Tax Preparation

Tax preparation act of preparing the filing of income tax returns. Tax preparation may be done by the filer, with the help of a licensed professional such as an attorney, with the help of a tax preparation business, or with the help of online services. The Internal Revenue Service does not have any requirement for licensing of tax preparers. However, IRS circular 230 prescribes regulations governing the practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers whose practice may involve representing taxpayer in front of the IRS.

Tax returns involve all the required paperwork that accompanies the remittance of taxes to the appropriate government agency, usually the Internal Revenue Service (IRS). The IRS issues more than 650 different forms for taxpayers to use in calculating and paying their taxes. Each form applies to a different situation. For example, Form 1065 details the income received by a business operating as a partnership, and Form 8826 relates to expenses claimed for business use of a home. Perhaps the most familiar type of tax form is the annual personal tax return, Form 1040, that must be completed by millions of taxpayers each year. Considering that the laws have undergone no fewer than seven major revisions in the past two decades, as well as numerous minor changes, it can be exceedingly difficult for small business owners to prepare their own tax returns. But, as Frederick W. Dailey noted in his book Tax Savvy for Small Business, "The average small business person can't afford to call a tax pro with every question." Fortunately, a great deal of information is available through other sources, such as IRS publications and help lines, self-help tax preparation guides and software, trade associations, periodicals, and online services.

It is important for small business owners to maintain a personal awareness of tax-related issues in order to save money. Even if they employ a professional bookkeeper or accountant, small business owners should keep careful tabs on their own tax preparation in order to take advantage of all possible opportunities for deductions and tax savings. "Whether or not you enlist the aid of an outsider, you should understand the basic provisions of the tax code," Albert B. Ellentuck wrote in the Laventhol and Horwath Small Business Tax Planning Guide. "Just as you would not turn over the management of your money to another person, you should not blindly allow someone else to take complete charge of your taxpaying responsibilities." In addition, as Dailey noted, "Tax knowledge has powerful profit potential. Knowing what the tax law has to offer can give you a far better bottom line than your competitors who don't bother to learn." The federal and state governments specify the deadlines for filing tax returns without incurring any additional interest or penalties for lateness. For most income taxpayers, the deadline of April 15 of the year following the close of the tax year for which the report is filed applies to both federal and many state returns. For persons who have made taxable gifts, the federal gift tax return is due annually on or before April 15 of the year following the tax year (as opposed to the former requirement of quarterly filing). For executors or administrators of estates that owe estate tax, a federal estate tax return must be filed within nine months of the date of death of the decedent. States may have comparable deadlines for gift and estate tax returns.