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When Should I Use a CPA to File My Taxes?

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June 19  |  Uncategorized  |   admin

Filing taxes can be a hassle.

If you’re an individual and only need to fill out a W-2, you can likely handle that yourself. But when your return is more complex, you might find it’s worth hiring a professional — someone who can save you not only time and stress but also money.  A CPA can help you build a successful tax strategy and can also represent you should you get audited by the IRS.

Many tax preparers at “pop up” tax return shops are trained on tax software to help taxpayers file their returns. They aren’t required to have a degree or understand tax law like a CPA.  Below are some reasons to consider using a CPA to assist you with your tax returns.

1. You have a small business or side hustle

If you own your own business, there are many possible tax write-offs, and a professional has the expertise to help you navigate them.

Likewise, if you’re doing significant work in the gig economy, driving Uber, selling products on sites like Etsy, or racing horses, for example, you might need help with your 1099s.

2. The IRS contacts you

Even if the IRS reaches out asking for something as simple as substantiation of expenses related to a car you bought, you should contact a professional. It could be a simple request from the IRS, but, if you handle it incorrectly, it can turn into a big deal very quickly.

You don’t want to give the IRS the wrong or irrelevant information. A good CPA or tax professional understands the language of the IRS.

3. You’re planning for your kids to go to college

If you have a child heading to college and you’re planning on filling out the Free Application for Federal Student Aid (FAFSA), assistance could be helpful.

You want to make sure you don’t have unwanted assets or income in your child’s name, for example. There are financial issues that can actually hurt your student in terms of collecting financial aid, although these same issues might actually be good for tax planning.  A CPA can help you balance the pros and cons of your decisions.

So if your child has a 529 plan or Coverdell ESA, or even if they’re a part-owner of your business, it could benefit you to hear from someone who speaks the language of FAFSA.

4. You own a rental property

A return on a real estate investment can get tricky, and a professional can help you figure out what kinds of deductions you may be entitled to.

5. You’re self-directing your retirement

Your Roth IRA or 401(k) is not limited to traditional investments in stocks, bonds and mutual funds. You can also use retirement vehicles to invest in alternatives such as bitcoin and real estate. That’s self-directing.

Filing your return on these investments can get tricky and it might be useful to seek help.

There is so much a good CPA can do to increase your refund or have a more strategic tax return.

If you need advice on a solid tax strategy, please call Anthony W. Imbimbo for a complimentary consultation.  Anthony W. Imbimbo, CPA is a tax expert with over 35 years’ experience.  Call him today at 619-497-1040.

Using Tax Software, Think Again

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April 19  |  Uncategorized  |   admin

If you’re taking advantage of the July 15 tax extension this year, you may still be deciding on which software to use.

The media has bombarded you with the ease of tax preparation and using tax preparation software to get you that refund quickly. Some tax software outfits are offering free on-line consultation to get your taxes filed.

For the typical W-2 filer with no deductions, tax prep software is a good way to get your taxes filed at a relatively inexpensive cost. If you have anything more than a W-2, you should seriously consider hiring a tax professional to assist you.

Tax Professionals are Expert in their Field

Tax professionals know the tax laws in and out, have studied at universities, have experience for many scenarios and are licensed professionals.

Tax software is… tax software…. It doesn’t interact with you, it can’t advise you on the law, it has a shelf life, but most importantly, it can’t represent you before the tax authorities in the event of an audit or inquiry.

Like the seasonal tax shops on the corner, they are there for the quick buck and have no skin in the game. Come the day after filing deadlines, the shops are closed, the hot-lines have been disconnected and there is no one there to help you. These so-called help hot-lines can’t offer adequate tax advice to you. They can tell you how to input information into their software but they generally do not have the experience or knowledge to give you tax advice. There are numerous disclaimers.

What the tax software companies don’t tell you is the quality of their hot-line staff. What’s their training? What’s their experience? Are they still a ”tax professional” when filing season is finished? Or are they driving for a ride-share company.

A good tax professional stands by their client, strives to understand the client’s needs, works with the client to help them legally pay the lowest tax possible. They offer tax advice, have resources to answer specific questions; a tax professional will keep you out of hot water and guide you on the proper path of success.

