THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, March 8, 1995 TAG: 9503070088
SECTION: ISLE OF WIGHT CITIZEN PAGE: 08 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY JODY R. SNIDER, STAFF WRITER
DATELINE: ISLE OF WIGHT LENGTH: Long : 154 lines
SEVERAL YEARS AGO, Timmie Edwards' worst tax nightmare walked through his front door: a friend with five huge, jumbled boxes containing $750,000 in business tax records.
For two weeks, the nightmare continued day and night, until Edwards and his wife, JoAnne, sorted through ``the mess'' and filed the return.
At the end of the nightmare, Edwards collected a $750 fee.
``I wouldn't have done it for anyone else,'' he says. ``I did it for a friend, to show him I could do anything when it came to taxes.''
What for many taxpayers is indeed an annual nightmare is for Isle of Wight residents like Edwards a dream come true - or, at least, a dream in the making. Some of these tax preparers hope their part-time work will become full-time jobs eventually. For others, they just like doing taxes, helping others and making some money on the side.
Edwards is an assistant principal at Smithfield High School. His tax service started on his kitchen table 20 years ago in Smithfield. He says that after training from H&R Block and teaching taxes to high school and college students for 17 years, it was a natural way for him to earn extra cash and help people at the same time.
So these days, the door to Edwards' home office opens after school and closes late at night. On weekends, he says, he starts at 5:30 a.m. and doesn't stop crunching numbers until about 10 p.m.
Why didn't he stick with Block, the nation's largest franchised tax service?
``Anyone doing taxes for 20 years isn't going to work for the big boys,'' Edwards says. ``They're going to work for themselves. It's the difference of making crumbs to having the whole pie. It didn't take long to realize that.''
Edwards says that, on average, he would make between $8 and $10 an hour working for one of the chain tax services - but between $20 and $30 an hour working for himself.
Tax preparers working for H&R Block work on a commission that begins at 18 percent, says James Nourse, who works in Block's Smithfield office. Depending on how long the preparer has worked for the company, the commission goes up. However, if preparers don't do the minimum work required to earn a commission, they earn $4.25 an hour, Nourse says.
Others, like Donna Street, a freelance bookkeeper living in Isle of Wight, are just getting into the tax moonlighting business. She has an accounting degree and hopes to start building a good client base this year, her first in preparing taxes from her home.
``It's a benefit for me because it's a good source of income,'' Street says. ``It's a benefit to those who come to me because I try to provide them with the convenience of picking up their taxes and dropping them back off when I'm finished. I'll even sit down at their kitchen table and work on them with them, if that's what they want.
``Everyone likes to get money back. I try to figure out how they can do that. And I try to show them what they can do to get more back the next year.''
Why do so many taxpayers pay people like Edwards and Street to figure out their 1040s? Street has a simple answer: fear of the Internal Revenue Service.
``They hear all these horror stories that the IRS will `getcha,' '' she says. ``Well, if you're not doing everything the way you should, they may.''
The IRS looks for several things when deciding whom to audit, Street says.
``For example, going from having a CPA figure your taxes to figuring them yourself, that's a red flag. If you show $100,000 profit one year and a loss the next, that's another red flag. Any change that's different from what you've been doing in the past is a red flag.''
Edwards agrees.
``The IRS has done a good job of putting the fear into people when it comes to dealing with taxes. They can freeze your checking and savings accounts or take all the money from your accounts. They can garnish your wages or take your property and sell it to collect money.''
Another reason many people don't want to do their own taxes is because they just don't have the tax knowledge needed to do them, Edwards says.
``Once people get a notion, they don't want to change it. For example, claiming home improvements as a deduction has been out for several years. People still come in here wanting to claim their home improvements.
``And sometimes they come in with their shoe box of receipts that contains everything from grocery receipts to sales taxes on personal items,'' deductions also no longer allowed.
Even tax specialists can make mistakes, however. Both Block and the No. 2 chain service, Virginia Beach-based Jackson-Hewitt, offer guarantees such as accompanying a client to an audit and paying penalties and interest if assessed for an error.
Both Edwards and Street say they also stand behind their work.
``I would go into any audit with anyone,'' Street says. ``And if it was my error, I would help them out if there was a penalty.''
Edwards also says he would be there at an audit.
``I will do any correspondence that's needed. But if a mistake is made and it's not mine, I am not obligated to pay the penalty.
``If I make a mistake, I will pay the penalty, and I'll give you a free year of tax services,'' Edwards adds. ``That's happened once to me in 20 years. But now that we have the computer, it serves as a check and balance - and we haven't had that problem.''
Computers also can separate the big boys from the individual tax services. Each year nationwide - and in Hampton Roads - more people have their returns filed electronically. Part of the appeal is convenience, part speed - and for many people, the rapid refund. The chain tax services for years have offered loans to their clients for the amount of their refunds when the returns are filed via computer. The client pays a charge for the loan of course, but he or she gets most of the refund on the spot.
Some individual preparers, like Edwards, also offer this service. He says he's been doing electronic filing and rapid-refund loans for about three years. Street, starting her first year, says she is not set up to file electronically or for rapid refunds.
Edwards says that by April 17 - this year's federal income tax deadline - he will have figured taxes for several hundred people from as far away as New Kent County and Norfolk.
Most of his clients are farmers, local businesses and educated professionals. He even does taxes for an area school superintendent.
Edwards says his average client this year will get a federal tax refund of about $2,000. He says he knows of one person whose federal refund was almost $10,000 and whose state refund was about $3,000.
``To get that back, they had to pay in a lot to begin with. I tell people to file zero exemptions each year,'' which results in more money being withheld from each paycheck. ``That way they should always get something back. And my business has really grown on that one recommendation.''
That strategy isn't for everyone, however. Allowing the federal government to withhold more money each paycheck means the Treasury has free use of that revenue, interest-free, until it has to refund it to the taxpayer.
``Now, a clever investor will take that same money and reinvest it,'' Edwards says. ``But most people view that as an end-of-the-year bonus, and they spend it.''
For those who feel confident preparing their own taxes, Edwards says he offers to check them for free. ``If I find a way to improve that person's taxes, I'll charge them. It's all fair play.''
So Edwards, and others like him, are ready to work till the wee hours for the next five weeks or so, crunching other people's numbers and filling out their tax forms.
``I found something I can do better than most people,'' Edwards says. ``When I retire from my school job, I'll be a tax man. It's something I can do for a few months, and then it's over with.'' ILLUSTRATION: INFORMAL REVENUE SERVICE
[Color Photo]
ON THE COVER
A tax preparer works on a return in a photo illustration by John H.
Sheally II.
Staff photo by JOHN H. SHEALLY II
Donna Street, a freelance bookkeeper, has an accounting degree and
hopes to start building a good client base this year, her first in
preparing taxes from her home.
Staff photo by JOHN H. SHEALLY II
Timmie Edwards, an assistant principal at Smithfield High, started
his tax service at home 20 years ago.
by CNB