Friday, January 23, 2015

The Cheapest Tax Prep Software for 2015 (Hint: It's Not TurboTax)


Ben Steverman for Bloomberg Businessweek writes:   For the second year in a row, TurboTax has raised its prices. At least that's what it feels like to many customers. 

Last year, TurboTax changed how it categorized its options for online filing, which looked to many users like a price-hike. A $20 “basic” return was gone. The $30 “deluxe” package no longer worked for filers with stock or mutual fund sales. Customers who’d been using "deluxe" for years discovered they needed to upgrade to the $50 “premier” package. Faced with a $20 charge after spending hours entering their tax information, many just forked over the up-charge.
This year, TurboTax made the same changes to the software it sells in stores. Loyal customers started complaining, loudly, when they realized they’d bought the wrong box. Almost 1,500 negative reviews were posted on Amazon, and H&R Block saw its opening: it made its tax prep software free to anyone affected.  
TurboTax apologized and is offering deluxe buyers $25. “While we made the best long-term decision, our good intent was not matched with good execution," says Julie Miller, a spokeswoman for Intuit Inc., which owns TurboTax. 
What it didn't apologize for was the fact that the reclassification simply makes it harder to compare prices. The three major players online – TurboTax, H&R Block and low-cost TaxACT – each divide their tax prep services into different buckets. Here's how it breaks down: SNIP the article continues at Bloomberg Businessweek, click here to continue reading...
Posted on 11:47 AM | Categories:

How to Choose a Tax Preparer Amid All the Alphabet Soup

Robert D. Flach for Main Street writes: There are a variety of professional credentials or licensing designations that appear as initials after a person’s name to identify his area of expertise - AIA, CFP, CPA, CLU, DVM, EMT, JD, LPA, MD, PE, PhD, RN.
When it comes to preparing Form 1040s, the only initials that indicate the individuals who possess them have proven that they are competent, via testing, and/or remain up-to-date ,via annual required continued professional education (CPE), in Form 1040 preparation are -

AFSP - Annual Filing Season Program

This is a voluntary tax preparation credential administered by the Internal Revenue Service.
The IRS does not issue to participants an actual identifiable credential or initialed designation. Those who meet the program requirements will be issued a “Record of Completion” certificate and be added to a database on IRS.gov “to help taxpayers determine return preparer qualifications.”
In order to receive a Record of Completion, currently unenrolled preparers must complete 18 hours of CPE in taxes annually. The CPE must include:
  • six hours of a federal tax filing season refresher course,
  • two hours of ethics, and
  • ten hours of other federal tax law topics.
The program does not require an initial competency test, but participants must pass a comprehension test upon completion of the filing season refresher course each year.
Preparers who have previously passed the RTRP competency exam (see below), are state licensed and passed an exam covering federal tax matters; have passed an examination “covering federal tax matters administered by an entity recognized by the IRS as an eligible entity,” like the tests required for the Accreditation Council for Accountancy and Taxation credentials (see below); or have passed Part 1 of the EA exam in the last two years are not be required to take the annual six-hour refresher course (they must instead take three hours per year in tax “updates”) or pass the annual comprehension test

ATP - Accredited Tax Preparer and ATA – Accredited Tax Advisor

The Accreditation Council for Accountancy and Taxation (ACAT) is a non-profit independent testing, accrediting and monitoring organization established in 1973 by the National Society of Accountants. It offers two credentials in taxation – the Accredited Tax Preparer (ATP) and Accredited Tax Advisor (ATA).
To become an ATP you must have three years (a tax-season - January through April - is considered one year) of work experience in tax preparation, two of which may be satisfied through college credit, and pass a competency exam. An ATP must maintain 72 hours of CPE in taxation during each three-year cycle or 24 CPE hours per year, similar to the EA.
The ATA credential identifies preparers who handle sophisticated tax planning issues, including planning for owners of closely held businesses, planning for the highly compensated, choosing qualified retirement plans and performing estate tax planning. The designation covers tax returns for individuals, business entities, fiduciaries, trusts and estates. To become an ATA you must have five years (again a tax filing season = one year) of experience in tax preparation, compliance, tax planning, and consulting, of which 40% must be in tax planning and consulting, and pass a competency exam. An ATA must maintain 90 hours of CPE during each three-year cycle, or 30 CPE hours per year.
Both credentials require adherence to the Council's Code of Ethics and Rules of Professional Conduct. And both require 4 hours of CPE in “ethics” per three-year cycle.

