Q-1:

Subject: Question Please

Hi,

I am hoping you can help. I have 2 questions. My husband has a small house painting business, and it is formed as a C corporation. I work for an employer and receive a W-2. My husband's business tax preparer for 2005 said that my husband did not need to file personal income taxes since taxes are paid through his corporation. He did not get a salary from his corporation. Therefore, I filed my own personal income tax as married filing separately. Was this correct? I want to make sure we are filing correctly going forward and are not taxed at the highest level.

 

My other question involves the tax preparer himself. I noticed on my husband's 2005 tax form that the preparer had checked off the box where he states that he does not want to be contacted by the IRS in case of questions.  If he is paid to file the form, shouldn't he be willing to answer questions?

 

Thank you very much,

A-1:

You and your husband are either misunderstanding his tax pro, or that person is a block-head.

While the corporation does have to file its own income tax return and pay tax on any net taxable income, that in no way removes the requirement for your husband to file an individual income tax return.  While there are occasional exceptions, married couples are generally better off tax wise by filing joint tax returns  Many tax breaks are flat out not available when filing a separate return, as you did.

You didn't say what state you were in, but if you are in a community property state, your husband is attributed with having earned half of your income, even though he may not have taken a paycheck directly under his own name.  He would be breaking the law by not filing a tax return to report his half of community income.

You definitely need to consult with a tax pro to get this straightened out; most likely by filing an amended joint return to replace the separate one you erroneously filed. 

The Third Party Designee item on the bottom of the second page of the 1040 is actually quite worthless and a waste of space on the form, because IRS personnel routinely ignore it.  While it is technically a statement by you, the taxpayer, authorizing a third party (usually the preparer) to discuss the return with IRS, it means absolutely nothing in regard to actually being able to discuss a client's tax matters with IRS. 
Ever since that section was added to the 1040, I have always had my tax prep software mark it as YES.  In spite of that, IRS has never once acknowledged that as having any weight when I have tried to straighten matters out with them. They have always demanded an official Form 2848 Power of Attorney before actually speaking with me on a tax matter.  However, it do still continue to have that box marked as YES on every single tax return I prepare under the hope that the numb-nuts at IRS will eventually start to honor it as most states that have similar statements already do.

We can only speculate as to why your professional preparer has this box marked as NO.  Either he does this because he knows it means nothing, or it is an indication of his unwillingness to help out beyond the filing of the tax return itself.  If the latter is true, you definitely need to find a new tax pro because anyone who refuses to assist with the inevitable follow-up issues related to a tax return isn't enough of a full service tax pro to rely on.

I hope this helps.  Good luck. 

Kerry Kerstetter

Q-2:

Mr. Kerstetter,

 

Thank you very much for your prompt response. My husband and I do live in a community property state and he did not file personal income taxes last year. I filed mine as married filing separately. We definitely need to file an amended return.

 

Should I have any reservations for hiring a tax pro from another state?

 

I truly appreciate your help.

A-2:

If you check out my tips for selecting a tax pro, you'll see that choosing someone just because they are local is the absolute wrong way to approach that decision.  Experience and philosophy are much more important criteria.

If you do decide to work with an out of state tax pro, you do want to make sure that person is comfortable preparing out of state tax returns.  With the improved tax software available, this isn't as rare as it used to be  For example, back in my Bay Area practice, I had one CPA on my staff who would specialize in all of the non-California state  tax returns, which she would prepare by hand after we had finished the Federal and California returns because the Lacerte software wasn't able to handle those other states.  Nowadays, I am able to use my Lacerte programs to prepare every state that I need at the same time as the Federal and home state returns.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/17/2007 02:33:00 PM Send this post: