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Changes to expect in filing taxes for 2012

Here are some changes in the tax code and IRS expectations that could affect your filing this year.

I am numbers impaired. That's why the thought of doing taxes every year nauseates me. Our taxes are a little complicated, but my husband insists on saving some money and using some tax preparation software, which I find as unintuitive and incomprehensible as the IRS itself. I'm putting my foot down this year though.

But for those of you who do prepare your own taxes, I thought I'd prepare you for a few changes. First, the IRS has implemented some new guidelines for paid tax return preparers. From the IRS website, the changes will:

  • Require all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.
  • Require competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.
  • Require ongoing continuing professional education for all paid tax return preparers* except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.
  • Extend the ethical rules found in Treasury Department Circular 230 -- which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS -- to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.
*The required continuing education could cost upwards of $1,000. So if you pay to get your taxes done by a smaller entity, I'd say you can expect price increases.

If you're doing your own taxes, and may the force be with you, keep in mind some changes in the tax code from last year. According to a piece from Yahoo,

  • Business mileage rates for 2011 were changed mid-year, so when calculating your mileage for 2011 use the rate of 51 cents per mile for miles driven up to June 30, 2011, and 55 ½ cents per mile from July 1 to Dec. 31. Mileage rates for 2012 are as follows: 55 ½ cents per mile for business, 23 cents per mile for moving and medical, and 14 cents per mile for charitable purposes.
  • If you pay estimated tax payments throughout the year, the due date for your next quarterly installment for prepayment of 2011 income taxes is Tuesday, Jan. 17. Estimated tax payments for 2012 will be due on April 17, June 15, Sept. 17, and Jan. 15, 2013.
  • The self-employment health insurance deduction no longer offsets the self-employment tax. In 2010 only, self-employed workers were able to reduce the amount subject to self-employment tax on Schedule SE by the amount paid for health insurance premiums. You can still take the deduction on Form 1040 as an adjustment to income.

About

Toni Bowers is Managing Editor of TechRepublic and is the award-winning blogger of the Career Management blog. She has edited newsletters, books, and web sites pertaining to software, IT career, and IT management issues.

12 comments
cybershooters
cybershooters

...I always laugh when people complain how hard their taxes are to do, because personal returns for US residents are pretty easy, compared to say, doing an 1120 for a corporation, being a non-resident US citizen with 3520 filing obligations, being dual-status, dual resident, etc. One thing I will say is the biggest mistake I see people make with their tax returns is to use tax preparation software without having an understanding of how the tax system works. The first two or three times you do a tax return you should do it on paper, read the guide, etc. Yes you may make mistakes, yes you may not claim all the deductions and yes it may take you ages but at least you will understand it a lot better (a whole lot better than anyone at H&R Block for sure). So when software program X poses a question you will know how to answer it and what it means - because I have seen a whole lot of tax returns screwed up by software. In fact for my corporation next time I file I'm doing it all on paper. Or PDFs at any rate. Laziness and carelessness will cost you more in the long run. Frankly if you genuinely have a properly hard return, e.g. dual status, receiving income from foreign trust, blah, blah, and you can't do it yourself, you should be hiring a proper accounting company to help you, think KPMG not H&R Block.

