THE WANDERING TAX PRO

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’

2009-11-21T05:00:00.003-05:00

* OOPS! Sorry I missed Kay Bell’s T3 (Tax Twitter Tuesday) in Wednesday’s BUZZ. Anyway, here it is now – “Tax Twitter Tuesday 11.17.2009”.

* This page on “How to Pay Less Taxes” at EFILE.COM is chock-a-block with good tax planning and preparation tips and advice, many of which I have talked about here and elsewhere for years. It is nice to have all this information in one place.

* An email from the Treasury Inspector General for Tax Administration (TIGTA) announced the release of a new report titled “Improvements Are Needed in the Administration of Education Credits and Reporting Requirements for Educational Institutions”.

It seems that –

“TIGTA's review looked at taxpayers who claimed the credit in 2006 and 2007 and found that, in 2006, approximately 203,000 taxpayers erroneously claimed a total of over $300 million in Hope Credits. In 2007, over 169,000 taxpayers erroneously claimed a total of over $232 million in Hope Credits.”

Another reason why such benefits should not be administered via the Tax Code (as I have been saying now for some time)!

I was especially interested to read the following item from the email (highlight is mine) –

“TIGTA also performed a computer analysis of all Forms 1098-T, a tuition statement provided by educational institutions to students, from 2005 through 2007. The form includes a box in which the educational institution may show the amount of tuition paid by the student, which is the figure that taxpayers and the IRS use in order to determine the amount of the credit. However, educational institutions are given the option of showing the amount billed for qualified tuition and related expenses rather than the amount paid. TIGTA found that the box in which the amount of tuition paid may be shown was blank on 80 percent of the Forms 1098-T it reviewed. Educational institutions expend approximately 5.1 million hours each year to complete Forms 1098-T and an estimated $3.8 million to mail the forms to students. Although a few government agencies use some of the information on the form, the IRS does not use the form to match or confirm the amount of the claim.”

This just goes to emphasize my comment that the Form 1098-T as currently issued by most colleges is like “tits on a bull”. For the most part the Form 1098-Ts that I get from clients are totally useless. Who cares how much was “billed” - I need to know how much was paid! And if the IRS is not going to match 1098-T information to the tax return what is the purpose of having it at all?

TIGTA made legislative recommendations to “enact legislation to either revise the reporting requirements for Form 1098-T so that the IRS and taxpayers are able to use it to calculate the amount of the claim or else relieve educational institutions of the burden of producing the form”. I hope there is some follow through on this.

* MISSOURI TAX GUY Bruce continues on the subject of the dreaded Alternative Minimum Tax (AMT) with the follow up post “How Do I Know if I Have to Worry About the AMT?”

* Chad Bordeaux has a good post on “What is a Qualified Charitable Organization?” over at BEANCOUNTER RAMBLINGS.

Chad tells us that, “Many times, people will think that donations can be deducted when they can not”. He provides a good example –

“An example that I usually bring up to explain this is related to a local homeowner’s association in the area. At least once a year, they send out a flyer that promotes a neighborhood get together (aka “party”). In the flyer they specifically state that they need donations for the keg fund and to remember that “these are tax deductible.” I hate to burst their bubble, but they are not tax deductible for a host of reasons. Primarily because the donations are not made to a qualified charity. The homeowner’s association is a tax-exempt organization (aka “non-profit”), but it does not have a charitable purpose.”

Just because an organization is “tax exempt” does not automatically mean that payments made to it are deductible as a charitable contribution.

If I may add a caveat to the subject – if you are putting your donations of old clothes in a “drop-off box” be sure that the box actually belongs to a charity. Here is some advice I gave in a July 2007 edition of the BUZZ (highlight has been added) -

“While I have, in the past, found errors in and disagreed with items discussed in Sandra Block’s weekly YOUR MONEY column in USA TODAY, I do recommend last Tuesday’s installment ‘Your Money: Donated Clothes May Not Help Charities’. When donating used clothes and household items to charity you should go with the ‘old reliables’ like Goodwill Industries, the Salvation Army, Vietnam Veterans of America or your local church – this way you are sure to be giving your items to a legitimate charity. In many cases the charity will come to you to pick up your donations. And if you are putting your donations in a “drop-off box” make sure the name of the charity is clearly indicated on the box. While these boxes may be convenient it is “more better” to drop off your donation at a local Goodwill or Salvation Army store or donation center, where you can get a signed receipt.”

* Kay Bell goes into detail on the tax provisions of the Senate health care “reform” bill in her post “2,074 pages + $849 billion = Senate Health Care Bill” at DON’T MESS WITH TAXES.

