TaxPrep 101– The Tax Preparation Encyclopedia

Definition: Tax preparation is the act or process of preparations for the filing of income tax returns. While the specifics might vary, citizens of most countries are subject to taxes on their income. These citizens will need to prepare a statement of their income and the taxes that they have paid / will be paying for the income. This process is known as tax preparation.

In many countries, owing to the fact that the income tax laws are quite complicated, a significant number of people turn to accounting or finance professionals to help them prepare and file their taxes.

In the United States, the tax preparation can be done by the filer himself. Usually the filer takes the the help of a Certified Public Accountant, an accounting firm or uses some tax preparation software or service.

The cost of a country’s tax preparation & tax returns processes

Tax Preparation Software

Types and Examples

When you go searching for tax preparation software, there are two places where you should go: your friendly computer store and the World Wide Web. Many tax programs are in CD-ROM format that can be bought from computer shops. These software are desktop applications that you need to install on your operating system (most commonly Windows). These desktop or PC-based programs can also be downloaded from the Internet.

On the other hand, several tax programs are Web-based. They basically carry out the same tasks as the PC-based ones, but only online. One advantage that Web-based software provide is their cheaper cost. However, this usually comes at the price of less power – PC-based tax programs offer a complete version of tax help, something that Web-based software usually lack. Keep in mind that some tax preparation software allow you to electronically file ("e-file") your tax return.

Tax preparation software come in three different varieties – basic/standard, deluxe, and premium. Of course, software companies might play around with these names, but basically these three types sum up the whole picture. Usually, basic tax programs are good only for simple tax returns and error checking, with bare documentation. Deluxe is a notch up the scale, and thus provides greater documentation and help with tax deductions, along with other stuff. Premium tax programs take the cake – these are the best ones around, able to help with small businesses' taxes as well as the personal. Premium software offer the most extensive documentation and tax-related resources.

Of all the tax preparation software in the market, TurboTax is arguably the most popular. TurboTax comes in both Web-based and PC-based versions. You can choose between three editions: essential, basic, and premier. TurboTax' strength lies in its ability to handle complex, unique, and advanced tax situations/returns. It's also extremely valuable to self-employed people and those with real estate interests. On top of these, the program sports a good user interface for easy navigation.

TaxACT, on the other hand, is great for people preparing simple tax returns. TaxACT comes in both Web-based and PC-based versions, too. The most expensive TaxACT suite includes all state and federal tax return forms. By the way, even this "highest" edition comes at a reasonable price, making TaxACT a good choice for many taxpayers.

Like TaxACT, TaxCut is a great tool for preparing simple tax returns. What's great about it is that it automatically retrieves information from your installation of Microsoft Money, a program for personal finance record keeping. TaxCut also offers a one-of-a-kind free audit defense support from the software company, in case you'll need to defend your tax return against an IRS audit.

Other tax preparation software include CCH CompleteTax (fast, simple, and easy-to-use) and Tax Slayer (free Web-based program with tax forms for federal and state tax returns

Your Tax Preparer Choices

Selecting the right tax preparer could make the difference between sitting at home enjoying the advantages of a healthy tax refund or sitting in an IRS office, nervously explaining every expense you claimed for the past five years.

There are different types of tax preparation professionals, with varying levels of experience and appropriateness to your personal tax situation, and they are not government regulated. Anyone can print a business card and call themselves a tax preparer.

Tax professionals

Here's an overview of the types of tax preparation professionals, and the questions to ask in order to choose the one that's right for you.

Types:

• Tax preparer from chain or local outlets

• Enrolled agent

• Certified public accountants

• Tax attorney

Tax preparer from chain or local outlets -- The professionals at the national tax preparation chains or similar businesses are trained to some extent, but their training and experience could be at any level. Many of these preparers are paid not much more than minimum wage plus commission, and may be preparing tax returns as a second job. If your return is a fairly simple one, such as a short form, then this could be an appropriately inexpensive option. These preparers can accompany you to a meeting with the Internal Revenue Service if the need arises to help you explain information on your return. However, only enrolled agents, attorneys and CPAs have legal standing to appear in place of a taxpayer at the IRS. If there is any complexity to your return, or tax situations specific to your industry, some of these preparers may not maximize those particular deductions.

