The question is not can you, but should you?

I often answer calls from potential clients (often referrals from existing clients) who have 1099 (independent contractor/self employed) income. Sometimes they call because they “ran into problems with Turbo Tax.” More often it’s someone’s first time getting a 1099 instead of a W2 and s/he doesn’t know what to do. As always with potential clients who are self employed one of my first questions is “Are you aware of New Mexico’s Gross Receipts Tax and your filing requirements?” The answer is usually “No.” My response is a version of the following: “Well, this is separate from income tax and it is important to remain in compliance. I can help you with that too but GRT compliance consulting is a separate engagement from return preparation.” Sometimes after talking with them for a while I realize they may have filing requirements in other states. Being self-employed is not for the faint of heart. I can practically hear the panic on the other end of the line.

Often I am then asked about my charges and I provide the basics and some of the information about how I add value and reference this post as well. I tell the callers to think about it and to call me back if they would like me to send them an organizer (our preliminary paperwork packet). I remind them my job is to make sure that they are in filing compliance and are paying the correct amount of tax (no more, no less). Usually that’s the last time I talk to them. Frankly, I am usually surprised when a caller like this calls back. And that is OK. I would rather know early on that they won’t be a client than have them come on board and then end up arguing with them about the return results and having them refusing to pay for the work. That situation happened a couple of times last year and has resulted in a pre-payment policy for new clients coming in during tax season. These callers may find another #taxpro. Or they may go ahead and do their returns themselves and hope for the best.  I have a colleague who makes probably half of his annual income representing clients before the IRS for mistakes they made because they tried to do their returns themselves. Remember this meme?

It goes hand in hand with my mantra “The rep rates are three times the prep rates.” You may see my prices and think “way too expensive.”  But what I charge for preparing an accurate return is about one-third of my rates for representing clients in front of the IRS or a state taxing authority. My return preparation charges are in line with national and regional averages. Representation, however, is pretty much “lawyer work” and my rates are similar to what a lawyer will charge. And that’s a “regular” lawyer. Not a tax attorney.

In the end, the decision to do your own taxes is up to you but if you are self-employed (especially here in New Mexico) it may be a “false economy.” The amount of time and money you may have to spend to fix your mistakes could be more than just hiring the right #taxpro in the first place.

The Tax Girl (Kelly Phillips Erb) has an excellent post called 12 Questions to Ask When Choosing a Tax Preparer. It’s a great post, especially if you have actually narrowed the list of possibles to a few probably qualified candidates. My list of 5 questions overlaps some with hers, but is geared more toward finding that short list in the first place:

1. What are your credentials? (CPA, Attorney, EA, Annual Filing Season Program Completion, etc.) Kelly covers that in her post or for more information click here or read this earlier post. You might also ask about professional affiliations. Is the practitioner a member of the NATP, NAEA, AICPA, etc? While membership in professional organizations does not necessarily indicate competence, it may indicate a certain level of seriousness about the profession.
2. How much continuing education do you normally do each year? Each credential comes with its own requirements. Note that CPA and Attorney continuing education requirements do not necessarily have to be in tax matters while those for Enrolled Agents and the AFSP are specific to tax matters and professional ethics. In my opinion 15 hours of continuing tax education each year is the bare minimum for maintaining professional competence. I am required to have 30 hours per year (the EA credential requires 24 per year average over three years, my NAEA membership requires 30 per year). I usually take 50 or more.
3. How long have you been preparing returns and how many returns do you prepare each year? Experience isn’t always required, but it is helpful. I was talking to someone a few years ago who said that she had a former IRS employee interested in buying her tax practice. She said that during her first conversation with him it came up that he had never actually prepared a tax return. Depending on the complexity of your return, that could be important. The number of returns prepared per year speaks both to the preparer’s experience and to his or her availability. My personal opinion is that even with outstanding office processes and a certain amount of support staff it is difficult for any one preparer to handle more than 250-300 or so returns per year. Now, if that preparer is part of a larger office where interviews and data entry and other tasks are handled by support staff the number could be larger (even much larger). This is more of a judgment area for you. How much personal interaction do you need/want with your preparer? Are you willing to pay more for more/better access (some preparers offer ‘concierge’ service for a premium)? The answer to those questions may help you to determine if your potential preparer is right for you.
4. How much experience do you have with my type of return? If you have rental properties; live abroad; are clergy; are in the military; have income from multiple partnerships, trusts, etc.; or if the return is a business entity return (or any number of other highly-specialized situations) it is important that your preparer have experience with that type of return. People who routinely work in multiple states (truck drivers, pilots, flight attendants) need specialized support as do farmers, ranchers, and professional fishers. It’s OK to go with someone who has only limited experience, but you should be comfortable with their ability and willingness to research the necessary issues (which is one reason why that continuing education question is so important). For example, I recently declined a potential client because I don’t generally do returns for retail businesses (the business return side of my practice focuses more on the needs of freelance professionals and personal service providers).
5. How will you protect my information? Don’t expect an extremely detailed explanation, but paid preparers are required to have a written security plan. That should include computer security (firewall, malware protection, and update schedules are the bare minimum). In addition to computer security, the preparer should also have policies on staff training (if applicable) and physical protection of your information (how paper files, laptop and desktop computers, and backup media are secured). Finally, you should ask about their data storage and backup plans. This post contains a few more specific questions related to computer security. Again, don’t expect specifics, just enough information to ensure that your data is reasonably protected from being damaged, lost, or stolen.