Joe Kristan also deals with one of the tax provisions in “Harry Reid's Funky New Medicare Surtax” at the ROTH AND COMPANY TAX UPDATE BLOG.

I found this nice listing of “the 17 tax increases in the Senate health care bill, which are estimated to raise $370.2 billion in revenues over ten years” as published by the Joint Committee on Taxation in the post “The Number 17 May Mean Something This Year” at the SACRAMENTO TAX BLOG, which is written by Owen S. Arnoff, EA.

I don’t quite know what “Conform definition of medical expenses” means in this context. And I, at this point, would certainly oppose “Raise 7.5% AGI floor on medical expenses deduction to 10%”.

* An article by Ryan J. Donmoyer at BLOOMBERG.COM reports that “Rangel Says House Democrats Will Seek to Renew US Tax Breaks”.

According to the article –

“New York Representative Charles Rangel said House Democrats will move next month to renew dozens of tax breaks before they expire at year’s end” and “the panel will send a measure containing most of the extensions directly to the House floor for consideration, bypassing a committee debate.”

Apparently there are 73 tax laws that are schedule to expire on December 31, 2009, as per a report by the Joint Committee on Taxation.

The expiring items include the normal tax deductions and the AMT “fix” that have come to be identified as the “extenders” because the idiots in Congress can’t make up their mind whether or not the deductions should be part of the permanent Tax Code or that the dreaded AMT should be fixed or, more better, destroyed and end up passing a 1 or 2 year extension. In the past the fools in Washington have often sat on their hands for most of the year and waited till the last minute to pass the extenders. At least now, when the bill passes, we will begin 2010 knowing that these deductions and the AMT fix is in place for the year.

* Along the lines of extending tax breaks, Joe Kristan has a post on this topic – “Theory, Meet Practice” – at the ROTH AND COMPANY TAX UPDATE BLOG.

Joe tells us that -

“George Yin, former Chief of Staff of the Congressional Joint Committee on Taxation, thinks temporary legislation -- such as the perpetually-expiring AMT patch and research credit -- is a good thing.”

Ridiculous - the constant extending of expiring tax breaks is a bad thing!

* Back to Kay Bell at DON’T MESS WITH TAXES. She gives us “A Look at Who's Paying How Much Taxes” with references to several recent studies on the topic by differing organizations.

Kay ends the post with some questions for her readers –

“What do you think? Are you being overtaxed? Are the rich disproportionately bearing the U.S. tax burden? Or are middle-class and poorer taxpayers really paying more relatively speaking than the wealthy? Should Congress let the income tax rates go back up in 2011?

Regardless of which position you take, how would change the tax system?”

I look forward to reading the comments.

* TAX GIRL Kelly Phillips Erb apparently also writes for “The Legal Intelligencer”. Over there she gives some advice on “Holiday Parties: Keeping Expenses Low and Deductibility High”.

* It will soon be time for sending out Christmas cards. I usually get my first one just after Thanksgiving, although I do not mail my own out till mid-December.

FYI, I order my cards from American Humane.

Here is a suggestion for inclusion on your Christmas Card list – passed along to me via a tweet from, once again, taxtweet Kay Bell – Holiday Mail for Heroes.

And finally another option passed along by a tweet – click here.

TTFN

DO IT YOURSELF!

2009-11-20T05:00:00.001-05:00

Earlier this week I pointed out that telling all Schedule C filers to incorporate, and telling a one-person business to incorporate solely for the purpose of reducing his/her audit profile, is truly bad advice (click here for post).

But I did add that there are times when it may indeed be cost effective for a closely-held business to incorporate.

If, after careful consideration of all the facts and circumstances and a detailed cost benefit analysis, and after consulting with a competent tax professional, you decide that it would be appropriate to incorporate your one-person business you certainly do not need a lawyer to do so.

While I am not familiar with all the states procedures, I expect that you can incorporate easily online via the website of your State. Last year I formed a NJ corporation online in about half an hour.

FYI, registering your business as an LLC is equally as easy and can generally be done online.

You can also very easily get an Employer Identification Number from the IRS at the Service’s website.

You also do not need a “Black Beauty” or other such corporate package with by-laws, corporate seal and personalized stock certificates, which lawyers are fond of selling at a nice mark-up, or pay an inflated fee for a lawyer to prepare corporate bylaws.

You can download free blank stock certificates and corporate by-laws and purchase an inexpensive corporate seal from a variety of online sources. I expect you can also find free pro-forma corporate resolutions online. Just do a “Google” or other search.

