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Jagella
08-29-2011, 09:10 AM
Hello friends:

I plan to take a tax preparation course next month with a local tax-preparation firm. I'm hoping to get hired by this firm and start working for them during the 2012 tax reason. At this point I'm wondering what knowledge and skills I will need to succeed at this work. I'm studying J.K. Lasser's Your Income Tax 2011, and I am using H&R Block At Home software to practice preparing federal and state tax returns. Obviously, I need basic knowledge about the federal, state, and local tax laws. I'll also need to know my employer's proprietary software and its business policies.

What I'm not so sure about are the needs of the average tax payer who wants tax-preparation service. What are the most common tax scenarios I might encounter? How common is taxable passive income, for example? Will I encounter customers with "gray-area" income and deductions that may or may not be taxable or deductable?

Thanks!

Jagella

SmallBman
08-29-2011, 01:28 PM
I can tell you what I will be looking for as a small business owner. Actually I work with my father at his trucking company that has 30 trucks. We would be looking to write off maintenance, fuel, and depreciation on these trucks. We also own a building and supply yard in which we buy and sell material. We pay ourselves a fixed salary every two weeks for which we pay our own taxes. There are essentially two companies the trucking and supply that also have tax liabilities. Furthermore we are thinking of using a Payroll company next year and I'm not sure how that applies to the overall situation.

Evan
08-29-2011, 10:01 PM
If you work at any of the tax preparation chains, your clients are going to be significantly different than those at a bookkeeping firm, a small CPA firm, a medium-sized CPA firm, or a regional/large accounting firm (each of which are different).

Most business owners do not go to the local Block, Hewitt, or Liberty franchises, but that doesn't mean that there are not business customers going there. At a minimum, you should know all of the different filing statuses, and what qualifies individuals for each status, or may potentially disqualify for them. If you're at a chain, you should also be very familiar with the Earned Income Credit as these are big customers of the franchises.

You certainly should know what is deductible, and what isn't. Understand Schedule A and what is deductible (and what isn't). A lawyer may insist that his dry cleaning bill is a required work expense for his "uniform", just as much as the local mechanic will try to convince you that 38 pairs of jeans are a "uniform" and therefore deductible. You should be able to decipher between all of this.

As you live in Pennsylvania, which has a local income tax return -- understand when a return is required to be filed. Most preparers out of state do not deal with local tax returns, and that is an advantage for you to know. Granted, you and many of the other locals will know how these returns are prepared.

Software is also very easy to figure out... Remember, that tax software is no substitute for a tax professional, and accordingly, even if you're a tax professional you must understand what is going on with the return. Do not assume what you entered is correct and the output is fine. While it is a pain, you should always have your returns reviewed by another individuals, or to perform a critical self-review (preferably later in the day, or the next day -- when all of the details aren't as fresh to pass judgments that what is present is "correct").

Evan
08-29-2011, 10:13 PM
What I'm not so sure about are the needs of the average tax payer who wants tax-preparation service. What are the most common tax scenarios I might encounter? How common is taxable passive income, for example? Will I encounter customers with "gray-area" income and deductions that may or may not be taxable or deductable?

Most clients are going to be some form of gray area. The black and white ones you can usually count on one hand.

Prepare for all of the possible variations, including:
-- Married couple, with one spouse who is not a legal immigrant;
-- A divorced wife (or husband) receiving alimony and child support payments, and the inverse -- the husband (or wife) *paying* alimony/child support;
-- A married couple with two children who seem to qualify for the Earned Income Credit (always go through the checklist);
-- Single man who received a $1M settlement for a case resulting from injuries he sustained 5 years prior and in which medical expenses were deducted on his tax return;
-- Freelancer who maintains poor records of his business, but has 1099s reporting $30K of income but "no idea" what his expenses are OR runs all his household and personal expenses through the business;
-- 20 year old college student (you don't prepare the return) who lives off campus, states he is independent, and is hoping to claim an education credit.

All of these situations have complexities, and there are "wrong" paths which could lead to an incorrect return being prepared resulting in an adjustment proposed by the Internal Revenue Service, the State, or local tax agency. It's also possible that there are federal and state tax differences. As you're the expert, you should know the answers... And don't be afraid to say you want to research a matter further, as clients prefer someone confident in their knowledge, versus a show off.

Jagella
08-29-2011, 11:18 PM
I can tell you what I will be looking for as a small business owner. Actually I work with my father at his trucking company that has 30 trucks. We would be looking to write off maintenance, fuel, and depreciation on these trucks. We also own a building and supply yard in which we buy and sell material. We pay ourselves a fixed salary every two weeks for which we pay our own taxes. There are essentially two companies the trucking and supply that also have tax liabilities. Furthermore we are thinking of using a Payroll company next year and I'm not sure how that applies to the overall situation.

