My Tax Tips will be appearing at the MainStreet.com Tax Center throughout the season.
Thursday, January 31, 2013
Joy to the world - tax season’s here.
I’ll soon be flush with cash!
Let every client be organized,
and give me all I need, and give me all I need,
and give me all I need to prepare their returns!
My 42nd tax season will officially begin tomorrow - let the deluge begin!
As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX PRO and THE TAX PROFESSIONAL.
Between now and April 15th I will barely have time to relieve myself let alone blog! Nor will I have time to respond to comments. If a comment requires a response I will do so after April 15th
DO NOT EMAIL ME OR SUBMIT COMMENTS WITH SPECIFIC QUESTIONS ABOUT YOUR 2012 TAX RETURN! ALL SUCH ITEMS WILL BE PROMPTLY DELETED UPON DISCOVERY!
I am NOT accepting any new 1040 clients (or any other kind of tax preparation clients). So don’t email me asking if I can prepare your 2012 tax returns. THE ANSWER IS "NO".
I will be publishing a WHERE THE FAKAWI post at least every other week here at TWTP to keep my clients up-to-date on my progress during the season and to report changes or additions to my tax season policies and procedures. Clients can also keep track of my tax season progress by following me at TWITTER (rdftaxpro).
My Tax Tips will be appearing at the MainStreet.com Tax Center throughout the season.
My Tax Tips will be appearing at the MainStreet.com Tax Center throughout the season.
I realize that I am abandoning you at a time when you may need me the most – but I need to make a living!
I find it a bit amusing that the period of time when TWTP gets the most “hits” is during the tax filing season when I am not posting.
“Talk” to you when it is all over!
BTW – be sure to stop by tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!
With all the talk about reducing the federal deficit perhaps it is time to revisit a recommendation I made back in 2008.
The Internal Revenue Service often cannot collect outstanding liabilities because taxpayers can't afford to pay them - and taxpayers can't afford to pay them because the amount is too high due to accrued penalty and interest. An initial outstanding tax liability of $5,000 could easily mushroom to $15,000 or more over the years with constant accrual of penalties and interest. The end result in many cases is that the IRS writes off the entire amount due.
Obviously the IRS could never permanently remove penalties and interest. If they did taxpayers would have no motivation to file and pay their taxes on time.
The answer lies in a one-time temporary Federal Tax Amnesty, similar to state tax amnesty programs that have been highly successful in the past. Such a program would –
· generate millions, if not billions, of dollars for the government,
· allow a great many taxpayers to get rid of the IRS cloud from over their heads,
· permit the IRS to "close the books" on a substantial number of overdue accounts, and
· encourage the filing of delinquent returns.
Here is how a Federal Tax Amnesty Program would work -
The amnesty would apply to all federal taxes –
* Individual income taxes, the Alternative Minimum Tax, and the various "other taxes", such as self-employment tax, included on the Federal 1040.
* Corporate income taxes and the corporate AMT.
* Payroll Taxes.
Other federal taxes could be added to the list at the discretion of Congress.
The IRS would begin with the original outstanding tax liability only (no accrued interest and penalties would be included) on all previously filed federal tax returns that are not currently part of a criminal prosecution. From this they would apply all appropriate amounts to date from direct taxpayer payments, “garnishments” of subsequent federal and state tax refunds and rebates, other federal offsets, etc. against the open liability. None of these payments would be applied against previously assessed penalty and interest; they would all be used to reduce the original “principal”.
Taxpayers would have 3 or 4 months from the date of the initiation of the Amnesty program to pay the net outstanding tax liability without any penalties and interest.
At the same time, individuals, corporations and other businesses who have not filed certain income, payroll or other tax returns could do so during the amnesty period and pay only the tax due, with no penalty or interest assessment. So if you did not file your 2009 (or 2005 for that matter) Form 1040 (or appropriate business or payroll return) at all because you owed $2,000, you could do so now and pay only $2,000.
The IRS would mail to all delinquent taxpayers an itemized “bill” for the outstanding tax due under Amnesty based on their records, so it would be clear just what needed to be paid.
