Educators Tax Management, Inc.

Is your approach aggressive or conservative?

I will analyze all areas of the tax code to support your deductions. The attitude and position of the client are taken into consideration.

Will I get audited?

For most individuals there are two types of audits: 1) Correspondence Audit or 2) Desk Audit. More than 99% of audits are correspondence audits, which are done through the mail with the IRS. This is usually the result of incorrect income information (W-2 or 1099, 1098 etc.) that can get straightened out via mail. Very few of Kevin’s clients have ever had correspondence audits and the ones that have, had little or no change to their tax return. The desk audit is a face to face meeting with an IRS agent. This occurs in about 1 out of 554 people. Some of the reasons for this may be due to large under reporting of income or deductions that are too large in relation to income. Another way is that someone blows the whistle on an individual because they suspect the individual of engaging in fraudulent activity or just don’t like the person. None of my clients have ever had a desk audit.

Will a large increase in deductions trigger an audit?

The IRS compares individual tax returns to their industry group. Teachers, physicians, lawyers, policeman & firemen all belong to distinct industry groups and they are compared to each other. If a teacher takes large deductions for educational expenses this probably will not appear unusual to the IRS, however, if a garbage man takes the same educational expense deduction its more likely to raise a red flag. If the expenses are documented and deducted correctly it will not matter what your occupation is.

Isn’t my tax return fairly simple or straight forward?

The tax laws are always changing and evolving just as the fields of medicine, law, and education. Each year the number and kinds of deductions a person may take are always changing. Each year their may be new types of tax saving strategies. It is impossible for an individual to keep up with all these changing laws, regulations, tax court cases and revenue rulings.

Your W-4 and Tax Withholding

Your W-4 or withholding certificate is a very valuable tool that must be filled out properly and will effect the amount of your refund. The individuals that work in the payroll department, many times lack the necessary training or are not well supervised and this can lead to withholding errors. The withholding percentage should be compared to the effective tax rate, rather then the top tax bracket or the marginal rate. You want to be a little conservative on your withholding so you are not stuck with a tax bill in April. Just a little bit extra withholding each pay period can save you a lot of pain in April – especially if you and your spouse both do this.

How long should I keep records?

The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out. This is usually 3 years. However, the following situations you will need to keep records for more that 3 years:

1. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
2. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Why will my refund be larger with you?

The average tax refund for Kevin Donovan’s clients was:

• Married Filing Joint = $6121
• Single = $4989

This is normal for returning clients, however, new clients are amazed by the increase in the size of their refunds. This is due Kevin’s due diligence and expert knowledge of the tax code. Kevin spends countless hours each year tracking changes to the tax laws. Each of these tax returns can be supported by documentation and can defended in the unlikely event of an audit.

For many of my clients this is their best investment of the year!

Why is it so difficult to find a good tax accountant?

Most CPA’s work in areas of auditing (a completely different field from taxation) and if they do taxation its only on a part time basis. Kevin is an enrolled agent. This is a person who specializes in tax accounting. In addition to passing an 11 hour exam that is entirely focused on taxation, enrolled agents must take many hours of continuing professional education throughout the year in order to maintain their license. Kevin takes many hours above and beyond the minimum necessary.

Beware of Low Cost Tax Preparers

Picking the right tax accountant is probably the best investment that you will make. If you go to a tax chain (H&R Block or Jackson Hewitt etc.) many times you will only have a person with minimal training and low pay working on your tax return. Most of the time it will not be an Enrolled Agent or CPA who specializes in tax accounting. In addition you will also be paying more in order for them to cover their advertising, franchise fees and other office expenses.

Beware of Tax Software (i.e., TurboTax)

TurboTax is great for making sure that your math is correct. Don’t ask TurboTax to interpret any tax laws for you. Tax accounting is mostly law not math. Just ask Timothy Geithner, former Treasury Secretary how TurboTax did for him. If you are looking to save a few bucks on preparation fees then tax software is for you. However, the opportunity cost could be several thousand dollars in lost deductions, tax credits, tax sheltering and other tax saving strategies. This does not include the time and effort needed to figure out how the program works. This is time that you would probably rather spend with family and friends.

Will you assist me if I get audited?

Of course. More than 99% of audits can be avoided if the client has all his paper work in order when the return is first filed. Please retain all necessary documentation for your deductions, credits etc.

Can I rely on the IRS for tax advice?

No! The main purpose of the Internal Revenue Service is to collect revenue – not give it to you in the form of deductions, credits, exemptions etc. It has been reported that front line IRS personnel that answer the phone have gotten tax questions wrong more than 80% of the time. Even the IRS admits that they answer questions wrong more than 40% of the time. Despite this you, the taxpayer, are responsible for an accurate tax return.