Not all Tax Preparers are Created Equal

Now that tax season is upon us it is important to understand who can do tax returns and what qualifications are out there.   You may be surprised to know, the IRS does not require tax return preparers to have any qualifications, in other words anyone who puts a sign on their door can say they are a tax preparer.

I want to discuss the different ways you can get your tax return prepared.

Enrolled Agents (EA) - Enrolled agents are licensed by the IRS and are the only federal licensed tax preparer. Enrolled agents are subject to a suitability check and must pass a three-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation, and representation. They must complete 72 hours of continuing education every 3 years and must comply with ethical requirements. The only thing EA's do is tax work and can practice in all 50 states.  Here at David Tanner, EA Tax Service we are all Enrolled Agents.

Certified Public Accountants (CPA)– Licensed by state boards of accountancy, the District of Columbia, and U.S. territories. CPAs can practice only in the states they are licensed. Certified public accountants have passed the Uniform CPA Examination. They have completed a study in accounting at a college or university and also met experience and good character requirements established by their respective boards of accountancy. In addition, CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license. Many CPAs practice in many different areas and don't do taxes on a regular basis.  If using a CPA make sure they regularly prepare tax returns.

Attorneys – Licensed by state courts, the District of Columbia or their designees such as the state bar. Generally, they have earned a degree in law and passed a bar exam. Attorneys generally have on-going continuing education and professional character standards. Attorneys may offer a range of services; some attorneys specialize in tax preparation and planning.

Annual Filing Season Program Participants – This voluntary program recognizes the efforts of return preparers who are generally not attorneys, certified public accountants, or enrolled agents. It was designed to encourage education and filing season readiness. The IRS issues an Annual Filing Season Program Record of Completion to return preparers who obtain a certain number of continuing education hours in preparation for a specific tax year.

PTIN Holders - Every preparer that signs tax returns must have a PTIN number.  People who have not obtain any certification, or required training just have to buy a PTIN number each year.  That is the only qualifications for these preparers.  They have not met any training requirements, no continuing education requirement and not bound by any ethics requirements.

Non-Signing Preparers - Some people will prepare income tax returns and then give back to the tax payer to sign.  There really is no recourse for these type of preparers since they are not signing the return.  Remember, the tax payer is always responsible for the tax return regardless of who prepares it.

Online preparation - plenty of these around, some more expensive than others, but they basically ask you questions and hope they are asking you the correct questions.  Are they OK for someone who has one W-2 and that is it?  Probably as you can't mess it up too much.  The question for others is whether they ask the correct questions, or even not ask you questions they should be asking you.  In the end, the few dollars you save with online preparers, do you lose more by using them through lost deductions?

Before giving your tax stuff to just anyone, find out what experience they have with your type of return.  Here at David Tanner EA Tax Service, we specialize in clergy tax returns and have done more than 10,000 minister returns.

Remember, the tax payer is ALWAYS responsible for the tax return, not the preparer so pick your preparer wisely.

Beware of Calls from Someone Stating They Are From the IRS

We are starting to get more and more calls about clients being called by the IRS telling them they owe money and they need to either send money, or give them credit card info.  

NOTE: THE IRS WILL NOT CALL YOU.  The IRS will always first generate a letter to you.  Anyone calling you stating they are from the IRS, this is a scam.  If you have any doubts, ask them for their name and badge number and you will call the IRS 800 number and return their call.  I bet you they hang up pretty quick.

Under no circumstance should you send them any money.  If you have an concern give us a call and we can discuss.

Importance of Declaring Housing Allowance Now!

In accordance with IRC 107, a minister is exempt from income tax for the amount of the minister's income designated as "Housing Allowance" and/or "Parsonage Allowance" .  There are a few items that are very important for the minister to take advantage of this deduction.

  • Most Important is that the amount must be approved by the church board or other qualified organization as a "housing allowance", "parsonage allowance", "Rental Allowance" PRIOR to the minister being able to take the deduction. In effect, if the board does not approve the housing allowance by December 31st of the previous year, the minister cannot start to take deductions in the new year until approved. An example is if the church does not approve the allowance until April 1st, then the allowance can only be used for the months of April - December and expenses, including the fair rental value for that period and not the expenses and fair rental value for January - March. (IRS Rev. Rul 59-350)

  • The minister can only take the deduction for the amount up to the Fair Rental Value of the property including furnishings, garages plus utilities. This means if you own your home and the fair rental value of the property is $2,000 a month ($24,000 annual), and you have extensive work done on your home that cost $30,000, you would only be able to exempt from income tax $24,000. (Clergy Housing Allowance Clarification Act of 2002)

IRC 107 is a much more complex law than what is discussed here, but these are two extremely important parts of the puzzle.  Be sure your church board or other qualified organization has approved your housing allowance for 2016.

Five Things You Should Know about the Child Tax Credit

The Child Tax Credit is an important tax credit that may save you up to $1,000 for each eligible qualifying child. Be sure you qualify before you claim it. Here are five useful facts from the IRS on the Child Tax Credit:

1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:

  • Age. The child must have been under age 17 at the end of 2015.

  • Relationship. The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, or half sister. The child may be a descendant of any of these individuals. A qualifying child could also include your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

  • Support. The child must have not provided more than half of their own support for the year.

  • Dependent. The child must be a dependent that you claim on your federal tax return.

  • Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.

  • Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.

  • Residence. In most cases, the child must have lived with you for more than half of 2015.

2. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate your credit depending on your filing status and income.