More people seem to be using twitter than ever and a higher percentage of Twitter use seems to be completely oriented at “give me your business”. Pure marketing with no level of personalization.

I have grown a bit weary of Twitter in the last year for a couple reasons. I have become cynical of those who follow me that show no personal side and only want to sell me on what they do. Come-on Twitter pros, like thousands of others don’t do this over Twitter already?

When I first started using twitter I did so to make connections with other professionals and share information. I wanted to also help grow my blog, you know the information part. I have learned a lot from those I have connected with on Twitter that share information with me. So why do I feel like I am just being spammed now?

Perhaps Twitter has become to big. First; don’t send me auto direct messages if I choose to follow you. I don’t want to deal with robots. Second; I look at your short bio. If it only tells me what you do for a living, I’m probably not interested. There are to many people on Twitter now. I don’t want to waste my time with people whose sole purpose is to strategically market “at me”. Yes, there are plenty of you telling me how you can get me more clients. How about asking who my clients are and if I want more clients… How about the people telling me they can show me how to network with CPAs… Obviously they are spamming me and haven’t noticed that I am a CPA. How does that look?

I am guilty as well, like auto-tweeting 2 bloggers. A little bit robotic? Sure.. But I do it because I have grown to respect what they write and want to help share it. That’s it. I am also following way to many people. How am I supposed to filter the garbage from the good information while following 1000 Twitter users?? I have even considered changing my @taxguycpa Twitter name to something that says more about me, but I recognize that I am still their to network professional and share information. My use has been a learning experience as well. And these are the things I have learned that I am sharing. Don’t take my critique as a way to put myself on a pedestal, because I have made Twitter mistakes as well.

If your trying to generate business from Twitter, fine. I get that. I think you will be much more effective doing so by creating actual relationships, not throwing mud against the wall and hoping some sticks. I follow people to create relationships, but have created about 20 out of 1000 people I have followed. That should tell me something.

After a couple years of Twitter use and some great relationships made with other professionals who are willing to help each other I can end this by saying, make it personal and put in real effort. Professionals like myself are a dime-a-dozen. It’s about who you are and being real to those around you. Otherwise, it’s not for me and it’s probably not for a lot of the people who want to be real and helpful. I wonder, do you feel differently?

If you haven’t received it, here is IRS Tax Tip 2012-15. A quick rundown of some parental tax benefits provided by the IRS.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.
1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.
Courtesy of the IRS

I’ll admit, I took the (Certified Financial Planner) CFP test a couple months ago without studying (no results yet). I took some brief time to look at the material but wasn’t able to study any of it in detail because I was very busy at the time, which I couldn’t control. I did intend on studying.. Now.. I have no intentions to manage money (RIA / Series 65 / Series 7 / 62 / whatever they are..),  I just have extensive and acute experience in estate planning, pension law and retirement taxation. I figured I would take the CFP or PFS test and see how I do. I marked every question .25 / .5  / .75 or 1 depending on my perceived probability of getting the questions right. I added them up and came right around what I heard is the typical pass line. It’s a curved, weighted system that I don’t really understand so it may have been in vain. I manually ran a quick standard deviation analysis and if I remember, I came out to a 64% chance that I am within 5% accuracy of my guess. That basically means the probability is 32% that I am between complete accuracy (0) and 5% over or 32% probability of being under (between 0 and -5%), with a 36% chance I am completely out of the range. So take from it what you will!  I was pretty conservative on the percent for each question, but it was fun to guess. To be honest I am not positive that 64% was the exact number anyways.