If an open tax liability is not satisfied in full, or a delinquent return is not filed, during the Amnesty period a higher penalty and/or interest rate would apply to the remaining outstanding balance – a further incentive to pay up during the program.
This would be a one-time only offer. The legislation creating the Federal Tax Amnesty Program could so state, or it could state that the federal government would not be able to institute another Amnesty fifteen (15) or twenty (20) years after the end of the current amnesty period.
Congress has looked at a Federal Tax Amnesty Program in the past. The Congressional Joint Committee on Taxation had released a report concluding that amnesty would ultimately hinder tax collection and reduce net revenue. The report indicated that individuals would become less likely to pay their taxes in future years, perhaps in expectation that government would once again write off interest and penalty fees.
I do not agree. The concerns expressed by the JCOT regarding reduced payment in anticipation of a future amnesty have not proven to be a problem with the various state programs. Besides this would be advertised as a one-time only offer.
IRS collection activity would not cease or slack off once the initial program has completed in anticipation of future amnesties. If anything the Service should be more aggressive in its collection efforts after the amnesty period ends.
Tax Amnesty is aimed less at tax cheats and more at honest Americans who have been so overwhelmed by the accrual of interest and penalties that they walk away from their tax debt altogether. It is a variation on the current Offer In Compromise program.
All, or perhaps half, of the monies raised under the Federal Amnesty Program could be directly earmarked to pay down the federal debt, and the legislation could so indicate.
So what do you think?
Wednesday, January 30, 2013
“Politicians certainly must be considered the most formidable barrier to fundamental tax reform.” - David A Hartman
Amen to that!
Welcome to the last BUZZ installment until after the end of the tax filing season. It is “chock-a-block” with good stuff.
* Time is running out to take advantage of the special offer for my “2012 Guide to Schedule A”! Get your check in the mail by tomorrow!
* So what name would you give to my voluntary tax preparer certification program designation? Click here for the discussion.
* Get a “Tax Organizer for Entertainers” from Jamaal Solomon EA at TAX FACTOR.
*The Tax Center of DAILYFINANCE.COM correctly suggests that “2013 May Be the Year You'll Need to Hire a Professional”.
Notice that they, also correctly, said “Hire a Professional” and NOT “Hire a CPA”. I am glad someone was listening.
* The NSA “tweeted” a good question – “What's 4 million words long and 1 foot tall printed?” I bet you can guess the answer.
* Ken King of the SHEYBOGAN PRESS warns you to “Beware of Tax Season Tricksters”.
“One old familiar scheme is getting taxpayers to apply for a short-term tax refund loan at a tax preparation business. Most people, if they read the paperwork, are surprised to learn that the company, without their consent, had filed a return on their behalf. The company then charged exorbitant fees, which it took from the taxpayer's refund.”
* Tax lawyer Jerry Meek is “Raising a Glass to the Income Tax, on its 100th Anniversary” at the CHARLOTTE OBSERVER.
* Kristine McKinley of BEACON FINANCIAL ADVISORS wants you to know - “Got Retirement Questions? Chat with an Expert for Free on Feb 7 and Feb 12”.
“Kiplinger magazine and the National Association of Personal Financial Advisors (NAPFA) are teaming up for the annual Jump-Start Your Retirement Plan Days to bring you free one-on-one personal finance advice.
NAPFA members (including me!) from across the U.S. will be standing by to answer your questions from 9:00 a.m. to 5:00 p.m. ET on Thursday, February 7 AND Tuesday, February 12, 2013.”
* Trish McIntire of OUR TAXING TIMES reports “Form 8863 Held” -
“On Sunday, the IRS added Form 8863, Education Credits, to its list of late season holds.”
As Trish points out – “This is a major form and will effect a lot of clients.”
* Trish also gives great advice on what to do “Before You Sign” -
“Whether they do it themselves on paper or with tax software or use a tax pro, the taxpayer has to understand that they are responsible for everything on the return. It’s their return and they will answer to the IRS (or state tax authority) if there is a problem. They will be the one responsible for paying the extra tax, penalties and interest.
