How can I tell if a tax accountant is on the up-and-up?

March 28, 2011 10:19 PM

I'm meeting with a tax accountant for the first time on Wednesday. I'm a freelancer who gets my income from a number of sources (a combination of freelancing and part time salary work), so my taxes are pretty complicated. Two friends who do similar work recommended this guy, and said he got them big refunds last year, despite having almost no taxes withheld all year. I'm a newbie to taxes -- when meeting this guy, how can I tell whether he's on the up-and-up or whether he's going to get me audited?
posted by tweebiscuit to work & money (6 answers total)

How much did your friends make? The witholding is just an estimate of how much you're going to owe the IRS. If you don't have withholdings you need to be putting aside some cash every month so you'll have enough to may the man at the end of the year.

If your friends were making over 25K/year in total and had no withholdings and paid no tax I'd be suspicious. And whatever state you're in will also happily come after you, so be careful.

IANAL, obviously.
posted by bardic at 11:57 PM on March 28, 2011

I held off posting my thoughts on this because a) IANYA, b) I'm still just a student working towards becoming an accountant, and c) I don't live in your country. I do have years of experience book-keeping and doing basic tax returns for individuals and companies.

But each time I read your question, red flags pop up. If it sounds too good to be true, it probably is. Your friends have very little witheld tax throughout the year, but they get big refunds? Sounds dodgy to me.

Ask the accountant why your friends in similar employment get such big refunds. Why do they get out of paying tax? Do they have special circumstances which reduce their taxable income so dramatically that they get a big tax return, despite having not had tax amounts witheld?

I don't think your tax situation is complicated. Your salary has tax witheld by your employer, yes? And you have to declare your freelance income, and you should be witholding your own tax from that, setting it aside as bardic says. So when your tax is done, the combined amounts - tax witheld by your employer and the savings you've put away from your freelancing - should cover your obligations but not entitle you to a big refund.

Tl;dr: I find it hard to believe that legally you would be able to receive a big refund if you have paid minimal witholding tax throughout the year.
posted by malibustacey9999 at 3:09 AM on March 29, 2011

IAAL.

Don't walk away. RUN!!

Since you had taxes withheld on only part of your income, you will certainly owe taxes on the rest. There's no way to avoid paying them unless your motto is "no taxation without misrepresentation."
posted by KRS at 6:39 AM on March 29, 2011

What's a "big refund"? In the last two years I got a bigger-than-expected refund because of the Making Work Pay tax credit.

taxpayers [filing singly] qualify for the $400 maximum if their earned income is $6,451 or more.

It is possible to owe almost nothing in taxes (and have very little withdrawn from paychecks) and still get a refund due to this tax credit.
posted by muddgirl at 6:48 AM on March 29, 2011

There are tax credits and other reasons why people get refunds. Ask this tax preparer if his work is guaranteed; i.e., he'll go to an auditor with you and cover any fines that are his fault. Tax preparers must sign the return; do not tolerate/pay a preparer who declines to do this.
posted by theora55 at 8:32 AM on March 29, 2011

If you are a freelancer you will need to pay quarterly estimated taxes after you've been in business for a year. Whomever you have help you with your taxes make sure they explain this to you and help you figure out how much and when/how to pay quarterly in order to avoid fines.
posted by Bunglegirl at 7:52 PM on March 29, 2011