It’s obvious that the tax section was easier for me, because I own a tax practice.. We can probably agree on that. I found the retirement and estate planning sections to be fine, but overly subjective. That is more of a passion; connecting financial planning with taxation effectively for cleints. The insurance part was a bit more difficult for me than I anticipated. I am insurance licensed in multiple states. Some parts were easy and some parts I just flat-out didn’t know how to answer. Unfortunately, the Investment section is what killed me. The highest percentage of the test covers the Investment section and I was told it is weighted heavier than the others as well. So that doesn’t help.. ha ha. I don’t know how to run calculations using the Capital Asset Pricing Model etc…. I know the concepts, but I don’t mess with the math. That isn’t what I do. So I don’t anticipate passing after struggling on that. If I spent 50 hours on the Investment section I think I would be fine, without it I have to do extremely well in the other sections and will still show a deficiency in a section. So why did I take the test? I just wanted to. At some point I would like to market the PFS designation, but I thought it would be interesting to take the CFP test even if I couldn’t study in time. The next one is in March so I won’t be taking that. If I don’t pass I will probably take the PFS test during a time I know I can study sufficiently.

Conclusion of the test:

The test is much too subjective in my opinion. There are multiple ways to handle client situations and multiple variables that are difficult to quantify and different planners have different opinions. Some of the content seemed to basic, but that was the stuff I do for a living already. Being almost 2 months since I took the test I can’t think of an exact example, but I have enough experience to know when an answer can go either way and understand its subjective nature. This is the problem with financial problem in the first place and why many argue it is not a true science. Some think its a complete sham!

I don’t remember the CPA test being so subjective. The CPA test seemed much more finite and scientific. I felt like with the CPA test you know the stuff and can do the work or you can’t. I did find the CFP test difficulty was pretty significant. You can’t just jump on this test and pass it. If it’s your livelihood to pass, study your butt off because it is difficult. In comparison, the test itself was equal to between 1 and 2 CPA tests. The CPA license requires candidates to pass 4 separate tests. That is my opinion from taking both. Each CPA test cost me about 75 to 125 hours of studying depending on the content… This may be a skewed judgement, because I have experience on both ends now, so don’t throw your arms up if you are a CFP. =) I didn’t have the experience when I was testing for the CPA so maybe it seemed harder than it was. To pile on, the test was issued on a scantron which is absurd for a test of that nature in the year 2011. They also issued the test 2 hours late on the first day… Not a good experience and not impressive if I were to evaluate the designation based on the testing procedures I had a very poor experience. The state insurance test has a more professional environment than this test on this day did.

I will know in a couple weeks how close I came or if by miracle I passed with being so weak on the Investment section questions. Like I said, I have no interest in asset management but I know fundamental theories from self-studying and reading. I just don’t work on the “implementation” stage which is necessary for testing knowledge. Either way, I wouldn’t do any kind of asset management but everything else is fascinating to me.

If you don’t know what a CFP is or how to become one, I attached a piece below from Arbor Financial & Tax, PLLC, my tax firm in Arizona.

Tax Java

Tax Ignorance of the Historical Kind by MauledAgain

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION by The Wandering Tax Pro

Financial Java

Whats Your New Years Financial Resolution? by Christian Personal Finance

Analyzing the Perception of the “1 Percent” by My Journy to Millions

Taxation of Financial Products is Plagued by Inconsistency by Big Fat Finance Blog

Numbers everyone should know as they end the 2011 year.

2011 2010 Adoption Credit  Maximum credit $13,360 $13,170 Phaseout threshold amount $185,210 $182,520 Completed phaseout amount after $225,210 $222,520 Alternative Minimum Tax (AMT)  Maximum AMT exemption amount Married filing jointly or surviving spouse $74,450 $72,450 Single or head of household $48,450 $47,450 Married filing separately $37,225 $36,225  AMT income exemption phaseout threshold Married filing jointly or surviving spouse $150,000 $150,000 Single or head of household $112,500 $112,500 Married filing separately $75,000 $75,000 Charitable deductions:  Use of auto for charitable purposes (deductible standard mileage rate) $0.14 $0.14 Charitable fundraising contributions “insubstantial benefit” limitations:  Low-cost article (re: unrelated business income) $9.70 $9.60  Other insubstantial benefits (re: gifts to donor in return for contribution). Contribution is fully deductible if minimum contribution amount is met and cost of token gift does not exceed maximum. Token gift maximum cost $9.70 $9.60 Minimum contribution amount $48.50 $48  Charitable contribution is fully deductible if the benefit received by the donor doesn’t exceed the lesser of the threshold amount or 2% of the amount of the contribution Threshold amount $97 $96 Child tax credit  Maximum credit per qualifying child $1,000 $1,000  Phaseout– credit reduced by $50 for each $1,000 or fraction thereof of MAGI over: Single $75,000 $75,000 Married Filing Jointly $110,000 $110,000 Married Filing Separately $55,000 $55,000  Refundability — up to specified percentage of earned income in excess of specified amount Percentage 15% 15% Amount $3,000 $3,000 Classroom expenses of elementary and secondary school teachers (maximum above-the-line deduction) $250 $250 Earned income tax credit (EITC):  Excessive investment income limit (“disqualified income limit”) $3,150 $3,100  Maximum amount of EITC per number of children 0 children $464 $457 1 child $3,094 $3,050 2 children $5,112 $5,036 3 or more children $5,751 $5,666  Maximum amount of earned income on which EITC is based (earned income over this amount but under the threshold phaseout amount will not change the amount of the credit received) 0 children $6,070 $5,980 1 child $9,100 $8,970 2 or more children $12,780 $12,590  Threshold phaseout amount for joint filers per number of children 0 children $12,670 $12,490 1 child $21,770 $21,460 2 children $21,770 $21,460 3 or more children $21,770 $21,460  Threshold phaseout amount for other filers per number of children 0 children $7,590 $7,480 1 child $16,690 $16,450 2 children $16,690 $16,450 3 or more children $16,690 $16,450  Completed phaseout amount for joint filers per number of children 0 children $18,740 $18,470 1 child $41,132 $40,545 2 children $46,044 $45,373 3 or more children $49,078 $48,362  Completed phaseout amount for other filers per number of children 0 children $13,660 $13,460 1 child $36,052 $35,535 2 children $40,964 $40,363 3 or more children $43,998 $43,352 Expatriation  An individual with “average annual net income tax” of more than this amount for the five taxable years ending before his or her loss of citizenship is a covered expatriate for the purposes of IRC§877A(g)(1) $147,000 $145,000 *IRC§877A(3) exclusion amount $636,000 $627,000 Foreign earned income exclusion: $92,900 $91,500 Itemized Deductions  Itemized deductions threshold phaseout amount for MFS: N/A N/A  Itemized deductions threshold phaseout amount for all others: N/A N/A Kiddie tax:  Unearned income limit Amount exempt from tax $950 $950 Additional amount taxed at child’s rate $950 $950 Unearned income over this amount taxed at parent’s rate $1,900 $1,900  Election to include child’s income on parent’s return — child’s gross income requirement $950 – $9,500 $950 – $9,500  AMT exemption for child subject to kiddie tax: Lesser of $6,800 + child’s earned income or $48,450 Lesser of $6,700 + child’s earned income or $47,450 Making Work Pay tax credit Maximum credit         Filing status other than married filing jointly N/A Credit not extended, but related benefit provided by one-year 2% reduction in employee Social Security payroll taxes (also applies to self-employment tax of self-employed individuals) $400         Married filing jointly $800 Income phaseout: Other than married filing jointly         Phaseout threshold amount $75,000         Completed phaseout amount after $95,000 Income phaseout: Married filing jointly         Phaseout threshold amount $150,000         Completed phaseout amount after $190,000 Nanny tax (domestic employee coverage threshold) $1,700 $1,700 Personal exemption amount: $3,700 $3,650  Personal exemption amount for taxpayers with AGI exceeding maximum phaseout threshold N/A N/A  Married filing jointly Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A  Head of household Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A  Single Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A  Married filing separately Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A “Saver’s Credit” (Elective Deferrals and IRA Contributions by Certain Individuals)  Maximum credit amount $1,000 $1,000  Applicable percentage of 50% applies to AGI Joint Return $0 – $34,000 $0 – $33,500 Head of Household $0 – $25,500 $0 – $25,125 Other $0 – $17,000 $0 – $16,750  Applicable percentage of 20% applies to AGI Joint Return $34,001 – $36,500 $33,501 – $36,000 Head of Household $25,501 – $27,375 $25,126 – $27,000 Other $17,001 – $18,250 $16,751 – $18,000  Applicable percentage of 10% applies to AGI Joint Return $36,501 – $56,500 $36,001 – $55,500 Head of Household $27,376 – $42,375 $27,001 – $41,625 Other $18,251 – $28,250 $18,001 – $27,750  Applicable percentage of 0% applies to AGI Joint Return Over $56,500 Over $55,500 Head of Household Over $42,375 Over $41,625 Other Over $28,250 Over $27,750 Standard deductions:  Married filing jointly or surviving spouse $11,600 $11,400  Head of household $8,500 $8,400  Single $5,800 $5,700  Married filing separately $5,800 $5,700  Dependent Greater of $950, or $300 + earned income Greater of $950, or $300 + earned income  Additional deduction for aged or blind (single or head of household) $1,450 $1,400  Additional deduction for aged or blind (all other filing statuses) $1,150 $1,100  Additional standard deduction for state and local real property taxes (maximum additional deduction) Married filing jointly N/A N/A All other filing statuses N/A N/A Standard mileage rates:  Use of auto for business purposes (cents per mile) $0.51 $0.51 for first half of 2011 $0.555 for second half  Use of auto for medical purposes (cents per mile) $0.19 $0.19 for first half of 2011 $0.235 for second half  Use of auto for moving purposes (cents per mile) $0.19 $0.19 for first half of 2011 $0.235 for second half

Current E-File requirements

Every year more tax returns are filed electronically. It can help both the tax preparers and clients. Many times there are benefits like increased efficiency, immediate acceptance (usually) by the IRS and possibly faster refunds!

Every year it seems that e-file requirements change.

If you are an e-file provider you need to make sure you acquire your Electronic Filing Identification Number (EFIN). This can take awhile to process; so don’t procrastinate if you plan on e-filing for clients.

Starting on the first day of 2012, preparers who file 11 or more Federal 1040 or 1041 returns are required to use e-file for all the 1040 and 1041 returns. I wonder how that will affect clients who still don’t like to e-file? Clients can request an e-file waiver with Form 8944.Not many e-filers perform less than 11 tax returns. The previous year required more than 100. Also, if your income is $58,000 or less, the e-file is free.

How about E-organizers? Has anyone started using those? Instead of sending your client a big stack of paper with questions they fill out and mail back to you, they fill out an organizer online and send it back as a secure file. Some programs will take that data and automatically input it for the preparer, increasing efficiency and saving time. Anyone can input numbers into professional tax software and that is what this does for you. It is making adjustments to get the correct results that clients should be paying for!

Year-End Tax Planning: 10 Things to Keep in Mind

The window of opportunity for many tax-saving moves closes on December 31. So set aside some time to evaluate your tax situation now, while there’s still time to affect your bottom line for the current tax year.

Here are 10 things to consider as the curtain closes on 2011.

1. Deferring income to 2012 means postponing taxes

2. Paying deductible expenses sooner may help you in 2011

3. Income tax rates to remain the same in 2012 

5. IRA and retirement plan contributions

6. Special distribution requirements at age 70½

7. Depreciation and expense limits to drop for business owners and the self-employed 

8. Last chance to deduct energy-efficient home improvements

If you’re a client a full year end overview has been made available to you through Arbor Financial & Tax, PLLC. If you do not have the password you can request it by email. ArborNewsLetter2011

10. Get help

Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities, and can keep you apprised of any last-minute legislative changes.