Enrolled agent -- An enrolled agent is licensed by the federal government, and will be either a former IRS employee or will have passed a comprehensive IRS exam. If there are questions about your return, an enrolled agent can represent you with the IRS. Many enrolled agents limit their work to a given tax area, however, so you should inquire about an agent's area of expertise. You can locate assistance through the National Association of Enrolled Agents at 1-800-424-4339 or at the organization's Web site.

Certified public accountants -- A CPA has passed a state's qualifying exam for accounting, but may or may not be an expert on matters of taxation. The strength of a CPA is that they can configure an overall tax plan, and can guide you through complex financial situations. If you've recently been divorced, retired, opened or closed a new business, or had any other lifestyle changes that significantly impacted your financial situation, a CPA may be your best bet. However, if considering a CPA, be sure to ask about their experience in tax matters, and how they keep up with changes in the tax law. Also, a CPA can represent you before the IRS. The American Institute of Certified Public Accountants (AICPA) Web page has more information.

Tax attorney -- A tax attorney may be your choice if you are interested in sheltering part of your income, or if your situation involves complex corporate matters. A tax attorney may be a specialist on the latest tax laws and in tax disputes, but less qualified in the preparation of actual returns, so inquire about their experience and knowledge in this area.

Tax Preparation Career

Definition & Overview

There are few things in life that people dread more than tax season: Government forms with strange alpha-numeric codes, deductions, dependants, social security withholdings-even in the best of cases, it's a jumbled mess to the uninitiated. Which is exactly why the field of tax preparation is so attractive. Indeed, "Every year there are millions of people who hire professional tax prepares to get their taxes ready and file their tax returns. It is a huge industry with a lot of opportunities for people with the right training" ( www.careeroverview.com ).

Benefits

The benefit of that training is that you will find yourself working in a field that is, for the most part, unaffected by the economy, perennially in demand, and attractive in the nature and rewards of the work. When considered in its entirety, from the training to the level of job satisfaction that many practitioners experience, tax preparation is an excellent field, and certainly worth your consideration.

And it is even more relevant today: In the coming years, most experts believe, the federal government will begin to require tax preparers to be certified. This will certainly have a positive impact on the field, as the level of professionalism and achievement-which are already quite high-will only go up. Therefore, now is the perfect time to begin your training, and to start working towards a certification in tax preparation. If you do it now, you are more likely to beat the rush when the new laws finally come into effect.

There are certification programs everywhere, and they are both affiliated with bricks-and-mortar schools as well as online companies and organizations. And as with so much else in these days of cyber-everything, the route you choose is determined more by your needs than anything else. In other words, whether you get your certification through a school or through the Internet (companies like www.PeoplesTax.com are leading the way in the field), your future as a tax preparation professional is sure to be bright.

Niche Areas

Tax preparation is far from a homogenous field, and the areas in which you may ultimately specialize run a surprisingly wide gamut. They include but are not limited to the following:

Individual income tax preparation

Business (Corporate, Partnership, and Sole Proprietor) income tax preparation

Estate, Gift, and Trust tax preparation

Types Of Associate, Undergraduate & Graduate Programs Available

A degree in accounting or finance will certainly prepare you for a career in tax preparation, but all that time and money is not really necessary to begin your career in the field. For unlike some other aspects of the worlds of money and accounting, a tax-preparing professional can earn the credentials necessary by enrolling in a certification or licensing program in tax preparation. The advantage of this is that you will spend less time in school and therefore be able to start earning money earlier, and that your training will be in the specific aspect of the field that is most relevant to you. For many people, a certification or licensing program is the best way to go.

Typical Admissions Requirements

Getting into a tax preparation program may not be as difficult as you think. In fact, it doesn't even require a background in mathematics. Simple arithmetic skills are required, of course, but what is really needed is people skills. In tax preparation, it's all about servicing and pleasing the client and that takes an outgoing personality.

Careers In This Field

Though it may initially seem as if there is only one direction in which to go with a license in tax preparation, there are a number of aspects of the field that you may pursue. And depending upon your goals and abilities, they may include tax preparation itself, management of an office, and some computer work relevant to the field. Really, within this one field there are any number of aspects that you may choose to specialize in.

