Accounting professionals’ skills are critical for helping organizations and companies thrive. According to staffing agency Robert Half, these include advanced Excel ability, enterprise resource planning experience, and proficiency with business intelligence software. Tax credits reduce your income taxes on a dollar-for-dollar basis; some are even fully or partially refundable.
Professionals Tips To Maximizing Tax Credits
1. Tax Planning
Unlike tax deductions, which reduce your taxable income before calculating how much you owe, a tax credit directly lowers the amount of taxes you owe. An experienced accountant can help you maximize your tax credits by identifying and understanding all available federal and state programs. A common tax credit is the earned income credit, which helps working people with a low or moderate income. A qualified CPA can help determine whether you qualify for this credit and file on your behalf. Another common credit is the home energy efficiency tax credit, which can reduce energy bills and save money. The federal government offers tax incentives, including credits for research and development, renewable energy, manufacturing, exporting, and low-income or distressed communities. A qualified accounting professional can identify and claim these programs for businesses, ensuring they are getting the full benefit of their investment in innovation. They can also advise on strategies that lower business expenses, such as accelerating the timing of capital gains transactions and moving lease expenses. They can also assist in preparing and filing tax accounting method change requests as needed, determining the rules and deadlines for reporting changes to the IRS, and liaising with the IRS when necessary with professionals like ADP Compliance. These services can provide a significant return on investment for your business.
2. Tax Preparation
Most people think of tax preparation as a one-time event around tax time in January and April. The process includes visiting an accountant (CPA) to hand over any financial documents needed to prepare and sign your return. A CPA can also ensure that the reporting on your return complies with federal and state laws.
Many taxpayers may also be eligible for tax credits that can lower the amount of taxes they owe or increase their refund. These include the Earned Income Tax Credit for those with moderate to low incomes, the Child Tax Credit, and the Fuel Tax Credit for those who use an electric vehicle. You must file a tax return and meet certain eligibility requirements to qualify. For consumers seeking help filing their returns, working with an Enrolled Agent (EA) or a Certified Public Accountant (CPA) is the best option. EAs are federally-authorized practitioners specializing in tax preparation, have passed a comprehensive exam, and met education and experience requirements. CPAs can offer various services, including tax preparation, auditing, and business consulting. They often work in a professional office alongside other accounting and finance professionals, but they can also be self-employed and work from home or a remote location.
3. Tax Advice
Regarding tax credits, accountants can help with more than filing paperwork. They can explain what credit incentives may apply to your situation and advise how best to take advantage of them. They also work with individuals and businesses to plan for future taxes, such as advising on the benefits of investing in a 529 college savings account or an electric car. An accounting professional can also advise on which expenses are tax-deductible, such as home energy efficiency improvements. They can also help you determine eligibility for tax credits and exemptions, such as a medical expense or child care credit. An accountant’s duties may also include assisting clients with tax audits and appeals and providing guidance on mergers and acquisitions, employee benefit plans, and request for rulings from the IRS. Treasury Department Circular 230 regulates practice before the IRS, which restricts the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries. Tax consultants may also read tax law journals and attend seminars to keep up with the latest changes in the IRS code.
4. Tax Return Preparation
The process of filing taxes involves many forms and documents that can be confusing. A professional accountant can make the process much easier. They can also help maximize your tax credits by identifying and claiming them properly. Ideally, you should gather all the necessary documentation before your tax return’s due date. This includes your receipts and other records of deductible expenses. You should also have all the required tax forms, including W-2s and 1099s, for any employment-related income you received. If you have sold any property or vehicles in the past year, be sure to have all the paperwork for those transactions. You should know what fees your preparer will charge you upfront before they begin working on your return. These may include a fee for preparing your return, a fee for electronic filing, and a fee for direct deposit of your refund. Some professionals may even charge for consultations, audit assistance, and other services not necessarily required for filing. Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS and can assist with audits, payment/collection issues, and appeals.