Tax Preparer, Enrolled Agent, CPA or Tax Attorney?

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When you need a tax professional who should you turn to?  Well, it depends on how complicated your taxes are and how much money is at stake.  Here is some information to guide you in your decision.

There are four different types of tax professionals 1) general preparer 2) enrolled agent 3) certified public accountant 4) tax attorney.   Some including myself might be more than one type for example I am a tax preparer, CPA and Tax Attorney.

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General Tax Preparer:

Anyone can open a business and prepare taxes for others.  All they have to do is apply for and receive a tax identification number from the IRS.  A preparer can have no experience and no education and still be preparing businesses for others.  HR Block, Liberty and other chain tax preparation firms fit into this category.  Often their staff only has a tax course taught by the firm before they are preparing taxes for clients.  The general tax preparers are best for simple returns because they are the least expensive and often competent enough to handle a simple return.   Common prices for a simple return prepared by a general tax preparer are $50-100 for a simple Federal Return.

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Enrolled Agent:

An enrolled agent is a person who has earned the privilege of practicing, that is, representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before.

An enrolled agent has taken a test with the IRS and completed continuing education classes on tax preparation.  Enrolled agents are not required to have an accounting degree.  Enrolled agents are generally less expensive than CPAs and Tax Attorneys.  A typical price for a simple return prepared by an enrolled agent is $75-150 for a simple Federal Return.

For more information on enrolled agents see the following IRS website:  http://www.irs.gov/taxpros/agents/article/0,,id=123388,00.html

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Certified Public Accountant (CPA):

CPAs have both an accounting degree and at least 2 years of work experience.  Certified public accountants are often chosen to prepare business tax returns because they can also perform financial statement reviews and compilations. Often businesses will see their CPA throughout the year for tax planning and financial statement reviews.  CPAs are more expensive than enrolled agents and general tax preparers because they have their licenses to maintain and also have demanding continuing education requirements.  People with complex returns or business returns often chose CPAs because their tax expertise makes up for their more expensive prices.  A typical CPA will charge $100-300 for a simple Federal Return.

The American Instititute of Certified Public Accountants is the largest CPA professional group for more information see the following AICPA website:

http://www.aicpa.org/Pages/Default.aspx

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Tax Attorney:

Tax Attorneys are the most expensive tax professionals.  They have graduated from law school and have passed a state bar exam.  A lot of the tax attorneys are also certified public accountants.  They rarely prepare individual tax returns.  Tax attorneys are used for IRS audits and complex tax transactions.  A typical tax attorney will bill by the hour and on average charges $200-400 per hour.

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Conclusion:

If you need the help of a tax professional use the one that can proficiently accomplish your needs with the lowest price.  If you have a simple tax return any experienced tax preparer should be able to prepare your return.   However, if you have more than a simple return or a business you should consider using a CPA.

Also, if you are paying more than the average prices listed above you might want to chose a different professional.  Well, I hope you found this post beneficial if you would like more information give me a call at 702-216-1011.  For other posts and tax related videos check out my blog at http://www.arlintlaw.com/blog.

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Is a Nevada Asset Protection Trust Right for You?

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Are you thinking about writing a Will or Trust? Just thinking about what happens after I die is a difficult subject for people to talk about. However, ensuring that loved ones are taken care of in the event in the event of your passing is  comforting for some. For others they are looking for something else, and in Nevada we can also protect your assets during your life.

October 1st, 1999 Nevada enacted legislation allowing a settlor to create a trust that is protected from the creditors of a settlor. This type of trust is referred to as a self-settled spendthrift trust or a Nevada Asset Protection Trust. There are several other states the currently have similar legislation, but Nevada has at least one advantage. Nevada has the shortest waiting period for protecting an asset.

Under NRS 166.170 A person may not bring an action with respect to a transfer of property to a spendthrift trust:

(a) If the person is a creditor when the transfer is made, unless the action is commenced within:

(1) Two years after the transfer is made; or

(2) Six months after the person discovers or reasonably should have discovered the transfer, whichever is later.

