CPA Select for TurboTax is also good for CPAs

Dave McClure for CPA Practice Advisor writes: TurboTax this year unveiled a product called CPA select. While this has some benefits for consumers who want a CPA to do their taxes but don’t want to guess at what the cost will be, there are some benefits for up-and-coming CPA firms as well:

In 1990, I was leading a blissful existence as the chief technical writer for an ad agency out of Cleveland when I was recruited out to join an accounting software firm.
I went from work on the space shuttle to working Superfund environmental sites and writing technical articles to be part of a turn-around management team for a flailing company that was a tiny little division of what is now Thomson Reuters.

It was an interesting assignment, working for CPAids. Because it was a really good software company, and because it was virtually impossible to market products in 1990 that had “aids” in their name.  But it was a great learning experience, and one that led after I left the company to an offer to write “The Bleeding Edge column, now in its 20^th year.
 
Point is, in 1991 I attended the California CPA Show, and on my return to Ohio went to my boss’ office. And asked him what business he thought we would be in two years hence. He replied that we would still be in the accounting and tax software business.
I had my doubts, for I had seen two products called QuickBooks and TurboTax. Two years later our company would be gutted and our customer list sold to Intuit.

I have watched both products over the intervening two decades, and while I understand that they are not beloved by CPA firms or tax preparers, their market share has nonetheless grown. For those who are inclined not to like them, it is about to get far worse. Unless, of course, you sign on.

TurboTax this year unveiled a product called CPA select. While this has some benefits for consumers who want a CPA to do their taxes but don’t want to guess at what the cost will be, there are some benefits for up-and-coming CPA firms as well:

1. The system is Web and Facebook based. In a world in which Facebook pages are largely single-dimension business cards, Intuit has designed a slick, interactive site that takes the use of social media to a whole new level. Even if you hate TurboTax, you have to admire their use of the medium.
2. The pitch is simple. There are three pricing levels, for simple individual returns, complicated individual returns, and small business returns. The customer knows up front what the return will cost them.
3. CPAs are validated, so consumers have more confidence.
4. Customers can get a $200 credit for recommending friends.
5. CPAs get more customers the more active they are with the system. Customer ratings can also raise individual CPAs in the ratings, which give them more customers.
6. CPAs are guaranteed payment. Here’s the real crunch –if the customer balks, refuses to pay, runs from the bill or otherwise creates problems, the CPA firm still gets paid. Intuit pays the bill that agreed upon up front, and handles collection from the customer.

CPAs benefit from customers delivered to them, already qualified, with all of their documents already scanned and ready for tax preparation.

It’s hard to know how successful this program will be, but I have the feeling that new firms and those struggling to find new customers will welcome another arrow in their marketing quiver. I could be wrong, but then I wasn’t in 1991.

We at ExactCPA would prefer you contact us (lol), but nonetheless, CPA Select is right here.

 

Advisers Match Clients With Tax Pros

Arden Dale for the Wall St. Journal writes:  This tax season, advisers are taking on the role of matchmaker.  With a new complicated tax regime in place, advisers say it is more important than ever that their clients are paired with the best tax professionals who know the tax code inside and out and whom they can connect with personally. That is especially true for wealthy taxpayers who face tax increases on income and investments as well as limits on deductions under the American Taxpayer Relief Act. And, a recent setback to an effort by the Internal Revenue Service to raise tax-preparer standards adds urgency to the search for sound tax advice. 

"It's coming up more," said James R. Miller, president of Woodward Financial Advisors Inc. in Chapel Hill, N.C., whose clients often turn to him for help finding accountants and tax attorneys.

Recently, Mr. Miller recommended an accountant who helped save a client $100,000 on his tax bill. The client's most recent return showed he hadn't properly reported the depreciated value of rental property sold during the tax year. The accountant saw the error and filed an amended return. Now the client, a corporate executive who always had done his own tax returns, vows never to go it alone again, Mr. Miller said. 