Congratulations, your business is growing and you are thinking about hiring an employee! Many business owners make the mistake thinking the employee will only cost the business their wages/salary. Unfortunatley, employees come with additional hidden costs. The average estimate is that an employee will actually cost 25%-40% above their wages/salary amounts. As you think about hiring your next employee, here are some additional employment costs to consider:

• Payroll Taxes
  In addition to paying your employee their wages/salary, business owners are also responsible for paying employment taxes. On average, these employment taxes cost employers about 15% of an employee’s wages. Business owners are responsible for paying Social Security (6.2%), Medicare (1.45%), Federal & State Unemployment Insurance Tax (~2-6%), Workman’s Compensation Insurance (about 5%, but varies on your SIC code, employee responsibilities, salary, claims history, etc.), local payroll taxes (on occasion). All these taxes add up to cost the employer about an additional 15% of the employees wages. Therefore, an employee making $15/hour will cost the employer about $17-$18/hour.
• Paid Time Off
  To be a competitive employer, business owners also have to look at offering their employees paid time off benefits. These can include vacation, sick leave, personal time off, paid holidays, and paid breaks (as required by local & federal employment laws). The cost of these benefits typically depend on the employees wages/salary, the size of the business, their location, and the industry standard.
• Health & Dental Insurance
  Most employees expect to receive health benefits from their employers. It’s a wonderful benefit to offer employees, but can add a hefty price tag. Business owners need to consider the monthly premiums paid for their employees health insurance benefits. Some employers pay 100% of the monthly premium, while most employers pass along a portion of the cost to the employees. However, it’s typical for the employer to pay no less than at least 50% of the monthly premium.
• Retirement Savings Benefit
  Another consideration is whether or not you offer employees retirement savings plans, such as Simple IRA or 401(k). These plans are usually funded by the employee’s elective payroll deductions. But then the employer offers to match the employee’s contribution, up to a certain percentage. On average, this employer contribution costs employers 3-6% of the employee’s salary/wages. This does not keep in mind the cost of running and compliance for the retirement plan benefits.
• Overhead Costs
  If that’s not enough, there are also additional overhead costs employers must consider when hiring an employee. The employee will need a work space (computer, desk, chair, phone equipment, phone line, office space, etc). They will also use office supplies. New employees typically require training to get them up to speed on their new job duties. Perhaps your business will need to consider adding a HR department, hiring legal help to draft employment forms and handbooks, and keep up with changing employment laws. Your business will most likely decide to hire an outside payroll processing company to assist with paying your company’s employee(s), submitting payroll tax deposits to government agencies, and filing the appropriate payroll tax forms. Don’t forget about general business insurance premiums increasing. Other overhead costs to consider might include, but are not limited to, protective gear, uniforms, tools, additional fringe benefits, etc.

As you can see, there are quite a few additional costs to hiring an employee. Therefore, an employee hired at an annual salary of $35,000, will cost the employer at least $45,500, if not more. Or based on the example above, an employee paid an hourly wage of $15/hour, will cost the employer at least $20/hour, if not more. When you decide to hire an employee, it is very important to keep in mind the additional hidden costs. It’s also important to understand these additional costs vary based on the employee’s salary/wage amount, the size of the company, business location, SIC code, etc. Please contact your CPA or other financial adviser to help calculate the additional cost of the new employee for your specific business.

Helpful Resource:
IRS – Publication 15, Employer’s Tax Guide

New IRS Amnesty Program for Businesses

Last month, The Internal Revenue Service launched the Voluntary Worker Classification Settlement Program (VSCP). Under this new program, businesses who have misclassified their workers and avoided payroll taxes have an opportunity to reclassify contractors as employees and come into tax compliance.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Now that I have explained what VSCP is, I must say that I have serious reservations about this program. Donít forget the IRS is the most brutal collection agency on the planet and I encourage business owners to consult with a Certified Tax Resolution Specialist before you move on this.

Business owners who are confused about the difference between an employee and an independent contractor who are getting lured to go forward to the IRS without representation could end up paying additional payroll taxes unnecessarily.

The bottom line- this new initiative seems more like a marketing campaign by the IRS to collect more taxes than anything. However, if strategized properly, you may be able to enjoy the same great results compared with the IRSís offer in compromise program.

