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Discussion:What's So Difficult About State Returns

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Discussion Forum Index --> Business Growth Community --> What's So Difficult About State Returns


Igoudiaby (talk|edits) said:

12 January 2006
As a new tax preparer I very often hear those who have been in the business say it's Sate returns aren't easy to prepare. In order word that if you learn to prepare taxes in (or for) one particular state don't take risks for other states unless you learn from a veteran preparer about those states.

Are those warnings justified since most people use saftwares that guide you through a thourough and simple questionnaires. Thank you.

PGattoCPA (talk|edits) said:

12 January 2006
1) I would say the "warnings" of people with practical experience ("who have been in the business" as you call it) are very justified.

2) Just because a question looks simple does not mean that the answer is simple. For example, what if you are using Turbo Tax to prepare a Schedule C for a sole proprietor and the interview question is, "In what states are you doing business?" Seems like a simple question, but what constitutes "doing business" that rises to having a filing requirement can be very complex and may be different from state to state. Or, you could have a "plain vanilla" W-2 wage earner for whom you are preparing a tax return. His filing requirements could be tricky as well.

3) For example, you have a client who works out of his home in TN, but his employer is located in NY. You file his TN return (for the few things that TN does require to be reported) and call it a day. The client very easily could have a NY filing requirement if his working in TN is not due to a necessity of the employer. The client now owes not only the NY tax, but a penalty and interest because you did not know NY tax law. (See the Huckaby case.)

4) Notwithstanding 2 & 3 above, you could have a taxpayer who is in multiple states that treat every item particular to that taxpayer exactly the same way. BUT, it would be highly unlikely.

5) Software is just a tool, it helps with the math and where different items flow to various schedules. If you put garbage into the software by answering the "simple" questions incorrectly, it will output a garbage return. AND, you will not know it is garbage because the "math works". You'll find out is is garbage when the steaming mad client calls you because he got a notice from a state where the return was improperly prepared or from a state where a return should have been filed, but was not. Those are the "fun" phone calls.

DZCPA (talk|edits) said:

12 January 2006
As a new preparer, have everything you do reviewed by someone with experience. This will save you lots of headaches later on. Good software will alert you to many of the issues pertaining to different states. You still need to have a reviewer.

LINDA W (talk|edits) said:

12 January 2006
I agree with PGattoCPA. I have reviewed and prepared over 1000 state returns (over many years) other than my home state of NY. Each state has its own rules for depreciation, schedule C deductions, treatment of interest & dividends, pension taxability, lottery winnings, etc. You have to enter all the items necessary for the tax program to work correctly and that takes knowledge. You also have to understand the rules for entering items in the tax program for each state. Lacerte, for example, uses different programmers for each state so there is no consistency to the input for different states. Multi-state returns can be very confusing. You also need to be aware of the different credits available in each state. In my experience, very few preparers do their clients justice when preparing out of state returns.

Fbcoly (talk|edits) said:

15 January 2006
Thank you guys for your so very much helpful answers!

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