(1) NEVER file a fraudulent return.
As the former British Chancellor of the Exchequer Denis Healey said - “The difference between tax evasion and tax avoidance is the thickness of a prison wall”.
Tax avoidance is the lawful and ethical use of accepted procedures to reduce your tax liability. Tax evasion is a willful misrepresentation or concealment of information. Despite growing public acceptance of cheating on tax returns, reckless tax evasion is a very dangerous matter. There are many legal ways to reduce your tax liability – too many to risk your future with tax fraud.
Normally the IRS has 3 years to audit a tax return. If fraud can be proven the Service can go back and audit every return you have ever filed.
(2) NEVER pay a person to prepare your tax return who has not registered with the IRS and received a Preparer Tax Identification Number (PTIN).
And never use a preparer who will not sign the finished returns (if he/she refuses to sign you refuse to pay), or who charges a fee based on the amount of your refund.
(3) NEVER ignore a notice or correspondence from the Internal Revenue Service or a state tax agency.
If you receive a notice in the mail give it to your tax preparer immediately. If you prepared your own return and do not understand the notice consult a tax professional.
(4) NEVER assume that a notice or billing you receive from the Internal Revenue Service or a state tax agency is correct.
Do not automatically pay the balance due on a notice from the IRS or the state. More often than not the notice is wrong. To repeat - If you receive a notice in the mail give it to your tax preparer immediately. If you prepared your own return and do not understand the notice consult a tax professional.
(5) NEVER hold up filing your return, or an automatic extension request, by the April statutory deadline simply because you do not have the money to pay the tax you owe.
It is vitally important that you file your 1040 or 1040A, or 4868 extension application, by the April 15th deadline, even if you cannot pay all or any of the tax due on the return. Along the same lines, if you have requested an extension be sure to get your tax return in the mail by October 15th, again even if you cannot pay all or any of the tax due. The penalty for paying late is .5% (1/2 of 1%) of the tax due per month. The penalty for filing late is a full 5% of the tax due per month – 10 times more!
You will pay gourmet restaurant prices for fast food service and he pressured to purchase unnecessary additional products and services (actually the “products” and service at McDonald’s or Burger King are superior to those of these tax preparation chains).
(7) NEVER assume that just because a person has the initials CPA after his/her name that he/she knows his/her arse from a hole in the ground when it comes to preparing 1040s.
The only initials that have any bearing on 1040 competence and currency is “EA” – for Enrolled Agent (an EA is not an employee or representative of the IRS). And, when the regulation regime is finally phased in, “RTRP” – for Registered Tax Return Preparer.
There are many CPAs out there who are indeed competent and current in 1040 taxation, but unfortunately the IRS, allegedly due to some statutory prohibition, will not allow them to identify their skills by also being granted the initials RTRP. CPAs are exempt from the testing and continuing education requirements under the tax preparer regulation regime, and therefore will not be granted the status of RTRP.
(8) And perhaps the most important – NEVER accept tax advice from anyone other than a professional tax preparer.
Don’t listen to a broker, a banker, an insurance salesman, your neighbor, or your Uncle Charlie!
I am sure for the most part those who give you free tax advice are doing so out of a genuine desire to help you, and sincerely think they know what they are talking about. But most of the time they don’t.