Impeccable credentials are the bottom line when looking for a good accountant. A designation either as a certified public accountant or enrolled agent are a must, according to Bernard Kiely, an accountant and financial planner in Morristown, N.J., who has lectured to advisers on behalf of The National Association of Personal Financial Advisors, an association of fee-only advisers. Enrolled agents are an elite group of tax specialists recognized by the IRS.

Many tax preparers hold neither of these credentials. The IRS has tried to protect taxpayers against the incompetent and unscrupulous with a requirement it enacted a few years ago for tax preparers to obtain identification numbers and go through testing and continuing education.

In January, a federal court blocked the IRS from enforcing the requirements, but this month the court clarified that the IRS can still require preparers to have an identification number. The IRS said it plans to appeal. 

Personal chemistry is also important when choosing a tax professional, whether it be an accountant or attorney. Advisers do best when they recommend tax pros they actually know, so that they can be sure they are making a good match for a client.   "These are long-term relationships," said Abe Schneier, senior technical manager at the American Institute of CPAs. "Your CPA or tax attorney will probably know more about your personal life than just about anybody else out there." 

Any tax professional an adviser recommends ought to be able to handle the stress and strain of an IRS audit.   "They should be able to sit with the IRS auditor and intervene on behalf of the client," Mr. Kiely said.

To get to know tax advisers, Jim Holtzman, a wealth manager at Legend Financial Advisors Inc. in Pittsburgh, attends events sponsored by the local Chamber of Commerce and a branch of the American Institute of CPAs. Then, he chooses some to invite out breakfast or lunch. "It's to get a comfort level," he said. 

Equally important is to know the needs of the taxpaying client. Some want a tax adviser recognized in the community as a leader in his or her field, or who has given back to community, said Kevin M. Reardon, an adviser at Shakespeare Wealth Management Inc. in Pewaukee, Wis. Some clients will communicate only by email, while others want meetings in person and information on paper. 

On Friday, Mr. Reardon is meeting with long-time clients--a retired 76-year-old dentist and his wife--and an accountant he thinks might be a good fit. Mr. Reardon has worked with the accountant and knows her socially through her children, who are the same age as his.

"I wanted to make sure I had someone who would take a little extra time with him and his wife," Mr. Reardon said.

Trends In Tax Planning From The New Tax Law

Steve Parrish for Forbes writes: We’ve had over a month to digest the American Tax Relief Act of 2012 (ATRA). The law is starting to take shape, and planners are devising strategies to leverage the good provisions and avoid the costly ones. Naturally, those of us who deal with these things each time they come around are being asked to make predictions about where this law will take us.

Predictions can be dangerous. What we take for prescience when the prediction is made may end up as being, well, foolish when the facts are all in. In the 19^th century, the U.S. Geological Survey announced there was little or no chance of oil being discovered in California. In the 20^th century, Neville Chamberlain famously declared peace for our time after signing the non-aggression pact with Nazi Germany. And, in the 21^st century, the words mission accomplished come to mind.

Even with something as mundane as tax law, I’m hesitant to make predictions. I confess to past predictions such as ROTH conversions will be big and Congress will not let the estate tax expire in 2010. Time proved me wrong.  So, instead of predictions I offer tax trends.  These are my expectations for what may happen with tax planning as a result of the passage of ATRA.

