Simple Tips On How To Find A Tax Preparation

Ways Lying On Your Tax Return Can Get You Into Trouble With the IRS

Other than a guilty conscience, what can happen if you lie on your tax return to get a bigger refund or owe less? The consequences fall into six categories.

1. The IRS can identify discrepancies on your return and send you a notice.

This is the simplest and normally mildest IRS response.

As the IRS processes your return, the IRS will automatically check for mismatches between your return and information the IRS has on file about you. The IRS gets this information every year from your employers, banks, and other third parties.

The IRS will flag any mismatches and may send you a “CP2000 notice” proposing more taxes.

2. The IRS can audit you.

The IRS has a formula for picking out returns to audit.

The IRS is more likely to audit certain types of tax returns – and people who lie on their returns can create mismatches or leave other clues that could result in an audit.

Audits can be costly and long. Individual taxpayers owe, on average, $9,500 in additional taxes (not including penalties and interest) in an audit. And complicated audits can last more than a year.

Audits can also lead to other consequences, especially if the IRS thinks you intentionally lied on your return. Those can include civil penalties of up to 75% of the taxes you owe.

3. You can lose tax credits in future years.

If the IRS audits your return and determines that you incorrectly claimed the Earned Income Credit (EIC), two things can happen:

  • You’ll have to pay back the EIC portion of your refund.
  • You may not be able to claim the EIC for two years – and maybe even 10 years if the IRS thinks you fraudulently took the credit.

4. You’ll be paying for professional help.

Any time you’re dealing with an IRS audit, penalties, or other significant tax problems, you’re probably going to need the services of a qualified professional.

While this is often money well-spent and can lessen some of the other consequences, the fees can add up for more complicated issues. Be sure to use a reputable professional. For civil (non-criminal) matters, you normally won’t need an attorney.

In most cases, an enrolled agent or CPA familiar with tax problem-solving can handle the situation, saving you time, money, and stress in the long run.

5. You could face civil penalties.

Penalties will vary based on how much your understated your tax. If you made a simple error and the IRS adjusted it, you might not have to pay any penalty.

Bigger understatements mean bigger consequences. In this case, the most common penalties are:

  • Negligence penalty: 20% of the additional tax
  • Fraud penalty: 75% of the additional tax due to fraud

6. In rare cases, the IRS can press criminal charges.

When the IRS identifies fraud, the IRS can pursue civil or criminal charges.

The IRS prosecutes relatively few cases each year – and they usually involve large omissions of income, tax evasion or tax protest schemes, or lying to the IRS in an audit.

In 2016, the IRS prosecuted slightly more than 1,000 taxpayers for tax crimes. The IRS takes these cases seriously, with average jail times of over three years.

You can get audited

Because the IRS gets all of the 1099s and W-2s you receive, they know if you do not report all of your income. Even if you accept unreported payments in cash or check, your financial activity can reveal red flags about what income you do not report, potentially triggering an audit.

An IRS audit is an extensive review of your taxes and financial records to ensure you reported everything accurately. Though most people have a less than 1% chance of being audited, it’s not worth the risk.

Undergoing an audit is a time-intensive and costly process that involves providing years of documentation and even in-person interviews. If the IRS audits you, you can (and probably should) hire a professional to represent you and your interests. While that’s a smart idea, it can be a pricey, unexpected cost.

While the IRS may have only flagged one return for audit, they can review any return from the past six years. If they find more issues, they can add penalties and fines for every year they find problems. If you made tax mistakes for the past several years, you could end up owing thousands for taxes you misrepresented.

How can you get more on your tax return legally?

Nobody likes owing money to the IRS at the end of the year or getting a miserly refund. However, tax fraud is a serious crime. Glossing over your income, boosting your deductions or any other form of “fudging numbers” is lying on your tax return, and that’s tax fraud.

That doesn’t mean you’re stuck with owing or receiving less than you desire. There are a number of legal ways to get a bigger tax refund.

Even if none of those avenues are open to you, it’s still better to tell the truth. Saving yourself a little money at filing time can end up costing you thousands of dollars. It may even land you in jail.

Save yourself the headache and report your information accurately and on time. And, make sure you know what you need to do to avoid common mistakes made on taxes.

Tips to Help You Choose a Tax Preparer

Many people hire a professional when it’s time to file their tax return. If you pay someone to prepare your federal income tax return, the IRS urges you to choose that person wisely. Even if you don’t prepare your own return, you’re still legally responsible for what is on it.

Here are ten tips to keep in mind when choosing a tax preparer:

  • Check the preparer’s qualifications.  All paid tax preparers are required to have a Preparer Tax Identification Number or PTIN. In addition to making sure they have a PTIN, ask the preparer if they belong to a professional organization and attend continuing education classes.
  • Check the preparer’s history.  Check with the Better Business Bureau to see if the preparer has a questionable history. Check for disciplinary actions and for the status of their licenses. For certified public accountants, check with the state board of accountancy. For attorneys, check with the state bar association. For enrolled agents, check with the IRS Office of Enrollment.
  • Ask about service fees.  Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can. Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account.
  • Ask to e-file your return.  Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically. IRS has safely processed more than 1.2 billion e-filed tax returns.
  • Make sure the preparer is available.  Make sure you’ll be able to contact the tax preparer after you file your return – even after the April 15 due date. This may be helpful in the event questions come up about your tax return.
  • Provide records and receipts.  Good preparers will ask to see your records and receipts. They’ll ask you questions to determine your total income, deductions, tax credits and other items. Do not use a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
  • Never sign a blank return.  Don’t use a tax preparer that asks you to sign a blank tax form.
  • Review your return before signing.  Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.

Things accounting students should know about becoming a tax preparer

Whether you’ve just declared your major or you’re months away from graduating, you have a host of strong career options as an accounting student. One career you should strongly consider is a professional tax preparer. Here’s what you should know.

Tax preparation can be a viable, profitable side hustle

Many students have the misconception that owning their own tax preparation business has to be a full-time venture. If your long-term goals include climbing the ranks at a public firm or one day landing a CFO position in a private industry, you may have never even considered tax preparation as an additional career path.

No matter your aspirations, professional tax preparation is flexible enough to be an additional source of income as you pursue your other career goals, making it an increasingly popular choice for millennials looking for a side hustle.

You don’t need to be a CPA to prepare taxes

Of course, not all accounting students plan to sit for the CPA exam. Even without a CPA license, an associate or bachelor’s degree in accounting will put you well on your way to becoming a qualified, knowledgeable tax professional.

You can further your career in tax preparation by pursuing other credentials like Enrolled Agent status or continuing education opportunities like the IRS Annual Filing Season Program.

You can start while you’re still in school

You can start making money as a professional tax preparer long before you have your accounting degree in hand.

To get started, you’ll need to apply for your PTIN (Preparer Tax Identification Number) and EFIN (Electronic Filing Identification Number) and register with your state. You can apply to work with established tax offices in your area or even opt to start your own practice immediately. While starting out on your own may be more challenging at first, you’ll have the foundation of a business that you can carry with you throughout college or the entirety of your career.