So, take the time to review your return before you sign anything. Check dependents, income and deductions. Is there something wrong or missing? Find out why. Don’t assume that the software or tax pro is right. Ask questions.”
I would just add – also don’t assume that the tax pro is wrong if there is something you do not understand. Indeed – ask questions.
And, unless you are very knowledgeable about the Tax Code, do not use a software package to “self-prepare” your return!
* TAX MAMA Eva Rosenberg discusses the Free Application for Federal Student Aid (FAFSA) in “A New Year, A New FAFSA” at EQUIFAX.COM.
* Over at BARGAINEERING Jim Wang explains “What to Do If Your W-2 or 1099 Is Stolen”.
* The continuing saga of As the IRS Turns. Jason Dinesen presents “Taxpayer Identity Theft, Part 11” at DINESEN TAX TIMES.
* TODAY SHOW contributor Herb Weisbaum correctly warns that “These Tax-Time Refund Offers Should be Avoided”.
Herb points out that Arkansas Attorney General Dustin McDaniel recently issued the following Consumer Alert about the pitfalls of both RALs and RACs -
"We would encourage consumers to think twice before paying the excessive fees and interest associated with borrowing money that already belongs to them, anyway.”
Herb’s bottom line bears constant repeating during tax time (highlight is mine) –
“You’d be smart to avoid Refund Anticipation products of any kind.”
* Let me end by quoting the opening item of Joe Kristan’s Tuesday “Tax Roundup” –
“A Tax I can support! Tax the Revolving Door (Glenn Reynolds)
‘In short, I propose putting a 50% surtax — or maybe it should be 75%, I’m open to discussion — on the post-government earnings of government officials. So if you work at a cabinet level job and make $196,700 a year, and you leave for a job that pays a million a year, you’ll pay 50% of the difference — just over $400,000 — to the Treasury right off the top. So as not to be greedy, we’ll limit it to your first five years of post-government earnings; after that, you’ll just pay whatever standard income tax applies.’
Plus make them wear clown clothes to work.”
Write your Congressidiot today and ask that this be included in any tax reform package enacted in 2013!
THE FINAL WORD-
As I said at the beginning - this will be the last BUZZ installment until AFTER the end of the tax filing season.
If you suffer from BUZZ-withdrawal you can check out Joe Kristan’s weekday-daily BUZZ-like “Tax Roundup”.
And don’t forget to follow my series of Tax Tips at the MAINSTREET.COM Tax Center.
Tuesday, January 29, 2013
Just thought I would write an updated post about my background so you can get some perspective on “where I am coming from” when it comes to my perhaps sometimes controversial opinions on tax policy and life in general. Some of this “stuff” has been previously mentioned in various other posts over the years.
My first encounter with income taxes came in February of 1972, when I was in my second semester as a freshman at local Jesuit institution St Peter’s College (I am not Catholic – it had a good rep for business). I had taken the first half of Accounting 101, but had not taken any tax classes.
My uncle’s tax professional, James P Gill, would hire students from St Peter’s College during the tax season as apprentice tax preparers. During his annual visit, always on Lincoln’s Birthday (then an actual legal federal holiday), my uncle happened to mention to Jim that I had taken my first accounting course and that I was helping him with the books for the non-profit organization for which he worked. Jim told my uncle to send me in to see him – and the rest is history!
On my first visit to Jim’s office he took me to a desk in the outer office. He gave me a copy of a client’s previous year’s tax return and a briefcase full of papers that constituted the current year’s tax “stuff” and told me to “jump in and swim”.
I still remember my first 1040 – it was for one of the “outside salesmen” insurance agents who shared an office around the corner from Jim (Jim did all the agents in the office). While I no longer prepare that person’s returns, I still – 42 tax seasons later - do one of the agents from that office, who recently retired. And I also still do the bartender who had worked at the pub next to our office.
Prior to meeting Jim Gill I had no experience with or education in any aspect of income taxes. I had never even done my own simple returns – they had been prepared by my father’s tax pro (not Jim, but a colleague from his NYC office). As I mentioned I had not taken the tax course at St Peter’s College yet. Which was good – Jim preferred to get student apprentices before they had taken any tax courses. He wanted us to learn the practical reality of tax preparation – not the sanitary classroom version.
