Sometimes the terms "accountant" and "CPA" are used interchangeably. But while all CPAs are accountants, not all accountants are CPAs. If you're thinking of employing an accountant for your needs — whether it's for taxes, business, or your personal finances — it's important to know the difference between the two.
This article will describe the major differences between an accountant and a CPA, what kind of qualifications and education one needs to become a CPA, and which might be the best choice for your needs and budget when you're in the market for one.
Recently, I shared my reflections on 5 years of tax return filing with TaxAct. I am a big fan of their online platform but am tired of their dramatic increases in pricing in recent years. Their current pricing is $110 for federal and $55 per state (self-employed option). It's time for me to find something new!
After finishing up and filing our family's 2019 taxes two weeks ago, I've turned my attention to planning for 2020 taxes.
I like to run these planning calculations 2-4 times (~ March-April, Aug-Sep, and November) throughout each tax year for the following reasons:
Utilize/leverage the tax codes and loopholes as a path to building wealth.
Avoid tax penalties through underpayments (i.e. making sure I'm withholding sufficient amounts of federal and state income tax from my paychecks throughout the year).
Prevent surprises at 2020 tax return filing time by needing to pay large amounts of taxes due.
Prevent large over-payment of taxes, essentially providing the government with an interest-free loan until getting a tax refund almost a year later.
How’s everyone doing with filing their 2019 tax returns? Are you taking advantage of the increased time at home with coronavirus to get yours filed?
Even with the government’s postponement of the tax filing deadline, I went ahead and submitted our family’s 2019 tax return last weekend to get it checked off my list.
To be perfectly honest, our taxes are quite complex.
We have self-employed business income, W2 income, 1099-INT income, 1099-MISC income, 1099-DIV income, 1099-B income (usually), own a home, move between states, have HSAs/FSAs/dependent care FSAs, multiple investment accounts, own/buy/sell homes, and have kids. Just about the only things we don’t have are rental income properties, large donations to charity, and large health expenses.
Our Switch from Using an Accountant to TaxAct
Since 2015, I have been using the TaxAct online tax platform to collect, organize, and filing my return. I switched from using a brick-and-mortar accountant to TaxAct in the 2014-2015 time period because my accountant charged me 2.6x the filing fee from the prior year ($650 vs. $250) simply because I had moved in 2014 from Virginia to Colorado. I wasn’t very happy/satisfied with this response since I felt that I had to do >50% of the leg-work to collect my tax information into a tax organizer for the accountant, adding a 2nd state’s tax return isn’t that difficult since the bulk of the information has already been collected from the federal return, and I knew there were much less expensive options out there.
I’m Very Satisfied with the TaxAct Experience, But Why Do the Prices Go Up So Much Each Year?!?!?
Listed below are the TaxAct prep fees I’ve paid associated with filing my tax returns for the past five years:
2015: $35 (Self Employed Federal + Colorado State).
2016: $55 (Self Employed Federal + Colorado State).
2017: $64 (Self Employed Federal + Colorado State).
2018: $72 (Self Employed Federal + Colorado State).
2019: $177 (Self Employed Federal + Colorado State + North Carolina State).
$76 Self Employed Federal.
$55 per state.
I’m not sure what happened between 2018-2019, but it looks like their pricing almost doubled! Maybe it’s time to find a new tax prep software?
Now, It's Your Turn...
How do you all prepare/file your taxes? Have you found an affordable online platform that you can recommend?
Considering the opportunities you’d have for growing wealth by keeping more money throughout the year and investing it, is there ever a time when it would be okay to get a big tax refund? Maybe. Consider the following scenarios....
Tax filing preparation help can be expensive. Luckily, if you don’t want to pay someone hundreds of dollars to do your taxes, you do have other options. Check out the four cheap tax preparation options in this post for getting your taxes done at little or no cost to you...
The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy!
Perhaps from the moment you left home you have been struggling with all your might to become financially independent. Maybe you worked hard, saved well then became a real estate tycoon by buying one rental home at a time until now you own multiple apartments. Or perhaps you started a small, but very relevant web site that grew and grew until it started drawing the big bucks. Or maybe you inherited some money from dear old Grandpa George, invested it and made it grow.
Now you have an unfamiliar problem. Too much money, too many assets. You don’t want your kids to have to start all over again, but how do you get the wealth to them without it being decimated by taxes?
Taxes can take a big bite, especially in the US – even now that the annual US Federal estate taxes don’t kick in until you have at least $5.49 million. But, some states do still charge estate taxes. The inheritor does not pay these estate taxes, the estate of the deceased person does.