Notice that not one of these questions is “How much do you charge?” Preparer fees exist on a continuum and those competing on price alone are rarely your best option. Cost is always a concern and, as someone who also does personal finance coaching, I would be remiss if I told you to simply throw caution to the wind and to hire whomever you want. Many preparers can and will give you an estimate based on prior year’s tax returns if the current year’s return is expected to be similar. You can download Tax Therapy’s Quote Request here. When evaluating cost consider the preparer’s credentials and continuing education (those are expensive to maintain), the office overhead (support staff and large offices are obviously more expensive to maintain than a lone preparer working out of a home office), and level of service provided (can they represent you, are they in the office all year, etc.). As with all financial decisions trade-offs exist. Find the preparer that best meets all of your needs and realize that may not be the lowest cost option. Of course it is important to remember that higher price is not a guarantee of quality service. As always, choose wisely, choose well.

Many years ago, when my kids were still little, I mentioned to my friend, Julia, that we were having a birthday party at a kid-oriented pizza franchise (to remain nameless). She promptly responded “I have a strict policy of not eating at restaurants that have rodents as a mascot.”

I remembered this on the drive back from lunch recently when I saw the guy (talking on the cell phone) dressed as the Statue of Liberty waving the sign for one of the big tax franchises. I’m not against tax franchises in general. Some of the best, most experienced #taxpros I know either got their start at a franchise or own/operate a franchise.

I’ve said often that price should not be one’s primary consideration when choosing a tax preparer. I blogged recently about the importance of having a preparer who is serious about technology and information security issues. I guess another consideration should be a certain seriousness about the profession. The person preparing your tax return is holding your financial life and identity in their hands. You don’t necessarily want to choose the lowest bidder and you maybe want to reconsider choosing the one with the mascot.

In an earlier post I discussed the various types of paid tax professionals and at the end I mentioned that, at an absolute minimum, your preparer needs to hold a valid preparer tax identification number (or PTIN). Ghost preparers are paid preparers who do not hold PTINs. They are often (but not always) small, independent, tax season only preparers using software meant for personal preparation (such as TurboTax) to illegally prepare returns for other individuals for pay.

Update (February 8, 2019): Read what the IRS has to say about ghost preparers here.

The main difference between a true ghost preparer and, let’s say, your aunt who files your return using her copy of TurboTax and you slip her $50 bucks for her help is that ghost preparers hold themselves out as actual tax professionals, often to family and friends, but often to others as well.

The problem with ghost preparers (and for that matter your aunt) is that they have absolutely no accountability to the IRS or to you, the taxpayer, for their work. They do not have to comply (or even pay attention to) safeguarding your personal information from disclosure or theft. They do not have to abide by any ethics rules. And they do not have to help you (often they are not allowed to help you) if you receive a notice from the IRS for an audit or any other issue that pertains to your tax return. Their responsibility ends once your return is filed whether correctly or incorrectly or, worse still, fraudulently.

So how do you avoid using a ghost preparer to prepare your income tax return? Before you give the preparer any information make sure s/he has a PTIN. If the preparer doesn’t know what you’re talking about run, don’t walk, to another preparer. The IRS Return Preparer Office has a searchable directory that you can use to determine if your preparer has a PTIN but it does not include those who do not have not obtained any professional credentials or qualifications. If you’re still unsure, check out this article by The TaxGirl (Kelly Phillips Erb).

Think you’ve seen a ghost preparer? The easiest way to tell is to look at the signature area of your tax return. Under the signature block there is an area that says “Paid Preparer Use Only”. That block should have your preparer’s name and contact information. Older returns may have the preparer’s PTIN; newer returns often have the PTIN masked. If it says “self prepared” your preparer is a ghost preparer. Remember, if your return preparer used your return to commit fraud his or her name isn’t anywhere on the return. You effectively own that fraud.

So please, be careful when choosing a #taxpro. Of all the options available you should be able to find one who both meets your needs with respect to the level of complexity of your return and your price requirements. Remember you are entrusting this individual with your identity and most if not all of the details of your financial life (and many of the details of your personal life). It’s too important a decision to make quickly or based on price alone.

Well, what are you paying for when you hire me to prepare your tax return?

You are paying for my time, my education (at least 30 hours of tax education every year), and my experience. When you hire me, you will get a thorough review of your situation and your return—not simply data entry. Putting numbers in boxes? Cat does that, then I review the numbers, the results, the instructions, and the law and make sure your tax return is as complete and accurate as it can be before I e-file it for you. You also get some face time (or phone or e-mail time) with me. You get time with me—the person who prepares your return—not a cursory review of your return with an admin or junior staffer and a 5-minute handshake with the partner who signs it. You get a 30-60 minute appointment to review your return and talk about next year. Additionally a certain amount of phone and/or e-mail time throughout the year is built into the price of the return. If you need a more involved consult, I’ll always let you know that before I simply send you a bill for the time. And while someone else may answer the phone, schedule your appointment, or call you back with an answer it will always be me providing the answers. And you get answers and explanations that you can understand and I will work with you to ensure that you understand what is on your return before it is filed, not just say “sign here” and push a button.

Why am I “so expensive” compared to box software?

First and foremost, box software is a “do it yourself” option. You buy, download, and install the software. You download the information into it or enter it yourself. You answer the interview questions and your questions about those questions are answered by someone in a call center, not by someone who has reviewed (or prepared) prior years’ returns. You push the button to e-file the return. You follow up to make sure the return was accepted. And then you do it all again next year. If you have questions during the year or get a notice, you are largely on your own. When you hire me, I do your tax return, not my computer.

As a paid preparer, I have obligations that people who prepare their own returns do not. If you are claiming the American Opportunity Credit, the Earned Income Credit, the Child Tax Credit, or file head of household, I have a boatload of due diligence and extra paperwork to do to ensure that you are eligible for those credits. If you’re doing your own return, you just fill out the form and that’s it.

As a paid preparer I am responsible for your information. When you prepare your own return, if your computer gets hacked or your information gets stolen the only penalty involved is the work required to fix the problems. I on the other hand have a huge amount of potential liability and exposure because I am expected to keep your data secure. I am actually required (all paid preparers are required) to have a written information security plan.

I am not, however, required to have either professional liability (malpractice) or information security insurance but I have both. Why? Because it is the responsible thing to do. Because I don’t want to go out of business because of a data breach (although I do everything in my power to prevent that from happening) and I have no intention of disappearing if I happen to make a mistake on a tax return. I try my best to do accurate returns, but tax season is long and short at the same time, I am human, and mistakes, while rare, do happen.

