Today’s post is brought to you by the brainiacs over at the Procedurally Taxing Blog. Specifically, it was this post on a taxpayer winning damages from an employer who both misclassified him as an independent contractor (he got a 1099-MISC instead of a W2) and who reported more on the 1099-MISC than the employee (he was not a contractor) actually got paid. For taxpayers in New Mexico, the federal income tax issues that result from this type of misclassification are often only one part of their problem.

One of the most common issues that brings a DIY taxpayer to my office for representation services is getting an audit notice from the state—for NM State Gross Receipts Tax. Unlike most other states, New Mexico charges gross receipts tax on the sale of goods and services. That’s why NM-GRT is included on my local clients’ invoices. When you are self-employed in New Mexico, you are “in business” in New Mexico with all that implies. Sometimes clients know they are self-employed, but for one reason or another (for example they have come from a state that does not charge gross receipts tax on services) they are unaware of the NM-GRT compliance issue. That’s why it’s usually the first question I ask self-employed potential clients and one of the things I remind current clients who are considering starting “side hustles.”

Unfortunately what also often occurs is that a client’s employer puts that client “into business” in New Mexico by misclassifying an employee worker as an independent contractor  (IC). Sometimes the employer is upfront about this—sort of. Typically the employer tells the worker all the “benefits” of being an IC (deducting certain expenses, etc.) but fails to mention the drawbacks—maintaining income and expense records and mileage logs, self employment taxes (paying into Social Security and Medicare), and here in New Mexico, NM-GRT. The taxpayer thinks they are getting a good deal until they do their own tax return and get audited or get told by their #taxpro that not only do they owe income and self-employment taxes to the IRS, they owe income and gross receipts taxes to the state.

It’s important to remember that “not caught” is not the same as “accurately filed” (or in the case of NM-GRT not filed!). The computer matching used by the state (and the IRS) is only getting more sophisticated. If you aren’t sure about your requirements, it’s best to consult a #taxpro before you get the notice and it’s definitely best to consult one if you get a notice. True #taxpros offer much more than return preparation and audit representation; they manage the process for you and provide peace of mind.

This is how I earn my living. I work pretty much full time, pretty much year round. Even when I’m not doing tax returns, I’m doing representation work (helping people who are being audited or who are in IRS collections), I’m working on the business side of my small business, or I am reading. I am always reading. I’m not a “pop up” tax shop. I’m not seasonal. And this business is definitely not a hobby for me. So please treat me as you would any other professional. If you aren’t sure what that means, here are five tips on how to treat your tax professional (or any professional)…

Tip #1: If it’s work related, please call the office or e-mail my work address.

Sometimes friends become clients. Sometimes clients become friends. Sometimes we are colleagues with businesses that are similarly aligned. If your doctor was a family friend, would you call her on her personal cell to book an appointment? No? Please do the same for me. My home/work boundaries help keep me sane, not to mention being necessary for my professional liability insurance. If it’s office stuff, let’s take care of it during office hours, using office resources. When I’m out socializing, especially during tax season, I am getting some rare “outside the office” time. I do not want to be on duty (and again, my professional liability insurance also does not want me to be on duty—especially if it’s happy hour). I don’t mind giving out a business card or taking your card for a callback, but I will not discuss specifics outside the office.

Tip #2: If it’s administrative (non tax) work, please reach out to the admin assistant first.

It’s a small office and when Cat isn’t here I am the admin assistant. But that means I am working at her workstation, monitoring her e-mail accounts, and doing work that is typically hers when she is on duty. Again, if you have a doctor or an attorney do you call them with questions about office hours, booking appointments, what to bring to your appointment? Not usually. They have staff for that and during the busy part of tax season, so do I. Please respect the professional boundaries and contact the office and speak to the admin and let her do her job (including determining when a question needs my intervention).

Tip #3: I can explain it to you, I can’t understand it for you.

I want my clients to understand their tax returns and have a good big picture view of their tax situation. I work hard to explain what is going on with each tax return to each client each year. That service is part of what you pay for when you hire a #taxpro as opposed to doing your own returns. But I cannot magically transfer my years of training, education, and experience into your head. I can give you the big picture. I am typically not willing to explain anything in the level of detail that is provided in a training class for tax professionals to non tax professionals—no matter how smart you are or how much I like you and/or value your business. I’m pretty smart. Actually, I’m really smart. But I’m also smart enough to know I’m not going to learn how to design a bridge by asking an engineer to explain it to me. I’m not even going to learn how to design a bridge by asking an engineer to explain it to me in excruciating detail. Again, I want you to understand what is on your tax returns—what you are filing and paying and why. But I cannot train you to do my job at your review and signature appointment so please don’t expect me to.

Tip #4: Your mad search skillz are no substitute for my years of experience and training.

