TAX TIME! Those two words strike fear in the hearts of many, but lucky for us we have an expert to help us through! Lynette Patterson, 30Second Mom contributor and CPA, kindly answers all of our tax questions ranging from basic to complex. She knows taxes inside and out having done taxes for businesses and individuals for more than 10 years. Lynette resides in the Pacific Northwest and is the author of the blog My Momism Moments. Check out her comprehensive interview below for great information!
Q: Do you do your own taxes or have a family member do them or hire a professional? Why?
A: I always say have a professional do your taxes, or at least review your work. If not every year, have a tax professional review every few years and especially when things change! Remember, tax law changes, even if your info doesn’t.
Q: If you hire a professional, what kinds of questions to do ask to make sure they know what they are doing?
A: Ask if they have any professional certifications. A professional certification, like a CPA, requires Continuing Professional Education (CPE) to stay current. Don’t be fooled by large chains. If they do not have a certification or continuing education, stay far far away. Ask if any of their clients have ever been audited. Ask how the process went and make sure you feel comfortable. Ask questions about your specific tax situation. If they don’t know it, don’t be afraid, especially if you have a unique situation. Be afraid if they don’t know how to research the question.
Q: What should I expect in and from a tax professional’s office?
A: Year-round support. If the tax office is only open during tax season, don’t use that service. If you get a letter from the IRS in June, without year round support, no one can help you. Sit with the licensed professional directly. Sometimes, tax professionals interview you, but only take notes. Watch them do the return. Some offices have unlicensed support during the season for data entry, make sure these are not the people working on your return. While watching the return, ask questions. Ask questions about your situation, the notations they are making etc. If they answer those questions confidently, it’s a good thing.
Q: What should I take when I see my tax professional?
A: A copy of anything marked “tax document” and personal information, e.g. DOB, SSN, Name as it appears on Social Security Card. Last statement for accounts, especially if they show a “year to date” amount on them. Short list: mortgage, investments, donations (church giving), retirement accounts, bank statements etc. Bring your prior year return, especially if you see new tax adviser. Information your prior adviser had will not be transferred electronically.
Q: What do I do if I forget something and I’ve already filed?
A: Don’t worry, it happens. Your tax adviser can help you file an amendment. You cannot wait and include the information in the next year’s return, each year stands alone. Your refund amount might change, and that can either leave you with money due or more money back. Whatever you do, DO NOT take a “wait and see” approach. Don’t forget to add the amendment to that years tax files. If the IRS catches the mistake and they usually do, you will owe penalties and fees on top of the original amount due.
Q: What’s the difference between an adjustment and a tax credit?
A: A tax adjustment is an adjustment to lower your income. You do not see a 1:1 return on this in your refund amount. A tax credit is usually much more advantageous. A tax credit will directly impact your tax liability. A tax liability is the amount you should have paid over the course of the year, not amount due at tax time. While a tax credit might not get you a refund, it can reduce the amount owed drastically.
Q: What is a refund?
A: Consider a refund the money returned to you after you have overpaid a bill. Imagine over paying your credit card, and letting the balance sit there. Eventually the credit card company will refund you the money. Conversely, a balance due means you didn’t pay enough of your bill during the year and now the balance is owing.
Q: How do we prepare for next year?
A: Keep a file folder with a notebook. Write questions in the notebook and file important papers that might have tax implications. With all my clients, I do a quick review and ask them what they expect to change in the upcoming year. I want to see if they should adjust or change their withholdings before things get too far into the year. I calculate an estimated amount for the following year at the end of most tax returns. That way the client can verify at the end of June withholdings are about half the expected amount. Just another reason to have a year round adviser. If you don’t want to do this yourself, your adviser can offer you a quick health check mid-year.
To find out more information and tips from Lynette, follow her on Twitter and check out her blog!