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Taxes Tips

Why Am I Paying Estimated Taxes?

When clients receive their tax return from their preparer, they may find estimated payment vouchers (1040 ES). Taxes can be paid by withholding from paychecks and making estimated payments. If there is a balance due when filing the return, a W-4 (Employee’s Withholding Certificate) might be completed to increase the amount withheld from your paycheck.

If you receive income such as interest, capital gains, alimony, prizes and awards, you may have to make estimated payments. If you own a business, depending upon the type of entity formed, you may also have to make estimated payments. If you receive a W-2 as an employee, but do not have enough withheld from your paycheck, you may be charged a penalty. This would generate a form 2210 form (Underpayment of Estimated Tax by Individuals, Estates and Trusts) with your tax return.

Who Does Have to Pay

If a tax of $1,000 or more is owed, individuals, sole proprietors, partners and sub S shareholders would usually have to make estimated tax payments.

Corporations also may be subject to estimated payments if a tax of $500 or more is due when they file their corporate taxes due on 3/15. There is a worksheet provided on the IRS website to help determine if estimated payments are required.

Who Does Not Have to Pay Estimated Tax?

Not every taxpayer is required to pay estimated taxes. If you receive a paycheck and a W-2 at the
end of the year, you probably will not have to pay estimated taxes. When you start such a job, you will
be required to complete a W-4 (Employee’s Withholding Certificate). If you find that you owe too much
tax at filing time, you may have to change the number of exemptions, or have an additional amount
withheld from your paycheck.

Categories
Taxes Tips

Who is Filing Your Tax Returns?

There are several choices when one is deciding upon a tax preparer. We will discuss all of your options and you decide which is best for you.

  1. “Ghost preparers”– These are “tax preparers” who will not sign a return or disclose their social security number in the preparer section. The Internal Revenue is engaged in a major program to register all tax preparers. Those who participate will then pay a fee to the Internal Revenue Service and be assigned a PTIN (Preparer Tax Identification Number). This will ensure that they have met some minimum requirements. The main purpose of this program is to identify and eliminate “ghost preparers” and subject those returns to the increased possibility of being audited.
  2. Tax software such as Turbo Tax, Tax Alert and H & R Block Tax Cut- The purpose of these software programs is to allow taxpayers with “simple returns” to file their own returns. These software programs will indicate “self-prepared” on the “preparer’s signature” line. This will support the limited knowledge of the preparer who could then be more likely to be audited. Those taxpayers filing more complicated returns may find themselves at the mercy of the software, with no idea of the subject matter they are dealing with.
  3. Tax legal services such as “Tax Masters” and Ronnie Deutch have become ubiquitous on the television screen. Websites such as “Ripoff.com” , “Complaintsboard.com” and Pissedconsumers.com are filled with complaints about these services. They are not local providers but merely agents of the principals located in other states. Their exorbitant fees are well known and the questionable nature of their services have been documented on the internet and in an SNL (Saturday Night Live) skit.
  4. H&R Block, Liberty Tax Service and Jackson Hewitt– these are all franchise operations. The franchisee might be an EA (enrolled agent) but the preparers usually have limited experience and knowledge. After April 15th, don’t expect the office that you used to be open. After that deadline these franchises usually have only one regional office open which makes it impossible to meet with the preparer of your return. The fees charged by the franchises are often the same or more than those charged by a Certified Public Accountant.
  5. Certified Public Accountants– They can be classified as “best in field.” They are the preferred source for tax preparation, due to their extensive education and breadth of knowledge. They are licensed by the state they are located in, have PTINS and prepare the most accurate returns for a fair rate. Only Certified Public Accountants are required to complete an extensive CPE (continuing education program). They must complete 40 hours every year in defined areas (accounting & auditing, taxes or management advisory services) or 24 hours of concentrated study in one area. In addition they must complete 4 hours of ethics during every triennial of their current certification period. This insures that they are the most knowledgeable and current in the latest changes in tax laws and regulations.

Beware of services that claim to offer the greatest refund and those that provide RALS (refund anticipation loans). Offices that offer RALS seem to be the source of the most questionable returns and those more likely to be examined by the tax authority.