Tax Preparation Services

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Tax preparation refers to the act of preparing a tax return, and includes both returns prepared by the individual tax payer, as well as those prepared by a professional third party, such as an accountant or attorney. Because of the complicated nature of American income tax laws, the majority of Americans pay a third party to prepare some or all of their tax return, though there are several options available for taxpayers who wish to prepare and file their own tax returns. As paying a third-party to prepare a tax return can be costly, depending on the service required, many software developers have created cost-effective programs that allow taxpayers to prepare and file their tax returns electronically. Some of the most popular tax preparation programs include TurboTax (www.turbotax.intuit.com), TaxACT (www.taxact.com), and H&R Block At Home (www.hrblock.com/online-tax-preparation/index.html). For individuals who earn less than $58,000 per year, the IRS has partnered with several tax preparation companies to offer a program called Free File, which provides free software to those who qualify. For individual taxpayers who earn more than $58,000 per year, the IRS provides a program called Free File Fillable Forms, which are electronic versions of the standard paper income tax return forms. Both the software and the fillable forms are available only through the IRS website (www.irs.gov/freefile).

National Registration

As of January 1, 2011, the IRS introduced new rules which require all types of federal tax returns not filed by a taxpayer be filed by a registered paid federal tax preparer. These rules require that the preparer pass an exam on national tax laws, and commit to fulfilling continuing education requirements. Certified Public Accountants (CPAs) and attorneys are not required to take the exam, but are required by their states to fulfil certain continuing education requirements in order to maintain their in-state professional designations. At the same time, a law came into effect that required all registered tax return preparers to have a practitioner tax identification number (PTIN). To obtain a PTIN, a potential practitioner must pass a competency test (excepting CPAs and attorneys). For practitioners who had a PTIN before testing became available in their area, they have until December 31, 2013 to pass the competency examination.

Elderly couple with accountant

Controversy

There are currently several controversies surrounding tax preparation in the United States. The software company Intuit, which produces the TurboTax tax preparation program, has lobbied strongly to prevent the IRS from creating an online filing service, while also attempting to kill an initiative in California entitled ReadyReturn, which makes it far easier for Californians with relatively easy returns to file, by sending them a draft of their tax returns and allowing them to accept the return or modify it and re-submit it. One of the other controversies that surrounds the industry is the sheer size of it. Americans are estimated to spend in excess of $100 billion per year to prepare their tax returns, and there are currently more tax preparers in the United States than there are police officers and firefighters combined. Agencies which offered customers loans in anticipation of refunds have also been embroiled in controversy in recent years.