Thanks a lot for the reply. Your tax situation is a bit more complicated than most of what I've worked with in the past. Are you and your father partners in your business? When you say you pay your own taxes, do you mean withholding taxes? I understand that salaries paid to business partners are taxed as ordinary wages and that partners must pay self-employment tax.

What I'm wondering about your situation the most is your deducting business expenses. A sole proprietor deducts such expenses on Schedule C, but partners would split expenses. Is that correct?

Jagella

Jagella
08-29-2011, 11:30 PM
Most clients are going to be some form of gray area. The black and white ones you can usually count on one hand.

Prepare for all of the possible variations, including:
-- Married couple, with one spouse who is not a legal immigrant;
-- A divorced wife (or husband) receiving alimony and child support payments, and the inverse -- the husband (or wife) *paying* alimony/child support;
-- A married couple with two children who seem to qualify for the Earned Income Credit (always go through the checklist);
-- Single man who received a $1M settlement for a case resulting from injuries he sustained 5 years prior and in which medical expenses were deducted on his tax return;
-- Freelancer who maintains poor records of his business, but has 1099s reporting $30K of income but "no idea" what his expenses are OR runs all his household and personal expenses through the business;
-- 20 year old college student (you don't prepare the return) who lives off campus, states he is independent, and is hoping to claim an education credit.

All of these situations have complexities, and there are "wrong" paths which could lead to an incorrect return being prepared resulting in an adjustment proposed by the Internal Revenue Service, the State, or local tax agency. It's also possible that there are federal and state tax differences. As you're the expert, you should know the answers... And don't be afraid to say you want to research a matter further, as clients prefer someone confident in their knowledge, versus a show off.

Excellent answer, Evan! This is exactly the kind of information I'm looking for.

I used to work as a tax preparer about 12 years ago. I didn't last too long at that job. I believe the trouble I had was based in my not being too sure what to expect. I hope not to make that same mistake again, and this time I want to be ready when tax time rolls around. I believe that when I prepare a tax return for somebody, they deserve good service and the most advantageous tax preparation.

Jagella

Evan
09-04-2011, 11:25 PM
Thanks a lot for the reply. Your tax situation is a bit more complicated than most of what I've worked with in the past. Are you and your father partners in your business? When you say you pay your own taxes, do you mean withholding taxes? I understand that salaries paid to business partners are taxed as ordinary wages and that partners must pay self-employment tax.

What I'm wondering about your situation the most is your deducting business expenses. A sole proprietor deducts such expenses on Schedule C, but partners would split expenses. Is that correct?

No. Business partners, in the sense of partners in a partnership, do not take a salary, but rather guaranteed payments and/or draws. In a partnership, the expenses of the business are divvied up based on the partnership agreement, and is divided out on 1065.

jamesray50
11-02-2011, 12:47 PM
You also need to have a PTIN if you prepare tax returns. Here is the info on how to get one.
PTIN Requirements for Tax Return Preparers (http://www.irs.gov/taxpros/article/0,,id=210909,00.html)

nicolassage
12-27-2011, 03:27 PM
Tax returns are complicated, good luck :D

Jagella
12-28-2011, 09:40 AM
Thanks. Form 1065 is rather complicated at five pages. How common is it for a tax preparation firm like Liberty Tax Service to have customers with partnership income? I'm guessing that most partnerships go to CPAs to have their taxes prepared.

Jagella

Jagella
12-28-2011, 10:01 AM
Tax returns are complicated, good luck :D

Thanks.

Many tax returns are complicated, but some can be very simple. For instance, if your only reportable income is from your wages reported on a W-2 from your employer, then all you need is some version of Form 1040. You can use Form 1040 EZ if your only income is from such wages. Form 1040 EZ also can be used if you file as single or file a joint return with your spouse. If your only other income is $1,500 or less in interest or you have unemployment compensation, then you're still eligible to us 1040 EZ.

Personally, I'd recommend just using the regular Form 1040. It covers all the bases and isn't much harder to use than 1040 EZ or 1040A.

More complicated returns might include capital gains and lesses, business or farm income with depreciable assets, tax credits, estimated tax payments, business use of the home, and a lot of other issues that vex taxpayers. If you're comfortable with software, you can make your return preparation easier using a program like TurboTax.

And of course, you can have somebody like me prepare your taxes. :o

Jagella

Evan
12-31-2011, 01:26 PM
Thanks. Form 1065 is rather complicated at five pages. How common is it for a tax preparation firm like Liberty Tax Service to have customers with partnership income? I'm guessing that most partnerships go to CPAs to have their taxes prepared.

Generally, simpler partnerships may go to a chain (those without a complex ownership structure). You may see some family limited partnerships and such.