An example of this would be protecting your home. Once you have created the trust and have recorded a deed in the Trust’s name. The two year waiting period would commence. After two years from the date of the recording your home would be protected from creditor claims.

If you are interested in learning more about Nevada Asset Protection Trusts or have any questions feel free to give us a call schedule an appointment at (702) 216-1011.

 

**The information you obtain on this site is not intended as legal advice. You should consult an attorney for individual advice regarding your own specific information.

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How to Avoid an IRS Audit – Advice from a Tax Attorney

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An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.

Publication 556, Examination of Returns, Appeal Rights and Claims for Refund explains the audit process in more detail.

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How the IRS selects returns for Audit

  1. Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:
  2. Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
  3. Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
  4. Reported by Individual – Individuals can report a taxpayer for tax fraud.  If someone has knowledge of tax fraud they can report that fraud to the IRS and receive a reward if the taxpayer is found to have a tax deficiency.
  5. Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

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Your Rights During an Audit

Don’t let the IRS scare you during an audit.  You have several rights as a taxpayer, the first step you should take is talk to an experienced tax attorney who can analyze your specific situation.  An experienced tax attorney can review your situation and at times even get you money back after an audit.  The auditor has to change your return to reflect the proper tax amount.  If your previous tax preparer missed deductions or failed to include your proper credits the auditor has to amend your tax return and give you a refund.

  • A right to professional and courteous treatment by IRS employees.
  • A right to privacy and confidentiality about tax matters.
  • A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
  • A right to representation, by oneself or an authorized representative.
  • A right to appeal disagreements, both within the IRS and before the courts.

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How to Avoid an IRS Audit

There is no sure way to avoid an IRS audit but there are strategies to help reduce the chances of being selected.

  1. Include all income reported to you on forms 1099.  The IRS receives copies of 1099’s sent by payors examples include:  banks, financial institutions, independent contractor payors, Casinos reporting gaming winnings and escrow agents reporting land sales.
  2. Double check social security numbers for dependents.  The IRS checks the social security numbers of dependents to make sure they are not claimed on another persons tax return.  An audit is guaranteed if more than one person is claiming the same dependent.
  3. Claiming unreasonable travel expenses, moving costs or charitable deductions.  The IRS uses statistical analysis to determine who they audit and they love to audit these accounts because often taxpayers exaggerate these expenses.   Don’t get greedy and stretch your travel and entertainment expenses, you are just increasing your chances of an audit.
  4. If you own a business try not to claim losses for several years in a row.  This is a red flag for the IRS because it usually means the taxpayer is either claiming a hobby is a business or is overestimating expenses.  Obviously sometimes businesses do operate at a loss especially in the first couple years of operating but if the business continues to lose money why is the taxpayer still running and business and where is he/she getting the money to pay their expenses.  If you have a business that continually loses money ask yourself whether or not it is truly a business or are you just trying to move hobby expenses into deductible tax expenses.
  5. Incorrect tax returns and calculation errors.  If the return has calculation errors then other information on the return is likely wrong.  To avoid calculation errors efile your tax return.  Computer programs help check for simple arithmetic errors that are likely to happen when preparing returns by hand.
  6. Use a CPA or Tax Attorney to prepare your taxes.  The IRS agents are influenced just like you or I would be with the quality of your tax preparer.  After an agent reviews your return they are more likely to audit an individual preparing his own taxes then a taxpayer who has their return professionally prepared by a tax attorney or CPA.

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What are the Chances my Return is Audited?

 

If you make under 100,000 you have less than a 1% chance of being selected for an IRS audit.  If you make between 100,000 and 200,000 your chances of an IRS audit are about 3% and if you make over a million your chances are about 10% of being audited.  Therefore, most taxpayers have a very slim chance of being audited, make sure to follow the simple rules above to help make sure you are not one of the unlucky taxpayers selected for an Audit.

