They are among the greatest of our local heroes – the first responders who belong to the law enforcement, fire departments, and Emergency Medical Services in communities nationwide. They are heroes and they are citizens in need of tax advice and assistance.
During tax season, professional preparers from independent firms, national chains and CPA firm step up to provide free tax return preparation and filing for first responders as a way to give back to their communities. Unfortunately, few firms have the resources or the time to serve all of the responders during the busiest time of their year. Also, most of these local efforts target one group of responders, but not all.
Even efforts to provide some tax relief for volunteers and other first responders who are paid with Form 1099s have not met with uniform success. Several states have passed laws have passed tax relief bills for these professionals, and in 2007 Congress signed into law the Volunteer Responder Incentive Protection Act (VRIPA), which protects the benefits that state and local governments provide to volunteer firefighters and EMS personnel as recruitment and retention tools—including length-of-service awards, expense reimbursements and property tax rebates are exempt from federal taxes up to $360 per year.
Efforts such as last year’s bill to allow volunteers to write off 300 hours per year as a charitable contribution, at the rate of $20 per hour, languished in committee and have not yet made it into the 2015 omnibus budget bill or the budget extension. It could be slipped into either bill as an amendment, but has not to date.
Finally, regulations covering the tax requirements for first responders are murky at best. This year, US Senator Kirsten Gillibrand (D-NY) asked the Internal Revenue Service to clarify that first responders who have fallen ill after their work on 9/11 are still entitled to tax benefits under the Victims of Terrorism Tax Relief Law of 2002. In response, the IRS the IRS to update its “Publication 3920: Tax Relief for Victims of Terrorist Attacks.” The update to this publication makes it clear that disability payments made to the 9/11 first responders are non-taxable income, and that the estates of those who died from 9/11 injuries are entitled to an income tax refund of $10,000.
Tax professionals remain one of the best resources to assist fire, EMS and law enforcement people. However, if tax professionals are to effectively serve the first responders while at the same time avoiding damage to their own practices, three things must occur:
- The service must be local – very local. That means that the tax or CPA firm should target first responders within a five-mile radius of their offices.
- Help needs to be given before tax season, when tax offices have the time and resources to provide low-cost or no-cost assistance.
- Professionals must brush up on special tax policies at the local, state and federal levels lest they do more damage than good.
Tax and accounting firms may elect to prepare and file tax returns for first responders at no cost, and those contributions should be recognized. But for many firms, an equally important service may be to specialize on first responders as a niche – providing tax planning clinics for free, but charging a fair price for preparation and filing. By doing so, the firm can legitimately account for its community service while at the same time building their practice for the future.
Here are the top 5 things to bear in mind when planning the session:
- Start now, in the fourth quarter of the year, by working with the administration or management of first responder organizations within five miles of the firm’s office. Arrange to conduct a short – two hours or less – training session on taxes and tax planning.
- Brush up on the IRS documents pertaining to this niche, including:
- Issues for Firefighters
- IRS Document “Enforcing the Law and Paying Taxes: Is there a Connection?”
- IRS Publication 529, Miscellaneous Deductions
- Brush up on state and local laws and tax policy as well. Firefighter Nation has the most recent summary.
- Be scrupulous in stressing adherence to the law. Police officers in recent years have, according to the IRS, been lured into claiming bogus deductions or failing to report outside income that is either unreported or accounted for on a Form 1099. Remind the first responders that they are ultimately responsible for the accuracy of the tax return.
- Don’t full-court press the marketing message for the firm, but make it clear that the firm has expertise in this area and is willing to prepare their taxes and file them for a fair fee.
Why not simply do the returns for free? First and foremost, you do not know how complicated the situation may be, or the individual’s previous filing history. Second and equally important, tax preparers are professionals who deserve to be compensated for their expertise and acumen.
Free tax clinics for first responders provide an ideal way to give back to the community while helping to build the firm for the future.