Our Taxing Times

Surprise! You Will E-File

Ya gotta love our system of government. You have a bill that has passed the House by a pretty good margin. It goes to the Senate where this amendment is added. The Senate passes the bill 98-0. Back to the House. They vote to accept the Senate version by 402 to 12 margin and off to the President it goes. There it is sure to be signed since there are some important economic measures and it's veto proof. Almost like the Schoolhouse Rock segment.

This, however, is HR 3548 - The Worker, Home Ownership and Business Assistance Act of 2009. A bill all expected to pass since it extends unemployment benefits and the First Time Homebuyer's Credit. And now a preparer e-filing mandate. From Section 17:

`(3) SPECIAL RULE FOR TAX RETURN PREPARERS-
`(A) IN GENERAL- The Secretary shall require than any individual income
tax return prepared by a tax return preparer be filed on magnetic media
if--
`(i) such return is filed by such tax return preparer, and
`(ii) such tax return preparer is a specified tax return preparer for the
calendar year during which such return is filed.
`(B) SPECIFIED TAX RETURN PREPARER- For purposes of this paragraph,
the term `specified tax return preparer' means, with respect to any
calendar year, any tax return preparer unless such preparer reasonably
expects to file 10 or fewer individual income tax returns during such
calendar year.
`(C) INDIVIDUAL INCOME TAX RETURN- For purposes of this paragraph,
the term `individual income tax return' means any return of the tax
imposed by subtitle A on individuals, estates, or trusts.'.

Much discussed but not expected to be seen for a while, we now have e-file mandates for preparers of federal returns. That means if you prepare over 10 returns you have to send them electronically. Many states have set up mandates to push preparers into the modern age. But the last time I heard Federal mandates discussed at a workshop, the idea was still sometime away. The IRS was hoping to leading the paper preparers with honey and not legislative vinegar. I honestly didn't expect to see anything until there was a bill for tax preparer registration/licensing. I also expected to see a higher number of returns before the mandate kicked in and then reduced over time.

Preparers have a year to prepare to convert their office to e-file. The bill goes into effect for returns filed after 12/31/2010. And I am sure we will be hearing a lot about this over the next year.

The RAL Question

It is that time of year. Leaves are changing, we no long try to save daylight, it's getting colder and tax preparers start to plan for the next season. That brings up lots of questions: do I increase prices, how can I bring in new clients, why can't Congress leave the tax code alone, do I have enough folders/receipts/paper clips, who has the least expensive paper...you get my drift. Usually, one of my questions is which RAL bank will I use but this year it's do I want to beat the rush and drop them now?

I know that RALs (Refund Anticipation Loans) are controversial. They have been abused by the banks offering them, some preparers and many taxpayers. But they are a key reason for the growth of e-filing and they have helped many taxpayers in a time and money crunch. I have always offered them, either as an employee or owner, since the program went national. But RALs have changed greatly in the last couple years and with the IRS introducing modernized e-file refund times are going to go down for everyone.

Bowing to public outcry about the APR and fees, the banks involved (there are just a handful) have reduced their charges. To keep their profits up, they have mostly dropped the incentives to preparers and tax software companies. Until recently, a preparer received a payment for each RAL or RAC (Refund Anticipation Check, no money is advanced but the fees come out of the refund) that was approved. Sometimes there were extra incentives for a particular volume or if it was a new preparer or for a low default rate. They also payed the software company for development of the bank applications and transmission of the completed loan apps. With the cut in loan rates, the banks have cut fees to the people doing the work. I will spend an extra 15 to 30 minutes on a tax return when there is a RAL/RAC involved making sure the taxpayer qualifies, getting IDs, completing the application. Then there is printing the check, contacting the client, explaining why they weren't approved, and keeping all the paperwork for years. Now, if I want to get paid for my extra time, I have to add a fee in myself. (There are restrictions on how I can add a fee. It can't increase the APR.) Until incentives were dropped, I didin't add a fee and I only add about $12 now. But the idea that the banks want to keep their profit while shafting the ones doing the actual work has left a sour taste in my mouth. They want to shift the "bad guy" from them to someone else.

I don't do a lot of RALs. While I offer them, I don't push them. The client has to ask about the program. But I know if I cut them, I will lose some good clients, good people. Ones who won't wait for a couple of weeks to get their refund. I don't like the idea of them paying lots more than I have been charging them to get their money. Not just extra fees for the RAL but a high tax prep fee too.