About the author: Michael Rozbruch is a recognized tax expert and the Founder and CEO of Tax Resolution Services, Co. To learn more visit,www.taxresolution.com

When I read about a topic consistently and it starts to make me think I will eventually want to blog about it. Usually I don’t, but an interesting conversation has been taking place for awhile in one of the CPA forums I follow. The conversation compares the Certified Public Accountant (CPA) and Enrolled Agent (EA) designation. The question that started it all was “what is the better designation to get?”. Before I go any further I will admit that I am biased. I am proud of being a CPA and I feel it brings me more value than the EA designation would have over the course of the my professional career thus far. I spent about 250 hours studying for the tests and I know people who have spent almost 400 hours. I went to school full time while working full time to acquire the required amount of credits above my already achieved accounting degree. I continue to work hard and so do my peers who are CPAs and EAs.

If I didn’t give it away in the title, that’s not actually the point. A designation proves you passed a test and maybe had a specific level of experience. By the way, some of most successful people I know are horrible at taking tests. Testing does not measure your ability to succeed in the “real world”. Just like a football team drafting a player that has physical skills but no desire. How do they measure desire?

When other professionals debate about the designations they almost all make their points by referring to the people they know behind the designations. Statements like “I have known good and bad CPAs and good and bad EAs” are common. Why? Because it comes down to you. You have to work hard and you need to do what best fits you so you can have the most success.

What does a CPA and an EA do?

The AICPA labels a CPAs scope or work by stating:

CPAs provide a wide range of services and are employed in public accounting and other professional services firms, business and industry, government and education. CPAs in public practice are engaged by their clients for a variety of services including accounting, auditing, tax, personal financial planning, technology consulting and business valuation. CPAs employed in business, industry and government are likewise responsible for activities from accounting and financial reporting, implementing and managing internal controls and information systems, to compliance with tax and other laws and regulations and other areas of business and financial management.

The IRS labels an EAs scope of work by stating:

What is an enrolled agent? An enrolled agent is a person who has earned the privilege of practicing, that is, representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before.

What does it take to be a CPA or an EA?

A potential CPA must have a bachelors degree (accounting in most states) with 150 total hours with a specific allocation to required upper and lower division accounting classes. You can read more here. State by state reference guide. A potential CPA must pass a 4-part exam within an 18-month period. A potential CPA must also have met experience requirements that vary by state. The test content is also listed here.

From my research I found that an EA has to complete an exam and have a required amount of experience. The exam has 3 parts. A lead to exam resources is here.The explanation of required experience is detailed in Circular 230. I am sure one of my EA friends will point out any requirements I missed if I in fact missed any.

The scope defined for a CPA is much more broad than an EA. Consequently it seems the requirements to become a CPA are more difficult to achieve as the knowledge base is wider. But there is a reason. EAs focus on completely on taxes and CPAs may or may not focus on taxes. If you are someone who only wants to do tax work an EA may be the smart choice. CPAs are more involved in financial accounting, industry and other areas such as financial planning. I know many people who are CPAs but they can’t prepare their own tax return. Not all CPAs are tax professionals. There is nothing wrong with that. I will also raise the point about designations and PTIN requirements and would suggest only exempting EAs from the testing requriements.

I am not speaking in comparison to push my choice of becoming a CPA, I want potential candidates to realize that their work and character will determine their level of success, not their designation. The same goes for attorneys, CFPs, CFAs and so forth. If you are thinking of becoming one or the other, do your research and figure out which fits you the best. Then… swing for the fences.

Tax Java

• Fact Checking the Fact Checkers via Tax Foundation
• HERMAN CAIN’S 9-9-9 PLAN via The Wandering Tax Pro
• Hobby or Business? It matters to the IRS via The Missouri Taxguy

Did you know that the Roth conversion rules expanded in 2010? There are no  longer limitations on who can convert their retirement account to a Roth IRA. Prior to the rule changes only individuals or couples with income under a specific threshold could convert their retirement accounts to Roth IRAs with the potential of growing tax-free. Additionally; for 2010 and 2010 only taxpayers received some relief on Roth conversion tax.