Finally, like anyone else who owns a business, I have overhead. Your fee pays for my rent, my phone and internet, Cat’s salary and payroll taxes, my equipment and furniture, my tax and security software and licensing, my continuing education and reference materials, and whatever is left over after the bills are paid pays me. This is how I earn my living. I’m not trying to rake you over the coals. I know plenty of preparers who charge what I charge (or more!) and who cut corners on software, security, education, insurance, etc. That isn’t me. I charge what I consider to be fair prices that are in line with national and regional averages and that provide me with fair compensation for the skills I have (and that I continue to maintain) and for the work I put into preparing your return.

Good #taxpros always strive to add value above and beyond simply putting numbers into software. If yours doesn’t, please give us a call (505-352-0058) or send us an e-mail. We are accepting new clients.

Can I? Sure. Will I?

The main reason we will not e-mail you copies of your tax return (or any other sensitive tax information) is that it is illegal for us to do so unless the e-mail is encrypted. Not password protected…encrypted. I’ll be the first to admit I am not an information security expert, let alone an information security professional, but I am pretty paranoid. Simply sending you a password-protected PDF file is not enough to meet the required standards. The type and level of encryption required to send tax documents via e-mail probably eliminates the reason for doing so in the first place, namely convenience.

I have many clients tell me that they “don’t trust the mail” and would rather use e-mail. E-mail may seem (may be) more reliable than postal mail or a commercial carrier such as Federal Express but it is nowhere near as secure. With a hard copy mail carrier your information leaves its destination in a sealed envelope (I like to use Tyvek envelopes because they are also less easily ripped and don’t disintegrate when wet). It also arrives in that same sealed envelope and it is usually pretty easy to tell if it has been mishandled or tampered with somewhere along the way. E-mail provides no such security. Once your “envelope” leaves your mail program it is routed through whatever computers make most sense to the internet. And unless you are a cyber security expert, there is no way to tell just how many stops your message made or if it was opened and read along the way before arriving at its destination. It’s similar to the difference between mailing a letter in an envelope and mailing a postcard. That’s why we are required to encrypt your private information if we are going to send it via e-mail. That ensures that anyone who tries to read it can’t (your “postcard” message is written in a really strong code that can only be decoded if the person who sent the postcard originally gives you the key to unlock the code). Again, most people are looking for a convenient way to send/receive documents electronically and all this code making and breaking is extremely inconvenient.

Clients can, of course, e-mail their documents to us but I recommend that they don’t. I prefer that they don’t. I won’t even look at e-mailed documents from non-clients. To make it easier for new and existing clients to send and receive electronic documents Tax Therapy maintains a secure file portal that is integrated with our tax software. A secure file portal is an internet location where each user registers and is provided access to only those documents intended for him/her. It is the best option for electronic delivery of documents (to me or to you).

We appreciate the opportunity to meet your tax preparation needs and want to assure you that your privacy and information security are extremely important to us.

• We are currently accepting new clients. I reserve the right to place new business clients on extension.
• All returns are held for review and are not filed “while you wait.”
• Prices depend on the length of the return (i.e., which forms and schedules are needed). All returns include free e-filing for federal and the first state return. Click here for more information about our charges. Click here to request a quote.
• First-year clients must call or e-mail for an organizer and, once that is completed, schedule an intake appointment. Our tax return intake procedure for new clients generally takes from 30 minutes to an hour. Intake appointments are free for first-year clients only. If you are an existing client and would like an appointment to review the information in your organizer with me we are happy to accommodate you but the consult fee will be a separate line item on your invoice.
• Existing clients may drop off tax documentation any time during regular business hours, mail it (USPS Priority Mail with Tracking is recommended), or upload it to our secure portal.
• To ensure the accuracy of the return we must make sure we have complete and accurate information. Collecting and organizing your information before you submit it and preparing any questions you may have about your tax situation in advance will help us to process your tax return more quickly.
• Saturday and evening appointments for review and signature will be available during February and March. We do not schedule client appointments on Wednesdays or Sundays!

