IRS Urges Caution: Select Your Tax Preparer Wisely—Here’s What You Need to Know

We're just about a month away from the tax deadline , so if you still haven’t submitted your taxes, you may be thinking about employing an expert to handle them. Although you could file on your own at no cost, engaging a seasoned tax preparer can alleviate anxiety, particularly if you’re new to this procedure or unsure about potential tax credits you qualify for. Nonetheless, the Internal Revenue Service swiftly advises filers that they ought to be careful when choosing a tax preparer to manage your filing.

According to a new survey More than 44% of individuals preparing their tax returns experience anxiety or fear regarding the process this year, with Generation Z and Millennials being at the forefront. A significant portion of these concerns stems from the possibility of errors during tax filings, which is why numerous people choose to enlist professionals for assistance.

I spoke with Jassen Bowman, an IRS enrolled agent and tax specialist, for more insight into why selecting your tax preparer carefully matters significantly. He explained, “Your tax return includes all the data needed to steal identities and carry out multiple kinds of fraud.” According to him, criminals are drawn to the tax preparation industry as they seek opportunities to perpetrate these offenses and deceive individuals.

There's a lot of money at stake for sure: The IRS has already sent out over $124 billion So far, we've processed refunds. Perhaps you’re still organizing your documents for next year’s 2024 taxes. The IRS emphasizes the importance of making well-informed choices when selecting an individual to handle your tax filings. For additional information about taxes, be sure not to miss out on our insights for 2025. tax cheat sheet including crucial advice you ought to be aware of.

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Prepare your own taxes online for free

In addition to providing a free way to file your taxes, IRS reminds taxpayers that some eligible individuals can also get free tax help through Volunteer Income Tax Assistance or Tax Counseling for the Elderly. Generally, VITA services are reserved for people who earn $67,000 or less per year, people with disabilities and limited English-speaking individuals who need help doing their taxes.

The IRS-managed VITA and TCE services are operated by IRS partners and consist of volunteers who must pass tax law training that meets or exceeds IRS standards. Eligible taxpayers are encouraged to use the VITA Locator Tool online or call 800-906-9887 .

Watch out for red flags of tax preparers

There are some clear signs when something is amiss. Here are two to be on the lookout for.

Ghost preparers

This type of tax preparer will complete your tax return but will not sign it so they don't leave a footprint. For e-filing, they will refuse to digitally sign the return as the paid preparer. This could be a sign of potential fraud.

The IRS also says that ghost preparers may:

• Demand cash payments exclusively and do not offer receipts.
• Send direct refunds to their bank account instead of the taxpayer's account.
• Fabricate earnings to incorrectly make their clients eligible for tax credits or invent false deductions to secure larger refunds.

Absence of a legitimate PTIN

Each compensated tax preparer needs to possess a legitimate Preparer Tax Identification Number (PTIN) and should incorporate it whenever they sign any tax return prepared for another individual. However, merely having a valid PTIN may still fall short. As Bowman clarified, these numbers come with certain constraints. He stated in an emailed response, “Although tax preparers who complete returns for compensation must enroll with the Internal Revenue Service (IRS) and secure a Preparer Tax Identification Number (PTIN), this only fulfills their registration obligation. The IRS does not mandate any specific training or examinations.”

Bowman suggests that individuals investigate their prospective tax preparers using platforms such as the Better Business Bureau (BBB), Google, and various online review websites to learn about others' experiences. Regardless of whether they are an attorney, certified public accountant (CPA), or an IRS-licensed enrolled agent, you can obtain information regarding any disciplinary actions taken against them. An enrolled agent holds equivalent authority to attorneys and CPAs when representing clients facing administrative matters with the Internal Revenue Service (IRS).

That’s why you should obtain your preparer through verified channels, such as the official IRS directory .

Advice from tax professionals on selecting a preparer

Bowman also has several extra factors to consider when selecting someone to prepare your tax return.

• Steer clear of tax preparers who guarantee a bigger refund than others. This could be a warning sign that they may be engaging in unlawful practices to increase your refund, as mentioned by him.
• Steer clear of preparers who accept your statement about your Social Security number without verification or base their tax preparation on your most recent pay stub rather than an accurate W-2 form. As he noted, such practices are not just against IRS regulations; they also signal that the preparer could potentially engage in unethical behavior.
• A further indication of possible deceptive practices is when a tax preparer asks you to sign an empty tax return form or fails to include their signature along with their Personal Tax Identification Number (PTIN) on it.