Your Time is Valuable

From the commercials you see a bright, smiling, millennial-something talking about how fast and easy their software is and how you can get a quick refund. What they don’t tell you is the time it will take you to prepare your return on your own.

Preparing your taxes with on-line software will take you HOURS to prepare. Then the second guessing happens: Did I get it right? What have I missed? What did I do wrong? Why can’t I get the refund I expected? You pay about $150 to E-file your taxes (for a small business). To top it off if you add the hotline, it’ll cost you an additional $200.

So it took you 8 hours to prepare, how much is your time worth? A hardworking plumber charges $125-$200 per hour for their work. Is it worth $1,000-$1,600 of your billable time to be uncertain about your taxes?

A tax professional will often save you money. Isn’t it worth hiring someone to be in your corner that will be there for you, to save your time and money to prepare your tax returns properly? NO tax software can commit to that!

Foreseeing the Unseen

Tax software will not help you from a tax planning standpoint or have the ability to run multiple scenarios. Tax software not only can’t advise you on how to improve your tax outlook, it can’t evaluate what works best for you, the taxpayer.

Sure, tax software packages have a Q&A section, but they’re canned script. A seasoned tax professional works with you, asks you the important questions, and can help you by advising you the best course of action; from evaluating your current tax situation, and solving current tax problems when they exist to creating new tax planning solutions for the future.

Sharing Your Personal Information Online

Here’s the big question, do you really want to share your social security number, your bank account information, your income numbers and details online? How often do we hear about identity theft and scammers? The tax software firms tout how safe their websites are to input this sensitive information but….. can you be sure that your computer hasn’t been hacked or your internet connection?

Working directly with a tax professional you’ll have the assurance of confidentiality, and the security and safety of your personal information.

Call Anthony W. Imbimbo, CPA for a complimentary consultation. Anthony is a tax expert with over 35 years’ experience. Call him today at 619-497-1040

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Tax Prep Software versus CPA: What’s Right for You?

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January 7  |  Uncategorized  |   admin

Preparing your taxes for 2014 will be a daunting task. With every important job comes the question of whether or not individuals should prepare their taxes themselves or hire a professional. While the ever improving selection of tax preparation software certainly makes it easier and cheaper to do your own taxes, there are intangible costs of doing them yourself as opposed to hiring a Certified Public Accountants (CPAs).

The Advantages of Using Tax Software
Price

There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $25 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $150 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. Beware of hidden costs: many software companies charge you an additional amount to prepare the state tax return and then add additional fees for e-filing your return. THERE IS NO FREE LUNCH!!!

Speed
Once you have all the necessary documents in front of you, it is possible to complete your own taxes in a few hours. In contrast, the best professionals can prepare the taxes with you during your appointment or, it may take longer depending on the complexity: from several days to a few weeks to complete the returns and file your forms.

Simplicity
Good tax preparation software walks you through the process very quickly and easily. For those who have only a W-2, (or few sources of income and deductions), then there is little need to sit down with an accountant to sort it all out.

The Benefits of Hiring a Professional Accountant
Better Software
CPA’s typically pay around $3,000 to $15,000 for their software, which is far more sophisticated than the tax preparation software sold to consumers. These more advanced programs have the ability to quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there’s less chance for human error to hurt your tax return.

Human Touch
A good tax professional can interpret your tax information and know the tax implications that may affect you. Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that he or she understands your family’s financial situation and future goals. Tax professionals are often able to make valuable tax savings suggestions that a software program just can’t anticipate. The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children’s education, or how to reduce taxes on your capital gains.

CPA’s Can Answer Your Questions Year Round
As a trusted professional, a good CPA will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.

A CPA Saves You Time When Handling Complicated Issues
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system, he or she can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research. For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.

The Bottom Line
Ultimately, there is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. There are tangible and intangible costs and benefits in making your choice. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those taxpayers with more sophisticated issues stock options, passive activities, business income or rental properties will find the expense of hiring a CPA to be worth their peace of mind and potential tax savings.