Laws can change rapidly, the US national debt is huge, revenue has to come from somewhere to pay it off. Estate tax laws may become much less favorable in the future. It pays to be alert to possible inroads to your hard earned money.
Back in 1996, when Mom died in the US, her estate was worth around $700,000 (which would be a bit over a million dollars in 2016). It had to pay $80,000 ($122,375 in 2016 dollars) in estate taxes. She and Dad worked hard for those dollars and would have been appalled if they had realized the government would get them on their deaths.
Your IRA can be a double whammy after you die. It gets counted as part of that $5.49 million, your beneficiaries may have to take all the funds out within 5 years of your death AND the distributions get added to their taxable income, probably raising their income taxes significantly.
Canadian laws might be a bit more favorable. According to Canada Inheritance Tax Laws & Information:
“Non-registered capital assets are considered to have been sold for fair market value immediately prior to death. Any resulting capital gains are 50% taxable and added to all other income of the deceased on their final return where income tax will be calculated at the applicable personal income tax rates. They are taxed at the applicable capital gains tax rates.
The fair market value of a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF) is included in the deceased person’s income and taxed at the regular applicable personal income tax rates with no special treatment for any capital gains earned within the RRSP or RRIF.”
In other words, Canadians aren’t taxed on the entire worth of their assets, just the capital gains.
Currently in the US, there are several ways to avoid being taxed on your hard earned dollars. Some of them apply in Canada as well.
Make annual gifts.
In the US, each person can give cash or assets valued up to a certain amount (which changes each year to account for inflation) to as many people as they want. A husband and wife can each give up to that amount. In 2017, the amount is $14,000 per giver to EACH person they give to. If a person gives over that amount in one year, it is added to a lifetime gift/estate take exclusion amount. Anything left in the estate over the exclusion amount is subject to estate taxes on death.
In Canada, each person can give unlimited cash to as many people as they want. There really isn’t a ‘gift tax’ per se.
Of course, you can’t read the future, so you have to balance the desire to avoid taxation with the potential for your future need for that money. You should make sure you have enough to care for yourself before giving any away!
Instead of cash, in the US, a person can give assets, including shares in a business. Establishing a family limited liability company (LLC) is one way to pass along highly valued real assets (such as a vacation home), over time, without too much hassle. The vacation home is titled in the name of the LLC. The operating agreement of the LLC is set up to designate a manager-member type arrangement so that the original owners retain control. Then the original owners (which probably are the parents) can gift shares in the LLC to the members, and may be able to do so at a discounted price (since LLC member shares are not as liquid as cash). This results in the possibility of gifting assets actually worth more than $14,000 in one year to one member.
This passing of interest in the LLC from original owner to members can continue over time until the majority of shares are owned by members. This strategy gets that vacation home out of your estate and into your heirs without taxation. This same concept can also be used for more liquid assets, if desired.
Open a Roth IRA or Tax Free Savings Account.
In the US, people can establish a Roth Individual Retirement Account (IRA) and contribute certain amounts to it (which decline by income levels). In Canada the Tax Free Savings Account (TFSA) is a similar vehicle.
Both provide for tax free earnings and withdrawal from the account tax free.
Soon to be changed laws in the US allowed beneficiaries of an inherited ROTH IRA to keep funds in it, withdrawing over their expected lifetime, so that the funds continued to grow tax free. Some called this concept a STRETCH IRA – because the tax free status is stretched over multiple lifetimes. In Canada, any income following death is taxed as ordinary income.
Pay for College.
Since Canadians aren’t limited in the amount of cash they can give, this one really only applies in the US.
If you are wanting to pass along family wealth to the kids or grand-kids without using any part of the gift or estate tax exclusion amounts, you can directly pay for medial or college expenses. You have to write the check out to the institution though and not to your child or grandchild to give to the institution. It is important to note that this only applies to payment of tuition, not room or board or books, etc.
There are other, more complex ways of passing assets tax free (or tax reduced) to your heirs. Estate planning is a complex topic and you should consult someone who knows the laws applicable to you and is familiar with your own situation before making decisions on what you should do. This is especially true for those folks who have assets both at home and in other countries.
How about you all? Do you have other tax free ideas to pass on the family wealth?
The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
It can be a real panic situation if you can’t pay your income taxes. But even if you can’t, panic is an emotion that you need to resist. The IRS offers a number of ways to pay your income taxes, so the best strategy is always to take positive action.
File Your Income Tax Return By the Due Date
If you can’t pay your income tax bill, at least make sure that you file your income tax return when it is due. This will start the process that will enable you to make a payment arrangement with the IRS.
It will also reduce the amount of penalties and interest that you will ultimately have to pay. That’s important, because the penalties for late filing your tax return – or not filing it at all – can actually be more severe than what they are for late payment of income tax.