I've crunched my numbers and found a replacement for the RAC program. All I am waiting for is to talk to the banks at Drake's update school next week. I doubt that they will give me any reason to keep RALs but it's hard to change a 15+year habit.

Tax Season Is Over; CPE Season Begins

Tax season 2009 is over. Not all my extensions made it in so I will be doing a few returns the next month or so. I'll do some number crunching and special backing up this weekend but today is a half day since I have a show opening tonight. And I need a nap.

Monday starts the true quest for CPE. Continuing professional education is part of running a tax business. It starts with the required hours for keeping my Enrolled Agent designation but CPEs are my tax self improvement program. On my desk, are classes for this year's Ethics requirement, a course on Medical Savings Plans and a big class on small business taxes. The last was ordered to brush up on the area but mostly for the NOL coverage. The Ethics course has to be done by the end of the year but the other two I could procrastinate until March. Of course, then I wouldn't have time to do them. So I need to get them done by early January.

I also have 2 more workshops to attend. I picked up 6 hours last month at an IRS symposium. That has become an annual event. The Kansas Tax Institute is 16 hours of good info and butt numbing bad seats. The other event is the Drake Software update. Usually, I go to the dealer school in Wichita but this year I am going to one of the corporate schools in Chicago. This is where I learn about all the improvements in the program and, hopefully, get info about what the RAL banks are doing. I still haven't decided what I'm doing about them. The corporate school is a longer program and I will be taking a couple special workshops in Drake's client write up program. I use the program for payroll but I am not yet using it for bookkeeping.

Lots of education the next couple of months to balance the ordering and planning for January. The it starts all over again.

From W-2 to 1099Misc

I will get back to my education series after the 15th but just a quick reminder based on a phone call I received this morning.

With unemployment so high many people are at the point of taking the best job they can find not the the job they want. It has also forced many employers to make cuts in employee benefits and expenses. To save money, many employers have chosen to change wage jobs to contract labor jobs. Whether this is a legitimate change or not is not the discussion here, what I want to talk briefly about is the responsibility of the new contractors. 

If you do take a contract labor job, your taxes will change. The biggest change is you will not be able to rely on your employer to withhold for you. You will have to put aside money from each paycheck yourself. Making this harder is that you will have to hold back even more than disappeared from your employee check.  Let's say you are currently making $800 a week and at the end of the year break about even on your 1040. From your check, your employer will take Federal and State tax withholding of say $100 and your half of Social Security and Medicare of $49.60 and $11.60. This results in a take home of $638.80. But if you take a contract labor job with the same $800 a week payday, you will get a check for the full $800. So you put aside $161.20 a week and you think your taxes are covered. Nope. You could owe over $3000 at the end of the year. A contract laborer has to pay both sides of the the Medicare and Social Security on their 1040. Unless you add another $61.20 to the money you set aside, you haven't taken care of your "employer contribution". Remember you are now both the employer and employee. So, if you take a contract job, be aware that you may actually be taking a pay cut unless you factor in the added self-employment tax expense. 

Also, simply putting aside your tax money for the end of the year is not a good idea. You need to get in the habit of making estimate payments. First, it is too easy to "borrow" from the tax money and too hard to put it back. Then, at they end of the year, the money isn't there to pay your taxes. The second reason to prepay with estimates is that it could save you some money. There is an Underpayment of Estimate Taxes, Federal and most states, that can come into play if you owe too much at the end of the year. So, prepayment can save you some money. Your tax professional can help you set this up.

There are more tax issues when you make the change from employee to contract labor, and I'll cover them soon. But if you are aware of the self-employment tax issue and estimates, you have the knowledge to not get a nasty surprise at the end of the year.

October 15th Is Not April 15th

This is to all those people who have yet to file their 2008 tax return and are planning to get it done by October 15th; I would get it to your preparer today, tomorrow at the latest. This is not the time to procrastinate to the due date. October 15th is not a delayed April 15th. You might get a nasty surprise.

There are major similarities between the two days. First, they are a tax filing deadline for individual tax returns. They are also the due date for many payroll reports. The differences are in the details.

The first is available time. My (or any preparer's) time. From the first part of January through April 15th, I devote most of my time to taxes. I go home to sleep and clean up. Food is drive through and microwavable stuff at my desk. A trip to the grocery store is grab and go and hope I remember my lists. By October 15th, I have time back. I've cut office hours back and actually leave the building to run errands and take days off. No late appointments since I have rehearsals. I may do some office tasks on the weekend but only if it's for my convenience. Returns are done only during office hours and they compete with CPEs and running a business for time.

