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Confessions of a Tax Preparer

In addition to preparing and reviewing tax returns for our clients, I also help some friends and family members with their taxes. Some of them have W-2s, some of them have small businesses and have to file a Schedule C, some of them have investment portfolios, but the one thing they all have in common is that they sure do appreciate my help.

I don’t ask for anything in return - I figure that if I can do in a few minutes what it would take them hours or days to accomplish, I’m happy to make that trade-off. Plus, every so often, one of them will ask a tax question that is so out of left field, so outrageous, that it makes it all worthwhile.

You name it, I’ve had friends and family ask me if they can deduct it. Some people want to deduct clothes. Some people want to deduct magazine subscriptions. They all want to deduct their cell phone bills. When I ask if the expense in question is business-related, they shrug and mumble something about how it’s all semantics. When I tell them that I won’t put a personal, non-business expense on their tax return, they pout.

Way too many people have asked me how much they can report for charitable deductions without the IRS questioning it. My standard answer is “you can deduct the amount you actually gave to charity.” They don’t like that one.

I’ve had to give several friends an explanation of how self-employment taxes work, which is never fun. When they find out that in addition to federal and state income taxes, they also have to pay taxes for Social Security and Medicare, they’re outraged. When I explain to them that these taxes get paid for everyone who works, it’s just that employers have to pay half the tax on the employee’s behalf, they stare at me blankly. Then they pout.

Finally, when I’m done preparing their taxes, the moment of truth comes. They find out if they have a refund coming or (cue scary organ music) they owe the government money. If they have a refund coming, they’ll tell me that I’m a great tax preparer. I should be very proud of how great I am at my job! I try to explain to them that by overpaying originally and then getting a refund, they actually gave the government an interest-free loan. They roll their eyes. If they owe money, they look at me with sorrow and pity. They mumble something about how they appreciate that I tried my best, and they shuffle away.

These are some of the experiences I face each March. But where do these attitudes come from? Unfortunately, you don’t have to look far to find the answer.

With almost 60 percent of Americans choosing to pay someone else to do their taxes, tax preparation is big business. The thousands of pages of internal revenue code and associated regulations weigh in at over 1 million words. Many Americans, given the choice of familiarizing themselves with tax rules or delegating this responsibility, choose to delegate.

There are no education requirements or other hurdles to clear before you can offer your services as a tax preparer. While certified public accountants have earned a strong reputation in the tax field, we’ve all heard horror stories of unqualified tax preparers making costly mistakes with people’s tax returns. For every tax preparer like me, who says “You cannot deduct that,” there are other tax preparers who will say “Yes, you can.”

The Internal Revenue Service recently announced that it intends to start regulating the army of paid tax preparers in this country. Most preparers will be required to pass a “competency exam” and complete continuing education requirements each year.

The plan will take time to implement, and will not be in force until 2011. CPAs, attorneys and IRS enrolled agents will be exempted. As an IRS enrolled agent, these new regulations will not directly affect me, or the other CPAs and enrolled agents at Palisades Hudson Financial Group. But over the long run, it will probably lead to me hearing fewer silly questions.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 12, “Retirement Plans;” Chapter 15, “Investment Approaches and Philosophy;” and Chapter 19, “A Second Act: Starting a New Venture.”

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One Response to "Confessions of a Tax Preparer"

  • Ben Sullivan
    March 18, 2010 - 6:27 pm

    On the other hand, one of the parts I enjoy most about preparing taxes is stumbling upon the obscure tax rules that the IRS writes. This year I learned that, “You may be able to deduct as a charitable contribution the reasonable and necessary whaling expenses paid during the year in carrying out sanctioned whaling activities. The deduction is limited to $10,000 a year. To claim the deduction, you must be recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities.” I think rules like this may be generating some of your friends’ questions.