EA – Enrolled Agent

The Internal Revenue Service tells us – “An Enrolled Agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.”
The three parts of the EA exam – known as the Special Enrollment Examination – are
  • Part 1 - Individual
  • Part 2 - Business
  • Part 3 - Representation, Practice and Procedures
Required CPE includes two hours per year of “ethics.”
An Enrolled Agent is not an agent or employee of the Internal Revenue Service. While the EA credential is administered by the IRS, an Enrolled Agent is an independent tax professional who is “enrolled” to act as a taxpayer’s “agent” in proceedings with the IRS.
Enrolled agents have unlimited right to “practice” before the IRS. This means there is no restriction to the type of taxpayers they can represent, what types of tax matters they can handle, and before which IRS offices they can represent clients.

RTRP – Registered Tax Return Preparer

In 2010 the Internal Revenue Service initiated a mandatory regulation regime for all individuals who prepared federal tax returns for compensation. Tax preparers, except for EAs, CPAs, attorneys and certain supervised employees thereof, were required to become a “Registered Tax Return Preparer” by the end of 2013 by passing a basic “open book” competency test covering tax law issues, individual tax return preparation and ethics. To maintain the designation, a Registered Tax Return Preparer was required to complete 15 hours of CPE in taxation each year.
In January of 2013, this mandatory regulation regime was shut down by the court in Loving v IRS. The court felt that the IRS did not have the statutory authority to regulate tax preparers. The IRS appealed the decision and lost.
Prior to the court decision, many previously unenrolled paid tax preparers took and passed the basic competency test and were granted the designation of RTRP. According to the IRS, a person who received an RTRP certificate can continue to use the designation, but the IRS does not recognize it for any purpose other than the requirements of the new voluntary AFSP program.
A person claiming to be an RTRP has proven basic competence in tax preparation by passing the IRS test, but is no longer required to maintain required annual CPE in taxation. This credential is no indication that the holder remains up-to-date on tax preparation issues.

NO INITIALS - The Unenrolled Preparer

You should not limit your search for a tax professional to those with the above initials. Just because a tax preparer does not possess one of the recognized tax credentials or designations I have identified above does not mean that he/she is not competent and current in 1040 preparation.
There exist thousands of knowledgeable, experienced, competent, current, and ethical independent tax preparers who have chosen not to add initials after their names. They belong to tax preparer membership organizations, like the National Association of Tax Professionals and the National Society of Accountants, and maintain many hours of CPE in taxation each year, even though not required, to remain up-to-date on 1040 tax law.
And while the initials CPA have absolutely nothing to do with competence and currency in the preparation of 1040s, and you should not assume that a CPA is automatically a Form 1040 expert, there are many CPAs who are competent and knowledgeable in 1040 preparation. However, this is because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer and has nothing to do with the initials CPA.
Posted on 9:11 AM | Categories:

Your Tax Forms Are In the Mail: A Guide to Deciphering Your IRS Paperwork

MainStreet.com writes: It may have started already, and in the next few weeks, you will continue to receive in the mail the information forms you will need to prepare your 2014 income tax returns.
In addition to the Form W-2 to report taxable wages and deductions, you may also receive – 
  • W-2G - gambling winnings
  • 1098 - mortgage and home equity interest, points, and mortgage insurance premiums
  • 1098-C - information needed to claim a deduction for donating a motor vehicle to charity.
  • 1098-E - student loan interest paid.
  • 1098-T - tuition and fees paid or billed, and scholarships and grants received.
  • 1099-B - proceeds, and some cost basis information, for the sale of stocks, bonds, mutual funds, and other securities.
  • 1099-C - mortgage, home equity, credit card, student loan, and other debt that has been forgiven or cancelled.
  • 1099-DIV - ordinary, qualified, and tax-exempt dividends, capital gain distributions, non-dividend distributions, and foreign tax paid.
  • 1099-G - unemployment compensation, state tax refunds, and other payments made by government agencies.
  • 1099-INT - taxable and tax-exempt interest received and foreign tax paid.
  • 1099-K - payments from a credit card or other third-party processing agent.
  • 1099-MISC - payments to independent contractors and subcontractors, rents, royalties, prizes and awards, broker payments “in lieu of” interest and dividends, and a variety of other payments received in the course of a trade or business.
  • 1099-OID - accrued interest on zero-coupon bonds, Treasury bills, and other securities issued at a discount from par that must be currently reported.
  • 1099-Q - distributions from a Section 529 qualified tuition program or Coverdell Education Savings Account.
  • 1099-R - distributions from annuities, pensions, and retirement accounts.
  • 1099-S - gross proceeds from the sale of real estate.
  • SSA-1099 - Social Security benefits received and Medicare insurance premiums deducted from these benefits.
  • RRB-1099 - “Social Security Equivalent” Railroad Retirement benefits received and Medicare insurance premiums deducted from these benefits.
  • RRB-1099R - Railroad Retirement benefits taxed like any other private or public pension.
  • Schedule K-1 - pass through income, deductions, credits, and other information from partnerships, sub-Chapter S corporations, estates, and trusts.
Posted on 6:35 AM | Categories:

LinkedIn for accountants: 2015 update

Mark Lee for AccountingWeb UK writes: It’s the world’s largest online business networking tool and deserves to be considered quite separately from the more ‘social’ networking sites such as Facebook, Twitter, Google+ and Pinterest.

On Linkedin today there are more than 330m profiles, 3m companies and ‘only’ 2m jobs. It’s grown to become a huge beast that can be tamed and used to benefit accountants who are clear as to their objectives when using the site.
These might be to build your practice, your client base, your influence, your reputation or simply to further your career.
Passive or Active
Like all users of the site, accountants can choose whether to be passive or active users of Linkedin.
Passive users simply create a profile and wait to be contacted by other users. It may happen. It may not. I’ve seen plenty of accountants say they are on Linkedin but get no new clients from the site. This is unsurprising if they have been inactive there and/or have an incomplete profile.
You can make it easy for others to want to connect with you or you can make it hard for them to do so – in which case there may be little point in registering your profile there in the first place.
Active users actively search out prospective clients, introducers, collaborators and/or influencers. They make their presence known on the site and in groups where their target audiences are also active users.
Linkedin claims to have re-engineered their search facility recently. This should make it faster and easier for users to find what they seek on the site.
First things first
There is little point in registering to use Linkedin unless you create a decent professional profile there. I shared loads of related tips on AccountingWEB in the first of a series of six articles about Linkedin in 2013: See: Linkedin part one: Profile tipsThat advice remains equally valid two years on.
LinkedIn has recently upgraded the generic guidance they provide to help users complete or edit their profiles.
The value of some of the guidance depends on where you are in your career and how active you plan to be on the LinkedIn website.  or example I am regularly being prompted to add sections on ‘language’ and ‘volunteering opportunities’ to my profile. There would be no point, so I ignore the prompts.
You can also now easily check out how your profile looks to other people. This may prompt you to make changes so as to give the right impression to people who do not yet know you. Just click the blue button in the middle beneath your profile photo.
If you are like most accountants, your LinkedIn profile will pop up first whenever someone searches for you online (eg: using Google or Bing). This is generally true regardless of how search engine friendly is your website. And it is even more likely if you don’t have a website or much of a profile page or photo on your own website.
Your profile will also show up in searches for ‘someone like you’ on LinkedIn. Or at least your profile will show up in such cases if it has been well prepared.
Your skills
This was a new section added to profiles by LinkedIn in 2012. I used to think it was all a little silly but it’s value is becoming clearer.
Imagine you were looking for a divorce lawyer on LinkedIn and you were checking out their profiles. If one has many more endorsements of relevant skills than another, this could impact your choice.
Of course your choice is unlikely to be swayed by any number of endorsements for their networking skills, commercial law work and after-dinner speaking. Such skills are just not relevant to someone looking for a divorce lawyer.
Equally I would encourage you to think carefully about which skills you show on your profile. LinkedIn attempts to be helpful by suggesting that you may also have related skills. So, for example, if you claim to know about ‘tax’, LinkedIn may suggest you also know about, CGT, VAT and IHT.
LinkedIn also encourages visitors to your profile to endorse you for related skills that you have not (yet) added to your profile. 
People may think they are being helpful so agree with LinkedIn. Or they may genuinely agree that they know and can endorse the suggestion you are skilled in a particular topic.
My advice is to remove any irrelevant or confusing skills from the list on your profile.
Equally do not add new ones to your profile just because Linkedin has encouraged someone to endorse you for them. I removed all reference to tax from my profile, despite amassing over 100 endorsements, as I stopped giving tax advice to anyone nine years ago! I don’t want my profile popping up when people search for a tax adviser on LinkedIn.
It’s also likely that the more endorsements you have for key skills the higher ranked will be your profile when someone searches the site for experts. It helps to think about who do you want to influence and what do you want to be ‘found’ for when someone searches on the site.
I would suggest that having only a handful of endorsements for what should be your key skills, could undermine your credibility. 
You do have the option to hide your skills and endorsements so that they do not show on your profile. That may be preferable in some cases, especially if you are planning to just be a passive user and have amassed only a few endorsements.
Blogging on LinkedIn
Until quite recently most users were not able to blog on Linkedin’s own platform.
This changed last year so now hundreds of people I know are now, as LinkedIn puts it, ‘sharing their perspective’ by blogging on the site.
The theory goes that this can help you to get discovered for your posts and strengthen your reputation. Yawn. Just like blogging on your own website – only less so.
Yes, it is possible that the people you hope to influence with your profile or activity on LinkedIn ‘might’ notice that you have blogged something relevant to their interests or problem.
But, if my own experience is typical, the impact will be marginal at best. And I say that as someone directly connected to over 4,000 people on LinkedIn and with an extended network of over 16m.
I have posted a number of pieces on the site with very little discernable impact over the last few months. I have tried pieces distinct from those on my own blog, pieces that cover similar points and pieces intended to direct readers to go to my blog to read more.
I have concluded that it’s not going to have much impact for me and that it is likely to be just another distraction for accountants in general.
Other changes
The latest update news from LinkedIn highlights a number of other changes mostly intended to encourage you to spend more time on the site.
These changes will be of limited interest if your main reason for using LinkedIn is to be found and/or for lead generation. Despite visiting the LinkedIn site almost every day I pay little attention to most new features when they first arrive. I have learned, over the years, that they rarely change the way I use the site though they may make it easier and faster for me to find what I want.
In summary you can expect to see:
  • A new look is being rolled out over the coming months
  • New activity feeds and a new dashboard so you can monitor how much interest there has been in your profile
  • A ‘keep in touch’ slider facility to see what the people you know are doing on the site – so that you can easily interact with them and comment on what they’ve done or their news
LinkedIn is such a mature site that few changes are really much more than cosmetic. This means they only excite the naïve, novice and news focused commentators. Accountants are better advised to focus on new features only when it is clear how they can help you to achieve your business focused objectives and get more value from your profile, presence and activity on the site.
Posted on 5:41 AM | Categories:

A new movement is disrupting traditional accountancy tools and techniques. AccountingWeb UK takes a look at how third-party add-on applications are being used by UK accountants.

John Stokdyk for AccountingWeb UK writes: A new movement is disrupting traditional accountancy tools and techniques. John Stokdyk takes a look at how third-party add-on applications are being used by UK accountants.
From tracking usage in our SSA surveys, we estimate that more than 50% of AccountingWEB members now run some kind of cloud accounting application.
The market is divided between three camps:
  • Local, independent software houses who made that fastest running in this country among start-ups and microbusinesses: KashFlow (now part of IRIS), FreeAgent, Clear Books, Liberty, Arithmo, etc 
  • European developers who developed cloud accounting tools and brought them to the UK: Twinfield (now part of CCH), e-conomic, Exact
  • Publicly listed, International developers who are aiming to capture a global market: New Zealand’s Xero, Intuit in North America, and the UK’s own Sage
Each of these groups has suffered their own surges and dips and while AccountingWEB’s figures show FreeAgent, KashFlow and Clear Books with the strongest camps among our members, the global trend, measured by Google in terms of headline interest over the past decade looks more like this (source - Google Trends; Quickbooks Online (red); Xero (blue); Sage One (yellow):
Google Trends - Xero v Quickbooks Online v Sage One
But that’s yesterday’s story. As we head into 2015, the information we are picking up on AccountingWEB is that with adoption rates for the core accounting engines experiencing steady, mainstream growth, the real breakthroughs are now happening among the third party cloud applications that connect into these systems.
New generation cloud firms
One of the clearest indications of the sudden rise in third party cloud applications came from entries to the 2014 Practice Excellence Awards, particularly in theinnovation and technology champion categories. Alongside several firms who were developing their own cloud accounting tools, there was a strong contingent of accountants who were deploying multiple cloud tools to meet the information needs of their both clients and their own firms.
Accountancy’s new wave was represented by the 2014 Practice Excellence Award winner for small firms and innovation, Tayabali Tomlin, along with technology champion nominees Jessica Pillow and Sharon Pocock.
All of these firms tell a similar story to that of Kinder Pocock, who explained: “Two years ago Kinder Pocock realised that online accounting software would become an essential part of business.
“We started using Xero in-house, and offering it to clients.  We immediately realised that Xero was efficient, interactive, easily accessible and easy to use for both the practice and clients. It also gave us a better interaction and relationship with clients… We can see clients’ live accounting data at any time.  This has saved us time, but has created major improvements in the advice and support we offer clients, including in-year tax planning advice, cashflow management.” 
Having made this breakthrough, the firm reviewed all its business processes and rebuilt them using online applications and add-ons, including:
  • Receipt Bank, which lets clients capture and send digital receipts and supplier invoices to Xero, via a photo app, email or even Dropbox
  • Spotlight Reporting for management accounts, cash-flow and forecasting. “We create reports showing actuals, budgets, variances, margins, comparatives, together with charts and graphs to visualise the data on tablets and smart phones.”
  • Practice Ignition - used to create online quotes, letters of engagement, re-engagement letters and requests for records
  • Xero Practice Manager - Once accepted online, jobs are created in its companion Practice Manager module, which triggers in Xero. “Time savings and client satisfaction have been improved greatly,” the firm reports