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Reasons You Should Hire A CPA

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January 6  |  Uncategorized  |   admin

Would it surprise you to learn that many small business owners trust their CPAs as much as their family members? It’s true. According to a survey by the American Institute of CPAs, CPAs are considered business’ most trusted advisors, and with good reason. CPAs, in order to keep their qualified status, are continually educated, tested and regulated by the State Boards of Accountancy. It is a profession that requires commitment, integrity, intelligence, and a strong sense of ethics.

To maintain the highest possible professional standards, CPA candidates are required to complete rigorous coursework at an accredited college or university and also pass the Uniform CPA Exam. This exam tests auditing, taxation, business and general accounting skills and was developed as a way of ensuring the utmost competence of CPAs entering the field. It is often considered the accounting equivalent of the bar exam for lawyers and the medical boards for doctors. Once the CPA license is received, CPAs are required to undergo many hours of continuing professional education every one to three years, the exact number of hours is regulated by the state in which the CPA is practicing, but usually fall around 40 hours annually.

Hiring a CPA can save you a lot of time and money. By turning to an expert, you do not have to worry about wasting time understanding complicated legal issues, or trying to analyze finances with limited experience. You and/or your business can become more financially organized and legally sound with the help of a CPA. At the same time, you can learn more about financial matters from your CPA and consequently gain knowledge and confidence in handling your business’ future financial issues and making critical financial decisions.

At tax time, you can’t afford even the smallest mistake on your returns. Instead of spending time and energy trying to navigating the seemingly endless stream of tax forms, consider hiring a CPA. They are specifically trained to complete multiple and complex state and federal tax returns, and know how to get the maximum number of tax deductions for you. They can also effectively organize your receipts and other documentation necessary for these returns.

Consider the following helpful CPA hiring tips before signing on the dotted line;

  • Get recommendations from a wide variety of trusted contacts to help you find the best fit for you.
  • Know your plans and objectives before meeting with your CPA. Collect enough information and necessary details so you can ask specific questions about your finances. Past tax returns, investment documents, business plans, and financial statements will make the process much smoother for you and your prospective CPA.
  • Make sure the CPA is licensed to practice in your state. Also, inquire about which professional organizations the CPA belongs to. CPAs are required to meet strict professional and technical standards.

Tax preparation, financial planning, auditing or advice on developing a working accounting system, can all be made easier with the help of a CPA. CPAs can help you set a course for your business or advise you on your investments, estate planning, and more. Finally, once you’ve hired your CPA, make sure to keep him or her current on what’s happening in your life and business. Marriage, divorce, children, inheritances, and other life situations all can impact your financial situation and tax liability.

Ten Reasons to Hire a Professional Tax Professional

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January 6  |  Uncategorized  |   admin

10. It takes the hassle out of doing it yourself.

9. You don’t have to keep up with the many tax law changes or understand complicated tax law.

8. Making mistakes can be very costly.

7. Your time is worth money – add up the hours you would spend doing it yourself and calculate what that’s worth. Also, tax programs have hidden fees that add up.

6. A tax program in a box cannot represent you in an audit. Nor can it answer questions about your deductions.

5. A tax professional can answer your questions to help you make smarter tax-saving decisions.

4. A tax professional can help you plan all year and for future years.

3. A tax professional can recommend ways to save on taxes

2. It gives you peace of mind knowing that a professional is taking care of it.

And the number-one reason you should hire a tax preparer is:

1. It can save you money – if your tax preparer finds even one significant deduction or tax credit you may have missed, it can easily exceed the average $300 fee it costs to have a professional prepare your return.

What You Should Know about AMT

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January 6  |  Uncategorized  |   admin

IRS Tax Tip 2014-10, February 10, 2014

Have you ever wondered if the Alternative Minimum Tax applies to you? You may have to pay this tax if your income is above a certain amount. The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.

Here are some things from the IRS that you should know about AMT:

  1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.
  2. The 2013 AMT exemption amounts for each filing status are:
    • Single and Head of Household = $51,900
    • Married Filing Joint and Qualifying Widow(er) = $80,800
    • Married Filing Separate = $40,400
  3. The rules for AMT are more complex than the rules for regular income tax. The best way to make it easy on yourself is to use IRS e-file to prepare and file your tax return. E-file tax software will figure AMT for you if you owe it.
  4. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.
  5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.
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Tax Tips for 2014 That You Need to Know

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January 6  |  Uncategorized  |   admin

The Patient Protection and Affordable Care Act health insurance mandate goes into effect

Starting in 2014, you must carry a minimum level of health insurance for yourself, your spouse, and your dependents, or possibly pay a fine.