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IRS Circular 230 Notice: To ensure compliance with requirements now imposed by the Internal Revenue Service of the U.S. Treasury Department, we are hereby informing you that any federal tax advice contained or perceived contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. 

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Short Sale Information

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For more information schedule your free consultation with Derek Armstrong or one of the other attorneys at Arlint and Armstrong at (702) 216-1011.

Tax Issues Canadians Owning Rental Property in US

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RE:  Tax Issues Canadians Owning Rental Property in US
Monday, November 14, 2011

 

1.0 Summary.  As a Canadian owning rental property in Nevada you will have to file income taxes in the United States.  The type of return you file depends on the number of days you spend in the U.S. and your other connections to the U.S. compared to Canada.   Generally, the U.S. only taxes you on the source income from the rental and at the rates U.S. citizens are subject to.  You will be able to take a credit for the U.S. taxes paid on your Canadian tax return.  However, if you don’t file form 1040NR and make an election to treat the income as effectively related to a business then you will be taxed a flat rate of 30% on your gross rental income without a deduction for expenses.

 

1.1 Canadian Income Tax Rules.  You will have to claim the income received from your U.S. rental property on your Canadian tax return.  You must report all income from sources received inside and outside Canada for the year.   You can receive a foreign tax credit for taxes paid to the IRS.  For more information on reporting foreign income on your return see the CRA’s General Income Tax and Benefit Guide form 5000-G.  You must also complete Form T1248, Information About Your Residency Status (Schedule D), and attach it to your Canadian return.

 

1.2 United States Income Tax Rules.  The US income tax rules for Canadians depends on whether you qualify for the resident alien or non-resident alien status.  The IRS uses the substantial presence test to determine if you are a resident alien or a non-resident alien of the U.S. for tax purposes.

 

1.3 Substantial Presence Test.  This test uses the number of days you were in the U.S. during a three-year period (the current and the two previous years) to determine if you are a resident alien or a non-resident alien.  If you spend more than 30 days in the U.S. during the year the IRS might consider you a resident alien.  There are several factors and exceptions to the substantial presence test please seek tax advice for determining your status.  Even if the substantial presence test determines you are a resident alien you can file form 8840 with the IRS claiming you have more connections with Canada and therefore should not be considered a resident alien.

 

1.4 Resident Alien Status US Tax Consequences.  Resident aliens have to file a U.S. tax return to report income from all sources inside and outside the U.S. for the year.  You will file as a resident alien and report all income including your rental income on IRS form 1040.

 

1.5 Non-Resident Alien Status U.S. Income Tax Consequences.  Non-Resident Aliens only report U.S. source income on their U.S. income tax returns.  As a non-resident alien, you are subject to U.S. income tax on rental income you receive from U.S. real property.

 

1.6 Effectively Connected v. Not-Effectively Connected.  The IRS divides your income into two categories:  1) Effectively connected with a trade or business and 2) not effectively connected with a trade or business.  Rental income is not effectively connected with the conduct of a U.S. trade or business.  However, you can elect to treat rental income as income that is effectively connected with the conduct of a U.S. trade or business by attaching a letter to Form 1040NR stating that you are making the election.

 

1.7 Income Effectively Connected.   Income that is effectively connected with a trade or business in the U.S. (including income from the sale or exchange of U.S. real property) is taxed at the same rates that apply to U.S. citizens and residents.  If you have filed the election your U.S. rental income will be treated as income effectively connected.

 

1.8 Income Not Effectively Connected.  Income that is not effectively connected with a trade or business in the U.S., but is from U.S. sources (including interest, dividends, rents, and annuities) is taxed at 30% of gross income.  If you do not make the election to treat your rental property as effectively connected your property manager should withhold 30% of your gross income from your rental. 

 

1.9 Further Information.  For more information regarding income taxes for Canadians owning rental properties in the U.S.  see the following publications:

 

 

 

 

 

 

IRS Circular 230 Notice: To ensure compliance with requirements now imposed by the Internal Revenue Service of the U.S. Treasury Department, we are hereby informing you that any federal tax advice contained or perceived contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.