1. Income tax planning will take on an increased importance in business planning. With a slower economy translating to both lower earnings and lower yields, the incremental cost of increased income taxes will represent a larger potential drag on gains. Further, even though many individual income tax provisions have been made permanent, most of the business income tax provisions are temporary in nature. This may cause businesses to leverage business tax savings while they are available. Section 179 expensing, bonus depreciation and research & development (R&D) tax benefits are temporary at best, and businesses will take a hard look at enjoying these provisions before they expire.
2. Tax diversification will have new meaning to business owners. In the Great Recession many business owners learned they couldn’t have all of their eggs in one basket — their businesses. Asset diversification is already a trend, but with increased taxes, there will also be a movement towards tax diversification.Business owners will, of course, look to qualified plans for immediate tax deductions, but they will consider tax advantaged products such as life insurance and annuities. The question is not just income tax deferral, but the nature of the income once it comes out. For example: accumulation-oriented life insurance policies will become more popular. That’s because they offer death protection and tax deferral during accumulation, plus tax-favored distributions where the owner can control the amount and timing of the income stream.
3. Pass-through tax status will no longer be the only choice for smaller businesses. While electing S Corp or LLC (taxed as a pass-through) status will continue to be the default assumption for many closely-held businesses, tax planners are blowing the dust off of C Corporation (C Corp) law and giving it another look. One reason is tax brackets. The top C Corp tax bracket is 35%, while the top personal bracket is 39.6%. Further, C Corps offer tax favored benefits that are not equally available with pass-through entities. Group term life insurance, disability income plans and to an extent, health insurance, all enjoy preferred tax status for business owners when offered through a C Corp. Deferred compensation plans can truly defer some of an owner’s wages when structured through a C Corp tax status. Speaking of deferring compensation ….
4. Deferred compensation plans will be very popular. With the passage of ATRA, top tax rates have gone up, and there is little reason NOT to defer tax if and where possible. Additionally, there will be tax points where the marginal cost of additional tax can be significant. For example: a couple may be well advised to keep its income below $250,000 in order to avoid the 3.8% Medicare surtax. Or, they may want to keep income below $300,000 to avoid the wasting away of their personal exemptions and itemized deductions. Many wage-earning taxpayers will seek to model these tax points in advance and, using deferred compensation plans from their companies, push off the sting of additional taxes until later.
5. Estate planning will be noticeably different, depending on the estate side. With the exclusion from estate tax at the $5.25 million level ($10.5 for a couple), there are some interesting planning challenges. In many states, this means business owners won’t have to worry about the liquidity challenge of state or federal estate taxes in their planning.  However, in other states, although safe from the Feds, they will have to consider local taxes. Another complicating factor is that once the estate exceeds the exclusion, the taxes are large and the planning opportunities are even larger. The 40% rate that applies above the exclusion is onerous, but the law allows many opportunities to avoid it. Consequently, we will likely see a very different set of estate planning approaches, depending on the projected size of the estate at the time of death.
6. Nothing is so certain as change. From the conversations I’ve had with business owners and their advisors, many are not buying that we’ve seen the last of tax law changes in the near future. We have so many deficit and budget issues to wrestle with in the coming weeks and months, many believe that Congress may be forced to revisit taxes sooner rather than later. Of course, I don’t mean this as a prediction. 

Superstorm SANDY Tax Assistance Outreach Events in NJ

Representatives from Taxation, the IRS, and other New Jersey State agencies will be available to help individuals and businesses prepare their 2012 tax returns and to answer questions on other Sandy-related issues. Taxpayers can pre-register to attend any of the events listed below or request additional information by calling 609-633-6015 and leaving a message or sending an email. Walk-ins are welcome.

