staff assistance, but the person you hire needs to be the person who reviews your return and signs off on it.
• Check credentials: Find out if the preparer is an enrolled agent or CPA and is registered with the IRS.  Each preparer is required to pursue yearly continuing education and is bound by a code of ethics to keep their designation.
• Be aware of tax scams: If you have a preparer encouraging you to get involved in complex tax avoidance strategies, check them out before you agree to jump in.
• Is EFile Service available:  Ask if your return can be electronically filed with the IRS and your state, as refunds are usually received more quickly when utilizing this service
• Ask about their experience: If you need help this year and expect to in future years, ask what kind of assistance is available during and outside of the tax filing season and if they have experience with your situation.

About the Author:

Eleanor A. Wagner, CPA, MST is a senior tax manager with Cottrill Arbutina. In this role, she performs tax planning and preparation for businesses, not-for-profit organizations and credit unions. Among her accomplishments have been obtaining tax exempt status for a startup entity providing residential housing to moderate income individuals. She has advised a high net worth client who owned a business and wanted to transfer wealth to a disabled adult child while allowing other adult children to continue running the enterprise, thus avoiding heavy estate taxes.Contact her by telephone at 724.683.3406 or by email at ewagner@cottrillarbutina.com.

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