Question for Fabs or Anyone else that knows!

[6.5s4ever]

This is an Off Topic question, but I need to settle an argument with my Mother In Law!,, Which is better to have for a small bussiness a CPA Accountant or a private independent Book keeper/ Acountant? She heard on TV and Lord knows if she heard it on the tube it has got to be the truth! That the Independent Accountant /Bookeeper is better for gettting your taxes done because they are Quote more aware of the latest tax laws than CPA's I told her she was misinformed and she had it backwards and she insist's it's the other way around. So am I right or wrong? Who would you want to represent you in an IRS audit a CPA or H&R Block??????

[fabsroman]

There are only three professionals that can represent you in front of the IRS. Those would be an attorney, a CPA, or an enrolled agent. An enrolled agent is somebody that passes the IRS's exam for tax preparation.

Mind you, any John Doe can prepare tax returns. That is, H&R Block can pick a bum off the street and have him preparing your tax returns tomorrow. Tax preparers are not required to pass any type of certification; however, the IRS is thinking about making an exam mandatory for new tax preparers.

On a side note, 5 Jackson Hewitt offices are being prosecuted by the Justice Department for preparing fraudulent tax returns. Also, from some new clients of mine I have heard that H&R Block is not deducting the same items this year as they did last year. One example is a car salesman client of mine. Last year, he complained to me that all of his coworkers were deducting their dry cleaning and suits through H&R Block, and I told him that the only way they could do that is if the clothing could not be used in normal daily activity outside of work (e.g., mechanic coveralls with the mechanic's name and shop logo, fireman's uniform, police uniform, etc). He responded that he only wears his suits to work and never uses them for anything else. My response was "Not Deductible" because they can and are normally worn for things other than work, and the standard isn't whether the taxpayer uses the clothing outside of work, but whether the clothing could be used outside of work. Well, this year H&R Block told all of his coworkers that they would not deduct the suits or dry cleaning this year. I had a LEO come to me this year that wanted to deduct haircuts and the cost of razor blades because his employer required him to be clean cut. Yeah, right. If that were the case everybody and their mother would be deducting all that stuff. His old preparer deducted that stuff for him and she also deducted the mileage for him to drive to and from work because the county did not give him a patrol car to take home since he lived outside of the county and she just didn't think it was fair. That preparer is none of the three above, and I know it because I looked her up. If she knew the law, she would know that the use of a patrol car is not considered income to the employee, and not included on the LEO's W-2 because it is being given to the LEO for the convenience of the employer (i.e., the employer has a police presence in the county whenever the LEO is driving around in the car). The guy wanted to deduct meals too, but there is specific case law pertaining to that too, and it is only allowed when the employer requires the LEO to eat at a specific place for the employer's convenience.

As far as I am concerned, the IRS should audit everybodys returns once every 5 years and require everybody to provide documentation for their deductions. Anything that cannot be documented should be dissallowed and charged interest and penalties. That should get rid of most of the $230 Billion tax gap between what people should pay and what they actually pay.

I also think Congress should do away with charitable deductions unless the deduction is greater than $500 and the taxpayer has proof.

Anyway, to answer your question, CPA's in Maryland are required to take 40 hours of Continuing Professional Education ("CPE") and I usually take most of it in tax prep. I also belong to a bunch of societies that send me newsletters about tax news. bookkeepers do not have this requirement. In the end, I would not recommend that somebody have their tax returns prepared by a bookkeeper over a CPA.

Maybe, just maybe, your mother in-law misunderstood them. CPA's are usually horrible at bookkeeping, so in some circumstances it is better to use a bookkeeper than a CPA to maintain your books. Me, I only do Quickbooks and Microsoft bookkeeping. If somebody is using a different system, I don't do it.

[hnter]

I use both.
We've businesses in 3 states + the wife works as a elder care specialist for the state.

I wouldn't Think of doing it any other way.
However, I don't like the idea of an automatic audit every 5 years unless the audits costs were 100% deductible. Including our time.

Hunter

[fabsroman]

Your time wouldn't be deductible, but the cost of your accountant would be and if you keep your records pretty orderly there wouldn't be much for you to do other than an initial interview unless problems crept up somewhere, and if there are problems I don't think anybody should be able to deduct their time to deal with them.

[TreeDoc]

Originally posted by fabsroman
As far as I am concerned, the IRS should audit everybodys returns once every 5 years and require everybody to provide documentation for their deductions. Anything that cannot be documented should be dissallowed and charged interest and penalties. That should get rid of most of the $230 Billion tax gap between what people should pay and what they actually pay.

Actually, it would be much better if we had a simple flat tax and eliminated the need for Tax Preparers completely.

[fabsroman]

I'll agree with that, but a flat tax is worse for the poor, and not necessarily good for business. With the flat tax, do we get rid of all the tax breaks like section 179 write offs of equipment for business or do we get rid of the writing off of business equipment completely? Do we get rid of the child tax credits? What about itemized deductions like mortgage interest, charitable contributions, medical expenses, unreimbursed employee expenses, real estate taxes, state income taxes, etc.

Most of the cheating I see is done on the schedule C or business returns. Most people with W2's done have much room to cheat except for charitable contributions and maybe some unreimbursed employee expenses. Since you own your own business TD, exactly how would this flat tax work? Would you still be able to deduct all your business expenses? If so, do you really think you could prepare your own return without a tax preparer. Or, are you suggesting that the flat tax be on gross income, and that it not take into account any business expenses? If so, it would seem to me that it would be much better to be a W2 employee.

See, people always have some great solution, but it isn't always that simple. People are always willing to throw out a flat tax or a sales tax in lieu of an income tax because they think it will be that much simpler, but it isn't.

I'll be the first to admit that the current tax code is insane. Sometimes, I get a headache reading this stuff myself and think how can the lay person actually understand any of this. Yep, it needs some reduction, but the question is where and how.