They just aren’t. I’m not saying what you Googled is incorrect. It may be correct. But it also may not be correct and knowing why it is or is not correct is a big part of what you get when you hire a professional. The tax code is huge. Huge. And it has a lot of interconnected parts. Knowing how those parts all work together is what I do. When you Google (or even sometimes when you are using DIY tax software) you often don’t know what you don’t know and you could be missing information that is critical to the big picture. Garbage in, garbage out. I’ve spent years learning how to ask the right questions and to question what on the surface may seem like the right answers. I don’t mind answering questions. I do mind when you stand in my office and challenge my answers based on your search results or what your non-taxpro friends have told you.

Tip #5: Don’t expect me to work for free.

Again, this is how I earn a living. If you are a client, don’t call with questions about your friends’ or family members’ returns. If you are a prospective client, do not call expecting to “pick my brain” on what you are supposed to do to prepare a tax return. Do not expect me to tell you which forms need to be filed or if items are reportable income or are legally deductible. Do not ask if I will review your self-prepared return—I won’t. Do not call to ask me for tips or strategies or “quick questions” if you are not a client. My clients pay for that information. If you want it, then become a client. You would be surprised at how often I have to tell casual friends at group dinners “No, I don’t answer ‘quick questions’ from non-clients when I am at social events.” You would probably be more surprised to know how many calls Cat and I field during the height of tax season from non-clients expecting free information. Imagine trying to install a dishwasher yourself and calling a plumber while you are in the process and saying “Well, I’ve got the dishwasher out and I’ve been talking to my contractor friends and watching YouTube videos and googling for tips and I just want you to kind of walk me through this to be sure I’m getting it right.” And expecting them to 1) do it and 2) do it for free. Not gonna happen with them and not gonna happen here either.

Perhaps the simplest guideline is that if you wouldn’t act this way with a doctor or an attorney, don’t act that way with me. My name is Amber. I am a tax professional.

I love living here in the west. We have lots of sayings about “things cowboy” out here:

  • Cowboy (or cowgirl) up.
  • Not my rodeo, not my clowns.
  • Not my cattle, not my (uh) manure.
  • Big hat, no cattle.

And the list goes on. I’ve visited lots of places in this country and all of them have their advantages, but I can’t imagine ever making a home east of the Rockies. I love the wide open spaces and the freedom they inspire. But sometimes what is an advantage in some circumstances (lots of freedom) proves to be a disadvantage in others, which brings me to today’s topic—tax cowboys.

Unlike, say, rancher type cowboys (who in my experience are a pretty conservative group if a bit dismissive of the whole “paperwork thing”), tax cowboys are more like rodeo cowboys. They are risk takers. They see the tax code and form instructions as a personal challenge. As obstacles to be overcome. As an opportunity to show you (the client) what they’re made of. They’re personable. They have swagger. They are really easy to like and even easier to believe because they often tell you what you want to hear. The problem is the risks they are taking are with your taxes and your money, not their own.

Tax cowboys aren’t the same as ghost preparers. They are often highly experienced, well educated #taxpros. They often are not the lowest bidder on price. They will sign your return as a paid preparer. And yes, signing a tax return as a paid preparer comes with its own set of risks. But the thing about tax cowboys is the big risks they are taking are with positions on your tax return and therefore with your money. “Not caught” is not the same as “accurately filed” and relying on the advice of a paid preparer may get you out of some penalties and interest, but it is rarely enough to get you out of owing more tax (sometimes a lot more tax) if your return is ever examined (audited) by the IRS and/or by the state. You sign that return too. By signing it (or authorizing the e-filing) you are stating that you have reviewed the return and agree with what’s on it. That’s why this office always includes time for a review before you sign the e-file authorization form.

Let me repeat “not caught” is not the same as “accurately filed” and tax cowboys are playing with your money and rolling the dice for you. The consequences will be on you. Fixing the issues will be on you. You may think you like the result now, but you won’t like it later and the algorithms that catch these problems are only getting more sophisticated. Be sure you know the big picture and are ready for the whole eight-second ride!

Tax Therapy is a small office. If you call during the off season (June through December), chances are high that I (Amber Gray-Fenner, Enrolled Agent) will pick up the phone. It is also likely that I will be the one responding to e-mails sent to the info or admin accounts. During tax season, however, there are usually two of us here: Me (Amber Gray-Fenner, Enrolled Agent) and Cat (Administrative Professional). A big part of Cat’s job during tax season (especially from about February 20th until the filing deadline) is what I call “Administrative Triage.”

During the height of tax season I am up to my eyeballs in tax returns and research. Cat acts as a gatekeeper to ensure that I am performing at the highest possible level. She can answer most questions about our office policies and procedures. For example—

  • Do you take credit cards?
  • When do I pay?
  • Did you get my stuff?
  • When will my return be ready?
  • When can I drop off documents?
  • Where is the office located?
  • Are you taking new clients?
  • How much do you charge?