Here are some IRS recommendations for selecting your tax preparer:

The IRS offers several tips That every taxpayer should watch for. Below are some key points:

• Talk about service charges at the beginning. Failing to do so might lead to unexpected additional costs. According to the IRS, it’s best to steer clear of preparers who charge based on a percentage of your refund.
• Although you may not consider yourself a tax expert, make sure to thoroughly examine the completed tax return as much as possible. Do not be afraid to inquire about anything that seems incorrect. Ensure that the bank details for the refund belong to you and not the person who prepared the taxes.
• The preparer you select should preferably be accessible throughout the year. You might have tax queries even after the filing season concludes.
• Get to know your preparers' qualifications and seek further information from them if something needs clarifying.

Individuals who prepare reports and engage in unethical behavior

If your tax preparer engages in any form of wrongdoing, it needs to be reported. Given that they might have acted similarly with other clients and could continue doing so in the future, there’s every reason not to stay silent about it. Fortunately, the IRS provides a straightforward method for lodging such complaints along with guidance on recognizing when reporting is necessary. file a complaint . To learn more, make sure not to miss our 2025 tax hub when dealing with anything related to taxes.

Initially released on March 17, 2025 at 9:54 a.m. Pacific Time.

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Living in Any of These 41 States? Get the Scoop on Social Security Taxes

At the beginning of September, approximately 54 million Americans were receiving Social Security retirement benefits. For numerous individuals, this program serves as their primary source of income during retirement, which underscores its significance and effectiveness as one of the nation’s key social initiatives.

Many legitimate criticisms can be made about Social Security , yet it should be simple to recognize the financial support it offers to millions.

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Unluckily, similar to various types of earnings, Social Security benefits Are governed by tax regulations. Still, there is positive and negative information for those who have retired. Let's examine each of these aspects.

Many retired individuals can evade state taxation on their Social Security benefits.

The positive aspect of Social Security taxes is that many states do not impose taxation on Social Security benefits. Below are the 41 states (along with Washington, D.C.) where this applies at present:

1. Alabama
2. Alaska
3. Arizona
4. Arkansas
5. California
6. Delaware
7. Florida
8. Georgia
9. Hawaii
10. Idaho
11. Illinois
12. Indiana
13. Iowa
14. Kansas
15. Kentucky
16. Louisiana
17. Maine
18. Maryland
19. Massachusetts
20. Michigan
21. Mississippi
22. Missouri
23. Nebraska
24. Nevada
25. New Hampshire
26. New Jersey
27. New York
28. North Carolina
29. North Dakota
30. Ohio
31. Oklahoma
32. Oregon
33. Pennsylvania
34. South Carolina
35. South Dakota
36. Tennessee
37. Texas
38. Virginia
39. Washington
40. Wisconsin
41. Wyoming

The regulations surrounding Social Security taxes at the state level are subject to change, so if you reside in one of the nine states where these benefits are presently taxed, make certain to stay updated on your state’s policies annually as they might alter. For instance, during 2024, Missouri, Nebraska, and Kansas eliminated their taxation on Social Security.

Regrettably, the regulations for federal taxes still come into play.

Now, I have some unfortunate news to share: No matter what your state’s particular tax regulations dictate, federal tax laws remain applicable to all individuals. The IRS determines your “combined income” to compute your tax liability. This combined income encompasses the following elements:

• Adjusted gross income (AGI) Your combined earnings from every source except Social Security.
• Nontaxable interest Interest income exempt from federal taxation, like U.S. Treasury and municipal bonds.
• Fifty percent of your Social Security benefits : 50% of your aggregate Social Security benefits for the present year.

After your total income is determined by combining incomes, Social Security applies these guidelines to establish what portion of your benefits can be subject to taxation.

Portion of Taxable Benefits Incorporated into Earnings	Filing Single	Married, Filing Jointly
0%	Less than $25,000	Less than $32,000
Up to 50%	$25,000 to $34,000	$32,000 to $44,000
Up to 85%	More than $34,000	More than $44,000

Data source: Social Security Administration.

Observing U.S. Federal Social Security taxes in effect

The regulations surrounding Federal Social Security taxes aren’t quite as simple as many individuals might hope (typical, right?), so allow me to explain how these guidelines operate.

Initially, many individuals looking at the aforementioned table believe that their Social Security benefits could face taxation of up to 85%. Fortunately, this understanding is incorrect. These percentages do not indicate the portion of Social Security subject to tax; they merely show the extent to which income levels can affect taxable benefits. eligible to be taxed.

