American University’s Kogod Tax Center recently completed a survey of tax preparers in the Mid-Atlantic region which provides valuable insights for how taxpayers can minimize the cost of filing this year’s tax returns while cutting the risks of filing inaccurate returns. “Our survey revealed some very basic steps taxpayers can take to reduce the costs of hiring a professional while making sure the quality of a filed return is high,” said David Kautter, managing director of the Kogod Tax Center. “With April 17 less than a month away, there is no better time to make sure that you are doing the right things to get your returns filed accurately.”
1. Record Keeping and Basis of Assets
Accountants suggest keeping accurate records is the most important thing any taxpayer can do. Three basic rules apply: RETAIN, ORGANIZE, REVIEW. Keeping good records saves time and money by allowing tax preparers to complete forms with a higher level of accuracy and without having to make phone calls. Practitioners advise organizing records by type and clearly identifying them for state and federal filings.
Seventy percent of practitioners revealed in the survey that the “basis of assets” is the most difficult information to obtain from clients. “Basis” is, generally, what you paid for an asset. Why is it so hard to obtain the information? Accountants attribute it primarily to a failure to keep adequate records. Additionally, this year the IRS is asking for even more detailed information on a new form, Form 8949.
2. Don’t Make the Government Ask Twice
Information reporting is sky rocketing on both new and old forms. State and federal tax authorities rely on document matching to identify unpaid taxes. If the information appearing on a tax return does not match up to the information provided to the IRS and state tax authorities on an information report, state and federal tax authorities may be more aggressive in following up with taxpayers and flagging suspicious returns for audits. Experts advise giving accurate information the first time to avoid aggravation.
3. Time to Prepare Taxes May Take A Little Longer This Year
Nearly 50 percent of respondents indicated tax preparation will take moderately longer this year, and 40 percent reported it would take about the same amount of time as last year. For those who responded it would take more time, two reasons are increased information required on IRS forms and an increase in the number of clients seeking help. “Over 60 percent of all tax returns filed this year will involve a professional tax preparer,” said Kautter.
4. State Tax Preparation Taking Longer
Preparing state returns will likely take more time and cost more than last year because states are constantly tinkering with their tax laws to address budgetary shortfalls.
The cost to learn the new tax law is one of many expenses tax preparers incur. For example, accountants in places like Washington, D.C., a CPA will often need to know District of Columbia, Maryland, and Virginia tax laws at a minimum in order to adequately serve clients. Additionally, software updates cost tax preparers money and are often delayed while state lawmakers decide on new tax measures.
5. Partnership Preparation is Particularly Problematic
CPAs cite the partnership return, Form 1065, as the most difficult to complete according to more than 60 percent of respondents compared to a mere seven percent who identified the S Corporation Form 1120S. Complex partnership agreements combined with complex law is the main culprit. Businesses organized as partnerships and individuals and businesses which are partners in a partnership can expect their tax returns to take the longest to prepare. “Most businesses today operate in non-corporate or pass-through forms as opposed to a corporation” says Don Williamson, executive director of the Kogod Tax Center. According to Williamson, “It is important to clearly explain your partnership agreement to your tax preparer or you may get a return that doesn’t reflect how the partnership actually operates.”
6. Tax Preparation Fees for 2011 Likely to Increase.
In the survey, 55 percent of tax preparers expected fees to increase slightly from last year. Practitioners identified three primary factors contributing to increased fees.
• new income tax reporting forms and more questions requiring additional information on old forms
• changing laws and regulations
• staff turnover, which leads to lost efficiency and expertise
However, practitioners also cited three trends which will keep fees down.
• constantly improving technology
• employing new and more efficient internal processes, such as networking computers and scanning technology
• retention of experienced staff
What Gives Tax Preparers Anxiety During Tax Season?
During tax season accountants experience a heightened sense of anxiety because the field on which they play is constantly changing. Nearly 40 percent of survey respondents cited new IRS or state forms and regulations as the biggest factor expected to hamper their efficiency. According to Kautter, “Ever expanding income tax reporting requirements coupled with new federal and state tax laws which change the rules of the game every year may make this filing season the most challenging ever.”