Time to Think About Filing Tax Returns

Today marks the official beginning of the tax-filing season as taxpayers begin receiving their 1040s and accompanying instructions. This year, with complex rules under tax reform, it’s even more important than usual to start preparing your return early.

While filing may be relatively easy for those with no itemized deductions, for others it could be a time-consuming headache. Some forms contain significant changes that require more time and record keeping, particularly affecting certain taxpayers with individual retirement accounts, home equity loans and income from tax shelters and real estate.

Also, the added complexity of tax reform could cause problems for those who wait too long to have their returns done by professional preparers. Many accounting firms, burdened with a higher workload due to the new rules, say they have been unable to add sufficient staff to handle the extra duties.

Accordingly, some accountants say that if their clients wait until late March or early April, they probably will not meet the April 15 filing deadline. Others will be choosier this year about taking new clients or simply won’t take new clients at all after the end of February.

“If you don’t have an accountant lined up by March 15, I would say that you aren’t going to find one this year,” says Robert A. Petersen, a Menlo Park accountant and immediate past president of the California Society of CPAs.

Someone Must Pay

Tax filing also may be more expensive this time, not only because of the added time involved. Many accountants have boosted their hourly fees, with some up 15% over last year, in part because of the added time in training to become familiar with the new law, said Melvin I. Poteshman, managing partner with the Los Angeles accounting firm of Levine, Cooper, Spiegel & Co.

“Somebody’s got to pay for all that training,” he said, adding that taxpayers should try to do as much document organizing work on their own before going in.

Of course, the perennial reason to file early still applies this season as well: Early filers get refunds back earlier. The Internal Revenue Service says those filing in January can expect a refund in four to six weeks. Those filing near April 15 can expect to wait as long as eight weeks.

Here are some tips to help make filing less taxing:

- If you need a professional tax preparer and don’t have one, start looking now. Ask friends or colleagues for referrals. Or contact national or local trade groups for recommendations.

If you have a relatively simple tax situation and don’t need tax planning advice, consider a tax preparation firm. H&R; Block, the largest, charges an average fee of about $50.

For more complex returns, consider certified public accountants, enrolled agents or tax attorneys. CPAs are required to pass state exams, but not all specialize in taxes--make sure yours does. Typical fees range from $50 an hour at local firms to as high as $200 an hour for partners at Big Eight firms.

Enrolled agents are tax specialists who must pass rigorous IRS exams. Typical fees range between $75 and $100 an hour. For referrals, call the National Assn. of Enrolled Agents at (800) 424-4339.

Tax attorneys, the most expensive alternative, generally should be used only if you have a complex change such as a divorce, sale of a business or tax dispute.

Some financial planners have expertise at filling out tax returns but generally are better at providing overall tax planning.

Interview several prospective tax preparers before picking one. Accountants, for example, aren’t terribly busy in January, so that will be a good time to interview some, says Petersen of the California Society of CPAs.

Possible questions: How does the preparer keeps abreast of tax laws and changes? Can the preparer be reached during the year, in case you are audited? Be wary that many practitioners may not be fully up to speed on the new tax laws.

For more questions and other pointers, get “Tips on Tax Preparers,” a booklet provided by the Council of Better Business Bureaus. It’s available by sending $1 and a self-addressed, stamped business envelope to the council at 1515 Wilson Blvd., Arlington, Va. 22209.

- Begin assembling records and calculating your deductions. Many accountants and other preparers provide checklists of deductions, records you will need and so on. Many will send you one even if you are not a client, Petersen says.

Those with travel and entertainment expenses, home equity loans or second mortgages, and so-called “passive” losses from limited partnerships or other investments are likely to need more records this time around, notes Terry L. Green, tax services manager in the Los Angeles office of IDS Financial Services.

- If you plan to see a preparer, do as much of the preliminary work as you can yourself. Instead of bringing your tax preparer all your receipts and other records in a shoe box, take the time to organize and add them up yourself. With the higher fees this year, “why pay your CPA to be your secretary?” accountant Poteshman says.

- Consider seeing your tax preparer even before you get your W-2 statements and other forms. Many taxpayers delay until they get their W-2s from employers, 1099s from banks and K-1s from partnerships. But many accountants can start working on your returns without them, says Charles H. Rosenblatt, tax partner at Roth, Bookstein & Zaslow, a Los Angeles accounting firm. They have computers that can easily recompute your tax based on new information.

- If you have children age 5 or older and plan to claim them as dependents, get Social Security numbers for them by April 15, as required by the IRS. Call your local Social Security Administration office for details on where to go and what documentation you will need.

- If you plan to do your own return, consider having a tax preparer review it to see if you missed anything, suggests William G. Brennan, a CPA and editor of Brennan Reports, a Valley Forge, Pa., tax newsletter.

- Call now for free booklets provided by the IRS. Call the IRS’ toll-free form-request line, (800) 424-FORM, and ask for Publication 920, “Explanation of the Tax Reform Act of 1986 for Individuals.” Ask for its companion, Publication 921, if you have a business. Also helpful is Publication 17, “Your Federal Income Tax for Individuals,” and Publication 910, “Guide to Free Tax Services.”

- Take advantage of free taxpayer-assistance services. For general questions, use the IRS’ toll-free taxpayer assistance line at (800) 424-1040. The IRS has added more staffers and phone lines and has instituted steps to improve this service following complaints last season of incomplete or inaccurate answers.

In Southern California, the lines are now open from 8 a.m. to 4:30 p.m. Monday through Friday. Starting Jan. 2, those hours will be extended to 7:30 a.m. to 8 p.m. Monday through Friday and 9 a.m. to 3 p.m. on Saturdays.

The IRS also provides a Tele-Tax telephone information service with recorded tapes on about 150 different tax topics. In Los Angeles it’s available at (213) 617-3177; elsewhere in Southern California, call (800) 554-4477. Code numbers for tapes are listed in the instructions accompanying your Form 1040.

If you are low-income, elderly, handicapped or non-English speaking, consider using the IRS’ Volunteer Income Tax Assistance service. Beginning about Feb. 1, volunteers--including accountants and other experts--will be available at churches, community centers, college campuses and elsewhere to answer questions.

Those age 60 and over, particularly those who are disabled, should consider using the Tax Counseling for the Elderly service provided by the IRS in conjunction with the American Assn. of Retired Persons. For disabled elderly persons, volunteers may make house calls.

For times and sites of these services, call the IRS (800) 424-1040 information number.