Tips to a Successful Tax Return

Having the right team of advisors is critical to achieving your financial goals faster than you ever thought possible. For most people, taxes are the single biggest expense. This makes finding the right tax preparer for your team extremely important.

HOW DO YOU FIND A TAX PREPARER THAT IS RIGHT FOR YOU?

First, not all tax preparers are the same. I previously wrote an article about this last year titled: “Tax Returns – Are they really all created equal”, and you may be as surprised as other readers about just how much tax return preparation can vary.

In fact, I calculated the average savings I typically find from annual tax savings, reducing professional fees and audit assessments. In total, the average savings are:

– $23,750 Annual tax savings

– $5,000 Audit defense savings

– $10,000 Reduced audit assessment savings

– $50,000 Reduced legal fees

– $3,000 Reduced tax return preparation fees

This is a total average potential savings of $91,750! Your tax preparer does make a difference! How much more could you do with these savings?

Second, the right tax preparer for you depends on what is important to you. Take a minute to answer this question:

WHAT MAKES YOUR TAX RETURN SUCCESSFUL?

How you answer this question will impact what type of tax preparer you need on your team. I’ve asked this questions to clients, prospects and colleagues. I have compiled the most popular answers and what it means to you as you find the tax preparer for your team.

ANSWER #1: Paying the least amount of tax legally

Your tax preparer needs to:

– Know the tax law very well and know how to be creative legally.

– Ask you a lot of questions about your situation in order to understand your situation and goals.

– Have a review process where at least one other person reviews your return solely for the purpose of how to reduce your taxes legally.

HERE ARE SEVEN (7) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER TO DETERMINE IF IT’S A GOOD FIT:

Q1: Can you tell me about the other ___________ (your industry) you service?

A: Your tax preparer needs to know how the tax law applies to your situation. Having other clients in your industry or with similar investments indicates that the tax preparer is likely to be familiar with the tax laws that impact you.

Q2: Who will be working on my tax return?

A: It’s very common (and a good business practice) for tax preparers to have staff prepare your tax return. You want to make sure the other people working on your return have the same level of expertise.

Q3: What is your tax return review process?

A: Tax preparers who are focused on reducing your taxes will have this built into their review process. Usually it involves having another experienced tax preparer review the return solely for the purpose of finding ways to reduce your taxes.

Q4: What would you have done differently on my past tax return?

A: Show the tax preparer you are interviewing your prior year tax return. Creative tax preparers will be able to give you at least one idea of what you can do to reduce your taxes by looking at your tax return for just a few minutes. If it’s creativity you are after, this is a great question to ask! But don’t expect the tax preparer to give you all the details right then and there – that’s why you pay them!

Q5: How much can you save me in taxes?

A: While it’s difficult for any tax preparer to answer this in just a few minutes of looking at your past tax return, it is possible for them to know if they can save you taxes after spending 30 minutes with you.

Q6: What deadlines do you impose on clients?

A: This may seem like an odd question for minimizing your taxes but it has a direct impact. If your tax preparer allows you to provide your information a week before the tax return is due, it’s very unlikely that the tax preparer will have the time to focus on your return to truly minimize your taxes. Tax preparers that want to reduce your taxes want your tax return information early and will communicate that to you.

Q7: What recent tax law changes should I be aware of?
A: To minimize your taxes, your tax preparer needs to know the tax law inside and out, which includes the latest changes. Your tax preparer needs to be able to answer this question without hesitation.

ANSWER #2: Minimizing tax return preparation fees Your tax preparer needs to:

– Focus on the tax work and recommend someone else for the non-tax work (such as bookkeeping).

– Request tax information in a certain format.

– Require you to input your information online.

HERE ARE TWO (2) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER REGARDING MINIMIZING RETURN PREPARATION FEES TO DETERMINE IF IT’S A GOOD FIT:

Q1: What can I do to reduce my tax return preparation fees?

A: To minimize your tax return preparation fees, your tax preparer always needs to have your fees in mind. Ask your tax preparer what you can do to reduce your fees. If you don’t get at least 2 suggestions, your tax preparer probably isn’t thinking about how to keep your fees low.

