Tax Help – What do you really need? Part 1 of 3 (or more)

• IRON100
• October 9th, 2009

I certainly realize that I have been shot-gunning topics in these first three weeks, but for now, since the final calendar quarter draws nigh and we must prepare for the end of the tax year, I figured it might not be a bad time to discuss the various forms of tax help you may need to 1) just GET your taxes done properly and 2) not cost you an arm and a leg (unless, as in some cases with my business, you at least need to pay a couple of fingers to assure that you stay out of trouble with the Internal Revenue Service).

I want to keep it simple at first and then build on it as the blog series progress. As most of you know, this is an American based blog, so I am only dealing with the Internal Revenue Service. I will not handle foreign taxes (save perhaps a discussion of American Depository Receipts somewhere down the road).

The individual has basically four choices in dealing with taxes:

1) Manage tax filing himself or herself. That starts by going to http://www.irs.gov to obtain the forms and instructions and getting with the process of filing income taxes.

2) One can purchase several of the off-the-shelf tax software programs that are available that ask you key tax questions and allow one to input the proper information, from which the tax calculations can be made. Also, as an alternative, one could purchase one of several tax help books which provide key information about changes in major tax law which might affect your return.

3) One can gather up one's essential tax data and head to a private or franchised tax preparation service.

4) As a final alternative, particularly if your returns are complex or you own a business, you may need to see a certified public accountant, a tax attorney or an enrolled agent.

A certified public accountant or C.P.A. as defined by www.investorwords.com is a "Professional accountant who has passed the uniform CPA examination administered by the American Institute Of Certified Public Accountants, and has fulfilled the educational and work related experience requirements for certification. The equivalent UK professional is a certified accountant." In common language, a CPA is familiar with business accounting systems, business auditing, cash flow analysis, and other issues that a business would need to follow in order to properly account for revenues and as a result, taxes.

A tax attorney deals specifically with tax laws and the business structures that can be utilized to minimize taxes legally. Basically, if you have a problem with regard to paying for taxes, a tax attorney can represent you in court and with the IRS in audits. Their purpose is to help, where possible, prepare proper business structures to legally minimize taxes, and to look for ways to minimize taxes.

An enrolled agent, according to the National Association of Enrolled Agents or NAEA (http://www.naea.org ) “is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals."  This specially authorized tax practitioner was established by the United States Congress in 1884, when losses caused by the American Civil War, were openly questioned in civil courts across the country.

Those look like wonderful definitions, but when does one use one practitioner, or tax software, over another practitioner or software? We will get into that in the next few posts (I think it can be done in three, but since I am the editor of this blog, I get to cheat and add on a post or two to this series). What one will find is that there are times when one should consult one of these practitioners and other times when one can to it all oneself.

There is more pertinent and interesting personal financial information in store for readers very soon. We have some fantastic stuff coming, and primarily because we have some of the most intelligent, selfless, and vastly experienced people in the StockTwits community who want to share their knowledge with others. How good is that, and how lucky are we?  You, ladies and gentleman of the StockTwits community and the vast reaches of the Internet, are about to find out.

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