The next issue is attitude. Some of it is mine. I'm a little tired of this year's tax returns. I want to get to the new stuff. But, the attitude of the clients I see this late can be very off-putting. Too many are groveling or rude. October 15th has a little more finality to it than April 15th. You can't e-file individual returns after October 15th and there are no more extensions. When late filing clients find that I may not get their return back to them as quickly as they would like, in creeps attitude. I hear all kinds of sob stories as to why they were not in earlier as if that will make the return easier or faster to do. Or they try to impose what they think I should be doing on me. They get rude because I won't change my life around to accommodate them. They've had an extra 6 months to get this done yet they expect me to drop my life to clean up their mess. I'll clean away but on my schedule.

Numbers play a big part on time I allot to the office. The last couple of weeks before April 15th, I will take in about 30 returns. I will also field lots of calls about refunds, vouchers, taxes and payments. I don't have a problem working longer if I am going to be helping clients and making money. But I fail to see why some expect me to give up my life to see if they are going to show up. Today. the only phone call was someone wanting to sell me health insurance and the only tax work was payroll reports. But I bet one of the outstanding extensions will drop by while I am out this afternoon and be surprised I'm not here. (Not as surprised as they may be when I won't promise to have the return done in a couple of days.)

There are extreme circumstances a taxpayer can't control but those clients always seem the most willing to work with you. The bottom line is taxpayers have had plenty of time to get their records together and get in to see their preparer but they didn't. It is unreasonable to expect a preparer to drop everything when they didn't.

Dead Beat Clients

I was getting my car serviced this morning and had an unexpected contact with a client. I run into clients all the time at the grocery store, filling the tank, or social events. So chance meetings are nothing unexpected. The unexpected aspect was more on their part since they have been ignoring my attempts to contact them. They owe me for preparing their return.

I don't e-file too many returns without the payment. It is only good business sense since once the return is gone, I have no leverage to get paid. But occasionally, I file the return on a promise of payment when the refund arrives. And I have been lucky. Most clients don't need a reminder to stop by and pay me. If I do have to send a reminder, it usually only takes one. If there is a problem, all they have to do is call and work with me. I've had clients lose a job and were only able to pay me $5-10 out of their unemployment check. Show me some respect and I'll work with you. Ignore me and you become a dead beat.

I have had a my share of dead beats. Most are clients who tried to do a bank product which allows my fees to come out of the refund. Then their tax refund is taken by the IRS and I am stuck. I can't think of any of these clients who have made it good. They just slink off to another preparer. Which is their only option since I usually fire them when they don't work with me on payment. It's hard not to get paid for your work. In the final letter I send, I ask the client how they would feel if their boss wouldn't pay them for work they had done. I's not a fun feeling.

Today's client was someone I trusted enough to file their return and let them send me a check. Which they didn't. That was in April. In May, I e-mailed. In July, a letter and bill. August was a phone call where I left a message. Three weeks ago, another letter and that was followed by a call/message a week ago. Through all this, I was ignored. Losing the money won't kill me. I don't spend until the check clears. The big issue with dead beats like, especially the ones you trusted, is the implied lack of respect for you and the service you provided. Today's client acknowledged receipt of the last bill/letter when I coldly answered their questions. (No matter how much a client may owe me it doesn't get aired out of the office unless they bring it up first but I won't pretend all is well.) And they proceeded to BS me about not knowing there was a problem and they would get back with me to work something out. But, I am not holding my breath. And I won't go to their Facebook page and write Dead Beat--Thief on their wall. (As tempting as that sounds!)

The real problem with dead beats is they mess it up for others. One of the nice things about owning a business is that sometimes you can really help someone. Someone who is having a bad time and appreciates that you doing a little extra for them. Like filing before they can pay. They become part of your core supporters and recommenders . But after dealing with a dead beat, it's harder to trust and take a risk on someone.

Pacing or Procrastination

According to my countdown calendar, there are 15 days until Oct 15th. This year that is a big day for me. Besides extensions (3-6) being due as well as 941s for my payroll clients I have a show opening on the 16th. That is on top of my 32 item to-do list. So, I've decided to pace myself. Why get in a rush to get clear up everything and then have nothing to do? I can get one set of quarterlies done now but why rush it? One return is done but checking but a day wait will give me a clear eye on it. The CPE course can sit a few days longer and the vacuuming has waited this long so a while longer won't matter.

I need to check my mail again to see how many more IRS Underreporting e-mails I've received. Check my Facebook pages and Twitter and the Drake forum. A nap sounds good even though I'm not tired. Write a journal entry. Play Snood. When you have so much to do you need to learn to pace yourself. I have.

Of course, if you do the same thing, I wouldn't call it pacing. I'd call what you're doing procrastination. But that's not what I'm doing.

Buyer Education IV

What do you want a tax professional to do for you? That is not a trick question. Anyone with a little tax knowledge can prepare a return but can they prepare the return you want and do they offer the services you need?

Do They Have the Skills You Need?

When you are talking to prospective tax preparers, they need to know how complex the return is you need. I don't know how many times I have been told that, "It's a simple return." when it had rentals or a business. I can handle those forms without a problem but they aren't what I classify as 'simple". Is there more than the local state? Are there special issues like injured spouse or EITC after disallowance? Newer preparers may not have prepared these before. Some preparers do only basic 1040 returns. Others will take any 1040 return but nothing else. You have to ask. This goes when your tax situation has changed because you have started a business or sold a property. Check with your current preparer to make sure they can do your new return. It is hard to return paperwork to a client when you discover it is over your head. We want to please (and earn the money) and it is tempting to try to muddle through. If the preparer says "no" to the return, don't push. You have to live with the results.

What Comes With the Return?

What other services do you want or need? A lot of tax professional provide other services. Bookkeeeping, investments and insurance are the major sidelines. But don't forget about services as part of the return. E-filing, bank products, extra copies of the return, off season availablity should also be a concern. How do they handle customer contact or interview? Many preparers have you drop it off your documents and they set an appointment for pick up. Others complete the return on the spot or interview upfront. Don't assume that the way your last preparer handled your meeting is the way the new preparer does it. Are they doing the return or is it someone in the back room? And what is their guarentee? You might not find someone who offers everything you dream of in a preparer but you can get close and everyone works better when they are on the same wavelength.

What Do You Really Want the Preparer to Do For You?

Do you want a big refund/low tax or an accurate return? They aren't mutually exculsive. But if that big refund or low tax is your primary goal and you're willing to let accuracy slide, you need to be cautious in choosing someone to do your return. Most of us are working hard to prepare an accurate return where you legelly pay the least in tax the code allows. So if you are looking for someone who'll take liberties with the tax code, you really need to work friends and family for suggestions of the crooks. Don't get mad at us when we won't do what you want. I don't work for you, I work for me and provide you a service in the form of an accurate tax return. I don't care what your other preparer did. And remember, just because you haven't gotten caught, yet, doesn't make your cheating right. There are plenty of people out there who will be glad to get you the refund you think you deserve.

Mandatory E-Filing?

I'll get back to the Buyer Education series soon but I have some big returns needing work and have limited time to blog. And the bright, shiny, new ideas are taking my attention and blogging time.

Prof. Paul Caron at the TaxProf Blog has posted a blog about a TIGTA (Treasury Inspector General for Tax Administration) audit. The audit report recommends the IRS seek mandatory e-filing of individual returns by paid preparers and use current scanning technology to scan the rest of the paper returns into electronic returns.

Because of transcription errors, the error rate for paper returns is much higher than for electronically filed returns. They also take longer to process. Years ago I had a great chart from the IRS that showed the path a paper return went through being processed as opposed to an e-filed return. The paper return path looked like a comic from Family Circus showing Billy's path "straight" home from school. Many state currently scan paper returns (Kansas).

The bottom line is that these changes could result in almost a 27% increase in e-filing with a cost savings of $66.6 million a year. The IRS as responded that it will seek the needed legislation from Congress for mandatory e-filing in it's 2010 budget and is looking at scanning options.

The press release is downloadable. But link to the full report was not working when I tried. But as Prof Caron mentions, it looks like a revised press release will be issued.

The IRS on the Web

Sometimes I forget what I have blogged about and what I planned to write about. Thanks to Kay Bell at Don't Mess With Taxes for the heads up that lead to my remembering.

The IRS has long had a strong, informative web site and e-mail updates (mail lists not correspondence) but they are branching in to other areas. A short time ago, I received notice that the IRS has begun to use You Tube videos for tax tips. What caught my eye at that time was I could get Tax Tips Today as a podcast into iTunes. But they also have short informative videos on tax credits (also podcasts) the You Tube videos are not just in English but there are some in Spanish (I am sure more will be added) and in American Sign Language. This one is about checking withholding because of changes from the Making Work Pay Credit.

Kay Bell just posted about following the IRS using Twitter. You can find their Twitter page here.