Common Sense Millionaire
Common Sense Millionaire
EP 16: Choosing the Right Tax Preparer: The Difference Between a Bad Return and a $7000 Refund
What if choosing the right tax preparer could be the difference between an improper return and a hefty $7,000 refund?
This is exactly what happened to one of our listeners, and we're here to share this eye-opening tale while delivering the know-how to ensure you're making the best choices in your tax preparation. I'm going to guide you through critical questions you should be asking your preparer, such as their PTIN number and state-issued document, and if they're equipped to handle your specific tax needs.
I'll also delve into the roles of CPAs and attorneys in tax returns, and spotlight the importance of building a strong relationship with your tax preparer for the best financial outcomes. Taking a magnifying glass to your tax affairs is crucial and I want to make it easy.
The Common Sense Millionaire is here to arm you with the knowledge, tools, and support to steer you towards achieving your financial goals.
Thank you for listening to The Millionaire Mindset Podcast with George Dines.
To connect with George visit www.georgedines.com
To Schedule a call with George visit: https://georgedines.com/contact/
Welcome to the Common Sense Millionaire, where we work to promote your financial advancement in knowledge process and education so that you and your family become financially secure. This is the place I share Common Sense Action Steps that you can take today to assist your financial advancement. So sit back, grab a drink and let's get started. Common Sense Millionaire here and we're going to talk about tax preparers. How do you choose a tax preparer? So I have to start first with Crazy Story number one. Now, individual approaches need some assistance with their tax preparation and, as I always tell new clients or potential clients, I need to take a look at your previous year tax return. So I meet with the individual, I get the previous year tax return and we had a discussion about where they were now versus where they were in the prior year. And it comes up that this person owned a rental property. I said what do you mean? You have a rental property. I see here that you have a property here that has some revenue from rent but there's no expenses. The individual is like well, what are you talking about? I said, well, you have a mortgage on their property. They say, yes. I said, well, the mortgage interest is deductible. I said did you do any improvements to the property? He said yes, well, we need to take a look at those improvements and see if they can be depreciated, or actually can we use special depreciation to take it all out in one year.
Speaker 1:The client is looking at me like I'm nuts. I said this is horrible. This is not right. I said well, wait a second. You have kids and these kids are too old to be included as dependents on your return. I asked are they in college? They're like no. I said well, they can't be listed as dependents. There's special rules for that and, just as a note, the IRS is really focusing on fraud that's just related to dependents. So you've got a problem. I looked at that return. I said you know what? You actually paid money to the feds on this when you really could have gotten a refund. And the guy looked at me like I was nuts. Again, I said no, you can get a refund on this and in fact, after reviewing the return in detail, the gentleman was able to get a $7,000 refund. Okay, so I'm like all right, who the heck did this return? And that's where this comes from in terms of who do you have and what do you know about the person who's doing your tax return.
Speaker 1:Part of the problem is that the tax preparation industry is not really regulated. There are only four states in the United States that require tax preparers within those states to actually take a test, have significant training and have follow-up continuing education over the years. That's only four that's required. The ones I really am involved with are California, maryland and New York. Those are the states that I typically have worked with. Those states do not play.
Speaker 1:If you do not do what you're supposed to do, especially with state filing, your name goes on the list and your ability to process Maryland or New York or California returns is taken away from you. The feds do not have federal oversight. However, in order to be a tax preparer, you have to have what they call a PTIN number. If you do not have a PTIN number, that means that you cannot process federal tax returns. It's illegal. How many times have I seen peoples whose name is on the return as being a preparer but they're not in the PTIN database or the state database? You've got to ask them. Every tax preparer gets a PTIN document from the IRS and if the state regulates tax preparers, they will send you a document saying that you're eligible to prepare state taxes. That's the first thing that you need to ask. Second thing, especially if you're in a particular state that regulates, you can go online and check out the tax preparer to see have they had any adverse actions against them for improper tax return preparation On the federal side. You can go and put the name of the preparer that you're working with into the PTIN database to see if that name comes out as a properly registered federal tax preparer. So often people don't do this and this leads to situations where I can get an amended return file for an individual to get back money that they are properly owed. In the example that I just gave a little while ago, that individual is not registered in one of the state databases as an authorized preparer in that state.
Speaker 1:Two, you want to make sure that you're working with someone that understands your situation. If you have a business, a lot of people don't want to be bothered with that because it's a lot of extra work. You're going through documents. Hopefully the client has bank documents that you can go through. A lot of people don't want to do that. So if you have to ask, do you do business tax returns and you have to ask what type of business tax returns do you do? It's okay if somebody is just doing simple LLCs, which is part of the 1040. Now is that individual also engaged with what they call an S corp or a C corp, those specific entities? Then you kind of want somebody who has worked with those entity structures understand what the deductible items are and understand what needs to be done. We're not going to go into detail of all of those in this particular situation because we're just talking about tax repairs. So ask them do you do S corp? Do you do C corp? Do you do partnership returns? If that person does not, you probably want to think about whether or not that is the person for you. So the person for you.