File for an Extension of Time to Pay Your Tax Bill
If you have ever filed an extension to file your income tax, you may be surprised to learn that there is also an extension available to pay your income taxes, if the non-payment is due to temporary factors. If you don’t have the money to pay now, but you expect that you will a few weeks or months, this is a good strategy.
The extension to pay will get you up to 120 days to make a full payment. Just remember that you must file your income tax on time in order to begin this process.
You can make the request for an extension of time to pay by calling the IRS directly at 800–829–1040 (there are no forms for you to complete). Using this payment option you will not have to pay any type of upfront fee, but interest and penalties will be assessed on the unpaid tax balance until it is fully paid.
Set Up an Installment Agreement
If you have a larger tax liability, one that you will be unable to pay within 120 days, you can set up an installment agreement. The IRS will allow you to set up a payment agreement that will extend as long as 72 months (6 years), and require equal monthly payments until the liability is completely paid. Penalties and interest are added to the amount of your tax liability due and there is a small setup fee ($50 to $120) to initiate the process.
You can use this method for a tax liability up to $50,000, however you may be required to submit personal financial statements in the event that the balance due is higher than $25,000.
There are three ways that you can set up an installment agreement:
Contact the IRS by phone, again at 800-829-1040, or by calling 800-829-4933 if the liability is for a business tax return
Complete an Installment Agreement Request, and mail it in to the IRS
Here’s the general sequence involved in requesting an installment plan:
You can complete and file Form 9465, or a written request for a payment plan (include all details of the plan, including the monthly payment amount and due date) and attach either form to the front of your return.
If you have filed your tax return, and the IRS hasn’t contacted you with a bill, you can request a pre-assessment installment agreement on current tax liabilities.
If you received a bill from the IRS you can request an installment agreement using the Online Payment Agreement Application, or you can submit Form 9465 or attach a written request for a payment plan to the front of your tax bill and return it to the IRS.
You can also request an installment agreement by calling the toll-free number on your bill or if you do not have a bill, call the IRS at the phone numbers listed above.
Your installment agreement request will generally be processed within 30 days of your application or phone call.
The IRS provides several payment methods, including:
Direct debit from your bank account;
Payroll deduction from your employer;
Payment via check or money order;
Payment by Electronic Federal Tax Payment System (EFTPS);
Payment by credit card via phone or Internet; or
Payment by Online Payment Agreement (OPA).
The IRS usually charges a $120 fee to set up a payment plan, but if you make your payments by direct debit, the fee is only $52. The fee for a request to restructure or reinstate an existing installment agreement is $50.
The amount of your monthly payments should be an amount that you are able to pay comfortably. If you can’t, you may be setting yourself up to default on the installment agreement, which will bring a host of complications. The IRS will allow you to request a specific monthly payment amount, as long as it is sufficient to satisfy your liability within 72 months.
There is also flexibility in regard to the date of the monthly payment. The IRS will allow you to choose a due date between the first and the 28th of each month. If you plan to submit payments by mail, it is recommended that you send them at least 10 days before the due date, that way they will arrive on time.
You can also use payroll deductions to make your monthly installment payments. This can be done by completing and submitting IRS Form 2159, Payroll Deduction Agreement. The form must be completed by your employer since it is an agreement between you and your employer.
Offer In Compromise
So far we’ve been talking about what to do when you actually have the ability to make installment payments. But what happens you can’t do that either?
The IRS offers a solution. It’s referred to as an offer in compromise, or OIC.
You can apply for an OIC if your inability to pay your tax liability is due to permanent financial difficulties, such as a business failure or job loss. The IRS doesn’t completely waive your tax liability, but they may agree to accept a reduced amount as full payment of the debt.
To receive consideration for an OIC you must make sure that all returns have been filed and that previous year’s tax liabilities have been paid. It’s important to understand however that you will not be eligible for an OIC if you’re in bankruptcy proceedings.
You can determine in advance if you are eligible for an OIC by checking out the IRS’s Offer In Compromise Pre-Qualifier. That won’t represent a formal request for an OIC, but it will help you to know if it is worth pursuing.
Be aware however that applying for an OIC can be a complicated process. You will almost certainly be better off hiring a CPA or tax attorney to handle the process for you, particularly if you have a substantial tax liability.
Using Non-IRS Sources
Applying for what are essentially debt arrangements with the IRS can be a complicated and intimidating process, particularly if you’ve never done it before. For that reason, you might be better off trying to cover your tax liability using other resources. You’ll still be in debt as a result, but at least you won’t be in debt to the IRS.
