It's Tax Season! What makes a great Tax Preparer?

It's Tax Season.  Tax Preparation Firms are popping up every.  There are Television advertisements, Facebook, Instagram, Linkedin, Twitter, and Linkedin Posts, sign spinners and the Statue of Liberty on the streets.   How do you know which firm to use?  What makes a great tax preparer?

I honestly am alarmed when I see and hear tax preparation firms promising refunds.  Why does it alarm me?  I worry that the tax preparer is focused so much on getting their client's a refund that they may bend the rules.  This can put the client in a very bad situation with the IRS.

If a tax preparer uses any of the following practices, don't' walk but RUN AWAY FAST!

*Promises a big refund before looking at your information
*No PTIN
*Doesn't offer E-file
*Doesn't sign the return
*Offers to endorse or cash your refund check for you

If the tax preparer doesn't sign the return, you the tax client will be totally responsible for any mistakes the tax preparer made.

ALWAYS make sure the preparer has a PTIN
ALWAYS make sure the preparer's information is in the preparer section of the return.
ALWAYS make sure the preparer signs the return or efiles it.
NEVER allow a preparer to endorse or cash your refund check.

I also worry that the tax preparer is focused more on putting numbers into the tax program instead of asking lots of questions to discover tax strategies that can be used to help the tax client.

A great tax preparer will take the time to ask you a lot of questions about your financial situation.  A great tax preparer will recommend tax planning during the year.  A great tax preparer will look for tax strategies that can be used to lower your tax liability, legally.  A great tax preparer cares about clients and finds solutions that will work best for their individual situation. A great tax preparer will take full responsibility for their work.

Candace Stevens, CEO/President of

Number Cruncher LLC

cstevens@numbercruncherllc.tax

www.numbercruncherllc.tax

How long should you save your tax records?

How long to hold onto financial, tax and legal records is a loaded question.  For financial and tax records the IRS recommends a minimum of 3 years. However, I recommend my clients keep a copy of their tax returns and all the records that verify income and deductions indefinitely.   The reason being is that the statute of limitations on an audit from the IRS is based on the investigation.  For example,  You accurately report your income every April and dispose of your records every 3 years.  The IRS does an investigation and mistakenly believes you underreported your income 7 years ago.   Since you do not have copies of your documents you will have to try to gather old W-2's, investment records, and any other pertinent information to fight the wrong, but totally legal, allegations. 

What documents should you keep?  Any documents that show the income and expenses you used to prepare your tax return.  Listed below is a sample of the records you should not throw away.  Keep in mind that you may need other forms based on your personal financial situation

Income Documents:

*W-2 Forms

*1099 Forms

*K-1's

*Investment Statements

*Significant Cashed Checks

*Contracts for Work or Sale

Expense Documents

*Spending Receipts

*Charitable Donation Receipts

*Student Loan Statements

*HSA Contributions

*IRA Contributions

*Investment Loss or Income Statements

Yes, it is a hassle to keep all of your paperwork, but saving your records will give you peace of mind in the long run. 

Candace Stevens, CEO/President of

Number Cruncher LLC

cstevens@numbercruncherllc.tax

www.numbercruncherllc.tax

Roth IRA and 401K explained.

The biggest difference between a Roth IRA and a 401k is when you pay taxes.  If you think our tax bracket will be lower when you retire, a 401k is the way to go as you will pay less in taxes when you make a withdrawal.  If you think you may be in a higher tax bracket after retirement, a ROTH IRA is the smart choice.  This will have you paying taxes on your contribution at the lower tax bracket at the time of the contribution.  

With a Roth IRA, contributions are after-tax and the funds in the account can grow untaxed. One benefit of this is that at age 59 1/2, you can withdraw funds tax-free, as long as you have held the account for 5 years and have followed all the rules.  Another drawback to a ROTH IRA is that there are income limits to contributions.  Limiting contributions for 2020 starts at $124,000 for Singles and $196,000 for married filing jointly.  You cannot directly contribute anything to a ROTH IRA when your income reaches $139,000 for singles and $206,000 for married filing jointly.  In those cases, one can still do a backdoor ROTH IRA.  ROTH IRA has lower contribution limits than a 401k.  For 2020 the contribution limit for a ROTH IRA is $6,000.  Those 50 and over can contribute $7,000.  

For the year 2020, the contribution limits for a 401k is $19,500, $26,000 for those 50 and over.  Contributions to 401k use pre-tax funds which gives you a tax break right away.  You will pay taxes when you take withdrawals.   If you withdraw funds from a 401k before age 59 1/2, you will be subject to a 10% early withdrawal penalty.

Deciding between a ROTH IRA and a 401k really comes down to when it is going to be the smartest time for you to pay taxes on your income. Visit with your accountant, tax preparer, tax planner or financial advisor for the best advice for you and your tax situation.

Candace Stevens, CEO/President of

Number Cruncher LLC

cstevens@numbercruncherllc.tax

www.numbercruncherllc.tax