Imagine you're married and filing your taxes jointly, with these conditions applying:

• You and your spouse's AGI is $36,000
• You earned $1,000 from the interest on your Treasury bonds.
• The total of your Social Security benefits for this year amounts to $24,000.

In this scenario, your total income would amount to $49,000 ($36,000 + $1,000 + $12,000). Consequently, as much as 85%, or $20,400, of your annual benefits could be subject to taxation.

Social Security will combine the $20,400 with any additional income you earn and apply your standard income tax rate to the total amount. So, if you fall into the 22% tax bracket, this rate would be used for taxation purposes. tax bracket , you would owe $4,488 for the $24,000 in benefits you received that year. This result is significantly better than owing $20,400.

The deeper your understanding of how Social Security taxes function, the more effectively you can strategize your retirement funds.

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41 States Where Social Security Benefits Go Untaxed

Contrary to the popular misconception, Social Security income can be taxed. Social Security beneficiaries who have substantial other sources of income can have as much as 85% of their benefits included in their taxable income calculation. In fact, tax on Social Security benefits is a major revenue source for the program.

The good news is that in most cases, Social Security is not taxable at the state level. 41 states do not tax Social Security income whatsoever. Not only that, but most of the states that do tax Social Security use far looser rules than the federal government.

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41 states that exempt Social Security income from taxes

I'll cut to the chase. Should your state be on this alphabetical list, it does not impose any taxes: Social Security benefits for the 2025 tax year:

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Mississippi
• Missouri
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• South Carolina
• South Dakota
• Tennessee
• Texas
• Virginia
• Washington (state and D.C.)
• Wisconsin
• Wyoming

Should your state be listed here, your Social Security income will be exempt from state income tax irrespective of the amount of extra retirement income you possess, or whether you do so or not. still working .

Certainly, some of these states do not impose any income tax at all. However, in certain situations, the Social Security exemption might provide substantial savings. To illustrate, suppose you get $20,000 annually from Social Security and reside in my home state of South Carolina, where the highest marginal tax rate is 7%. In this scenario, you could potentially save around $1,400.

Additionally, this list may expand over time. As an illustration, West Virginia is gradually eliminating taxes on Social Security benefits with plans for them to completely disappear by 2026.

What would happen if you reside in one of the remaining nine states?

Given the information from the preceding section, we can see that nine states continue to impose taxes on Social Security benefits at varying levels. The affected states include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

In many instances, though, the guidelines surrounding Social Security taxation tend to be more lenient compared to those enforced by the IRS. For instance, in Colorado, Social Security benefits are taxed only from recipients younger than 65 whose income exceeds specific thresholds.

Just one part of the tax equation

If you’re retired and live in one of the nine states imposing taxes on Social Security benefits, it may seem less than ideal. However, remember that taxation of Social Security is only part of what determines whether a state’s overall tax environment is more favorable or not. Often, those same states with Social Security taxes tend to have comparatively lower rates for other forms of taxation.

For instance, Montana imposes a tax on Social Security benefits for certain residents yet stands among the only five states without a state sales tax. Some other states listed feature property taxes significantly lower than the nationwide average.

The bottom line is that while tax on your Social Security benefits is certainly not ideal, it's important to consider the full picture of a state's tax situation.

The $ 22,924 The Social Security benefit many seniors entirely miss noticing.

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How to Inherit an IRA Without Facing a Massive Tax Bill

Individuals who recently came into possession of retirement accounts now have clarity from the Internal Revenue Service regarding the process for withdrawing funds. Several tactics can assist you in minimizing what goes to the IRS unnecessarily.

The bewildering rules surrounding inherited Individual Retirement Accounts (IRAs) and similar savings plans are akin to a Rube Goldberg machine. However, the Internal Revenue Service (IRS) has recently clarified certain elements related to required minimum distributions (RMDs). Handle this correctly, and you might be able to evade a substantial tax liability.

On July 18, the IRS released guidelines stating that most non-spousal beneficiaries are required to withdraw funds annually from their inherited IRAs or 401(k) plans, assuming the initial account holder had already started making Required Minimum Distributions (RMDs). According to IRA specialist Ed Slott, "Think of RMDs as a faucet; once it’s turned on, it cannot be shut off."

Since the enactment of the Secure Act in 2019, which removed the "stretch IRA" provision for most non-spousal beneficiaries inheriting an account as of January 1, 2020, heirs have remained uncertain. The previous regulation allowed grown-up offspring and other inheritors to withdraw funds gradually throughout their lifetime, thus enabling greater accumulation within the inherited account. However, policymakers believed this arrangement offered substantial tax advantages and decided to abolish it in order to hasten income generation from these accounts.

