Meet our writers

 







Money April 2012

Dollar Sense

How to Avoid Bad-Apple Tax Preparers

By Teresa Ambord

Before you hand over your tax information -- which includes your Social Security number and those of your spouse and dependents -- to someone you barely know, do some checking.

Whether or not you have to file, it might be a good idea. The deciding factors include your age and gross income and filing status. Persons age 65 or older are allowed to have more gross income than younger taxpayers before they are required to file.

It's that time again. Ready or not, tax filing season is upon us. If you're looking for someone to prepare your taxes for you, do you know how to sift the good from the bad? While most tax preparers are highly capable, you should know that there are also some charlatans out there. After all, every group has its bad apples.

Until recently, anyone could hang out a shingle calling him or herself a tax preparer, even if they have zero experience or qualifications. Whether or not your preparer is qualified, remember, you are ultimately responsible for the information in the return and how the preparer handles it. Before you hand over your tax information -- which includes your Social Security number and those of your spouse and dependents -- to someone you barely know, do some checking.

The Internal Revenue Service is well aware that many unscrupulous people have made small fortunes fleecing the public through tax preparation. As a result, tax preparers are now required to get an IRS-issued Preparer Tax Identification Number (PTIN).

Here are three red flags that the IRS warns of when you are choosing a tax preparer. Take the time to ask about these points.

  1. Is your preparer willing to provide his or her PTIN?
  2. Is the preparer is willing to sign your return?
  3. Will the preparer ask you to sign an incomplete return?

If the answers to these questions are not satisfactory, don't walk away -- run!

 

Here are some other points to consider before you turn your taxes over to someone.

  • Ask about qualifications, such as training, memberships in professional organizations relevant to tax preparation, and continuing education. The tax code is complex and ever-changing. Has the preparer stayed up with tax law?
  • You can do a simple background check by contacting the Better Business Bureau to ask if complaints have been filed against a preparer. Even licensed professionals can be hiding some scary baggage. If you have any doubts, check a CPA's standing with your state board of accountancy. For attorneys, check the state bar association, and for Enrolled Agents, check with the IRS Office of Enrollment.

 

More Questions to Ask

  • If you are due a refund, will it be issued in your name?

Some preparers will offer to have the refund issued in their names, not yours. It is safest for you to decline such an offer. Unscrupulous preparers may give you your refund in cash in exchange for having the refund issued to them, but the amount you get may be far below the actual amount of the refund, and you may never know this. The preparer may offer you a refund anticipation loan, which may or may not be legitimate, but either way it will generally be expensive.

  • What fees are expected?
  • Ask to see all fees up-front, and then do some comparison shopping. Fees should never be based on a percentage of your refund. That practice encourages unscrupulous preparers to pump up your refund fraudulently. If that happens and the IRS catches on, you are left holding the bag.
  • What is the time frame to get your completed return? Will the preparer be available for questions during and after tax season?
  • Obviously there is a window of time to get your return prepared and avoid late fees. But it is just as important to know that the preparer will not vanish to some tropical island once tax season is over. If the IRS has questions, you shouldn't have to face them alone.
  • Once the return is complete, will the tax preparer take the time to review it with you?

If not, this preparer is too busy and probably understaffed. Look elsewhere.

 

SIDEBAR: Do You Have to File?

Whether or not you have to file, it might be a good idea. The deciding factors include your age and gross income and filing status. Persons age 65 or older are allowed to have more gross income than younger taxpayers before they are required to file.

Gross income for filing purposes means potentially taxable income from all sources, even those outside the United States. This does not include Social Security income unless your filing status is married and separate, and you lived with your spouse during the year, at any time. If you receive Social Security and have potentially taxable income as well, you need to do a separate calculation to see if you need to file a return.

There are other factors could render it necessary for you to file even if your income is below the threshold listed. For example, if you filed married jointly, but by December 31,2011 you were no longer living with your spouse for any reason, you should file if your income is at least $3,699.

If you have any doubt about your need to file, be sure to contact a competent tax advisor or call the IRS.

Here are the general rules.

If you are:

  • Single and 65 or older, you must file if your gross income is at least $10,949.
  • Single and under 65, $9,499.
  • Head of household (HOH) and 65 or older, you must file if your income is at least $13,649.
  • HOH and under 65, $12,199.
  • Married filing jointly (MFJ) and one spouse is at least 65, you must file if your gross income is $20,149 or higher.
  • MFJ and both spouses are 65 or older, $21,299.
  • MFJ and under 65, you must file if your gross income is $18,999 or more.
  • Married filing separate (MFS) regardless of age, you must file if your gross income is at least $3,699.
  • A qualifying widow(er) with a dependent child and are 65 or older, you must file if your gross income is at least $16,449.
  • Qualifying widow or widower under 65, $15,299.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full
time from her home, mostly for business, and about family when the inspiration strikes.

Meet Teresa