Although it’s not part of your job description to coach clients through their tardiness, filing taxes with missing information is simply not an option. Thankfully, there are a few methods you can adopt to mitigate the issues caused by slower clients and ensure you still complete your work to the highest standard. Follow these actionable tips to make sure this tax season is a productive one.

Why Do Clients Procrastinate?

Did you know that around 20% of adults in the US procrastinate chronically?

Usually, procrastination is linked to something much deeper, and so is avoiding an accountant. Tax season is a stressful time for accountants, but it’s not exactly easy for clients either. Acknowledging their tax obligations and providing the necessary information may be difficult for clients who are struggling financially. It’s easier for them to ignore your repeated reminders than it is to face the reality of tax season. As deadlines creep closer, the more this stress is compounded.

If you think a client might be struggling under the volume of requests, due to a recent life event, or because of changing financials, approach the situation with a gentle hand. Acknowledge their struggles and tailor your requests to their situation. For example, those clients who simply shut down when faced with a myriad of tasks might benefit from a clear action plan that outlines all necessary steps. Or, if a client has to focus on a wedding, funeral, or new baby around tax season, you should start the process of seeking the information as far in advance as possible.

How to Deal with Tardy Clients…

Now that you know why clients might be inclined to leave things to the last minute, you can approach them in the way that best suits them and your practice. These methods are common practice for many accountants across the country in the lead-up to tax season. However, employing these methods in the right way can see the best results. If a client is really pushing the deadlines, a few or all of the methods may need to be put in place to get the information you need.

1. Establish Consistent Lines of Communication

Before the age of the internet, it was much harder for accountants to chase clients in search of missing information. Nowadays, however, it’s possible for accountants and clients to be in consistent contact all year round. By establishing a consistent line of communication, you can ensure your messages will be received, and that your client can reach out if they have any issues. Although email or phone calls are standard, there are other ways you can give clients an easier route to providing information.

In particular, cloud accounting software is a great choice to make sure clients and accountants can communicate effectively. As well as this, clients can upload important documents to this platform in an easy and timely manner, so you can check them over and make sure everything is up to standard. According to Fundera, 53% of accountants use cloud accounting to enhance their services and adequately delegate tasks, on top of improving communications. Even after tax season is over and done with, cloud accounting can serve your practice in other ways.

2. Anticipate Delays and Perfect Reminders

If you have a regular client who always leaves it until the last minute around tax season, it’s a pretty safe bet they’ll procrastinate again this year. These clients may need an extra push, so it’s best to start the process of getting their necessary information a few months in advance. By anticipating these delays, you can mitigate their effect on your work, and ensure you’re not loaded with extra tasks as deadlines draw nearer.

Regular reminders are, of course, another method many accountants use to speed up the process of getting clients’ information. Using cloud accounting software, you can set up automated reminders and add these intervals into an action plan. However, not all clients will respond to these reminders positively. In fact, for some clients, more reminders will only push them to procrastinate further.

Generally, email or paper reminders should not be pushy or overbearing. Instead, remind clients why it’s vital you receive their information, why it won’t take nearly as much of their time as procrastinating will, and that they are a valued part of your practice’s day-to-day operations. If these reminders continue to fail, a phone call, video call, or in-person meeting might be the extra push clients need to hand their documents over, as well as allow you to understand their situation a little better.

3. Set Clear Timelines

However, phone calls and other reminders are easily ignored. It’s important to add a time scale to your initial information requests and any reminders you send to clients. Upon first reaching out to clients, prepare a clear action plan with a forgiving, but concrete, timeline that details exactly what information you need and when. Also, lay out why you need that information and how clients can send it to you. When sending reminders, include this helpful information again, but work within the deadlines you’ve already set out rather than setting new ones.

Again, some clients deal better with deadlines than others. If a client is going through a stressful time in the run-up to tax season, throwing deadlines at them may just compound the problem. Instead, you can still send them a general timeline of what they need to provide and when, but with no set dates. Then, you can include the final, hard deadline as the one you both must meet. This takes the pressure off your clients slightly but also creates value in the work you’re doing which may be more likely to convince them to get their documents in. However, these action plans must be provided well in advance of the final deadline to see the best results.

