FAQ

An enrolled agent is a tax professional, licensed by the United States Department of the Treasury. Enrolled agents only specialize in tax and tax-related issues (unlike Certified Public Accountants). An enrolled agent can prepare your tax returns, and, if necessary, can also represent you in case of an IRS audit.

Because enrolled agents are so familiar with the tax code, they can also assist you with tax and financial planning. Usually, enrolled agents charge either by the hour or a fixed amount based on the complexity of the return.

Disclosing the details of your financial life to any outside party may seem invasive to you. You should feel confident, though, that enrolled agents, just like accountants and attorneys, safeguard your privacy and treat your personal information as strictly confidential. I may disclose it to an employee who I assign to work on your tax returns. Likewise, with your authorization, I may also discuss it with the IRS or your state’s tax department on your behalf.

I retain copies of returns that I have prepared, and any documents you’ve provided to me to help in my preparation; neither the returns nor the back-up documentation is ever provided to any third party without your express consent.

The choice of paying a preparer or doing it yourself is highly personal and based on several factors, including your personal comfort level with filling out the forms correctly, the complexity of your finances, and your understanding of federal and state tax law as it applies to your affairs.

If you choose to self-prepare your returns, you may opt to use the paper and pen method. Most common forms are available at any IRS office, at post offices and public libraries, and at many banks. If you’re thinking that your computer is the way to go, there are commercial software programs that you can purchase at any office supply or electronics store. If you meet the income requirements, there is also IRS FreeFile, which allows you access to many on-line tax preparation programs. Using FreeFile enables you to file your return electronically at no charge. To access this service, go on-line to www.irs.gov, and click on “FreeFile”.

If you feel your taxes are too complicated to prepare yourself, or if looking at a blank tax form makes you anxious, you’ll probably want to consider a professional preparer. Paying a professional to prepare your returns removes the burden of figuring out what belongs on what line, provided, of course, you supply all the pertinent information to your tax advisor. Any person you pay to prepare your tax returns must sign those returns on the “Paid Preparer” line, and if you are audited, you may choose to have that person represent you at the audit (provided he or she is an enrolled agent, an accountant or an attorney). Remember, though, that should you opt to have your tax advisor attend an audit with you, or go in your place, he or she will charge you for that service. Attending audits is an additional service that is provided, and is not included in the cost of preparing your taxes.

You may also want to use the services of a professional tax preparer to check your self-prepared returns. Most enrolled agents, accountants and attorneys are more than happy to review your returns with you before you file them. While you will be charged for this service, it is often worth the price, as the professional may pick up a deduction or credit you’ve missed, or find some other error on your return that is costing you money.

It’s difficult to mention every bit of information that might help your tax preparer disclose your annual income and expenses accurately to the IRS because everyone’s financial life is different; however, the following covers the basics.

Every year, you’ll need to provide your tax preparer with any W-2’s, 1099’s and 1098’s you may receive in the mail. You’ll also want to bring a copy of your real estate tax bill, and substantiation of your medical expenses and charitable contributions. If you’re a partner in a partnership, a trust or estate beneficiary, or an “S” Corporation shareholder, you’ll need to bring the Schedule K-1’s you receive from those entities, as well.

If you’ve sold investments such as stocks, bonds or real estate, try to find your records of when you bought that investment and what you paid for it before your meeting with your tax preparer. If you’ve sold real estate (including your principal residence), you’ll want to collect your records for all improvements and additions you’ve made to the property during the period you’ve owned it. A copy of the settlement sheet you received at the closing will also be extremely helpful.

Self-employed individuals should bring a profit/loss statement (it doesn’t have to be fancy, but something showing the income you earned, and all of your expenses really helps). And, if you have rental income or are receiving royalties because you’ve published a book or have other intellectual property that’s earning you income, you’ll want to include that information, too.

When you meet your new tax advisor for the first time, you should bring copies of last year’s tax returns (both federal and state), and your social security card (plus the social security cards for your spouse and any dependents you may have).

It’s always better to bring too much information to your meeting than too little; if you’re not certain if something is relevant, let your tax advisor make that determination. After all, you’re paying for his or her expertise.

Generally speaking, if financial information is pertinent to your tax returns, you need to keep it for at least three years from the date you file your return, or two years from the date you paid your taxes. This includes all W-2, 1099, 1098 and other “important tax information” documents you receive, as well as paid medical bills, charitable contribution records, casualty loss records, and so on.

In addition, you need to keep records indefinitely regarding the cost basis of property you own. If you own stocks and bonds, you should hang onto all trade confirmation slips or consolidated year-end brokerage statements that show all purchases and sales for the year. If you own your home or any other piece of real estate, you need to keep records not only of the purchase price of the property, but also the cost of every improvement or addition to it (and that includes all the cost of the perennials and shrubs you put in your garden). Whenever you receive a receipt, you should stash it in a separate folder. You may only destroy those records three years after you’ve completely disposed of the property.