In general, March and April are the worst time of year to be searching for a new #taxpro. At Tax Therapy, the needs of existing clients always come first and if I don’t feel that I can provide them the service they deserve, I will not accept new clients mid season, especially new business clients. That doesn’t mean I won’t do your taxes, it just means if you’re coming in during the height of season, please understand that I will definitely seem pressed for time—because I am pressed for time! Also, if I do accept your return, I may require you to go on extension, especially if you are business client. I want to make sure I have the time and focus to give your tax return the attention it deserves. I love talking to potential clients in summer and fall, so if you are simply “considering” making a change I encourage you to contact me between June and October when we will have plenty of time to talk.

This post provides an overview of how tax season “works” in the office. It is for new and existing clients.

Reminder Postcards

If you are a returning client or if I have “onboarded” you during the summer or fall, you will receive a reminder postcard in the mail sometime after January 10th. This lets you know that we are ready to send out our “organizer” paperwork. Many taxpros bulk mail their organizer to all of their clients all at the same time. We prefer to ensure that you are returning before we send you your preliminary paperwork. When you get the postcard, call or e-mail and we will send you an organizer via USPS or e-mail. Don’t worry if you are a new client and missed the postcard. Just call the office and Cat or I will take some preliminary contact information and get you an organizer.

Organizers

The organizer contains our engagement letter and privacy policy both of which must be signed before work begins on your return. Print and sign those documents.

The organizer also contains our client interview (which must be completed each year) and supplemental worksheets that apply to your specific situation (rental property, self-employed, etc.). The interview is designed to remind you of the documents you need to include with your return and to provide prompts about questions you may have had (but not asked) during the year. Review and complete the client interview and any additional worksheets. Be sure to review/update ID and banking information, healthcare coverage information, and foreign accounts/interests, information. Collect your other tax documents (W2s, 1099s, etc.) and return your organizer and your documents to the office.

Returning Your Organizer

Returning clients—You can mail (or courier), upload, or bring your documents to the office. Please do not e-mail your documents; it is not secure. Also, if you happen to have my cell number please do not text me pictures of your documents.

New clients—Once you have everything together, please call or e-mail Cat to schedule an intake appointment. Bring your completed package to your intake appointment along with your photo ID and Social Security card (and your spouse’s if filing jointly). Bring birth certificates and Social Security cards for anyone you are claiming as a dependent on your return. If I do not already have them, please bring at least one and up to three prior years’ tax returns. If you think your IDs and dependent IDs have already been verified (for example at an appointment this summer), let Cat know. If we have already verified your ID, your intake appointment is optional. If you live “far far away” I can verify your ID and do your intake appointment using Skype and you can use the secure portal or US Mail (or another carrier) to provide your documents. Remind Cat that you need a Skype appointment rather than an in office appointment. She will let me know and I will be in touch with more details.

What Happens Next

I do not do returns “while you wait.” If you want to know why, you can read more about that here. Once you have submitted your information, it goes into our “queue.” In general, returns are processed first in, first out. Cat scans documents, does the data entry, and notes any items that may be missing. I review the data entry, review any questions noted in your organizer, review the entire tax return and compare it to last year’s return, and prepare a list of follow up questions and missing items. I will either call or e-mail you to get any additional information I need to finish your return. Usually I e-mail because then my questions and your answers are easily saved into your work file. While I’m waiting for your response, I move on to the next return in the queue. Responding to my questions quickly, thoroughly, and accurately will ensure that your return is done as quickly as possible. Sometimes I block out an entire day simply to “close out” returns with missing information.

When your return is finished and depending on your situation and location—1) Cat will call you to schedule a review & signature appointment, 2) I will upload a review copy of your return to the secure portal, or 3) I will use USPS Priority Mail with tracking to send you your return and signature documents. If you prefer a courier other than USPS (FedEx or UPS, for example) we are happy to comply but we will bill you for the difference in price. If we are working remote, once you have had an opportunity to look at your return you may call (505-352-0058) or e-mail for an appointment to discuss the results before you sign.