Sources you might consider to satisfy your tax liability include:
Credit cards
Home equity line of credit
Personal loans
Family sources
Selling a major asset or a group of assets
One common source of funds you may want to avoid is liquidating funds from retirement accounts. That may get you the funds you need to satisfy your tax liability, but it will generally result in additional taxes (and often penalties) due as a result of liquidating a tax-sheltered savings plan.
If you owe the IRS money that you can’t afford to pay right now, arrange to satisfy the debt either through an IRS plan, or through alternative resources. The worst strategy is to do nothing. Not only will that make the debt go even higher, but it could result in ugly collection efforts by the IRS that will hurt your credit and disrupt your income. Being proactive is always the best strategy with the IRS!
How about you all? Have you or someone you know ever been in a situation where you couldn’t pay your income taxes? How did you handle it?
The following is a post by MPFJ staff writer, Toi Williams, who is a professional personal finance blogger of Fine Tuned Finances. She has backgrounds in personal finance, sales, and real estate.
As the year draws to a close, there are still many opportunities available to lower 2015 income taxes. Taking these steps before the end of the year has the potential to lower your tax bill by hundreds or thousands of dollars, depending on your income. It is important to act fast since once the year is over, it will be too late to do much about your tax bill. Fortunately, there are no significant tax changes looming as 2015 winds down that could trip you up.
Here are some effective ways to lower 2015 income taxes before the end of the year.
Boost Retirement Plan Contributions
If you haven’t maxed out contributions to your 401(k) or 403(b) retirement plan, consider doing so before year-end to lower your taxable income. The maximum amount of money you can sock away in these plans this year is $18,000. If you are not already contributing to a workplace retirement plan, you may be able to reduce your 2015 income taxes considerably if you set up a 401(k) plan through your employer by December 31.
Minimize Adjusted Gross Income
Make your adjusted gross income for 2015 as low as possible by making pretax contributions to health, dependent-care or retirement plans. The 3.8 percent surtax on net investment income and the 0.9 percent Medicare surtax typically only applies when the adjusted gross income of a married couple exceeds $250,000 (or $200,000 for a single filer). Itemized deductions on Schedule A, such as for mortgage interest or charitable gifts, generally cannot be used to lower your adjusted gross income because these write-offs are taken after your adjusted gross income is calculated.
Maximize Your Deductions
You can lower 2015 income taxes considerably by taking everything that you can as an expense and making sure that deductible payments are made by the end of the year. Qualified expenses may include payments for rent, mortgage payments, phone bill payments, and car payments. If you pay your January 2016 mortgage bill in December, you can deduct that mortgage interest on your 2015 income taxes. Second mortgages, home equity loans and lines of credit can also be used for deductions, but those deductions are limited and depend on a number of factors
Don’t Neglect These Medical Deductions
Many people are surprised by the number of medical deductions allowed by the IRS. You are currently allowed to deduct unreimbursed medical costs that exceed 10 percent of your adjusted gross income (or that exceeds 7.5 percent for people 65 and older). In addition to doctor’s bills, hospital charges, and expenses for prescribed medical devices, you can also deduct a portion of assisted-living expenses, most skilled-nursing-home costs, and certain expenses for special education. IRS Publication 502 has the full list of qualified medical expenses.
Split Large Taxable Gains
Large taxable gains have the potential to raise your adjusted gross income into phase-out or surtax territory. You can split large taxable gains over two years by selling or donating shares this year. The resulting savings could be considerable for investors facing this choice.
Offset Capital Gains With Capital Losses
Tax-loss harvesting involves selling securities in your portfolio at a loss to offset capitals gains, thereby lessening or eliminating that tax burden. Before the end of the year, examine your taxable accounts for gains and losses that can be used to offset each other. Taxpayers are allowed to use realized capital losses to offset realized capital gains, plus $3,000 of ordinary income such as wages, annually. Taxpayers are also allowed to carry forward unused losses for use in the future.
Make Charitable Donations
You can lower 2015 income taxes by making charitable donations by year-end. These charitable donations can be in cash, in property, or in stock, according to current IRS rules. Donors who make a charitable donation of stock often get a deduction for the full market value of the shares while avoiding tax on capital gains.
Make A Tax Free Gift
Each taxpayer is allowed to make tax-free transfers of up to $14,000 annually to recipients. One partner of a married couple can make $28,000 in tax free gifts if the other partner doesn’t make any. Givers can typically take the full deduction for the gift in the year it is made. If the gift is made to a qualified 529 college-savings account, federal law allows givers to bundle five years of annual $14,000 gifts, or $70,000, in a single year.
