Frequently Asked Questions
During the conduct of our business, we are constantly asked questions about various tax and accounting issues. Listed below are some of the more frequently asked questions:
1. What is a CPA and are all CPA's really boring bean counters with thick, horn, rimmed glasses? (We thought we'd start out light-hearted.)
Are all CPA’s boring?
Certified public accountants (CPAs) function as independent auditors and act as advisors to individuals, businesses, financial institutions, nonprofit organizations, and government agencies on a wide range of finance and tax related matters. They are also employed as financial managers in industry and hold key positions at various levels in both government and education.
CPAs are professionals, distinguished from other accountants by stringent licensing requirements. They must have at least a college degree or its equivalent, pass a rigorous two-day national examination, and meet certain experience requirements to qualify for the CPA certificate and a state license. The American Institute of CPAs (AICPA) mandates continuing education for its members, and many states have similar requirements for CPAs to retain their licenses to practice.
In addition to meeting the profession’s technical requirements, CPAs are governed by a code of professional conduct — one of the most exacting of any profession. In 1988, the AICPA code of conduct was substantially revised to strengthen its provisions and to enhance the hallmarks of the profession: independence,objectivity, and integrity. The new code emphasizes the CPA’s commitment to serving and protecting the public interest.
Are all CPA’s boring?
To be honest, some are, but they don’t work here! But seriously, we believe that CPAs should be pro-active financial professionals who go beyond the basic tax and financial preparation tasks. In general, CPAs should be able to assist clients in financial planning and critical business decisions, not just tax preparation.
The information provided above is of a general nature. Persons accessing this information are advised to contact their tax and/or accounting professional for information specific to their situation.
2. How can I check on the status of my refund?
How can I check on the status of my refund?
Refund information does not become available until it has been 6 weeks since you filed your tax return (3 weeks if you filed electronically). After waiting the appropriate number of weeks, the fastest, easiest way to find out about your refund is to go to the Internal Revenue Service web site at www.irs.gov. Another option is to call the Automated Refund Service at 1-800-829-1954 or 1-800-829-4477.
Either way, be sure to have a copy of your return available since you will need to know the first social security number shown on the return, the filing status, and the exact whole dollar amount of your refund. The IRS updates refund information every seven days.
3. What is the number one tax planning strategy I should consider?
What is the number one tax planning strategy I should consider?
Maximum contribution to your retirement plan is the number one tax planning strategy. Timing of income and deductions is also widely used. Deferring income (either through qualified retirement plans or delayed billings) or “bunching” deductions (paying mortgage interest or two years of property taxes in one year) can produce favorable results if the situation is right. Of course, you should consult your tax professional to see if this strategy is appropriate for you.
4. I just completed my return and find that I owe the IRS money, What should I do?
I just completed my return and find that I owe the IRS money. What should I do?
You should file your return even if you can’t pay the entire amount you owe. File by April 15, and pay as much as possible. By filing on time, you avoid the late filing penalty. By paying as much of the amount you owe as possible. You reduce the amount of interest and later payment penalty that you will owe. The IRS does offer installment plans and now accepts credit card payments. But, you should be aware of the high fees and interest rates related to those types of payments.
5. Can I ask to make installment payments on the amount I owe?
Can I ask to make installment payments on the amount I owe?
Yes. If you cannot pay the full amount due with your return, you may ask to make monthly installment payments. However, you will be charged interest and a late payment penalty on the tax not paid by April 15, even if your request to pay in installments is granted. Before requesting an installment agreement, you should consider less costly alternatives, such as a bank loan.
6. What kind of penalties and interest will I be charged for paying and filing my taxes late?
What kind of penalties and interest will I be charged for paying and filing my taxes late?
Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.
In addition, if you filed on time but didn’t pay on time, you’ll generally have to pay a late payment penalty. This penalty is equal to one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, up to 25 percent. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy. If you owed tax and didn’t file on time, the penalty is even higher. The combined late-filing and late-payment penalty is five percent of the tax owed for each month, or part of a month, that your return was late, up to 25 percent. And if your return was over 60 days late, the minimum penalty is the smaller of $100 or 100 percent of the tax owed.
7. How long do I need to keep certain records?
How long do I need to keep certain records?
Records such as receipts, canceled checks, and other documents that prove an item of income or a deduction appearing on your return should be kept until the statute of limitations expires for that return. Usually this is 3 years from the date the return was due or filed, or 2 years from the date the tax was paid, whichever is later. There is no period of limitations if a return is false or fraudulent or when no return is filed. You should keep some records indefinitely, such as property records, since you may need them to prove the gain or loss if the property is sold.
8. What can I do to make sure I will not owe the IRS on my income tax return?
What can I do to make sure I will not owe the IRS on my income tax return?
You can either increase the amount of income tax withheld from your pay or make estimated tax payments for the year. You may change the amount of income tax withheld from your pay by filing a new Form W-4, Employee’s Withholding Allowance Certificate. Form 1040-ES, Estimated Tax for Individuals, has a worksheet to see if you need to make estimated tax payments.
9. If I won't be able to finish my return by April 15, can I get an extension?
If I won’t be able to finish my return by April 15, can I get an extension?
Yes. You can get an extension by filing Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by April 15th. By filing the extension, you avoid the late filing penalty. However, Form 4868 does not extend the time to pay your income tax.
10. How can a CPA help me, beyond preparation of my income taxes?
How can a CPA help me, beyond preparation of my income taxes?
There are important services that a closely held business and its principals need beyond income taxes. For instance, as a small business owner, have you thought about what happens to your business after you retire or pass away? You should have a plan! We call this process “business succession planning.” Preparing a business valuation is a valuable service we can provide in formulating a succession plan.
11. How can I choose a financial planner?
How can I choose a financial planner?
With the rise of the stock market in the 1990s, many people began offering “financial planning” services to the public. These services vary widely in scope and quality and there are many unqualified practitioners who merely hang a shingle or run a yellow page ad without being truly qualified to offer financial advice. Some of our clients have asked about financial planners and how to find a reputable one. Here are some things to consider:
Why do you need a financial planner?
The world of investments and personal finance has never been more complex. Small business owners, high income individuals and those wishing to save for specific long range goals may need help sorting through the complex choices they face. A financial planner can assist by looking at all aspects of your financial picture including:
- Insurance coverage
- Investments/money management
- College funding
- Retirement planning
- Estate planning