If I had a question about a tax return I would ask Jim, who would either take the time to explain the answer or tell me where to find the answer in the CCH tax library. So I was self-taught via on-the-job training. I learned how to prepare income tax returns in the very best way possible – by preparing income tax returns. And I learned at a “storefront” office located at a busy transportation hub of a large metropolitan city, at a firm with a clientele of taxpayers in all walks of life and all levels of income and education.
I never did graduate from St Peter’s College. One reason, I believe, is that my major was Business Administration and not Accounting. I found that I got a much better education at 59 Sip Avenue (the address of Jim’s office) then at SPC. I actually also felt that I had received a much better education at an “inner city” high school than I did at a Jesuit college. I eventually received under-graduate and graduate degrees from a non-traditional institution based on life and work experience – solely for the purpose of pleasing my family.
I did enroll in and pass a correspondence 1040 preparation course from the National Tax Training School back in the mid-70s so I would actually have a piece of paper to “document” my education and ability as a tax preparer. For me this was basically a “refresher” course.
As a result of being self-taught via on-the-job training I am not an “education snob”. I respect the man, or woman, and not the office, or the degree(s), or the credential(s). To earn my respect you must show me that you are accomplished in something other than the ability to pass tests.
This is not to say that I do not acknowledge the value and benefits of post-secondary education – just that there are alternative methods of receiving an education that are at least just as valid as traditional classroom learning.
I am what I have referred to in my discussions of the IRS tax preparer regulation regime as a “previously unenrolled” preparer. I am neither a CPA nor an EA. I have never had any desire to audit financial statements, so I did not become a CPA. And I have never had any desire to represent taxpayers before the IRS, so I did not become an EA.
I have also been accused of being “cynical”, especially when it comes to politics. I believe this comes from a long history of dealing with the “great unwashed masses” (which I no longer do, thank the Lord) and the fact that I grew up in Hudson County – the “poster child” for political corruption in what has become probably the most politically corrupt state in the union.
The political machine of Hudson County Democratic party boss Frank Hague rivaled the days of Tammany Hall. Hague was replaced by “reform” candidate John V Kenny, who perfected the corrupt machine to equal if not exceed that of Chicago’s Mayor Daley. My family was among the few real Republican residents in the Democratic-dominated County.
I was born and raised and lived most of my life in Jersey City, county seat of Hudson. But I recently moved to the peace and quiet of rural Northeast Pennsylvania - to the area I had been visiting for just about every summer for close to 50 years.
As I have boasted often in the past – in 42 tax seasons I have never prepared a 1040, or any other tax return, using tax preparation software. And I have no intention of starting now. I see absolutely no cost effective benefit to me for using flawed tax preparation software.
The closest I came to using software was during my brief tenure as a “para-professional” for the then big-eight CPA firm of Deloitte Haskins + Sells back in the late 1970s. I remember filling in an “input sheet” for a Form 1040 for calculation via Computax. As I recall, my reaction back then was that by the time I finished filling in the input sheet I could have actually manually prepared the return.
And while I do, when appropriate, submit NJ-1040s for full-year residents online via the NJ Division of Taxation NJWebFile system, as I am required to do by state law, I have never filed a federal income tax return electronically. I am not against electronically filing returns, and, as I have said time and again, I will gladly do so when the IRS allows me to so do free of charge on their website, via a program similar to NJWebFile, and without having to provide my fingerprints.
Over the years I have had as many as 4 cats at a time (and when living “in sin” we also had a dog, rabbit, gerbils and newts), who I think of as my children. I have always felt that having cats was much more better than having children.
I currently live, and work out of, a “home office” in my condo in Wayne County, PA. I gave up my storefront office, previously that of my mentor Jim Gill, years ago when I realized that I was paying rent for the place year round but really only using it for 3 months – and the fact that I did not want or need any more “walk-in” clients. I had my fill of the “great unwashed masses”.