Pay Estimated Taxes Before Year End
If your taxes aren’t withheld through payroll and you are paying estimated taxes, which are due each quarter, falling behind can result in interest charges and penalties. If you settle your tax debt in the last quarter of the year using IRA distributions, you can avoid paying any additional fees.
One Last Note:
If your taxes are complicated, you can benefit from talking to a tax professional who knows what they’re doing. These tax professionals can help you develop a strategy that fits with your overall financial plan while helping you lower 2015 income taxes. It is important to use someone who is familiar with the tax laws in your state, as state tax laws can vary considerably. Choose someone that comes highly recommended and who won’t charge you an arm and a leg for their advice.
How about you all? Have you tried any of these items and have been successful in lowering your income taxes? Do you have other tricks that have worked in the past?
The following post is by MPFJ staff writer Travis, who blogs at Enemy of Debt where he candidly shares his family’s financial struggles, failures and successes. As a father and husband, he provides a unique perspective on balancing debt, finances, and family.
This year’s tax deadline has passed, and unless you’ve got some extenuating circumstances your taxes are filed and either a refund has been deposited in your account, or you’ve written a check out to the IRS. Each year I do exactly the same thing after completing my tax return as required by the government.
First I breath a sigh of relief, then I start getting ready for next year’s tax return.
There’s no time to waste. Here’s nine things that should be done immediately to help make filing next year’s tax return as stress free as possible.
Change Your Withholdings
The first thing to be done is to analyze the results of this year’s return. If you underpaid or overpaid your taxes during the year, you may want to consider changing your tax withholdings with your employer to prevent the same outcome. Some people like getting a sizable tax return because it forces them to save money. That may seem like an interest free loan to the government, but it may actually be a great idea for people that have a hard time forcing themselves to save. The interest rate of a savings account these days is a fraction of a percent, so you’re not losing out on much interest accumulation. If you want a different outcome next year, change your withholdings now.
Label A Manilla Envelope
I keep all my important tax documents in a manilla envelope labeled with the tax year they pertain to. Right after filing my taxes for the previous year, I get a new envelope and write the next year in big numbers on the front. I then make a checklist of everything I need to prepare my tax return such as W2s, 1099s, charitable contribution statements, property tax statements and more.
Print a Physical Copy Of This Year’s Return
A physical copy of my tax return (federal and state) along with all the worksheets is printed and placed in the current year’s manilla envelope. I have an electronic version stored on my computer, and backed up to a USB drive as well. But I like to have a physical copy printed out and filed with all my other tax documentation. Electronic data loss happens, and your tax returns would be invaluable if you were ever audited.
Find Your Property Tax Statement
How a county handles property taxes may differ across the country, but in my area we have our property tax payment coupons for the year already at this point. I don’t actually need them since my mortgage holder takes care of payment, so I put the entire statement in the manilla envelope. Otherwise, it may end up hiding at the bottom of some drawer, or even accidentally thrown away. I can then check that item off on the front of the envelope.
Copy Your Vehicle Registration Receipt
In some states part or all of the yearly vehicle registration fee is tax deductible. My family has two vehicles, one of which we’ve already paid this year’s registration fee. I make a copy of the receipt, since the original should be kept in the vehicle, and put the copy in the envelope. Another item checked off the list!
Get Ready For Medical Receipts
I label a normal mailing envelope with the words, “Medical Receipts,” and put that into the larger manilla envelope. Receipts for each medical expense incurred throughout the year will be put into the envelope for possible use while doing our taxes next year.
Business Documentation
I label another envelope with the word, “Business” Since I’m a freelance writer, I have business expenses during the year that may be tax deductible. I also will put a copy of my monthly invoices into the envelope. Having a place to store them all together ensures I don’t have to hunt for them when tax season rolls around at the beginning of next year.
Additional Items
The Manilla envelope will serve as your central repository for tax documentation. If anything happens during the year that may affect my taxes, the documentation goes in this envelope. For example, if I sell, buy, or refinance a home, or liquidate some investments, the documentation goes immediately into this envelope, and it gets listed on the front.
File It
Take the envelopes from both this year and next year and file them away in your filing cabinet, your fire-proof safe,or wherever you store your important documents. Put them to place so you know where they’re at when you need to find them again.
You may not feel like worrying about next year’s taxes now, but it’s the perfect time to start when the items needed are fresh in your memory. These activities will take very little time, and will get you started on the road to a successful tax filing next year.
Happy Tax Season 2016, now you’re ready!
How about you all? Do you have any other tips or tricks that you use to help make your next years taxes easier?
Share your experiences by commenting below!
***Photo courtesy Robert Cochrane at FreeDigitalPhotos.net
The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy! 
The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, 