Speaker 1:There's a lot of CPAs are out there. Cpas they are not regulated for tax prep. Your CPA, you just sail through the system. They got a good lobby. If you are an attorney, you can be a tax attorney and you can still those process returns, all of that. But tax preparation is really a personal type activity where you want to be able to develop a relationship with someone so that when the relationship gets to the point where the tax preparer, if they're legit, has to say you know what. You can't do this, that you just kind of work through the situation and not think that the person is just trying to give you a hard time. It is very, very personal.
Speaker 1:The other thing when looking at tax repairs is I always get asked about recommendations. Can you give me someone's phone number or contact information so I can ask them how you did and how you performed them on that return? And actually the answer is no. Under the law, I cannot share any client information with anybody else, so that, unfortunately, is not a way that you can work it Now. For me, recommendations come from the other side, so I have clients who are extremely happy with the work I've done and they refer people to me to work with. That works fine, but you really cannot use the information that the preparer has to approach any of their other clients. That is just not going to work at all and that violates one of the federal requirements that we sign and agree to.
Speaker 1:Also, please be aware there are a lot of preparers out there who will guarantee that you are going to get a certain amount of money back. If that happens to you, please run away and run as fast as you can and try and find somebody who can give you a realistic expectation of what your liability which is really the thing that people are worried about the most what that liability amount is. Please, nobody can guarantee anything unless they're doing something to make sure that the guarantee is there. Also, make sure that your preparer understands the child tax credits and the other credits. This is an extremely important area right now, with the IRS cracking down on bad things happening in the tax credit area, so you want to make sure that person understands it. You also want to make sure that, in relation to tax credits, that you have the data to support what's going to be on that return. That's extremely important. There are a lot of deductions that you can get, but if the person you're working with doesn't understand it, or if you don't have the documents to support it legally, that individual cannot include that information on the return. And trust me, the IRS, with their data analytic tools now, with the additional funding that they're getting from Congress, they're going to put a heck of a lot of importance on artificial intelligence, analyzing transactions to search for fraud. That's extremely important. Please be careful.
Speaker 1:Now the other side goes as well is that you may come to the prepare and ask the prepare Can I get you know? I talked about it. It goes two ways. A prepare cannot give you someone else's information, okay, and so the referral thing kind of works. Kind of strange, because it's one way. I really you know you have to develop a relationship, relationship of trust, and there are questions you can ask how many returns do you do? How many business returns do you do? How many escort returns do you do? That doesn't match up with you. You probably need to move on to somebody else. That's just the reality of the situation. The other question I get is what about the well nationally known tax preparation companies? Okay, my joke always was if you used one of those companies, I'm sure I could probably find a couple of few thousand dollars that you would do. That was not included and that has really kind of turned out to be true in a lot of cases, and people are extremely happy when the amended filing goes in and they get the money back. Now I also recommend that if the amount of money coming back is closer to what the fee is going to be, then it doesn't make sense to just pay for nothing and that's okay. But it will mean that if you're working with me, we'll catch that and make sure that we take care of that in the future.
Speaker 1:Okay, also, the feds also do not want paper. They want e-filing, electronic filing. Why? Because that goes directly into their database and it quickens the receipt of any refunds that you may be due. You don't want to turn paper in. In certain circumstances, if you are really behind in filings, there is a time limit where you have to file with paper. You just don't want to file paper. It slows everything down. It especially slows activity down at the state level. You want to make sure that you're e-filing and that that person can e-file for you.
Speaker 1:And then, another thing that I've seen as well you make sure that the person who signed your return is the person who e-filed your return, because that's really the slick part. The person who signs it is not, or who prepared it and signs the return as the preparer, I've seen is not the person who submitted it to the feds or to the state, and that's where that individual is using someone else to prepare it. That is not either approved by the feds or approved by the state. So you want to be careful with that and make sure that you are making sure that you're monitoring what's going on with your return. The bottom line here is that it's kind of on you in terms of due diligence. The lobbies out there for both tax preparers and the big tax preparation companies are a lot more powerful than you and these folk listen to them more than they're going to listen to us as individuals.
Speaker 1:So it's really upon you to do the due diligence to make sure that the person you're working with is actually who they are and that they are authorized to do returns in either the state that you live in, if the state is regulated, and with the federal government. If you need help with this and I understand this is kind of crazy, but if you need help just contact us and we'll be glad to help you. Either search for your preparer that you might want to work with in the state database or in a federal database, and we'll show you exactly how to do that very quickly so you can move forward. You've been listening to the Common Sense Millionaire, where you can learn how to go from zero to a million using common sense solutions to everyday financial issues. Make sure and subscribe to stay connected for more content, tools and help so you can advance towards your financial goals. If you need assistance or have questions, leave a comment or you can email me at georgeatcomonsensemillionairecom.