Salary Ranges In This Field

"Most full time tax preparers have incomes in the $15,000 to $50,000 a year range. They can charge as much as $100 an hour for consultations, plus additional fees for each type of tax return they file. Seasonal workers are paid by the hour. Experienced and self-employed preparers can make as much as $25 to $50 an hour, but less experienced employees working for tax preparation services make a lot less?Many tax preparers are paid a commission based on collected fees and the sales of other services and financial products" ( www3.ccps.virginia.edu ).

However, because of the wide range of salaries and companies that employ tax preparers, it is worth looking into as many options within the field as you can. You may be pleasantly surprised by how much money you can earn.

Future Outlook

"The Bureau of Labor Statistics predicts that jobs will grow about as fast as average for tax preparers both nationally and in Virginia through 2014. Plans to streamline the tax system are put forward almost every year, but taxes always seem to become more complicated instead. People and businesses will continue to need help. It is possible, however, that even though we will need more tax preparers, we won't need all of them here in America. Basic tax preparation work can be outsourced overseas, and some tax preparation companies have begun to do this" ( www3.ccps.virginia.edu ).

However, because of the nature of the field-taxes are due every year, no matter what other external situations may arise-this is a field that will likely remain in demand regardless of what happens with outsourcing.

Tax return forms

Top Tax Sites

H&R Block

H&R Block offers a variety of Do-it-Yourself Online Tax Programs.

TaxBrain

An easy to use online tax preparation site. Their worksheet format is easy to navigate and lets you quickly file your taxes online using e-file.

CompleteTax

A quick and easy way to do your taxes online! Developed for do-it-yourself taxpayers like you, this Internet-based program prepares both your federal and resident state tax returns, including FREE e-filing!

Tax and Accounting Sites Directory

A comprehensive index of tax and accounting resources on the Internet.

MSN MoneyCentral Taxes

Microsoft's Tax Preparation site, in association with Tax Server.

Epinions: Taxes

Consumer reviews of conventional and online tax preparers, plus buying advice for tax services.

Taxopedia.com

Information resource for taxes and tax planning. Includes a large dictionary of tax terms and tips.

Individual Federal Income Tax Calculator & Adviser

Provides advice and computes limits, regular tax and the alternative minimum tax.

Tax Professional's Corner

IRS website for tax pros.

Bankrate.com: News and Advice

Information on all phases of tax planning and preparation.

Wedding Bells and the Marriage Penalty

Discover how the marriage penalty causes married couples to pay more taxes than their single counterparts. Learn who it hurts, why it is so costly, and how to avoid it.

Timber Taxes

Comprehensive explanation of the tax treatment of timber. Including qualifying for capital gains, casualty losses, income, expenses, and reforestation.

IRS.gov - Understanding Taxes

Offers both print and online materials to help learn more about the history, theory, and application of taxes in the United States.

TaxWorld

Includes a history of taxation, statistics, terms in different languages and a directory.

Allexperts Tax Q&A

Professionals with backgrounds in accounting answering individual tax questions.

Fun With Taxes

Offering IRS tax change information and law updates.

The 861 Evidence

Examination of the revenue ruling regarding citizens being subject to tax on income earned or derived within the United States. Includes links and information on related rulings.

About Taxes

Information on preparation, starting a new business, self-employment, and retirement plans.

April15Forum

Forum offering a venue for tax related questions including shelters, deductions and audits.

Tax Planning: US

Information on extensions, capital gains, and withholding.

How to Start Your Own Tax Preparation Home Business

Tax preparers can earn thousands of dollars a month at home during tax season. But, they must know how to do the job, set themselves up in business, advertise, professionally present themselves, and establish their fee schedule.

Introduction

After the holiday season, many businesses slow down. As a result, many workers have their hours reduced just as holiday bills come due. If you have found yourself in that position more than once, then you know that seasonal work patterns impact your ability to pay your bills and provide for your family. One solution is to start a home business that will supplement your income during these off-seasons. A great seasonal home business that requires minimal investment is a tax preparation business. To start you need basic training, a computer, access to the Internet, and tax preparation software. Here's how.

Learn Your Trade - Minimum Training

If you have worked as a CPA or as an accountant in the past then you probably already have the skills needed to prepare tax returns for a fee. However, if you have not had previous tax or accounting training then you will want to get some training. There are several avenues that you can take to learn how to prepare a tax return for a client. The first step is to enroll in a basic tax return course. These courses cover the basics of form 1040, the schedules and forms associated with an individual tax return, and the basics of credits and deductions.