Date	Time	Location
February 16 (Saturday)	10 a.m. to 2 p.m.	Fairview Public Library 213 Anderson Avenue Fairview, NJ 07022
February 21 (Thursday)	6 p.m. to 8:30 p.m.	Hoboken Municipal Building 94 Washington Street Hoboken, NJ 07030
February 26 (Tuesday)	6 p.m. to 8:30 p.m.	Keyport Municipal Building 70 West Front Street Keyport, NJ 07735
February 28 (Thursday)	6 p.m. to 8:30 p.m.	Ocean County Library Little Egg Harbor Branch 290 Mathistown Road Little Egg Harbor, NJ 08087
March 2 (Saturday)	10:30 a.m. to 2:30 p.m.	Ridgefield Public Library 527 Morse Avenue Ridgefield, NJ 07657
March 7 (Thursday)	5 p.m. to 7:30 p.m.	Atlantic County Library Ventnor Branch 6500 Atlantic Avenue Ventnor, NJ 08406
March 9 (Saturday)	10 a.m. to 2 p.m.	Borough of Sea Bright Gym 1167 Ocean Avenue Sea Bright, NJ 07760
March 14 (Thursday)	5:30 p.m. to 7:30 p.m.	Bradley Beach Library 511 4th Avenue Bradley Beach, NJ 07720
March 18 (Monday)	6 p.m. to 8:15 p.m.	Ocean County Library Toms River Branch 101 Washington Street Toms River, NJ 08753
March 26 (Tuesday)	6 p.m. to 8:30 p.m.	Ocean County Library Brick Branch 301 Chambers Bridge Road Brick, NJ 08723

A Tax Break for a Doctor Who Earns $500K (shrewd & creative tax strategy illustrated)

Kelly Kearsly for the Wall St. Journal writes: The doctor and his wife routinely spent more than $20,000 a year on medical expenses for a young son with a chronic illness. But the doctor's high salary meant he couldn't deduct any of that expense from his income taxes.  So Troy Von Haefen, a fee-only financial planner in Nashville, Tenn., came up with another strategy that effectively turned the medical costs into a business expense.

The doctor typically earned more than $500,000 per year, and tax rules would only allow for a deduction of health care costs exceeding 7.5% of income. "It just wasn't plausible," says Mr. Von Haefen, who provides financial planning--though he doesn't manage investments--for three dozen clients who are mostly musicians and small business owners.

The strategy he suggested is one he uses himself. It involves using a Section 105 Health Reimbursement Account. These plans are employer-funded, tax advantaged accounts or arrangements that reimburse employees for out-of-pocket health care expenses. The referenced tax code allows for self-employed individuals to hire their spouses and provide them with a medical benefits package that encompasses the couple and their children.

"It ends up being a family plan, so that the husband, wife and all the kids can jump on board," Mr. Von Haefen says.

Mr. Von Haefen suggested the doctor hire his wife to do administrative work, such as scheduling and bookkeeping. He cautioned the spouse must be qualified for the job, be paid a fair--and not excessive--wage and actually do the work. "I want to keep it all above board," he says.

So the doctor hired his wife for 10 hours of work each week at a rate of $25 per hour. The HRA the doctor set up, with help of a plan administrator, allows him to reimburse up to 80% of his wife's wages for health-care costs. The exact percentage that is reimbursable is determined by the doctor and the company administering the plan at the beginning of each year and can vary based on the spouse's income and the family's expected medical expenses.

Under this arrangement, the doctor pays his wife 20% of her earnings and retains the remaining 80%. Then, throughout the year, or at the end of the year, the wife submits the family's medical expenses to her husband and he reimburses her. If the annual medical expenses are less than the amount the wife has earned, the extra rolls over into the next year.

For example, if the wife earns $1,000 per month, she receives only $200 in her paycheck. The doctor keeps the other $800 and uses it to reimburse his spouse when she submits the family's expenses. The savings come in spades: Because the health plan is now a business expense, the family can deduct those medical cost reimbursement--and avoid federal, state and Medicare taxes on those dollars.

Mr. Von Haefen says because the wife is now formally employed, the couple also becomes eligible for the child-care deduction. Altogether, the arrangement provides this family about $4,000 to $5,000 a year in tax savings.

The plan does have some costs. Mr. Von Haefen recommends that clients hire both a plan administrator to set up and manage the arrangement, and a payroll service company. The first can cost as little as $200 per year, and the latter about $450 annually. "There are some associated costs, but they don't compare to the tax benefits," he says.

The doctor and his wife have been using their HRA for two years and they're pleased with their savings--and their new working arrangement.

"It doesn't always work, because some spouses don't want to work together," Mr. Von Haefen says. "But in the right situation it can be a home run."