Most tax professionals will tell you that when individuals file their own taxes, they tend to make some common mistakes. Below is a list of those mistakes everyone should avoid.

1. Not Paying Estimated Taxes:  Most self-employed people don’t understand the filing requirements regarding self-employment taxes, which means they end up not paying them and are hit with a huge tax bill at the end of the year, or are charged with penalties for not paying them in the first place. Income tax is basically pay as you go and anyone who is self-employed who doesn’t pay federal taxes by payroll wage deductions has to pay taxes by quarterly estimated taxes throughout the year. Self-employment taxes that are paid by estimated tax payments is the way self-employed people also pay into social security. So it’s important for self-employed people to understand their tax filing requirements and make sure they pay them in order to avoid expensive tax bills later.

2. Being Happy About Big Refunds: A big check from the government is often a good thing, but in a number of taxpayers’ circumstances, the check they get is really just the money they worked for during the year and allowed the government to hold on to, interest free. The only true refunds you will get from the government are refundable credits like the earned income credit or additional child tax credit. For refundable credits, the government lets you use them to lower your liability to zero and keep what is left over after the credit. With planning and management of their payroll withholdings, taxpayers can keep any extra withholdings and make adjustments so they can keep as much of their money as possible.

3. Making Early Withdrawals from Retirement Plans: With the economy the way it is, taxpayers are taking money from their retirement plans just to make ends meet. They don’t realize they have caused a taxable event that will cost them at tax time. If a taxpayer is under the age of 59 ½,  any withdrawal they make from a retirement plan will result in an early withdrawal penalty that is figured on the tax return. However, there are exceptions to this and taxpayers need to understand them to see if they qualify. Taxpayers think that by paying the withholding in terms of the tax they need to pay, but they don’t know there are penalties that come with making that withdrawal.

4. Thinking That a Tax Return is a Product, not a Service: Tax preparation is the service; the tax return is the result of that service. Taxpayers go into tax preparation offices asking for the least expensive tax preparation fees. This is the exact opposite of what they should be asking for when it comes to their finances. The tax professional should be proactive and help their client hold on to the best tax position they can throughout the year. Should they end up with a large tax liability, the client needs to talk to their tax professional to figure out the problem and work on keeping the problem form happening again. There is no substitute for a knowledgeable, professional tax preparer.

5. Not Asking Questions: It is important for taxpayers to understand that the amount on their tax return is what the IRS will hold the taxpayer responsible for once it is filed. If you don’t understand the numbers on your return, ask what they mean. A professional tax preparer will explain them to you. If it still doesn’t make sense, or you aren’t comfortable with the return, you can always talk to another tax preparer. Two prepares who are given the same information should have the same numbers on the return. However, certain tax laws allow for differences in interpretations. If they aren’t the same, there could be a problem.

Usually your best route as a taxpayer is to make sure you understand everything and actively listen to a reputable tax preparer. It could mean the difference between a large refund or owing penalties.

Daniel Stoica Accounting Professional

Every year the tax laws change, so keeping up-to-date and taking new certification courses is crucial and, very often, required. A list of some of the courses and what they entail is the subject here.

New IRS regulations require that all paid tax preparers obtain a PTIN (preparer tax identification number). Renewals for the 2012 tax season are likely to start in October of this year. Some tax preparers will need to pass a competency test and background check as well as take continuing education courses.

Current tax and accounting professionals already possess important educational and technical skills. Because they already posses the necessary skills, the objective of a continuing education program is to enhance and strengthen these skills and correspond with the level of professional ability of the tax preparer and accountant. 

PTIN Registrations and Basic Competency Exam: Registered preparers have three years to pass a basic competency test.  Beginning in the summer of 2011, the IRS updated basic competency exam will be available for tax and accounting professionals.

Continuing Education: All registered preparers will be required to complete 15 hours of continuing professional education annually to continue to practice.  The annual CPE must include: Ten hours of federal income tax; 3 hours of federal income tax update; and 2 hours of ethics.

The subject matter of the federal income tax course generally includes the basic concepts found in the Internal Revenue Code.  It will continue an exploration of “income”, in depth, and the difference between ordinary income and capital gains. It will also go into greater detail about the exclusions and deductions that can reduce a taxpayer’s income. The course will also prepare professionals for more in-depth research and how to resolve the new federal income tax issues in their practice.

In the federal income tax update, the course delves into the major provisions of new tax legislation, including, cases and regulations and their impact on individual taxpayers, businesses, investments and retirement plans. The main focus is on tax planning for investments, businesses and financial planning. Useful solutions to problems of the tax professional and comprehensive tax planning is be emphasized.

Everyone in every business setting knows that ethics are an important part of doing business, and for tax professional, that is no different. They are dealing with large sums of money and they are responsible for their clients’ finances. In the ethics course, the tax professional will learn ethical standards, whether employed in public, governmental, or private accounting. These principles are based on the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, which is the standard for all tax professionals. The course also explains the issues, developments and problems addressed by recent AICPA and SEC Ethics updates.

Just to be clear, the following types of programs do not meet the objective of continued certification:

Courses that help prepare for the Special Enrollment Examination (the test that individuals take when they first become a tax professional); basic tax courses tailored to the general public that a tax professional should already know; or programs not directly related to Federal taxes.

There is still time to register for the 2011 course. You can find the registration form at http://www.irs.gov/newsroom/article/0,,id=228266,00.html.

Daniel Stoica Accounting Professional