Reviewing and Signing Your Return

Paying for Your Return

Other Important Information

The answer to the “What do you charge” question is available here, but as with most things tax-related, the answer is “it depends.” I encourage you to request a quote for the most accurate answer. That said, we try to keep our prices in line with national averages and a certain amount of “during the year” Q&A is included in our return preparation fee. I will always let you know when you are straying into billable territory and you can choose whether or not to proceed.

New clients coming in during tax season are required to pay the base price of their return (1040 or entity) when they submit their organizer paperwork. I don’t like having to do this, but last year too many clients came on board during tax season, had me do their returns, decided they either didn’t like my follow up questions or didn’t like the results, and then did not want to pay for the work. Requiring base price of the return ensures that I get paid at the minimum level for work done on a tax return. We will not accept your paperwork until payment is made.

I use Constant Contact e-mail to keep clients informed during tax season. I provide updates about the steps in the process frequently. For example, I send an e-mail when the postcards “drop”; then another one about what to do with your organizer when you get it and the most common errors clients make when completing their organizers. I sometimes send an e-mail if I find many clients are calling with the same question or problem or if I am seeing the same error over and over in returned tax packets. I always send e-mails if there are issues in the office that interfere with our work (power outages, internet outages, illness, staff emergencies, etc.). I also always send e-mails when I feel like I am running behind in processing returns. I will let you know how far “back in the drawer” I am. I sometimes get behind on individual returns around the deadline for entity (partnership & S-corp) returns. If that happens I send out an e-mail letting you know, for example, that I am currently two weeks behind—meaning if you submitted your packet two weeks ago, I’m just getting to it now.

Our goal is to provide a reasonably personalized experience while still keeping our prices within reach of the average taxpayer. Yes, we do cost more than a DIY option. I discuss the reasons for that in this post. No, we cannot tailor our office processes to match your previous preparer’s or your individual expectations. I try to be as flexible as possible, nevertheless, my office processes are designed to ensure that our work flows smoothly, we don’t miss important details or deadlines, and that, in general, the office runs efficiently for staff and clients.

Tax Therapy provides services to individuals and to small and micro businesses. We do not provide bookkeeping services but we can help you find a bookkeeper. At this time we do not file FBAR returns or do other FACTA compliance for those with financial interests outside the U.S. We are happy to provide referrals to colleagues who specialize in international taxation.

While I will take new business clients during tax season, I will typically ask or even require you to go on extension. In general, if you are a business looking to retain a tax professional for the first time or to change tax professionals it is best to contact us (or almost any tax professional) between June and November. That way we have time to review your returns and your situation outside the chaos that is tax season!

Forms and returns we can file for you and your company:

This is only a partial list, we can file forms necessary to prepare individual returns and most small business returns.

• 1040
  • Schedule A (itemized deductions)
  • Schedule C (profit/loss from business)
  • Schedule D (capital gains/loss)
  • Schedule E (rental income/loss)
  • Schedule F (farm income/loss)
• 1065 (partnership returns)
• 1120 (corporate returns for C corps, S corps, Homeowners Associations, and Political Campaigns)

What we need to have to prepare your tax return:

This is only a partial list —please bring any additional documentation you feel may be necessary to prepare your return.

• Photo ID for you and your spouse if we have not already verified your identity. ID verification can be done via Skype for remote clients.
• Names, birth dates, and Social Security numbers (or tax ID numbers) for yourself, your spouse, and all of your dependents.
• W-2s and 1099s from your employers.
• 1099s from your bank and brokerage accounts.
• If you are a new client please bring at least one and up to three prior year’s tax returns.
• If you are a business please bring your organizing documents, and NM-CRS returns, payroll tax returns, and (if possible) a current P&L and balance sheet.

Please do not bring piles, bags, or boxes of receipts unless we ask you to! We do not have space to store them. Scanning, sorting, or otherwise manipulating receipts and other data used to prepare your return is not included with the price of tax return preparation. You will be charged by the hour (half hour minimum) in quarter-hour increments for any administrative time necessary to prepare information for your return.