  • EchoSign (for digital signing), GoCardless (card payments) and Directli (direct debits)
The firm also seeks out solutions for clients including the online point of sale system. For example one e-commerce client was not happy with their online system and with Kinder Pocock’s support they moved onto Xero, using a tailored integration system devised by the firm and the client’s web designer to link the accounting software to the Magento new e-commerce platform.
On the back of this innovative, technology driven approach the firm’s turnover has increased by 40% and net profit by 61% in the past year, with no additional staff. 
“Not only do we gain clients specifically because we use online solutions, but they stay with us because we are able to offer solutions to system problems they may be having,” Kinder Pocock reported.
Valued Accounting tells a similar tale of growth beyond its home region in the North East, and claims to deploy more than 25 different types of software, all of which are chosen for their ease to use for clients so they can “see the end result in a format they understand”, the firm explained.
One client commented in a testimonial for the firm: “If someone had told me I could have saved over £6,000 in accountancy fees and got information I need to run my business quicker I would not have thought it was possible. 
“Valued Accounting implemented systems within my business that have meant I have not had to replace a bookkeeper, that chase my outstanding debt for me automatically and predict my cashflow as well as getting management information I understand when I need it.  They are an intrinsic member of our extended management team.”
The global scene
If further evidence were needed, a couple of research trips to the US provided it. As we reported on the big global accounting software fight, there are around 400 different add-on applications that work in tandem with QuickBooks Online and Xero, particularly in areas such as management reporting, project accounting, KPI dashboards, expenses management, stock control and distribution where local accounting standards are less of a technical restraint on systems.
In an article on  the next generation accounting firm based on findings at the Solutions 14 event in Las Vegas last November, Donny Shimamoto commented how the emerging “virtual infrastructure” of cloud applications “allows the flow of data among systems supporting both clients’ and the firm’s operations, allowing accountants to be a more integrated part of their clients’ businesses”.
David Watson, co-founder of the reporting specialist Fathom described how cloud accounting was evolving into an ecosystem of apps connected by programming interfaces that can save a significant amount of time for accountants who willing to embrace them.
If you look more closely, many of these programs share some common characteristics with Fathom, which is expanding into the international market from its base in Brisbane, Australia. Alongside Fathom at the QB Connect conference in California were 50 other add-on developers, half of whom were from down under. Many of the same people reappeared a few weeks later at Solutions 14 in Las Vegas.
The Xero effect
Few would argue that Australia and New Zealand lead the world market in cloud adoption and that enthusiasm has been accompanied by the blossoming of a new generation of cloud financial software developers.
“Our accountants and audience are at least a year or two ahead of the US in adoption and willingness to step up to that next level of proactive advice,” Watson told AccountingWEB in California. The UK, meanwhile, is somewhere in the middle [see video below for more on this point].
Xero’s influence is a significant factor in the antipodean invasion. “They’re a very good marketing organisation,” explained Watson. “Their entry into the marketplace five years ago really educated the market and now we’re seeing Intuit starting to encourage accountants to be proactive and to look at the ecosystem of apps for each accounting system.
“There’s a huge shift happening.”

Posted on 5:39 AM | Categories: