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Need help with your taxes?
Member news | February 19, 2021
Here are 7 tips for a hassle-free income tax compliance season.
By FACC Member, Mathieu Aimlon, CPA
Expert-comptable diplômé, France (non inscrit)
During the fiscal year October 1, 2018 September 30, 2019, the Internal Revenue Service (IRS) processed more than 253 million tax returns and tax forms, up from 250 million the previous fiscal year. Individual and businesses income tax returns and employment tax returns account for 222 million (88%) of the returns and forms filed in the fiscal year ended September 30, 2019.
Unlike in France where one governmental agency (direction générale des finances publiques, DGFiP) is charged with collecting income tax and another one (l’union pour le recouvrement des cotisations de sécurité sociale, U.R.S.S.A.F.) is missioned to collect employment taxes, in the U.S. the IRS is responsible for collecting both taxes.
With 154 million tax returns filed in the fiscal year ended September 30, 2019, individual income tax returns represent about two returns out of three filed during that period. In comparison, 10 million business income tax returns were filed during the same period. This represents only 4% of the number of returns and forms filed.
During the fiscal year ended September 30, 2019, the IRS collected more than $3.5 trillion in Federal taxes paid by individuals and businesses. Individual income tax and employment taxes account for $3.1 (88%) of the $3.5 trillion collected during that fiscal year:
· individual taxpayers paid $1.3 trillion (37%) of the $3.5 trillion collected;
· businesses paid $277 billion in business income tax, and
· the IRS collected $1.2 trillion of employment taxes. Employment taxes include payroll tax, self-employment tax.
The IRS issued more than $452 billion in refunds out of the $3.5 trillion collected in the fiscal year ended September 30, 2019.
Most of the individual income tax returns are filed between January and April. And this year, even if you are not otherwise required to file a 2020 federal tax return, you should consider filing a tax return to claim the recovery rebate credit if you are eligible for a stimulus check, also known as economic impact payment, but did not get the payments or did not get the full amount.
Although the number of self-prepared individual income tax returns has been increasing steadily, most taxpayers are still using the services of a paid tax professional to prepare or to assist with their tax return preparation.
To assist taxpayers who use or plan to use the service of a paid tax professional to prepare their tax return with the paid tax preparer sourcing and selection process and the income tax return preparation process, Mathieu Aimlon, CPA prepared from the IRS and the New York State tax agencies’ communications the following tips and tricks for the unwary taxpayer. We hope you find this informative.
1) Use a reputable tax professional
The IRS recommends using a reputable tax preparer. For the federal tax agency, that includes certified public accountants, enrolled agents, or other knowledgeable tax professionals. One of the benefits of using a reputable tax preparer is that they should help you avoid errors on your tax return.
Anyone with a preparer tax identification number (PTIN), with or without proper tax credential, can prepare tax return for fee. However, a limited number of states requires a minimum level of education. New York State for instance requires a high school diploma or its equivalent. Tax professionals with credential include certified public accountants (CPAs), tax attorneys, and enrolled agents.
Accountant is not a regulated professional designation. And it is commonly used to designate professionals with formal accounting education as well as professionals with no formal accounting education, or little to no accounting knowledge. That means all CPAs are Accountants, but not all Accountants are CPAs.
If you are using in New York State the service of a paid tax preparer who is not a CPA, a tax attorney, or an IRS enrolled agent, he or she must:
· give you, before beginning any discussions about tax preparation services, a copy of the New York State consumer bill of rights regarding tax preparers.
If the paid tax preparer is in New York City, they must give you a copy of the New York City consumer bill of rights regarding tax preparers, and
· let you review it and answer any questions you have.
2) Do your homework
Before you decide to use a paid preparer’s service, we recommend you do some due diligence:
- Check the paid preparer’s qualifications. You should check out, for instance, the searchable directory of federal tax return preparers with credentials and select qualifications that the IRS has developed.
- Check the paid preparer’s history. Ask people in your network whether they know anyone who has used the tax professional? Were they satisfied with the service that they received
- Ask about the paid preparer’s service fees
- Ask to e-file your income tax return
- Consider whether the paid preparer will be around after April 15th, to answer questions that you might have about the preparation of your tax return months, or even years, after the tax return has been filed
- Never sign a blank return
- Report abusive tax preparers to the IRS and or to your state tax agency, for instance the New York State Department of taxation and finance if you are in New York or the paid preparer is in New York State
3) Avoid “ghost” tax return preparers
The person you paid to prepare your tax return is required to have a valid preparer tax identification number (PTIN). You should be wary of a paid preparer who:
- refuses to sign the return that they prepared for you
- refuses to include their PTIN on the return
- requires payment in cash only and does not provide a receipt
- invents income to qualify you for tax credits
- claims fictitious expenses deductions to boost the size of the refund or to reduce your tax liability
- directs refunds into their bank account, not your bank account
- promises to obtain larger income tax refunds than other preparers
- bases their fee on a percentage of the amount of the refund
- claims to have connections with the tax authorities (IRS, New York State Department of Taxation and Finance, etc.) which permitted him or her to gain special approval to use a loophole in the tax code.
4) Remember to report your unemployment compensation when filing your tax return
The 2020 public health crisis and the subsequent economic impact has put a strain on the labor market. Millions of taxpayers lost their jobs or stop working because of stay-at-home measures. As a result, the Federal government extended the unemployment benefits to workers such as independent contractors who are not usually eligible for unemployment benefits.
If you received unemployment compensation in 2020, you should receive from your state department of labor a Form 1099-G, Certain Government Payments. Remember to report on your tax return the amount of unemployment compensation paid to you as reflected in Box 1. If, when you applied for unemployment insurance benefits, you requested that income tax be withheld from your unemployment compensation, the amount withheld is indicated in Box 4. You should report that amount as well on your tax return because it reduces your income tax liability.
5) Carefully review your tax return before signing it
You must sign your tax return if it is paper filed or sign an authorization form to file it electronically. But, before you sign your return or give authorization to electronically file your tax return, you should:
- review your tax return carefully
- ask questions on entries you don’t understand, and
- ensure that it reflects your bank account information for any direct deposit refund. Direct deposit is the quickest way to get your refunds.
6) You are ultimately responsible for your tax return
No matter who helps you with your tax return preparation, you are responsible for its validity and the accuracy of all the information on your income tax return.
The first step to help ensure you file a complete and accurate tax return and, where applicable avoid refund delays, is to gather all your year-end documents that support your income, the expenses that you can write off, or the credits that you can claim to reduce your tax liability.
If you are using a paid tax preparer service, we recommend you set up a tax meeting with them and provide your year-end tax documents by the end of February. That gives your tax preparer time to review your tax documents, to draft your tax return and to review it with you.
7) File your tax return electronically
Electronically filing a tax return reduces errors because the tax software does the math, flags common errors, and prompts the preparer for missing information. It can also help taxpayers claim valuable credits and deductions. Electronically filed tax returns are processed faster than paper filed ones.
Mathieu Aimlon is a principal at Aimlon CPA P.C., a full-service public accounting firm in New York, NY. He is a licensed CPA in New York and in France.