4. Involve a Third Party

For those clients who tend to ignore your reminders, it may be worth involving a third party from your practice. This may be a colleague with some time on their hands, or it might be a dedicated individual that your practice provides. Either way, informing your client that they’ll be monitored throughout the process may push them to upload documents in a more timely fashion. As well as this, a third party who monitors the process could also provide assistance in other ways, such as gleaning further information as to why delays are happening, establishing a personalized plan for your client, or simply setting up another point of communication should they require further help.

5. Leverage Extensions

Of course, it is possible to apply for time extensions to file tax returns if it won’t be possible for your client to provide their documentation on time. However, with this in mind, clients may be even more likely to procrastinate providing you with the necessary information. During your communication with your client, do not mention tax extensions as a possible outcome, or even as a last resort.

Instead, if a client enquires about extensions you should outline your practice’s approach to them, and whether they are at all possible for the client in question. In many cases, accountants can only file for extensions on behalf of their client with written permission, and even in this case, you will still require some preliminary information to do this. Due to this process, it’s much easier, less stressful, and less time-consuming for clients if they simply provide the necessary information you need on time.

6. Instate Consequences

As a last resort, your practice may have penalties in place for those who are late providing information. If your practice doesn’t apply these penalties or has a dedicated delay policy in place, it might be time to consider escalating the idea and setting one up. Most penalties will come in the form of added fees for those accountants who have to spend valuable time chasing information. Some practices charge up to 5% of the total tax that must be paid, while others fix their own “late” fees. Either way, clients must be made aware of these potential fees in the initial contract.

While it may not be beneficial to mention these penalties again during the action plan, informing your client that there might be far-reaching personal and professional consequences for delays is prudent. It’s also at your discretion whether you charge penalties for clients who have never been late before but are experiencing extenuating circumstances. The fees should act as an incentive for clients who tend to procrastinate, but should never further this procrastination.

Conclusion

A client with a tendency to be late can mess up your tax season schedule, leave you focused on unnecessary tasks and drag out the process for much longer than it should be. Thankfully, as an accountant, there are some simple and subtle ways to encourage the timely sharing of information. With any and all clients, reliable lines of communication are a must. Cloud accounting software can handle communication, document sharing and validation, and more all on one platform.

It may also help to understand more about your client and their lifestyle, and if anything might get in the way of them sending information to you. If you have a regular client who tends to leave things until the last minute, or a new client you suspect won’t be the most timely, anticipating this delay will save you time and effort this tax season. These clients should be given extra assistance by way of dedicated timelines/action plans, and regular check-ins with you or a third party to monitor progress.

In general, extensions should never be an option for clients who aren’t punctual; only for those who have genuine extenuating circumstances. In the most worrisome of cases, consequences such as late fees can be sought. These must be clearly laid out during the initial contract, and clients should be made aware of this possibility during regular correspondence.

Sources

• https://psycnet.apa.org/doiLanding?doi=10.1037%2F0033-2909.133.1.65
• https://www.xero.com/uk/guides/small-business-cloud-accounting/
• https://upjourney.com/how-to-politely-remind-someone-to-do-something
• https://www.journalofaccountancy.com/issues/2019/sep/dealing-with-last-minute-clients.html
• https://www.fundera.com/resources/accounting-statistics
• https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return
• https://quickbooks.intuit.com/r/payments/late-payment-fees/

The post Tips for Dealing With an Accounting Client Who Isn't Providing All the Necessary Information to File Their Taxes on Time appeared first on MoneyThumb.

The article is written by Riley Adams, a CPA who works as a senior financial analyst at Google. He also runs a personal finance site called Young and the Invested. Below is the brunt of the questions and answers from the article. Follow this link to read the full article at Kiplinger.

"April 15 has become synonymous with the tax-filing day ... but not this year. Due to coronavirus concerns, the IRS has decided to give taxpayers until July 15 to safely complete their returns and file them. The announcement, made on March 20 via Twitter by Treasury Secretary Steven Mnuchin, doesn't have all the blanks filled in yet. But this is what we know so far:"

Q: My taxes are already done, and I know that I owe money. I should just wait until July 15 to file and send in my payment then, right?

