Tax preparation is the process of preparing tax returns to be filed with the IRS, state, or both, depending on which returns need to be filed. Most often, tax returns are filed with both and depend on which state an individual or business is located. Most tax preparation for both individuals and businesses is done by a professional tax preparer for a reasonable fee.
Tax preparation may be done by the taxpayer with or without the help of a professional, tax preparation software, or online filing services. Tax preparation may also be done by a licensed professional such as an attorney, certified public accountant (CPA), enrolled agent (EA), or by an unlicensed tax preparation business. Due to the fact that income tax laws in the United States are considered to be considerably complicated, under most scenarios, many taxpayers seek outside assistance with tax preparation.
In some states, licensing requirements exist for anyone who is involved with tax preparation for a fee – in many cases, this pertains simply to the individual state’s filing requirements.
It wasn’t until 2011 that the IRS mandated the requirement for national registration of paid tax return preparers in the United States. Therefore, effective January 1, 2011, new rules regarding tax preparation require the registration of almost all paid federal tax return preparers. These new tax preparation rules require that some paid preparers pass a national tax law exam and undergo continuing education requirements. Persons who are classified as certified public accountants (CPAs), enrolled agents (EAs) or attorneys are required to register but are not required to take the tax preparation exam and are not subject to continuing education requirements. CPAs and attorneys are licensed on a state-by-state basis, and are subject to state-mandated continuing education requirements to maintain their licenses.
For purposes of the registration requirement for certain tax preparation, the IRS defines a “tax return preparer” as “an individual who, for compensation, prepares all or substantially all of a federal tax return or claim for refund.”
All tax return preparers, including those involved in tax preparation that are attorneys, certified public accountants, or enrolled agents, are required to have a practitioner tax identification number (PTIN). This rule is effective for preparation of any federal tax returns after December 31, 2010.
Beginning in mid-2011, tax return preparers (other than CPAs, attorneys, and enrolled agents and a few others) have generally been required to take and pass a tax preparation competency test to officially become a registered tax return preparer.
Below are just some of the ways you can accomplish successful tax preparation with the IRS and your state:
Filing a Paper Tax Return
The IRS no longer mails out tax packages, however, you can still file your tax return on paper through the mail despite this being a more antiquated form of tax preparation. The processing time and chances for an error increase when you mail your return because data entry technician must enter it into the IRS computer system before processing. Just remember that you may be mailing your return to a different address than in the past because the IRS may have changed the filing location in several areas.
Electronic Tax Filing
IRS e-file is the electronic transmission of your tax return to the IRS. Many software packages and service providers allow free electronic filing of federal or state returns for all customers who pay for tax preparation. For a fee, some services may e-file a tax return that you prepared yourself. This is called a Transmit-Only Return.
Just remember, you must have a valid tax identification number, such as a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN), for every person included on the return to qualify for electronic filing.
When to File
Generally speaking, January 30, 2013 is the first date the IRS will accept and process tax returns for the 2013 tax season. April 15, 2013 is the due date for most taxpayers to file their 2012 income tax returns. It’s important to start your tax preparation early!
Paper Returns
Your paper tax return is considered filed on time if it is mailed in an envelope that is properly addressed and postmarked by the due date. If you send your return by registered mail, the date of the registration is the postmark date. The registration is evidence that the return was delivered and your tax preparation timing was successful. If you send a return by certified mail and have your receipt postmarked by a postal employee, the date on the receipt is the postmark date. The postmarked certified mail receipt is evidence that the return was delivered. That’s why its important that you work with a credibly and timely tax preparation firm.
If you use a private delivery service designated by the IRS to send your tax return, the postmark date generally is the date the private delivery service records in its database or marks on the mailing label. The private delivery service can tell you how to obtain written proof of this date.
e-Filed Tax Returns
If you e-file as your preferred method of tax preparation, your tax return is considered filed on time if the authorized electronic return transmitter postmarks the transmission by the due date. The electronic postmark is a record of when the authorized electronic return transmitter received the transmission of your electronically filed return on its host system. The date and time in your time zone controls whether your electronically filed return is timely.
Filing Late
If you do not complete your tax preparation on time or file your return by the due date, you may be subject to a failure-to-file penalty and interest. To avoid penalties and interest, it is recommended that you file for an extension by April 15.
If you are due a refund, but you did not file a tax return, you must file within three years from the date the return was originally due to obtain that refund.
All of the above are tax preparation solutions that Summit Horizon is more than happy to assist you with. In fact, we have an entire team strictly devoted to tax preparation as their core function. So, if you have found yourself in a hardship, have back tax returns that have gone unfiled, or an IRS collection action has been initiated against you, rest assured we are here to help. Call today for your free consultation!