So many times when you think you need to speak to me, you don’t. Cat can answer your questions. If it’s a tax question or something more complicated, she will take a message or forward your e-mail and sometimes, if it really was a “quick question,” she will call you back or e-mail you with the answer(s) I have provided. It is only with Cat’s expert administrative help that I can manage the tax season workload. She is a critical part of “what makes office go.” So please, if you have a question or concern call (505-352-0058) or e-mail Cat rather than trying to reach me directly. If I am truly needed I typically respond within two business days.

 

All the time. My Dad is in his 80s and lives in another state. I have two (almost grown) children. I understand emergencies happen. If they happen to you, please do your best to call or e-mail to reschedule your appointment or to let us know what is going on. We will work with you to make arrangements or file an extension or whatever is needed. But I don’t charge for missed appointments and I don’t want to have to start.

If you are sick please do not come to the office. Please reschedule your appointment. It’s just me and Cat here and if either one of us gets sick during tax season it makes keeping up with the office workload pretty much impossible.

Please also do your best to avoid bringing your children to your review and signature appointment. I don’t mind kids. I don’t even mind kids in the office, but review and signature appointments aren’t always over quickly and interruptions just make them longer. And, when you and I are focused on your children, it makes it much more difficult to focus on your tax return and any planning questions you may have. Not to mention the office is not a child friendly environment—there are lots of breakables around, f-bombs are sometimes dropped, and if it’s after regular hours, there may be alcohol being consumed (by me and/or other clients). I understand emergencies happen and if you need to bring your kids to the office I am not going to stop you. I know how that goes! But please understand their needs and their thresholds and ensure that they have something to occupy them, that if they have food or drink that it is something that will not require clean up, and if they are sick—please leave them at home and reschedule.

No, this one is not about following the law. That goes without saying in the Tax Therapy office! This one is about office procedures, policies, and preferences that help us to process returns efficiently, keep prices reasonable, and keep my head from exploding.

If you have never actually been to the office, it is really small! Bigger than the old Nob Hill office, but still really small. We are a largely paperless office and we don’t have much in the way of storage space. So if you have ever walked in with a huge box of stuff and seen the look of panic in my eyes, that’s why.

Your attention to the following rules is much appreciated and helps tax season go more smoothly for us, which means faster turnaround time on everyone’s tax returns:

  • Don’t even think about bringing “shoeboxes” or bags of receipts. Save your receipts and organize them (or not) however you wish but don’t submit them all. We do not do bookkeeping, sort paperwork, or run totals for you unless arrangements have been made in advance and these services are not included in the fee for preparing your tax return.
  • Use the organizer! Review the client interview. Check the applicable boxes. Write notes and questions in the space provided. Total your receipts according to the categories on your organizer paperwork and record the totals where indicated on the organizer.
  • Don’t submit your documents in “weird” folders. We keep your originals in your tax folder and we keep your tax folder in fire- and water-proof lock boxes. Large accordion files, folders with handles, etc. don’t fit in these boxes. If you bring your documents in in something like this, expect that Cat will remove them and return the container to you.
  • Don’t use staples or tape to group your documents (paper clips or binder clips are OK). We scan the documents you provide to us and we have to remove tape and staples before scanning. We like returning things to you how you gave them to us, so we usually re-tape or re-staple paperwork. This may seem like not such a big deal, but when you consider how many thousands of documents we handle throughout tax season, trust me, it adds up. Paper clips and binder clips (within reason) are much easier and faster to remove and re-attach.
  • Give us all of your tax documents but please open envelopes and self mailers and remove “filler” items. For IRS/State notices keep and submit the envelope. For general tax information like W2s and 1099s, retaining the envelope is not necessary.

That’s it. Nothing too complicated but it really makes a huge difference for us!

If I had a quarter for every time a client called or e-mailed with a “quick question” or a potential client said “my taxes are really simple” I could probably retire (not that I want to). If you’ve ever asked me a “quick question” you’ll know that most of the time my answer is along the lines of either “Off the top of my head I’d say this, but let me do some more checking and call you back.” or “I’ll have to run the numbers and call you back.” Truth is, in general, there are no quick questions. The tax code is complex and highly dependent on individual facts and circumstances—not to mention actual numbers. Just because a friend or relative or neighbor got this or that credit or deduction doesn’t necessarily mean that you get that credit or deduction too. Even if you think you are in similar financial circumstances you may not be. It never hurts to ask of course and I am happy to answer your questions, but I may not always be able to give the answer you are hoping to or expect to receive. And often I cannot answer your question without completing most or all of your tax return. That is why I encourage you to write down your questions on your organizer paperwork and return them with your other tax documents. And remember, a certain amount of “question time” is built into the price of your tax return preparation fee but extensive planning or calculations are considered a consult and billed hourly. I will always let you know if you are straying into billable territory. Also, if you are not a client, I cannot answer your questions, review your self-prepared returns, etc. I also don’t answer specific tax questions at social gatherings but I am happy to nerd out with you on tax policy!

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 NATPNAEAAICPA, 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.