Category Archives: tax preparation

Should You Do Your Own Taxes or Take Your Information to an “Expert”?

Posted on March 28, 2012 by admin

That all depends on who you call an expert and just how complicated your taxes really are. Although I can relate to the feeling of wanting to turn everything over to somebody else and not bother, I know how expensive a mistake that can be.  Regardless of how complicated your taxes are, it pays to know something about the process in order to protect yourself. In spite of what “peace of mind” coverage you think you have purchased, ultimately the buck will stop with you. These days, most everyone preparing taxes for a living uses software to do the calculations. This includes CPAs, Accountants, bookkeepers; the rapid refund tax preparation franchises– they all use software. What’s more, if they do use software or they are a company that sells tax software, the software has passed inspection by the IRS and certified as correct. And, when I say correct, it only means that the software performs the correct mathematical calculations when the correct figures are entered. This is all that the 100% guarantee advertised by software companies means: if you enter the correct figures in the right place, then the software will do the right math. Just as a calculator will give an answer of four when you enter 10-6, the calculator will also give the answer of 94 if you enter 100-6. The difference, of course, is that tax software is very good at figuring complex formulas for such things as depreciation and monitoring these figures from year to year. Finding out just how well my software performed was a very expensive lesson I learned one year. I had been running a small direct mail graphic design company for a number of years using a popular bookkeeping program and the same company’s tax software to do my taxes. Even though I was very diligent about reading all of the reference material provided by the program before entering the information each year, I grew uneasy about my qualifications and decided to have my taxes checked over by a local accounting firm. Of course, in order to begin to check my taxes, the firm had to input all of my information into their “professional” software. I learned, $600 later, that their software said the same thing as mine.  I guess it was worth knowing I was doing it right but I really chafed at the idea of paying $600 for the information. My point to all this is that tax software is tax software, the difference being the person entering the information’s understanding of what goes where. This leads me to my next point. Does working for a rapid refund franchise preparing taxes for the public qualify a person as an expert?  Again, that depends entirely on the person. I know from a source very close to me just how these “experts” are hired and trained each year. A look at just one website of consumer’s complaints about any of the income tax franchises should be enough to answer that question. The fact is, it is simply a good idea to either know what experience your tax preparer has, know enough about the process to check over the return or better yet learn to do it yourself using software you can get for free , or buy off the shelf. Should you do your own taxes or take your information to an expert? The answer depends entirely on how much you know and who your “expert” is. Continue reading →

Posted in do your own taxes, Foreclosure, Loans and lending, Smart Spending, tax preparation, tax returns | Tagged , , , | Leave a comment

Don’t Get Soaked on a Refund Anticipation Loan

Posted on March 10, 2012 by admin

Taxpayers who don’t feel like waiting around to get their refunds can often get their money immediately in the form of a Refund Anticipation Loan (RAL) that allows filers to borrow money against their income tax refunds. RALs can usually give taxpayers their money within 48 hours, depending upon the fees that they pay and whether there are any issues with their tax accounts, such as unpaid child support or back taxes (which will disqualify the filer from using this service). In some cases, filers can even get at least some of their refund on the spot when they file. But the fees that rapid refund loans charge are usually nothing short of astronomical. The APY for rapid refund loans can run anywhere from 50% to a ridiculous 500%, and a RAL for a refund of several thousand dollars can equal hundreds of dollars. Furthermore, many tax preparers charge an additional substantial fee to the filer for this service that goes directly into their own pockets-and this has constituted a major source of revenue in the tax preparation industry for many years. At first, only traditional storefront tax preparation franchises like H&R Block and Jackson-Hewitt offered rapid refund options for taxpayers eager to get their money back from Uncle Sam as fast as possible. But many smaller firms also offer this service, and even a number of online tax preparation programs such as TaxAct also contain this feature. Of course, only those who are financially ignorant will use this service, but the AARP stated in an article on their website that about 7 million people used this service in 2009-and paid a whopping $650 million in fees as a result . A Thing of the Past? Perhaps the most unfortunate aspect of this racket is that it is probably the least necessary type of loan available. In prior decades when paper tax returns were the norm, filers often had to wait for months to get their money back, which made the rapid refund option an attractive alternative for those who needed their money as soon as possible. But the dramatic increase in the efficiency of the IRS in recent years has rendered this a thing of the past. Those who file electronically and elect to have their funds directly deposited into their bank accounts can now expect to receive their refunds in one to two weeks, unless there is some sort of problem with the return (such as if it’s flagged for an audit or contains incorrect information such as a Social Security number with some of the digits transposed). In the next few years, we can probably expect to see our refunds arrive in less than a week. The reduction of this waiting period has effectively rendered rapid refund loans unnecessary for the vast majority of filers. Continue reading →

Posted in Mortgage Rates, Online Banks, refund anticipation loan, Savings & Investment, savings and investment, tax preparation | Tagged , , , | Leave a comment

February Checklist for your 2011 Taxes

Posted on February 4, 2012 by admin

Many taxpayers dread each year because they are never sure of what they will need in order to complete their returns.  While the exact forms that are needed will of course vary from one filer to another, there are several forms that the vast majority of filers will need to complete their returns.  Use this checklist to make sure that you have the necessary forms before sitting down to do your 2011 taxes. W-2 forms – this basic form is sent by all employers to their employees each year. This form breaks down the amount of compensation paid in cash to employees as well as retirement plan contributions and some types of benefits. Charitable giving statements – those who make qualified charitable gifts may get an itemized list of their deductible gifts from some or all of the charities to which they made contributions during the year. Charities that don’t send this type of statement will typically furnish a receipt for each donation at the time it is made. 1099 forms – this form is sent to independent contractors and shows the types and amounts of self-employment income that are paid, such as royalty income. Investment statements – Investment companies such as banks, brokerage firms, investment advisers and trust companies as well as issuers of individual securities such as corporations, municipalities and the U.S. government will send investors forms that detail the amount of investment income that they earned during the year. Form 1099-INT breaks down the amount of taxable and tax-free interest that was paid. Form 1099-DIV outlines dividend income and shows which dividends may be eligible for capital gains treatment. Form 1099-B lists all aggregate capital gains and losses that taxpayers must declare on their tax returns. Retirement plan statements – IRA and retirement plan custodians as well as annuity carriers must send all of their account and contract holders a Form 1099-R each year that breaks down the amount of taxable and nontaxable distributions that are taken from qualified and nonqualified retirement plans and annuity contracts. Form 1098 – This form breaks down the amount of interest that was paid on a mortgage and often shows the amount of real estate tax that was paid as well. Form 1098-E – Shows the amount of student loan interest that was paid. Most tax forms that report any form of income to the taxpayer (such as W-2s and 1099 forms) will also show any amount of federal, state and local income tax that has been withheld for the year.  For more information on which tax forms you may need to file your taxes this year, consult your tax or financial advisor. Continue reading →

Posted in 2011 taxes, Foreclosure, Mortgage, Prime Rate, real estate, Retirement, retirement plans, Smart Spending, student loan, tax planning, tax preparation | Tagged , , , , , , , , | Leave a comment