A: If you have already completed your tax return, you should still send in your return as soon as possible but can delay submitting payment until the new July 15 deadline. By filing your completed 1040 earlier, you will have more time to make and plan for the potential financial moves necessary to arrange your payment. It also allows the IRS to review your tax return and agree to your tax liability. In the event you made an erroneous tax deduction, claimed a tax credit you should not have, or made some other arithmetic mistake, you will have more time to prepare in the event the IRS disagrees with the information stated on your return.

A: If you expect a refund, filing your tax return sooner is always better, because this puts more money in your pocket sooner. Waiting to file until the deadline provides an interest-free loan to the federal government and limits your ability to have access to your money. In current circumstances, the federal government would want you to file your return immediately in order to claim this refund. Doing so would provide more potential money to circulate in the economy and guard against an impending economic recession.

Q: Could this July 15 filing delay have any impact on me receiving my refund on time?

A: Much like any circumstance were waiting until the last minute could cause a rush and stress available resources, waiting until this new July 15 filing deadline could result in delays for receiving your tax refund. If you believe you will be owed a tax refund and you can prepare your own tax return or use tax software to help you, you are encouraged to do so immediately.

Q: In the past, I've heard you should file as early as possible if you're worried about scammers stealing your identity and claiming your refund. Is that still true?

A: Sadly, by delaying the deadline, this could result in greater potential for identity fraud. By allowing scammers more time to file a return and claim a refund on your behalf, the opportunity to defraud you of your refund is greater. As a result, filing as soon as possible is always recommended because even if you owe taxes, you will have until July 15 to submit payment.

In the event you expect a refund, the safest way to file your tax return is by e-filing your 2019 tax return and then opting to have your refund directly deposited into your bank account. This will get you your refund sooner and safer, assuming the provided info is correct. By e-filing, the IRS can process electronic tax returns and refunds much faster than it can handle paper returns and sending checks through the mail.

Q: I may need even more time than July 15. Can I file for an extension? If so, will the extension date be Oct. 15, or will it be even later?

A: At this time, it would appear that an extension to Oct. 15 is available per the IRS website. However, no specific guidance has been given since this announcement about any changes to an extension beyond July 15 to the usual Oct. 15 deadline. As a result, it may remain in place as of this writing, though this situation is rapidly evolving, and it could change at any moment. It might be best to view July 15 as the official deadline and prepare accordingly.

Q: Will the due date for my state tax return be delayed too?

A: In alignment with the decision to defer filing and paying your federal income taxes, many states have issued automatic extensions as well. They have done this in the hope of providing financial relief to Americans during the coronavirus pandemic. You will need to verify whether your state has made such accommodations by checking this list or checking directly with your state’s tax agency on their website.

Q: Can I wait until July 15 to make 2019 contributions to my IRA or HSA?

A: Yes. The IRS has confirmed that because the due date for filing federal income tax returns has been postponed to July 15, the deadline for making contributions to your health savings account or individual retirement accounts for 2019 is also extended to July 15, 2020.

Q: Do I still have to make an estimated tax payment for the first quarter of 2020 on April 15?

A: IRS Notice 2020-18 states that all estimated tax payments originally due on April 15 for the 2020 tax year do not need to be submitted until July 15. Further, there will be no penalties and interest assessed on these balances due.

Q: Clearly there are some details left to be worked out. How should I keep on top of things?

A: Watch major media outlets like Kiplinger, directly through the Treasury’s Press Releases page, or through the White House’s daily media briefings with the president and his staff.

Q: Has a push back Tax Day like this ever happened before?

A: It would appear no national deferment in the deadline has occurred before. However, large-scale natural disasters have delayed certain geographies from filing on the usual April 15 deadline in the past.

Hopefully, any questions you had about the extended tax deadline have been answered above, but if you find you still have concerns, leave us a comment below and we will do our level best to help find your answer. Also, The Rules of Thumb blog from MoneyThumb would really appreciate it if you shared this post on your social media page so your peers can have their questions about the extended July 15th tax deadline answered as well.