Instead of stretching withdrawals over time, the legislation mandates that most non-spousal beneficiaries must empty the inherited account within ten years following the decedent's passing. However, it did not outline how funds should be withdrawn during this period. Initially, many tax professionals believed that heirs had the option to withdraw all the money at the very end of the decade-long timeframe.

At the beginning of 2022, the Internal Revenue Service suggested more stringent regulations for individuals who inherited an Individual Retirement Account (IRA) from someone who was already required to withdraw Required Minimum Distributions (RMDs). In such cases, these beneficiaries were expected to adhere to their own yearly withdrawal schedules. However, due to significant confusion and debate surrounding this proposal, the IRS decided to waive the RMD obligation for this year.

The IRS' latest guidelines state that most non-spousal beneficiaries must begin their Required Minimum Distributions (RMDs) by 2025, assuming they haven't done so already. The consequence for failing to take these distributions includes a penalty of 25% of the sum that was supposed to be withdrawn. Below is essential information regarding this requirement.

What happens if I inherited an IRA prior to 2020?

The new regulations do not apply to you. You are exempt from them due to being part of the previous stretch IRA rule framework that was effective prior to the law being enacted.

What happens if I received an IRA from my deceased spouse?

None of these modifications affect spouses, who have much greater leeway when they inherit IRAs. They have the option to transfer their deceased spouse’s IRA into their own retirement plan or maintain it as an inherited account. In either case, they can extend withdrawals according to their life expectancy rather than adhering to the 10-year rule.

Are there additional beneficiaries capable of extending required minimum distributions throughout their own life spans?

Certainly. Surviving spouses fall under a specific classification known as "eligible designated beneficiaries." This category also encompasses individuals who are not older than ten years compared to the initial IRA holder, people with chronic illnesses or disabilities, and minors—not grandkids—who belong to the original account owner.

The concluding regulation specifies that minor children may encompass stepchildren and foster children. Nevertheless, when these beneficiaries turn 21, they are considered adults, initiating the 10-year period.

What happens if I inherit a traditional IRA after 2019 from an individual who was already making required minimum distributions?

You have to start making Required Minimum Distributions (RMDs) by 2025 unless you've begun doing so earlier. There's no need to pay back missed distributions from previous years where this rule wasn't enforced. Nevertheless, those skipped years still play into your calculations moving forward. For figuring out future RMD amounts, refer to IRS Publication 590-B to get the applicable life expectancy factor corresponding to the year following the demise of the account holder, as mentioned by Slott.

Suppose you received an IRA inheritance in 2020 when you were 50 years old. By 2025, you would calculate the account balance as of the end of this year by dividing it by 31.3, which represents your remaining life expectancy since you will be 51 in 2021, the year following the receipt of the inheritance.

For years one through nine, the life-expectancy factor approach is used. In year ten, however, you have to withdraw the leftover amount.

What should my actual withdrawal amount be?

Keep an eye on potential tax implications when taking just the mandatory minimum until year nine; this might result in a larger sum needing withdrawal in the last year. Each withdrawn amount contributes to your yearly taxable income. Spreading out these distributions evenly throughout the designated period can reduce the chance of facing significant taxes during the tenth year. Always be aware of your current tax bracket and try not to pull funds that could push you into a higher one unnecessarily.

An additional aspect to keep in mind is that the present tax rates are set to lapse at the conclusion of 2025. Without intervention from Congress, the lower brackets established under theTax Cuts and Jobs Act of 2017will return to their previous amounts. Opting for increased withdrawals currently might help reduce your overall taxes.

An exemption exists if your intention is to retire within the distribution phase, as pointed out by Evan Potash, an executive wealth management advisor at TIAA from Newtown, Pennsylvania. Should you anticipate moving into a lower tax bracket shortly, it might be prudent to withdraw just the mandatory amount until this change occurs.

What happens if I received an IRA inheritance after 2019 from someone who wasn’t yet required to take Required Minimum Distributions (RMDs)?

You don’t need to take annual RMDs, but you still have to empty the account by the end of the tenth year following the original account holder’s death. It might still make sense to withdraw some each year, to stagger your tax liability and take advantage of today’s lower rates.

What would happen if I received a Roth account as an inheritance?

Roth accounts do not have required minimum distribution rules, yet they must be fully distributed within ten years following the demise of the initial account holder. Beneficiaries will not incur income tax on these withdrawals, so if you find yourself with surplus funds, it might be wise to let them grow untapped until the tenth year.

Send an email to Elizabeth O'Brien at elizabeth.obrien@barrons.com

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