Although I had started my own tax and accounting practice after leaving Delloite, Haskins + Sells I continued to work with Jim Gill on week-ends and the last two weeks of each tax season up until he handed the practice to me in 1999.
I had been receiving calls from Jim’s clients at my own office, then in an office building in Union NJ, saying that Jim’s office was still locked and that he was not answering his phone. I myself had not been able to access his office at the beginning of February as the lock had been changed.
I went to Jim’s house in Hoboken and found him lounging around the living room in his pjs. “I am 75 years old – I don’t want to do this anymore,” he said. “You can have the practice.” Just about all of his clients, whom I had known and done over the past 26 years, remained with me, as many do still today.
Jim did return to help me out during the last weeks of the 1999 and 2000 seasons, and went to his final audit in August of 2001. Had he lived a bit longer we would have celebrated 30 years of working together.
Jim had the radio going constantly in the office, initially playing NYC station WRFM which played “American Popular Standards”. As a result I find that I cannot work in silence; I, too, must have the radio on (I actually listen to out of state and web-based radio stations online) or a CD (usually an original Broadway cast recording) playing while I am working away on my 1040s, or while I am blogging.
While I am providing insight as to "where I am coming from" I might as well take this opportunity to again make it perfectly clear that I am not looking for more clients. While writing a blog is a great marketing tool for a professional practice, I do not write THE WANDERING TAX PRO with an eye toward getting more business.
Speaking of THE WANDERING TAX PRO, I began blogging in the summer of 2001 after attending that year's annual NATP national conference, where one of the classes I took talked about blogging.
At present I have more 1040 clients than I want or need. And if I did decide to look for new 1040 clients all I would need to do is put the word out to my existing client list and I am sure I could get at least 50 new 1040s just from internal referrals. I do not want any 1041, 1065 or 1120 clients period - so that is not an issue.
I have often been asked why I have not followed in Jim’s footsteps and taken on apprentice tax preparers, which would allow me to accept new clients and avoid unnecessary GDEs. I was actually approached via email by an accounting student who had discovered me online and wanted to become a tax season “apprentice”.
To be perfectly honest I am not blessed with the patience that Jim Gill had, and don’t think I would make as good a teacher or “mentor”. And, as I work out of my small condo, there is really no room for anyone else to work.
So, enough about me already. Any questions.
Before I “leave” for my tax filing season hiatus let me identify two guidelines that I hope the idiots in Congress will seriously consider if they actually do, as promised, start to address substantive tax reform.
(1) Recognize and acknowledge that the purpose of the federal income tax is to raise the money necessary for the administration of the government and government sponsored programs. It is not to be used to “redistribute income” or as a method for delivery of social welfare and other government benefits.
Remove from the Tax Code the Earned Income Tax Credit and the refundable Child Tax Credit and instead distribute these benefits via existing federal welfare programs for Aid to Families with Dependent Children.
Remove from the Tax Code all the various educational benefits and instead distribute these benefits via existing federal programs for providing direct student financial aid.
Remove energy and other such personal and business credits from the Tax Code and distribute these benefits via Cash-For-Clunckers-like direct discount or rebate programs.
Only use the Tax Code to encourage such things as savings and charitable giving.
(2) Keep It Simple, Stupid.
Have only one Tax Table and only one Filing Status. The Code should be “marriage neutral”. Remove the marriage penalty and the marriage benefit. Tax married couples as two single individuals. Compensate by increased exemption amounts for dependent children.
Remove all AGI-based reductions, phase-outs, exclusions and adjustments. No PEP or Pease.
Eliminate the dreaded Alternative Minimum Tax.
Tax Social Security and Railroad Retirement benefits the same as any other pension with “after-tax” employee contributions – using the Simplified Method or the method used by New Jersey for determining state taxable IRA distributions.
Monday, January 28, 2013
The American Taxpayer Relief Act extended the “Nonbusiness Energy Property Credit” for qualified energy efficiency improvements or residential energy property costs for your primary principal residence, which had expired on December 31, 2011, through 2013, making it retroactive to January 1, 2012.