If you have adequate health insurance through your employer, you purchase coverage yourself, or you are enrolled in a government program such as Medicaid, you don’t have to do anything different.

If you qualify for an exception; for example, if your income is too low for you to be required to file a return, you won’t have to pay the fine.

If you don’t have coverage or qualify for an exception, you could get hit with a tax penalty of up to 1% of your yearly income or $95 per person for 2014, whichever is higher. The penalties go up in 2015.

New 3.8% Medicare Investment Tax

The Affordable Care Act also mandated an additional 3.8% tax on investment income, including interest, dividends, capital gains, rental and royalty income.

This special tax is collected for Medicare, starting in 2013. You only pay it if your modified adjusted gross income is $200,000 or more ($250,000 if filing jointly, or $125,000 if married filing separately).

You pay the 3.8% tax in addition to tax you already pay on investment income. For example, if you pay 20% tax on a long-term capital gain, your total tax on the gain is 23.8% (20% + 3.8%).

New Medicare Health Insurance Tax on wages

The Affordable Care Act levies a special tax on the wages and other earned income of high-income taxpayers.

You must pay this tax if you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately).

Your employer generally withholds the Additional Medicare Tax from your pay. If you’re self-employed, you should plan for this tax when you calculate your estimated taxes.

This tax went into effect for 2013.

Simplified option for home office deduction

The IRS may have good news for you if you work at home as an employee or are self-employed and take a home office deduction.

Starting in 2013, you can use a simplified option for determining your deduction, based on $5 per square foot of home use for business (up to 300 square feet).

When you take the simplified deduction, you can still deduct mortgage interest and real estate taxes in full as itemized deductions. In addition, you don’t have to worry about calculating depreciation on your home, or recapturing depreciation later when you sell your home.

Energy credits

Thanks to an extension through 2015, you can still get an energy efficiency tax credit for qualifying energy-efficient products such as windows and doors, biomass stoves, and insulation.

The credit is 10% of the cost of your qualified energy efficiency improvements installed during the year, plus any residential energy property costs.

Your total credit for all years after 2005 cannot be more than $500.

Reminder: IRS e-file starts late this year

The IRS will begin processing individual income tax returns starting on January 31, 2015. The IRS is getting a late start accepting e-file returns this year because of the sequester.

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New Standard Mileage Rates Now Available; Business Rate to Rise in 2015

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January 6  |  Uncategorized  |   admin

IR-2014-114, Dec. 10, 2014

WASHINGTON — The Internal Revenue Service today issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Details on these and other special rules are in Revenue Procedure 2010-51, the instructions to Form 1040 and various online IRS publications including Publication 17, Your Federal Income Tax.

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Short Sales and Foreclosures How to Report

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March 30  |  Uncategorized  |   admin

During 2010 there has been a record number of foreclosures, short sales and forced sales for homeowners and real estate investors. As hard as it is to deal with the complexity of a real estate disposition, the paper work and anxiety doesn’t end there. Now comes the moment of truth, and some of the following questions arise: “How do I report the transaction on my tax return?”  “Will my short sale be subject to tax?” “I lost my house do I have to pay tax ?”

The answer is not easy because the rules differ from state to state. Here in California for example (which is a community property state) personal residence disposition (foreclosure or short sale or deed in lieu) is handled differently than an investment property.

Generally speaking, a disposition of a foreclosure on a personal residence will not be subject to tax (unless you borrowed money against your property and was used for other purposes).  If you used any of the debt against the property for other purposes, you may have a taxable event.

For real property used as an investment or rental, the rules get even more complicated.  First you have to determine on any debt forgiven how the debt needs to be allocated between recourse and non-recourse debt. Then gain or loss is calculated on the disposition.

Come see us. We are experts in involuntary conversions, short sales and foreclosures. Call us at 619-497-1040.