The post Questions About New Tax-Filing Deadline Answered by a CPA appeared first on MoneyThumb.

You would think the practice of borrowing money to pay taxes would be frowned upon, but the opposite is true. In fact, financial experts and the IRS itself suggest that business owners take out a small business loan if they don't have the ready cash to pay their taxes. Below are a few legitimate reasons why taking out a loan to pay your business taxes is a good idea from our friends at Fora Financial:

3 Reasons to Use a Business Loan to Pay Taxes

1. Interest Rates

The IRS treats the money you owe them like a loan and charges interest every day that your payment is overdue. Even worse, the interest on a tax debt is compounded daily until your balance is paid off, which means the amount you owe can grow quickly. Due to this, you should pay in full as quickly as possible to avoid expensive interest charges on your remaining balance.

Many alternative lenders offer business loans that can be used to cover your tax liability and at a far lower cost. And unlike interest accrued on an outstanding tax debt, interest on loan payments can sometimes be taken as deductions on your next tax bill.

2. Extra Fees

The Internal Revenue Service will take action if your bill is left unpaid; you’ll incur steep penalties. If you neglect to pay your bill, the IRS will impose an additional fee of half of one percent of your outstanding taxes due for every month that your payment is late. What’s worse, the late payment penalty is on top of accrued interest. To avoid this, apply for a business loan prior to tax season, so that you can avoid paying money in late fees.

3. Avoid Crippling Penalties

As a department of the Federal government, the IRS has the authority to dole out punishments for avoiding payment on your tax bill. The IRS may issue a tax lien, which gives them legal ownership of all your assets, including personal and business property.

A tax lien can have far-reaching implications for your business. It can affect everything from selling your business to obtaining credit. That is because the government will have first dibs on your firm’s assets if you default, which makes lending you money a much bigger risk.

If there is a tax lien on your business, you may not be able to obtain a business loan through a bank. You may, however, be able to borrow from alternative lenders that may be more willing to work with special situations.

Conclusion

If your business doesn’t have the funds to pay its tax bill, there are options other than to default. The nuclear option comes with far-reaching consequences, including damage to personal and business credit. Even if you decide to keep your business running, it may be crippled by the effects of your bankruptcy.

Using a business loan to pay taxes can help you avoid expensive interest payments and penalty fees. It can also prevent your operations from experiencing penal action from the IRS, such as tax liens. Consider seeking a business loan from alternative lenders, which are typically easier to obtain, and place fewer restrictions on how funds can be used.

If taking out a small business loan is looking like an option for you, MoneyThumb would like you to know we have a PDF financial file converter specifically designed for small businesses. This converter will help you get your financials in order for your chosen lender quickly and easily so getting a loan will be a breeze.

The post Should You Take Out a Business Loan to Pay Taxes? appeared first on MoneyThumb.

Are You Taking Advantage of All Available Deductions?

Many deductions exist that you may not be aware of, and several of them are pretty commonly overlooked. The deductions you qualify for can make a significant difference in your tax refund. They include:

• State sales tax – Using the IRS's calculator, you can determine how much of your state and local sales taxes you can deduct.
• Reinvested dividends – This one technically isn't a deduction, but it can reduce your overall tax liability. When you automatically have dividends from mutual funds reinvested, include that in your cost basis. This way, when you sell shares, you might reduce your taxable capital gain.
• Out-of-pocket charitable contributions – Big donations aren't the only way to get a write-off. Keep track of the qualified small expenses too, like ingredients for the yummy cake that you donated to the bake sale. You might find yourself surprised by how quickly a few charitable expenditures here and there can add up.
• Student loan interest – Even if you didn't pay this yourself, you can take the deduction for it as long as you are the one who is obligated to pay. Under new guidelines, if someone else pays the loan, the IRS views it as if you were given the money and used it to pay the student loan. If you meet all of the requirements then you would be eligible for the deduction.
• Child and dependent care – Up to $6,000 of qualifying expenses can be used for the Child and Dependent Care Tax Credit.
• Earned Income Tax Credit, or EITC – This credit helps families with low and moderate-income levels. It's meant to benefit working families with children. If you have three or more qualifying kids, the credit could be worth up to $6,557 for you for the tax year 2019 — and could net you a refund even if you don’t have any tax.
• State income tax paid on last year’s return – If you paid money on your state income tax return last year, you can add that to any other state income tax, up to $10,000, and use it as an itemized deduction.
• Certain jury duty fees – If your company paid you while on jury duty and your employer required you to hand over your jury duty pay from the court; you can claim the amount that you handed over as an adjustment to your income.
• Medical miles - Subject to an overall AGI threshold for total medical expenses and worth 20 cents per mile in 2019. For 2019, the threshold is any qualifying unreimbursed medical expenses that exceed 10% of your AGI.
• Charity miles - Fully deductible at 14 cents per mile in 2019. So, if you drove 50 miles per week to volunteer for a charity in 2019, that’s an additional $364 deduction:
  • 52 weeks/year x 50 miles/week = 2,600 miles you drove in a year
  • 2,600 miles x $0.14/mile = $364

It’s important to keep good records for your deductions especially when you don’t receive some type of receipt as with some charitable contributions and charitable or medical miles. Nothing fancy is required — even a spiral notebook in your glove compartment is fine. Make sure to keep track of:

• The date, miles and medical or charitable purpose of each trip
• The market value of any in-kind donations, such as clothing and household goods
• The dollars you spend in order to do charity work — for example when you bake for a fundraiser the cost of your ingredients is deductible, but the value of the time you spent baking isn't.

Have You Maximized Your IRA and/or HSA Contributions?

You have until the April 15 filing deadline (unless it's delayed due to a weekend or holiday) to open or contribute to a traditional IRA for the previous tax year. That means you can make a contribution that counts for your 2019 return by April 15, 2020. That gives you the flexibility of claiming the credit on your return, filing early and using your refund to open the account.

• Traditional IRA contributions can reduce your taxable income. You can take advantage of the maximum contribution and, if you're at least 50 years old, the catch-up provision can add to your IRA.
• Although contributions to a Roth IRA don't give you a deduction, they still qualify for the valuable Saver's Credit if you meet income guidelines.
• If you're self-employed, you have until October 15, 2020, to contribute to certain self-employed retirement plans, provided that you file an extension. If you don't file for an extension, April 15 is the deadline for most contributions.

Pre-tax contributions to a Health Savings Account (HSA) can also reduce your taxable income. You can make these up until the normal April filing deadline as well. Certain requirements must be met in order to open and contribute to an HSA:

• You must be enrolled in a health insurance plan that has high deductibles that meet or exceed the IRS’s required amounts.
• That plan must also impose the maximum annual out-of-pocket cost ceilings that meet the IRS’s limitations.

You won’t be able to participate in an HSA if any of the following are true:

• You have other “first-dollar” medical coverage
• You enroll in Medicare
• You are claimed as a dependent on another taxpayer’s return

Are You Tax Credit Savvy?

Tax credits usually work better than deductions as refund boosters because they're a dollar-for-dollar reduction of your taxes. If you get a $100 credit, you get $100 off your taxes. Many Americans leave money on the table when it comes to claiming tax credits.

• Did you know that 20% of eligible Americans don't claim the Earned Income Tax Credit? If you meet the guidelines, you may be eligible for the EITC, even if you're single with no children.
• If you have no qualifying children, the maximum credit amount is $529 for 2019.
• If you have three or more qualifying children for the maximum credit jumps to $6,557.
• If you have kids, it also pays to claim the Child and Dependent Care Credit.

If you're a college student or supporting a child in college, you may be eligible to claim valuable education credits.

• The American Opportunity Credit is refundable up to $1,000. This means you could receive as much as $1,000, even if you don't have a tax bill. The total credit is $2,500 and applies only to funds paid towards the first four years of qualified undergraduate higher education expenses.
• If you're in graduate school or beyond, you may be eligible for the Lifetime Learning Credit. For 2019, you can claim 20% of your qualified costs up to $10,000, or a maximum of $2,000, depending on your income.