Several companies offer these types of course like H and R Block, Jackson Hewitt, and even the IRS offers tax preparation courses. The course provided by the private organizations are often less than $100, and in some cases your only cost is your training materials. The IRS offers these types of course free of charge in exchange for a few hours of volunteer time on their tax help line. To get more information on tax preparation course you can contact your local H and R Block or Jackson Hewitt office, or you can visit their websites. The IRS also provides information on their tax preparation courses and training programs on their website.

Another option to get tax preparation training is to download free tax information from the IRS website. You can study this information to learn how to handle deductions, credits, and calculate taxes, as well as learn about new tax credits and requirements. Keeping a printout of these training and reference materials will provide you with quick reference guides when you are preparing tax returns.

A professional training certificate can be an asset to your business when you are trying to recruit customers so you may want to weigh the benefits of such training against their costs. In the long run it may make you more money to have taken an IRS or H and R Block Tax Preparation Course then to have just read through the material on the IRS website.

Choosing a Tax Preparer

Choosing a Tax Preparer

If your tax situation is complex, you may want to hire a professional tax preparer. Choose the preparer carefully because you will be legally responsible for the tax return even if someone prepares it for you.

Types of Tax Preparers

Selecting a Tax Preparer

Tax Preparers to Avoid

Questions to Ask

What to Do After Your Tax Forms Are Prepared

Resources

Types of Tax Preparers

There are several types of tax preparers.

National tax preparation companies May or may not have very much experience with specialized tax returns such as non-resident returns. A relatively inexpensive option for less complex tax forms.

Enrolled agents See National Association of Enrolled Agents for information about the training and credentials of Enrolled Agents.

Certified Public Accountants (C.P.A.s) See the American Institute of Certified Public Accountants for information about the training and credentials of CPA's.

Tax attorneys The most expensive choice. Probably only needed by those with very complex tax situations.

Selecting a Tax Preparer

You can find tax preparers through personal recommendations by friends or colleagues, through the phone book, or through professional organizations' web sites. Tax preparers can prepare both federal and state tax forms.

Tax Preparers to Avoid

We recommend that you avoid tax preparers who:

Claim they can obtain larger refunds than other preparers

Base fees on a percentage of the amount of the refund

Have a records of complaints filed with organizations such as:

Better Business Bureau

State Bar of Michigan

U.S. Department of Treasury Internal Revenue Service Office of Professional Responsibility for Enrolled Agents

Questions to Ask

It is important to be sure the tax preparer has experience preparing tax forms for people in your particular situation. Not all tax preparers understand the non-resident tax forms such as the 1040NR. It is also important to understand possible costs before agreeing to hire a tax preparer.

Examples of questions to ask your tax preparer include:

What is the maximum amount I might have to pay to have my tax return prepared?

Who will prepare my tax return and where will it be prepared? How can I contact this person?

If you are a non-resident for tax purposes, ask how many Forms 1040NR the preparer does each year.

If you are in F or J immigration status, ask if the preparer is familiar with the special rules that apply to F and J visa holders, and ask how many returns s/he does for F and J visa holders each year.

If you will be required to file a “dual status” tax return (you were a tax resident for part of the year), ask how many dual status returns the preparer does each year.

After Your Form is Prepared

After the tax preparer finishes your return, he or she is required by law to sign the return, fill in the preparer areas of the form and include his/her identifying number, and give you a copy of the return. You should:

Review the completed return to ensure all tax information, your name, address and Social Security or ITIN. number(s) are correct.

Make sure that you understand the form and make sure that it seems to be accurate.

If you want the preparer to be able to talk to the IRS about how your return was prepared, check the “Third Party Authorization“ box on the tax return form.

Sign the tax return form.

Important: Never sign a blank return, and never sign in pencil.

Resources

For advice from the U.S. Department of Treasury Internal Revenue Service about choosing a paid tax preparer, refer to:

Tips for Choosing a Tax Preparer

Advice for Choosing a Tax Preparer

Federal & state tax preparation

Intuit & related accounting software for tax preparation

Online tax preparation software

IRS Tax Preparation & E-File Tax Extension Forms Online

Is it for personal income tax or for business / corporate tax?

Tax preparation in the USA, in US