When converting to a Roth IRA the taxable portion of your IRA you converted is taxable as ordinary income for that year. So what is different about 2010? Roth IRA “converters” could choose to defer their conversion income over 2011 and 2012. The option allowed for a 50/50 percent deferral. For example, if Mr. husband or Mrs. wife converts one of their $100,000 Roth IRAs in 2010 he or she could choose to defer the income from the conversion until 2011 and 2012. This means that $50,000 would be recognized on their 2011 return, and $50,000 on their 2012 return. This opportunity can dramatically ease the tax burden for suitable taxpayers. This example assumes only one spouse converts their IRA.

With the new rules the 2010 incentive record amounts of people converted their eligible retirement accounts to Roth IRAs. That makes October 17th (the 2010 individual extension date) an important date.

Many taxpayers may have realized that converting their Roth IRA in 2010 was not a smart choice. The choice isn’t for everyone. Some have experienced massive dips in their IRA values because of the stock market. Luckily taxpayers are afforded a mulligan. If you have changed your mind about your Roth conversion you can choose to recharacterize it back to your traditional IRA or the eligible retirement plan the funds came from, but you must do so by the extension deadline of your income tax return for that year.

Deadline Explained:

• Provided the taxpayer timely filed their tax return for the applicable year, they receive an automatic 6-month extension. This automatic extension under Treas. Reg 301.9100-2(b) allows the taxpayer to take corrective action within the 6-months. Even if your original tax return was filed without an extension and you didn’t report the recharacterization you can amend your return to reflect the recharacterization. Confusion often leads taxpayers and professionals to pass up the “mulligan” because they filed their tax return without an extension by the normal April 15th (April 18th in 2010) deadline.
  •  This recharacterization election can’t be revoked!

Correction Action Explained:

• An individual must notify the trustees involved in the specific Roth conversion that they elected to there conversion as a recharacterization for the year. This is now treated as a contribution to the traditional IRA and not the Roth IRA. You should have some of the following information available:
  • Type, amount and specific year to recharacterize.
  • Date recharacterization occurred between trustees.
  • Name of trustees and any additional information they may require.
• An internal conversion that requires an internal recharacterization with only one trustee will simplify the process.
• For tax reporting, check the Form 8606 instructions. An attached statement is required with the tax return. Here is a sample of the instruction the IRS provides.“Attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2010, include the amount transferred from the Roth IRA on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. If the recharacterization occurred in 2011, report the amount transferred only in the attached statement, and not on your 2010 or 2011 tax return.”
• Remember, any earnings attributable to the amount converted will also need to be recharacterized. Make sure you don’t try and do this without a professional.

Some Reasons to Convert:

• Your account value dropped and you want to reconvert it at the lower amount when you become eligible again.
• You don’t have the money to pay your tax liability or the liability will be higher than you originally expected.
• You didn’t properly understand the rules or you no longer feel the conversion will benefit you. There are many income tax and estate tax considerations that can change for each individual.
• A Roth segragation strategy was used and some of the accounts dropped in value. This is a seperate strategy not discussed here.
• You fell victim to the accelerated income inclusion rules. An indivual expecting to only report 50% of their conversion income on their 2011 and 2012 tax returns can’t withdraw money from the newly converted amount or it is included as taxable conversion income in that year. That portion is no longer part of the 50/50 deferral.

There many reasons to change your mind and recharacterize your Roth IRA. Most of them fall under the third bullet-point. With the deadline looming, this is more than a “heads-up” deadline alert. 2010 was a massive Roth conversion year and many taxpayers may not realize they can change their minds before it is to late!

Personal Finance Java

• How to End Your Lease Early - Bargaineering
• Stock Market Schizo - Weakonomics
• Is It Possible People Are This Clueless About Their Cash Flow? - My Journey to Millions
• 8 Ways Football Fans Can Save Money -  Money Smart Life