The credit is 10% of the qualified cost up to a maximum of $500. Some items are limited to a credit of from $50 - $300.
The $500 is a “lifetime” limit. If you claimed over $500 in energy tax credits from 2006 - 2011 you are not eligible for a credit for 2012.
The credit is available for –
The credit is available for –
* Biomass Stoves
* Heating Ventilating, Air Conditioning (Advanced Main Air Circulating Fan, Air Source Heat Pumps, Central Air Conditioning, Gas, Propane, or Oil Hot Water Boiler, and Natural Gas, Propane or Oil Furnace)
* Roofs (Metal and Asphalt)
* Water Heaters (Gas, Propane or Oil Water Heater, and Electric Heat Pump Water Heater)
* Windows and Doors
There are very specific “energy efficiency” requirements for each of the above items. Not every new window, door, boiler, furnace, or roofing improvement will qualify. You can go to the Energy Star website to find out what the specific qualifications are for individual items.
You may have to wait a few days before the above referenced Energy Star website has been updated for the new extension. When I checked the site I found the following message - “Updates to information regarding recent tax credit changes are in process and will be posted here within the next 7 business days.”
When giving your tax pro your “stuff” next February or March do not just include a copy of the bill for one of the listed items, or a note that you spent $800 for a new hot water heater, and expect him/her to waste his/her valuable time attempting to determine if the purchase qualifies for the credit. Do the homework and determine if your purchase qualifies before contacting your tax pro.
Friday, January 25, 2013
An open letter to all journalists, columnists, and personal finance bloggers –
Whenever writing about a tax deduction, credit, strategy, or technique DO NOT give the advice “consult your CPA”. THIS IS WRONG ADVICE.
The CORRECT ADVICE is “consult your tax professional”.
While an individual CPA may be a tax professional, CPA does NOT equal tax professional.
Robert D Flach
“No man’s life, liberty, or property are safe while the Legislature is in session” - Unknown
* They like me! They really like me! I have been named as #10 on the list of “Top 30 Accounting and Finance Blogs of 2012” issued by BEST ACCOUNTING SCHOOLS! I am in good company on the list.
* Have you seen my reaction to the IRS response to the court case that shot down its tax preparer regulation regime – “Just Say No to the Stay of the Injunction”?
* A reminder at MAINSTREET.COM that “Processing of Most Returns Is Delayed, IRS Says”.
* Speaking of MAINSTREET.COM, an item in the Tax Center suggests “IRS E-Filing Could Be to Blame for an Uptick in Tax Identity Theft”.
“In the past several years, the number of incidents of identity theft related to consumers’ tax returns has surged, and there seems little the Internal Revenue Service can do about it. Some experts say a major reason for this increase in fraud could be the result of the agency’s e-filing option.”
I do not e-file the federal returns of my clients, because I do not use flawed and expensive tax preparation software. Perhaps this is one reason why none of my clients have ever had a problem with tax-related identity theft.
* Have you been following the online discussion of the shut down of the IRS RTRP program and the idea of a voluntary RTRP certification program?
“FurtherT houghts on Preparer Regulation” by Jason Dinesen at DINESEN TAX TIMES.
“Attorney Who Bested IRS In Tax Preparer Regulation Case Speaks Out” by Kelly Phillips Erb at FORBES.COM.
“Alphabet Soup” by Russ Fox at TAXABLE TALK.
“Voluntary Licensing?” by Trish McIntire at OUR TAXING TIMES.
And “Tax Pros Speak Out on Voluntary Certification” by me at THE TAX PROFESSIONAL.
Kelly Phillips Erb has since "tweeted" her thoughts -
"I think it has legs. I do worry about grandfathering (as was noted on FB). But I think a voluntary designation is smart."
* Jason Dinesen makes a good point in his reminder “Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed” at DINESEN TAX TIMES (the highlight is his) –
* I didn’t forget! I am included in Kay Bell’s “Tax Carnival #111: Countdown to Filing” at DON’T MESS WITH TAXES.
* William Perez provides a good review of the recently extended tax benefit and the 2 special options in “Qualified Charitable Distributions from IRAs for 2012” at ABOUT.COM.