Tax credits for energy-saving home improvements can also keep more money in your wallet throughout the year and at tax time.

• The credit for 2019 is up to 30% of the cost of certain qualified energy expenditures. After 2019, reduced percentages apply for 2020 and 2021. That means if you installed solar panels at a cost of $20,000, your total credit is $6,000 in 2019.
• Any portion unused in 2019 carries over to 2020.
• That carryover doesn’t apply to the credit for electric vehicles, but the IRS is still offering up to $7,500 per qualifying vehicle for 2019, subject to manufacturer sales limits. The credit begins to phase out once each manufacturer has sold more than 200,000 qualifying vehicles.

By answering the above questions and taking advantage of any extra credits or deductions we have mentioned you may very well increase your income tax refund in a big way. The team at MoneyThumb would love it if you shared this post on your social media pages so that your friends and family can have a chance to increase their income tax refunds as well.

The post Personal Finance: Ways To Increase Your Tax Refund You May Not Know About appeared first on MoneyThumb.

In general, the IRS has three years from the due date of the return or the date on which the return was filed, whichever is later, to audit and adjust the return. However, the IRS has six years to audit a return if a person fails to report over 25% of gross income. If a return is not filed, or a fraudulent return has been filed, the IRS can audit records for that tax year at any time.

For tax returns and forms W-2, we recommend keeping them at least 7 years or permanently if you could. Your tax returns provide support in case the IRS contends you did not file a return or filed a fraudulent return. Keep forms W-2 in case you need to prove earnings or Social Security and Medicare contribution to Social Security Administration many years later.

For documents that have future tax relevance such as cost of stocks purchased, IRA contributions, closing documents of your houses, improvement costs of the houses, etc., you will need these documents to calculate gains or losses when you sell these assets. We recommend keeping these documents at least 4 years after you sell and report the sold assets on your tax return.

To make sure we are clear with IRS rules for how long to keep tax documents, here are the guidelines from the IRS website:

Period of Limitations that apply to income tax returns

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

It's important to understand that this is just a small representative sampling. You should, for example, also keep all records relating to your home if you take a mortgage interest deduction. Small business owners need to track their expenses with particularity. The simple answer is, if you put it on your tax return you should keep the documentation.

State Income Tax Returns

Finally, the Rules of Thumb blog from MoneyThumb wants our reader to note that every state will have its own rules about the statute of limitations on an audit. Some states expand the window to four or even five years. If you plan on throwing out your old income statements and receipts, be certain to look up your state's individual rules on the subject so that you don't find yourself subject to an unanticipated investigation.

The post How Long Should You Keep IRS Tax Records? appeared first on MoneyThumb.

Today the Rules of Thumb blog from MoneyThumb would like to help you make the decision about whether to use income tax preparation software vs. hiring a professional accountant or CPA to handle your taxes in 2019.

What You Should Know About CPAs

First off, keep in mind that a CPA isn’t the only type of professional who can help you with your taxes.  Certified Public Accountants are accounting professionals who have passed a series of exams, have minimum experience in tax and audit, maintain continuing education requirements, and in most states also have a bachelor’s degree.  (In fact, in some states you’re not allowed to call yourself an “accountant” unless you’re a licensed CPA).

Enrolled Agents (EAs) are also legally recognized tax practitioners.  EAs are also required to pass an exam and undergo continuing education.  But whereas CPAs are regulated on a state to state basis, EAs are regulated by the federal government, as the credential is awarded by the IRS.

To sum up the difference between the two, EAs usually focus on tax preparation and resolution.  They’re authorized by the Department of the Treasury to represent taxpayers before the IRS for audits and other issues, but may not be well versed in tax and accounting issues businesses are faced with.  The education and experience required to become an EA are also quite a bit lower than it is to become a CPA, as anyone who passes the exam can be awarded the designation.

CPAs, on the other hand, are usually more business focused.  Many have experience in bookkeeping and expertise in tax matters beyond your personal return.  If you’re a small business owner or need some long term tax planning help, you’ll probably want to speak with a CPA.  But if you’re considering a professional for the very first time and only need someone versed in tax reporting and compliance, you may be able to save a few bucks by hiring an enrolled agent who’s not a CPA.

