Make sure you chose a qualified tax preparer

Van Sievers CFP March 6, 2015

Like most Americans your current “To Do” list probably includes income taxes. Everyone has received a lot of mail with descriptions or warnings about this information being “Important 2014 Income Tax Information!” Soon you will have to decide how to deal with last year’s income tax situation. So, should you try to file you own income tax returns or are you thinking about hiring a tax professional?

Tax laws can be complicated and usually change from year to year, so it’s important for you to learn a lot of new tax laws or you need to find a preparer who has the knowledge and experience to prepare your returns correctly.

The IRS now requires tax-compensated preparers to register, pass a competency test and take continuing education classes annually. CPA’s, lawyers and enrolled agents have always met those requirements, but the field of tax professionals is raising its standards, which is probably good for everyone.

However, services vary considerably from preparer to preparer, so you’ll also want to find a professional who offers the services you need.

Before you hire a preparer, ask some questions

•What kind of formal tax training do you have?

•Do you hold any professional licenses or designations, such as certified public accountant?

•Tell me how you get your continuing professional education?

•How long have you been preparing tax returns?

•Have you ever done a tax return dealing with my situation?

•Have you ever been disciplined by any government authority (federal or state) for malpractice?

•Are you authorized to, and will you represent me in an audit or collection matter with the IRS or the Alabama Department of Revenue should the situation come up?

•How much do you charge and how do you calculate your fees?

Also, be careful of tax preparers who claim to know “the secrets” of obtaining unusually large refunds. Most preparers charge rates based on their time or the complexity of your return, and you should avoid anyone whose fees are based on a percentage of your refund.

Remember that you are ultimately responsible for your tax return, so be sure to choose your tax preparer carefully.

How long should I keep tax documents?

Business Documents To Keep For One Year

• Correspondence with Customers and Vendors
• Duplicate Deposit Slips
• Purchase Orders (other than Purchasing Department copy)
• Receiving Sheets
• Requisitions
• Stenographer's Notebooks
• Stockroom Withdrawal Forms

Business Documents To Keep For Three Years

• Employee Personnel Records (after termination)
• Employment Applications
• Expired Insurance Policies
• General Correspondence
• Internal Audit Reports
• Internal Reports
• Petty Cash Vouchers
• Physical Inventory Tags
• Savings Bond Registration Records of Employees
• Time Cards For Hourly Employees

Business Documents To Keep For Six Years

• Accident Reports, Claims
• Accounts Payable Ledgers and Schedules
• Accounts Receivable Ledgers and Schedules
• Bank Statements and Reconciliations
• Cancelled Checks
• Cancelled Stock and Bond Certificates
• Employment Tax Records
• Expense Analysis and Expense Distribution Schedules
• Expired Contracts, Leases
• Expired Option Records
• Inventories of Products, Materials, Supplies
• Invoices to Customers
• Notes Receivable Ledgers, Schedules
• Payroll Records and Summaries, including payment to pensioners
• Plant Cost Ledgers
• Purchasing Department Copies of Purchase Orders
• Sales Records
• Subsidiary Ledgers
• Time Books
• Travel and Entertainment Records
• Vouchers for Payments to Vendors, Employees, etc.
• Voucher Register, Schedules

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records "forever," in many cases there will be other reasons you'll want to retain these documents indefinitely.

• Audit Reports from CPAs/Accountants
• Cancelled Checks for Important Payments (especially tax payments)
• Cash Books, Charts of Accounts
• Contracts, Leases Currently in Effect
• Corporate Documents (incorporation, charter, by-laws, etc.)
• Documents substantiating fixed asset additions
• Deeds
• Depreciation Schedules
• Financial Statements (Year End)
• General and Private Ledgers, Year End Trial Balances
• Insurance Records, Current Accident Reports, Claims, Policies
• Investment Trade Confirmations
• IRS Revenue Agent Reports
• Journals
• Legal Records, Correspondence and Other Important Matters
• Minutes Books of Directors and Stockholders
• Mortgages, Bills of Sale
• Property Appraisals by Outside Appraisers
• Property Records
• Retirement and Pension Records
• Tax Returns and Worksheets
• Trademark and Patent Registrations

Personal Documents To Keep For One Year

While it's important to keep year-end mutual fund and IRA contribution statements forever, you don't have to save monthly and quarterly statements once the year-end statement has arrived.

Personal Documents To Keep For Three Years

• Credit Card Statements
• Medical Bills (in case of insurance disputes)
• Utility Records
• Expired Insurance Policies

Personal Documents To Keep For Six Years

• Supporting Documents For Tax Returns
• Accident Reports and Claims
• Medical Bills (if tax-related)
• Sales Receipts
• Wage Garnishments
• Other Tax-Related Bills

Personal Records To Keep Forever

• CPA Audit Reports
• Legal Records
• Important Correspondence
• Income Tax Returns
• Income Tax Payment Checks
• Property Records / Improvement Receipts (or six years after property sold)
• Investment Trade Confirmations
• Retirement and Pension Records (Forms 5448, 1099-R and 8606 until all distributions are made from your IRA or other qualified plan)

Special Circumstances

• Car Records (keep until the car is sold)
• Credit Card Receipts (keep until verified on your statement)
• Insurance Policies (keep for the life of the policy)
• Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
• Pay Stubs (keep until reconciled with your W-2)
• Sales Receipts (keep for life of the warranty)
• Stock and Bond Records (keep for 6 years beyond selling)
• Warranties and Instructions (keep for the life of the product)
• Other Bills (keep until payment is verified on the next bill)
• Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)

Seriously?

It is the 5th day of October 2014.  I get a phone call from the son of a friend asking if I could possibly prepare his tax return.  Upon further discussion, he told me that he took the personal portion of his tax documents to a tax preparer in late February.  He told the preparer that he would continue to work on his business information and get it to him as soon as possible. It was the middle of March when he delivered the information to the preparer.  The preparer told him that he wouldn't be able to complete his return by April 15th and that he would get an extension.

Excuse me, but I would think that 25-30 days would be quite enough time to prepare a tax return of this type.

To further complicate the issue, the client called the preparer on numerous occasions, after April 15th, to see if the preparer had completed the return.  Each time the preparer gave a patented answer, "I'm working on it."  In early September, the preparer stopped answering the phone calls and would not return voicemails.

I don't know about you other preparers, but I return phone calls, voice mails, and emails regardless of how many times a client calls.  Just because the return is extended, doesn't mean you have to wait until October 15th to complete the return.  If you have the information, complete the  return. That leaves one less thing to worry about and you end up with a happy (well, depends on how much tax they will owe) client.

Seriously...you give the rest of us a bad name!!