* Over at TAX FACTOR Jamaal Solomon continues his ongoing series with “Tax Organizer for Clergy”.
* Jen Carrigan asks the question “Should Capital Gains Be Taxed Differently?” in a guest post at THE MI.SSOURI TAXGUY.
* You are kidding, aren’t you? This is what H &R Block spokesman Gene King said in response to the court case shutting down the RTRP program -
"We've always held our tax professionals to some of the industry's highest standards and will continue to do so this tax season and every tax season."
Yeah, right. And the check is in the mail.
* Former IRS Commissioner Mark Everson speaks on “Tax Reform: Where Are We Now?” at TAXPRO TODAY.
* Let me end this installment by sharing some excellent advice for Schedule C filers from EA David Fazio’s post “The Tax Court Gave This Schedule C an ‘F’” at EAT...TAX... LOVE: INSIGHTS FROM A TAX PRO.
“What I want my self-employed clients to take away from this post is that I can't stress enough the importance of documentation of income and expenses.
· Get used to saying "can I get a receipt for that?" Your canceled checks and/or credit card statements are not enough if you are audited. You need proof of payment and proof of what you paid for.
· Fill out those mileage books I give you every year and be sure you are noting the business purpose of your travel! Want an app for that? I use MileBug for iPhone.
· Keep track of all of your income (checks, credit cards and cash received).
· Use separate bank accounts for your business and dedicate a credit card for just business expenses. It just makes things easier for everyone.
· Travel, meals and entertainment always have stricter documentation requirements than other business expenses.
· Ask questions of your Enrolled Agent if you are unsure if something is deductible. Hint: the expense needs to be both ordinary and necessary for your business. While a DJ would be allowed to deduct his iTunes downloads, that same expense wouldn't fly on my tax return.
Remember, you can never have enough paperwork. I tell my clients all the time that I've never lost an audit because the IRS said I gave them too much documentation.”
Wednesday, January 23, 2013
"I think we have to reform our complex, burdensome tax code. It's 10 times the size of the Bible with none of the good news." - House Ways and Means Committee Chairman David Camp
It is truly rare that I quote as wisdom something said by one of the idiots in Congress! But, as with any politician, what they say and what they do are usually two different things. Let us hope that is not the case with tax reform.
* Check out my Tax Tip “What to Give Your Tax Preparer” at MAINSTREET.COM.
* By now we have all heard that the IRS tax preparer regulations have been shut down, at least temporarily. Even if the IRS appeals, as I expect it will, and wins (which would not end the Institute for Justice anti-regulation campaign) it will take time, and the service will be forced to postpone the 12/31/13 deadline for passing the competency test for at least another full year.
From my point of view, pragmatically speaking, this means that I will not have to worry about having to deal with the RTRP competency test until after the 2014 tax filing season.
Did you see my responses to the court decision at THE TAX PROFESSIONAL? Click here and here and here.
* In its challenge of the IRS tax preparer regulation regime, the Institute for Justice argued that the cost of attending just the 15 hours of training would range between $675 and $1012.
To quote fellow tax blogger Trish McIntire – “Bovine excrement!”
As I pointed out in one of THE TAX PROFESSIONAL posts linked abote, the National Association of Tax Professionals, one of the best providers of tax CPE around, offers two days, 16 hours, of CPE, which includes the required 3 hours of updates and 2 hours of ethics, at several locations in each of the 50 states (so there is no need to incur costs for travel or lodging) in November-January of each year. The cost of the 2 days for 2012 was $349 (which included a continental breakfast).
There are several very reasonable online and self-study options. Trish McIntire tells us –
“In 2012, I paid $428.50 for 32 hours of course work. That averages to $13.39 an hour. I could have spent less. I’ve seen free CPE and companies that offer packages under $10 an hour. I’ve also spent more for special courses I wanted to take. But working from an average of $15 an hour for 15 hours equal $225 a year for continuing education.”
I respect the argument that the IRS is not authorized to regulate tax preparers and the Institute’s objection to the regulation regime on libertarian grounds. But to say the cost of CPE alone will force serious tax preparers out of business is nonsense.