Common suggestions include:

– Have someone other than the tax preparer do your bookkeeping. I am always skeptical when a tax preparer does the bookkeeping. First, they either charge an arm and leg or if they reduce their rates to accommodate you, it means they don’t spend their time entirely on tax issues, which could indicate their tax skills aren’t up to par.

– Organize your information. Don’t bring your tax preparer a shoebox! A tax preparer that is really focused on keeping your fees down will have forms, spreadsheets and other tools available for you to use to organize your tax return information.

– Enter your information online. Many tax preparers now require clients to input their information online. Accurately entered information can help reduce fees. Caution: Information that is entered inaccurately can increase your fees!

Q2: What is your fee structure?

A: Your tax preparer needs to be able to answer this question with confidence. Any wavering could indicate that the tax preparer knows the fees are too high for you but just doesn’t want to tell you. Unfortunately in these situations, you find out too late!

ANSWER #3: Reducing audit risk Your tax preparer needs to:

– Know the tax law very well and how to properly report your activity.

– Understand the IRS’s current “hot buttons” or “red flags.”

– Offer an audit defense plan.

HERE ARE FOUR (4) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER IN REGARDS TO REDUCING AUDIT RISK TO DETERMINE IF IT’S A GOOD FIT:

Q1: How many audits have you been through and what triggered the audit?

A: The most important part of this question is what triggered the audit. If it was triggered by how something was reported, then that may be something the tax preparer had control over (and may be a bad sign for you).

Q2: What was the outcome of the audits you have been through?

A: A return can be randomly selected for audit or selected because of a certain activity (even though it was reported correctly). So it’s important to understand the outcome of the audits. Was additional tax assessed or were there no changes? Additional tax may indicate that something was not reported properly.

Q3: Do you offer an audit defense plan?

A: Tax preparers that are confident in their work will offer an “insurance” program that covers their professional fees to handle your audit if your return is selected for audit.

Q4: What is your tax return review process?

A: Although tax returns can be selected randomly for audit, many are selected due to how items are reported on the tax return. Tax preparers who are focused on reducing audit risk will have a review process that includes another tax preparer reviewing your return solely for accuracy of reporting.

Be selective with the tax preparer you put on your team. The average savings I find for my clients is over $90,000! Your tax preparer makes a difference!

The Importance of Filing Your Tax Return

A tax return is a form that must be filled in for the Inland Revenue (now HM revenue and Customs) with details of things like your income. From the tax return, the amount of tax you are liable for is calculated.

If a tax return is issued you have a legal liability to fill the thing in. If not you will have a £100 penalty issued. Those individuals who complete returns using software are sent a notice advising them that a tax return is due. If a taxpayer is not issued with a tax return but has tax due they should notify HMRC who may then issue a return. Preparing a tax return is one of those things we tend to build up in our minds as a big deal, when it doesn’t have to be. It’s like painting the living room. Prepare and lodge your own tax return electronically.

A tax return is sometimes required for other reasons, for example to check if the correct tax has been paid overall. So if you are sent a tax return, you must fill it in and send it back even if you believe that you have no extra tax to pay. A tax return is a document filed with HMRC that declares a taxpayers liability for being taxed, based on their yearly income. Three outcomes are possible from filing a tax return: either the taxpayer has either been charged too much or too little for their income, or they have been charged the correct amount. A tax return is a form on which you are asked to report your income and capital gains, and give details of reliefs and allowances claimed, for a particular tax year. The tax year runs from 6 April to 5 April, and the tax return covering the year ended 5 April 2008 is sometimes called the ‘2008 tax return’, or the return for 2007/08.It applies to taxpayers who are identified as requiring a tax return and who are issued with a notice to file or a paper self assessment tax Return incorporating a notice to file. It also applies to people who make a claim outside a tax return. If you are newly self-employed it is not enough simply to file a tax return by October 31 for the tax year in which you became self-employed. You must tell HMRC that you have started to work for yourself within three months of doing so – you face a fine of £100 if you don’t. Further, at death, the executor of your estate must also file an Estate Tax return.

