Question

In a document of atleast 2 pages:

Explain a tax preparer’s professional responsibilities in tax return preparation related to gross income, adjusted gross income, and taxable income.

Describe how tax preparers demonstrate ethical behavior in the tax preparation process for their clients.

Identify recommendations a tax preparer would provide to clients in terms of planning ahead.

Explain what actions can be taken now to reduce their overall tax burden.Describe the different tax forms.

Explain when each type of form is most appropriate.

Answer 1

A tax preparer is a person who helps ans assists in calculating and filing income tax returns for a tax payer. He can at yes provide advice to the tax payer as to how can he gain a credit or return on income tax paid.

If we focus on gross income, it is the total income earned by an individual before any type of deductions (taxes).

If an individual has hired a tax preparer professional, his first responsibility is to collect all the important and required documents from the tax payer such as any salary slips and interest certificates or capital gain statements.

All these salary slips would help recognise the original gross income of the tax payer. The tax preparer has the duty to properly calculate the total gross income of the individual with the help of documents and information collected about the tax payer. He should go through all ducuments abiding by law.

Once the gross income is calculated for a particular financial year, it is easy to calculate the taxable amount to which the tax payer is liable. There is a bar set for every particular range of income in which their taxable amount is fixed. Individuals falling in respective bar range have to pay taxes accordingly.

This was about the responsibilities relating to gross income.

Coming to adjusted gross income, they are the gross income minus specific deductions. But we should not confuse them with taxable income.

These specific deductions include rental costs, carrying trade expenses, deductions on health saving accounts, etc.

While doing any business or any job a person may have incurred certain costs like businessman must have rented an area, or an equipment, same goes for a man doing job, he may have a health saving account on which deductions have been made. All these come under expenses paid by pax payer which needed to be deducted from the gross income.

A tax preparer should ask the tax payer to present papers and documents related to those expenses. It is his responsibility to make tax payer realise his adjusted gross income.

After getting the gross income, now the tax preparer should concentrate on calculating taxable income. For this he should minus personal allowances of tax payer from the adjusted gross income.

He should prepare and ready all documents relating to various personal allowances. After deducting those deductions, the tax preparer calculates the taxable income. While doing this, tax preparer should also deduct the various TDS paid by the tax payer on his income. Tax preparer should check the TDS certificate if they are properly maintained and what other documents are needed. After doing all these deductions, tax preparer should finalise the taxable income.

Now as per the law, the tax that should be paid by the tax payer is levied and should be exposed to tax payer by tax prepayer.

Ethical behavior demonstrated by tax preparer :

• They abide by the state and federal laws in accordance to the accounting process. A nationwide tax forum is launched that is to be attended by every tax preparer and professional so that they should be aware of the new changes being made and they apply these practically in their profession.
• The tax preparer always think of their clients benefits. They perform functions which would protect their clients from paying fines and penalties. They also make their clients understand the aspects to taxes.
• Each client has their own personal needs which they would try to fulfill. It's the duty of the tax preparer to do things ethically which would not violate any law.
• Tax preparer should keep in mind the privacy concern of their clients. The personal information shared with them nwednot be leaked outside which would harm the clients.
• The tax preparer always advice their clients what is right and ethical to be done. Involving in any type of fraud would be considered unethical.

These are the ethical behavior demonstrated by the tax preparer.

For planning ahead, a tax preparer should advice the clients to find all means from where his tax could be reduced by fair means which could be any source in which the tax payer has done investments. He should advice the tax Peter to finalise all the documents and make them ready before filing the ITR as they should be properly maintained as a proof for filing the ITR.

The professional should make sure that his Clint is not doing any unfair activity just to have more tax returns.

If planned properly and correctly client would be safe, otherwise if the client is caught doing any fraud, he would be charged with penalties.

Hence thees would be the recommendation from tax preparer to tax payer.

To reduce the the overall burden tax returns have to be filed properly.

The different types of tax forms are :

• Individual forms : This form is most appropriate for individuals and if joint payers then they must be dependent (form 1040EZ).For this theyir income should be below $100000 (form 1040 A)

• Fiduciary reporting : This is most adppropriate for non profit organisation, which provide public right to have information about the organizations. If any fraud conducted, the organisation is revoked with its tax exempt status for regular three years.
• Entity returns : This imposes rules on various forms of organization like trustees, partnership, coorporatives, and others.
• Employment taxes: This levies different quarterly tax returns of employees involved in various fields like federal tax returns or agricultural employees tax returns or unemployment tax returns.
• Transfer taxes : These are the tax returns on transfer of place of a decreased person or any gift taxes like transfer being done of ownership of property.

These were the different types of tax forms and their feild of appropriate use.