* Jason Dinesen’s post “Further Thoughts on Preparer Regulation” at DINESEN TAX TIMES shares, in 600+ words, his “opinion on the apparent death of the RTRP designation, and what the future holds, especially for Enrolled Agents like me”.
Jason rightfully complains –
“We’re equals to CPAs (in the tax world) but I guarantee that most people think EA is a lesser designation than CPA.”
There is just one error in that statement. In the tax world EAs are certainly superior to CPAs. EAs have passed an extensive test in federal taxation, more so than the RTRP competency test, and must take more than the 15 hours of CPE in federal taxation that was required of RTRPs.
With the “death” of the RTRP, the initials EA are the only ones that identifies tax knowledge and currency.
* Annette Nellen, author of the 21st CENTURY TAXATION blog, has written a piece identifying, and describing in detail, her picks for the “Top 10 Tax Developments of 2012” at AICPA TAX INSIDER.
* EA Jamaal Solomon continues his series at TAX FACTOR with a “Tax Organizer for Educators”
* Over at FORBES.COM Howard Gleckman tells us of “Another Absurdity Of The Fiscal Cliff Deal: A Tiny Tax Bracket Covering 500 People”.
“The fiscal cliff deal (aka the American Taxpayer Relief Act of 2012) created what may be the world’s tiniest tax bracket. Under the new law, singles face a rate of 35 percent if their taxable income falls between $398,350 and $400,000. The bracket covers a grand total of $1,650.
The Tax Policy Center figures fewer than 500 taxpayers fall into this group, which makes it a very exclusive club indeed.
Matters are a little less strange for married couples filing jointly. For them, the 35 percent bracket covers a $51,650 income range.
* OLSEN TAX CONSULTING LLC has produced an “infographic” of “10 Common Income Tax Snafus”.
Take special note of the last one –
“Many people assume that their tax preparer is responsible for mistakes.
However, in the eyes of the IRS, YOU are responsible.”
* Some good timely advice from the IRS in “Topic 154 - Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)” -
“Employers/payers have until January 31 to issue certain informational documents. If you do not receive your Form W-2 or Form 1099-R by January 31, or your information is incorrect on these forms, contact your employer/payer.
If you do not receive the missing or corrected form by February 14 from your employer/payer, you may call the IRS at 800-829-1040 for assistance. You must provide your name, address (including zip code), phone number, Social Security Number, dates of employment, your employer/payer's name, address (including zip code), and phone number. After February 14, the IRS will contact the employer/payer for you and request the missing form. IRS will also send you a Form 4852 (PDF), Substitute for Form W-2 or Form 1099-R, along with a letter containing instructions.
If you do not receive the missing form in sufficient time to file your tax return timely, you may use the Form 4852 to complete your return. If you receive the missing or corrected Form W-2 or Form 1099-R after you file your return and a correction is needed, use Form 1040X (PDF), Amended U.S. Individual Income Tax Return.”
* MISSOURI TAXGUY Bruce McFarland provides “a few facts you should know about the tax implications of an early distribution from your retirement plan” in his post “Tax Issues with Early Distributions from Retirement Savings”.
* Back to Trish McIntire of OUR TAXING TIMES, who warns taxpayers about the latest ploy of the fast food tax prep chains to pick your pocket in “Can You Use the 1040EZ?” -
“You've heard the commercials; one of the national chains will prepare your taxes for free-if you can use the 1040EZ. They're targeting young adults who might be tempted to do it themselves online or with tax preparation software. Is it a good deal? It depends on if you qualify to use the form and what other charges might you get stuck with?”
Her bottom line -
“Free can be good as long as you're getting the same quality return as the customer who are paying for their return. And you aren't paying more in taxes because you skipped a credit or deduction to stay on the 1040EZ form.”
THE LAST WORD
Guns don’t kill people. People kill people. But guns make it easier to kill more people more effectively.
I wish the NRA would explain to me why a hunter needs an “assault weapon” to kill a deer. It would seem to me a rifle, or a bow and arrow, is enough “fire power”.