HMRC have 12 months from the date of filing the return in which to open an enquiry, provided that the tax return is submitted by the applicable deadline for the method used. If a return is submitted after the deadline for that method, HMRC have up to and until the quarter day following the first anniversary of the date the return was filed, in which to open an enquiry. HMRC may sometimes refer to such cases as ‘investigations’, in order to distinguish them from enquiries pursued under the S9A powers. In such cases HMRC have to rely on the information powers in TMA70/S20 to support the investigation or seek a Regulation 10 notice (General Commissioners (Jurisdiction and Procedure) Regulations 1994 – SI1994/1812) from the Commissioners in an appeal hearing. HMRC’s local office structure has been dismantled but the new structures do not appear to provide adequate support mechanisms. There is little doubt that this issue is the biggest single cause for concern among tax technicians and accountants, who represent the largest number of qualified tax advisers in the UK, many of whom deal with HMRC on a very regular basis. Remember that if you do file your tax return on time and do not breach rules you are far less likely to attract the attention of the HMRC investigators.

All About Filing Delinquent Tax Returns

If you are a non-filing taxpayer, it’s important to know the steps to take to become current with your tax return obligations. There are many things to consider when going forward and filing returns that are past due. The longer you wait to file your returns, the more interest and penalties you will accrue. The best time to become current is always as soon as you possibly can.

Delinquent returns should be as accurate and conservative as possible. These returns are going to be under greater scrutiny with the IRS and it’s important that you not take deductions if you cannot prove you are eligible. Better to be extremely conservative and avoid being audited.

Proving Your Income

It is extremely important that you are able to actually prove the amount of income you are claiming on your delinquent tax returns.

There are a variety of ways to accomplish proving your income on a delinquent tax return, these include:

1. Indirect Net Worth Method

2. Indirect Expenditures Method

3. Indirect Bank Deposits Method

4. Transaction Method

5. Form W-2

6. Form 1099

7. Financial Statements

8. Deeds

9. Credit History

10. Credit Reports

11. Phone & Utility Statements

12. Credit Card Statements

13. Bank Statements

You should try and put together any and all the information you can gather to prove the income you are stating on your delinquent tax return. The more information you have, the better your situation will be in case of an audit.

Should I File One or All Of My Delinquent Tax Returns?

Legally you are required to file all returns that you did not file in the past. Some attorneys and CPAs will recommend that you only file six years of delinquent returns because of the statute of limitations for prosecuting taxpayers for not filing their return. However, there is no statute of limitations for assessing tax on tax returns that were never filed. That is why it is in your best interest to file all delinquent tax returns as soon as possible.

Even though you are recommended to file all delinquent tax returns, some may be harder than others to accurately assemble. If it has been many years and you are unable to honestly and accurately state your income, then it may be in your best interest not to file that return. In these situations, the IRS will investigate your ability to file a specific return and make a judgment call on whether they will require you to file it or not.

The Process Of Filing Delinquent Tax Returns

There are two ways to file your delinquent tax returns. One is through the IRS Service Center and the other is through the Automated Substitute for Return Unit. Once you submit your return through one of these systems the IRS will send an invoice for failure to file, failure to pay, penalties and interest.

The IRS is limited to one inspection of your books and records per tax period to determine the correct tax to assess you. This may include additional contact from the IRS to verify information or ask additional questions about a specific part of your return.

If your case is already in the collection process and your tax return resolves the issue, further collection efforts will stop. However, tax will be immediately assessed and interest will begin to accrue. If a Revenue Agent or Officer is involved and they are attempting to collect back taxes from you, make sure they are aware that you have filed your returns. This will show them that you are attempting to become current and will stop them from filing liens and levies against you.

Filing Business Delinquent Tax Returns

In most cases, a delinquent business tax returns will be handled by a Revenue Office or The Automated Collection System. The Revenue Officer will visit your business and try to collect information from you regarding your delinquent return(s). The Revenue Officer will then assign the taxpayer a due date for filing his delinquent return(s). If this deadline is not met, the taxpayer is considered to have willfully not filed his returns.

In situations where the taxpayer is not filing their returns like they are requested to do by the IRS, their case may be forwarded to the Examinations division or the Criminal division of the IRS.