The Benefit of Hiring a Professional

Whereas software is an inexpensive and efficient way to tackle tax compliance, it’s severely limited when it comes to tax planning.  And for most people, tax planning becomes more important as their financial picture grows more complex.  All of a sudden they’re faced with more and larger financial decisions, the ramifications of which will have a big impact on how much tax they pay over time.

Yes, tax prep software can give you an answer into how a certain decision might impact your taxes (will choice A or choice B result in more tax?), but it’s very black and white.

As the number and magnitude of decisions you have to make grow, professional expertise can become very helpful to see the picture clearly.  Over time, thoughtful planning becomes necessary if you want to minimize the amount you fork over to Uncle Sam, and its simply a job that computers can’t handle.  At least until artificial intelligence takes over tax work.

When You Should Hire a Professional

So what are some examples of tax planning opportunities?  What “red flags” should you look for?

It varies for everyone, and if you’re well versed enough in the tax code to identify these opportunities and make adequate planning decisions, you probably don’t need to hire a professional at all.  But, most people I know prefer to spend their free time on activities that don’t involve mastering the tax code.

Here are common life events that often yield planning opportunities:

1. You have or are starting a small business
2. You have or are buying a rental property
3. You’d like to begin planning for future generations (estate planning)
4. You have material foreign income
5. You are or in the past have been subject to the alternative minimum tax (AMT)
6. When you’re making a big life change like retiring or buying into a partnership
7. You’re unsure whether to accelerate or postpone income
8. You have restricted stock or employee stock options
9. You’re not sure how much to withhold from your paycheck or pay in quarterly estimates

Again, anyone can file their own taxes with or without the support of Turbotax or other software.  But when tax planning opportunities arise, some careful forethought can go a long way.

If you do go the route of hiring a professional, make sure that they’re communicative with your other professional advisors (financial planner, investment manager, estate planning attorney, insurance professional, etc.). Taxes are a big part of the picture and should be integrated with your financial plan.  It’s essential that whoever you hire shares the same vision of what that plan is with you and your other advisors.

The post Using Income Tax Preparation Software Vs. Hiring an Professional Accountant appeared first on MoneyThumb.

About Accountants

Accounting professionals typically have substantial education and background in accounting. In order to become a certified public accountant, a professional must take an exam that includes a wide range of accounting skills. These include performing audits; preparing financial statements for businesses, government entities, and nonprofits; understanding corporate governance structures; and dealing with various types of business regulation, including not only taxes but also licensure and other requirements.

As a result, those CPAs that choose to specialize in tax tend to have a greater background on certain tax issues than the typical tax professional. However, many CPAs specialize in areas other than taxation, and those accountants might therefore not be as capable in handling your tax issues as someone who is not a CPA but does focus on taxes.

About Tax Preparers

Tax preparers concentrate on tax matters but don't necessarily have the same broad educational background that an accountant has. The quality of tax preparers can vary widely, making it useful to consider different categories of preparers.

Enrolled agents are eligible to represent taxpayers before the IRS. To become an EA, you have to pass a three-part IRS test covering individual and business tax returns or you have to have experience as an IRS employee.

Finally, many tax preparers have no special credentials whatsoever. That doesn't mean that they aren't competent to help you with your taxes, but it does mean that you have to be careful in evaluating their performance.

You'll also want to take steps to protect yourself if you begin to suspect that the tax prepare you've chosen is disreputable. In particular, the IRS warns that those who base fees on a percentage of clients' refunds should be avoided, and checking with the Better Business Bureau is a smart move.

Which tax professional is right for you and your situation depends on your particular needs and comfort level with your taxes. For simple returns, a regular tax preparer might be sufficient, but those with more complex needs should consider more experienced professionals.

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As all accountants, CPAs, bookkeepers and other tax professionals know, Easter means more than a celebration. Filing deadline for income tax is April 17, coming up in just a few days. But for now we hope you have a wonderful Easter weekend.

Below are what MoneyThumb considers the top 10 biggest mistakes when it comes to bookkeeping and accounting for small business.