Sul52
Sul52

You can expect smaller firms rates to go up due to increased costs, but the cost of IRS training at about a grand is not the reason (most firms are already doing CPE - Continuing Professional Education - to the tune of 2 to 3 grand per preparer anyway if they are keeping up on changes in the code, and keeping up on those changes is necessary if they are going to competently prepare them.) Now your fly-by-nighters will probably not be able to pass the competency tests anyway. But my guess is that they will work out a deal to get paid in cash and not sign the return. (paid perparers are required to e-file all returns too. even though there are advantages to the preparer in doing this, there is extra administrative time to check on all of the "handshaking" and acknowledgement process.) The real cost increase is the assumption of not just risk but the lost time in "compliance" visits by the IRS to the paid preparer's office. Some CPA's that have been visited have reported having to spend significant amount of time with the "examiners" who in many cases don't know what they want to look at or what to do with the documents they review anyway. (This program is still new and actually went into effect LAST year). Some have reported that there is no advance notice and they are expected to drop whatever they are doing and spend time with the examiners. Time spent not working means lost revenue and wasted overhead. There is also the risk of having to deal with penalties in case the copious amounts of information kept are not enough in the opinion of the examiner, despite keeping all of the legally required documents. (Happens a lot on IRS audits of taxpayers, and this division of the IRS will be no different.) So added lost time and added risk of financial loss = higher rates for returns. (BTW most CPA firms actually charge lower fees than some H&R Block offices - I've seen it when bringing in new clients from "chain" preparers). This examination process of the preparer also means the IRS can gather information on taxpayers that might have been confidential or privileged, without the taxpayers knowledge. So even though the IRS's "motive" is compliance, they will now have a way to look at YOUR tax information and decisions as to how to report your income or expenses without your knowledge. For CPA firms compliance has never been a serious issue as they are probably far more competent than any agents at the IRS. And the ethics requirement of Circ 230 are far below those of the CPA profession anyway. But firms like H&R and Liberty will probably have to increase their fee structures even more, since EVERY preparer that makes a determination as to the treatment or reporting of any item on the return (yes as simple as putting your W-2 wages in the wages block of 1040) has to be an approved preparer by the end of 2012 - return filed in 2013. H&R typically hires preparers in Nov gives them a couple of days (up to 10) training and releases them into the "wild". Licensing for first time licenses takes some time and must be done prior to Dec 31 each year. So more than anything you may begin to see a reduction in the number of preparers that can actually do returns starting next year unless H&R and some of the other "chains" are able to negotiate a way to fast track the paid preparer process. Anytime the government decides to "regulate" any activity (and this is no different) you can expect the cost to go up. This is no doubt just the beginning. As to maj37's comment that as long as you are using software doing your own taxes isn't that hard. No if you have a W-2, maybe some interest, and a few interest and tax deductions, by all means do it yourself. But if you have any significant investements, your own proprietorship (schedule C) or an LLC, or corp, you might want to at make a visit with a professional.

JohnMcGrew
JohnMcGrew

Perhaps then there'd be a real revolution.

maj37
maj37

Come on Toni, doing your taxes, especially if you use tax prep software, isn't that hard.

dhoffer
dhoffer

As an accountant with 35 years of tax experience, I appreciate your excellent explanation. I just want to add that there are individuals who spend the hours keeping up with changes in the tax laws who may do a good job doing their taxes themselves. Others find it too complex and need the services of a tax professional. However, the rest of the people who think they are saving money by doing it themselves may not realize that they would have done better with an accountant because they missed just one deduction or credit, reducing their refund possibly by thousands of dollars.

Sterling chip Camden
Sterling chip Camden

Every representative in Congress should be required to prepare the taxes for a hundred random constituents.

Sterling chip Camden
Sterling chip Camden

If you're running your own business and trying to take as many legal deductions as you can, you're probably better off with some professional help. I've done it both ways over my 20 years as a consultant and I definitely prefer letting someone else do it, especially if the IRS comes around later asking for an audit.

JohnMcGrew
JohnMcGrew

...that on April 15th, all congresspeople should be required to gather in the capitol rotunda and prepare their own taxes on their own in front of the people. They wouldn't be allowed to leave before finished. I wouldn't trust any one of them to prepare my taxes. They'd most likely opt for the "Let the IRS calculate your tax" box and be done with it.

Justin James
Justin James

... that I don't have issues doing it myself. I look forwards to the day where 1) it makes so much money that the opportunity costs offset the bill of a pro and 2) it is complicated enough to justify a pro. :D I've tried doing the ultimate deduction routine, it makes only a small dent at best for me. Last year, the difference between a home office deduction and none was less than $50, not enough to justify the audit risk IMHO. J.Ja

Sterling chip Camden
Sterling chip Camden

... if we also have a paid preparer do the return separately, and any difference in balance due comes out of the congresscritter's pocket?