Tax Hacks 2015: 6 Things Sneaky Tax Preparers Won't Tell You
By Marilyn Lewis
It's sad. Many highly ethical tax professionals are working hard to help taxpayers, but tax season brings out fraudsters, scammers and plain vanilla take-advantage-of-you-while-your-guard-is-down types. It can be hard to tell the difference.
From fraud to incompetence to hinky tricks to outright ripoffs, the field of tax preparation is a magnet for some of the worst consumer abuses. In the video above, Money Talks News founder Stacy Johnson describes common tax-time schemes to part you from your money. After watching, read on to find out what the worst tax preparers won't tell you.
1. I'm incompetent and untrained. Tax preparation is a mostly unregulated field. According to The National Consumer Law Center, in a report called "Riddled Returns: How Errors and Fraud by Paid Tax Preparers Put Consumers at Risk and What States Can Do":
Preparers commit errors, misclassify taxpayers' filing status, mishandle tax credits and even falsify information on tax returns, the report says. These aren't just a few bad eggs, either. The problems involve "a significant percentage of the preparers tested," the report says.
There are no minimum educational, training, competency or other standards. In 47 states, there are more regulatory requirements for hairdressers than tax preparers.
It's no joke for taxpayers. "Consumers who select incompetent or unscrupulous preparers could face audits by the Internal Revenue Service or even criminal sanctions," a NCLC statement warns.
Stay safe with tax preparation experts who are:
- Licensed CPAs (certified public accountant).
- IRS enrolled agents.
- Trained volunteers with one of two programs, Volunteer Income Tax Assistance or AARP Tax Aide (details below).
- Have just one job.
- No major changes in your income or filing status last year.
- Own no property or investments.
- Can understand the tax laws.
- Are "a numbers person."
- Didn't marry, divorce, lose a spouse or have a child last year.
- Didn't start a new business.
- Aren't easily overwhelmed by money issues.
If you made less than $60,000 last year, you may use the IRS Free File tax prep software to prepare and file free of charge online. Free File uses electronic versions of IRS paper forms. You fill them out and file your taxes online. The software includes basic guidance only, however, so it's best used if you've done your own taxes before.
If your child goes to college full-time, you can still claim them -- and any education expenses -- until they're 24. Determining these situations accurately takes someone who is knowledgeable.
3. You shouldn't pay so much. It can be hard to comparison shop for tax preparation services because preparers may be unwilling to quote a price or, if they do, give inaccurate quotes, according to The National Consumer Law Center report. If you can't get a ballpark figure after describing your situation to a preparer, look for someone else.
It's easy to try and compare the many tax preparation software products offered for free or cheap online for federal taxes, says Consumer Reports. Most don't charge until you file your completed tax form, so CR recommends that you try programs and then close them before filing if you don't like the price they quote.
4. Don't click on those pop-ups. There's a cavalcade of free online tax preparation products, but they are free only if you ignore the options for upgrades. Stick with the no-frills versions of online products by turning a blind eye to pop-ups that offer enhanced services with fees attached.
5. You could get free help. Some tax preparers will take your money although they know full well you qualify for free tax prep services. Before paying for tax help, check the options.
- Free tax preparation is available from IRS-trained volunteers through VITA, Volunteer Income Tax Assistance. You qualify if you are older than 65 or make less than $53,000 a year. People with disabilities and limited English-speaking abilities are eligible, too. VITA volunteers help with basic state and federal tax returns. Use VITA's online locator tool to find help near you.
- The AARP Foundation's Tax-Aide program offers free tax help from IRS-trained volunteer for anyone, although it is focused especially on older Americans. Use AARP's online locator to find help near you or call 888-227-7669.
- For more free tax prep options, read Tax Hacks 2015: 8 Ways to Get Free Help Preparing Your Taxes.
If you file electronically, your tax preparer or tax preparation and filing software may suggest you purchase a bank product that typically sets up a temporary bank account to receive your income tax refund. Such bank products include, but are not limited to, refund anticipation loans, refund anticipation checks, gift cards and debit cards.
Federally regulated banks no longer make refund anticipation loans. But you'll find them elsewhere, writes USA Today, citing an example of a refund loan with 273 percent interest.
Here are safe ways to get your refund as quickly as possible:
- If you can't pay the tax prep fee. Instead of getting a refund anticipation check to cover your tax prep costs, see if you can use one of the many no-cost tax preparation options.
- If you don't have a bank account. If you e-file, you can get your refund loaded onto a prepaid card or payroll card, says CreditCards.com. Or consider Walmart's (WMT) new Direct2Cash tax refund service: Use a participating (non-electronic) tax-prep service (Walmart often has them in-store) and pick up your refund at a Walmart location after receiving a confirmation code in the mail. "Cash refunds will be available in roughly the same amount of time it takes for a direct deposit to show up in a filer's account," USA Today says. Walmart charges nothing, and the tax preparer can charge no more than $7 for the service.
- If you have a checking account. Have the IRS deposit your refund directly into it, saving you from waiting for the mail to deliver your check.
- If you just want the money fast. Also, U.S. News says that IRS data shows early filers get their returns in 21 days, on average, compared with longer waits for those who file later. Also, e-filing (filing electronically rather than sending a paper form by snail mail) puts your return in IRS hands faster.