10 Most Common Mistakes in Small Business Accounting

For many small business owners who do their own bookkeeping, ensuring the accuracy of every account is crucial. Without accurate records, you open your business to financial mismanagement. Protect yourself and your company by avoiding these common bookkeeping mistakes.

1. Bad record keeping.

If you’re in the habit of scribbling notes on scrap paper or relying on handshake deals, stop. Without a clear record of these transactions, you’re putting your business in danger of fiscal mismanagement.

2. Not categorizing expenses.

If you find yourself skipping the Category section of your accounting software, you're shortchanging yourself. This is the only way that you’ll be able to accurately track where you are spending your money.

3. Skipping reconciliation of your accounts.

Assuming that just because you’re paying attention to how much money is in your bank account, skipping reconciliation of your accounts is not a good business practice. This process helps you identify charges that shouldn’t be there. Banks and their employees can make mistakes, and if you don’t catch them quickly, it could cost you thousands of dollars.

4. Not backing up your data.

If you rely on an accounting software program, then you need to make sure that you regularly back up your data onto an external hard drive. Even online accounting programs can crash, or worse- the system could be hacked. Contrary to popular belief, there are high-risk threats when dealing with small business bookkeeping.

5. Neglecting your taxes.

Neglecting your taxes. Leaving your tax filing to the end of the quarter is a sure-fire way to get hammered by the IRS. Tax planning needs to be part of the profit equation for every project. You also need to set aside money to pay those taxes as soon as income comes in.

6. Wasting time.

If you find yourself spending more time on your bookkeeping than on running your business, it’s time to consider some outside help. Hire an employee or contracting firm to take over your record keeping so that you can concentrate on what you do best.

7. Wrong classification of employees.

There are a lot of different types of employees, and each group is subject to a different section of the tax code. Make sure that you are classifying your workers properly. Consult a tax professional to avoid paying back taxes and hiring a tax lawyer later.

8. Too much petty cash.

While some businesses tend to keep a large supply of cash on hand and others a smaller amount, no business should be using this fund as an excuse not to record transactions with clients and suppliers.

9. Not tracking reimbursable expenses.

Often, small business owners skip this tracking step because reimbursable expenses seem like small invoices that will just bother a large client. In actuality, these expenses can add up to large sums quickly.

10. Poor communication.

If you have employees or contractors who help you with your small business bookkeeping, make sure you communicate with them consistently and clearly. Surprises are never a good idea and transparency makes life easier for both you and your vendors.

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Mnuchin and others could not be more wrong. If lawmakers think rewriting the nation’s health laws are hard, just wait ‘til they tackle full-blown tax reform. There is a good reason why a major rewrite of the tax code has not happened for more than three decades. And here are eight reasons why true tax reform will be an even tougher climb than a health care redesign“.

Treasury Secretary Steven Mnuchin listens at right as President Donald Trump speaks during a meeting on the Federal budget Feb. 22 in the Roosevelt Room of the White House in Washington. (AP Photo/Evan Vucci)

If ever there were a timely article for accountants, bookkeepers, small business owners and even individuals to read, it is this one from Forbes. In the italics above is the first portion of the article. Below begins the list of reasons Forbes believes tax reform is going to be very hard:

The revenue problem. If lawmakers can’t agree on how much money they want their new tax code to raise, any initiative is doomed. But Republicans have reached no consensus about whether they want a tax reform that raises the same amount of revenue as current law, or a huge tax cut. Speaker Paul Ryan (R-WI) says he wants revenue-neutral reform. Trump talks about tax reform and tax cuts as if they are interchangeable.They are not. And the problem can’t be papered over with rhetoric.

Who wants to slash tax breaks? This is the nitty-gritty of the winners-and-losers problem. In revenue-neutral reform, popular tax cuts must be paired with unpopular tax increases. It is not hard to find lawmakers, especially of the Republican persuasion, who are enthusiastic about cutting tax rates. But who will be willing to take the heat for killing popular tax breaks to pay for those rate cuts, especially in a partisan bill? Just imagine the negative campaign ads.

Source

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