What do you think a lawyer will do when preparing your by-laws? He/she will have a secretary or paralegal clerk go to the firm’s work processing inventory, pull down pro-forma by-laws, and type in your name and information. And when a lawyer forms a basic corporation the same secretary or paralegal goes online and files the appropriate forms. Even when there was paper filing the secretary or clerk would do all the work. You can do this just as easily yourself for free.

Here are a few online resources (FYI I have no personal experience with or connection to these resources):

PRINTABLE STOCK CERTIFICATES

CORPORATE BY-LAWS

CORPORATE BY-LAWS

CORPORATE SEAL

Where you may need the assistance of a lawyer, experienced in tax matters, is if you are forming a partnership, to help with the writing of the Partnership Agreement. And, of course, you also may need to consult a lawyer when forming a more complex corporation, with multiple shareholders of differing inter-relationships.

You certainly should sit down with a competent tax professional, experienced in business taxes, and go over all of your options in detail, and perform the requisite cost benefit analyses, before making any moves.

TTFN

DOGGIE DEDUCTIONS

2009-11-19T07:32:00.003-05:00

An email from a former co-worker (who I recently ran into coincidentally after not seeing each other for about 20 years) brought up an interesting tax issue.

Here is the pertinent portion of the email -

“My wife is raising a puppy for The Seeing Eye in Morristown, NJ. The puppy is delivered at about 6 weeks and stays with the host family until the puppy reaches 12-15 months of age, at which time it is returned to The Seeing Eye for the appropriate training to become a Guide Dog. The host family is responsible for introducing the dog to the public - independently along with group excursions. Fees paid to a veterinarian are reimbursed by the Seeing Eye. However, dog food, toys and travel are not reimbursed in full. Someone in the club was wondering if these unreimbursed expenditures could be claimed as a charitable deduction. My gut feeling was that since these expenditures are made through a grocery or pet store it would be difficult to substantiate these expenditures for inclusion on the Form 1040 Schedule A. The travel, however, to attend meetings and outings may be something that could be utilized on the Form 1040 Schedule A.”

According to IRS Pub 526 (Charitable Contributions) –

“Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

• Unreimbursed,
• Directly connected with the services,
• Expenses you had only because of the services you gave, and
• Not personal, living, or family expenses.”

I found this advice being given at the “Frequently Asked Questions About Puppy Raising” Page of the Guide Dogs for the Blind website –

“Q: Are the costs of raising a Guide Dog puppy tax deductible?

A: Yes. Guide Dogs for the Blind is a nonprofit charitable organization, and all expenses incurred by the raiser as they relate to raising the puppy (dog food, veterinary bills, gas mileage, etc.) are considered a donation to Guide Dogs. Guide Dogs suggests all puppy raisers consult with a tax advisor to receive the proper IRS requirements for documentation.”

I tend to agree with the advice provided by Guide Dogs for the Blind.

The Seeing Eye in Morristown, NJ is a qualified charity. The purpose of the organization is to raise and train Seeing Eye dogs for use by a blind person. The dog is placed in the volunteer taxpayer’s home by The Seeing Eye as a puppy to be raised. The volunteer taxpayer begins the dog’s training by “introducing the dog to the public - independently along with group excursions”. When the dog is old enough to begin actual guide dog training it is returned to the organization.

The email indicates that the expenses incurred by the family, other than veterinarian bills, are “not reimbursed in full”. According to the organization’s website, it “provides a stipend to help defray the cost of food”, but this does not cover the total cost of the food. And no reimbursement is given for travel costs.

The website says – “Your Area Coordinator will give you an initial eight-pound bag of puppy food. We suggest you purchase the same brand in 40-pound bags at local feed stores.” So The Seeing Eye tells the volunteer taxpayer what type of food it should buy.

There is an actual “out of pocket” for food as well as for dog toys and travel to the vet and “to attend meetings and outings”.

Let’s apply the guidelines in the IRS pub.

1. A portion of the expenses are unreimbursed. There is a true “out of pocket”. Only the "out of pocket" portion is deductible.

2. The expenses are directly connected with the service of raising the puppy provided by the volunteer taxpayer.

3. The expenses are incurred only because of the service of raising the puppy provided by the volunteer taxpayer. And

4. These are not “personal, living, or family expenses”. The volunteer taxpayer is not taking in the dog to be the family pet – but as a true volunteer service to the organization. The taxpayer is required to begin the puppy’s socialization training and to return the dog when it is old enough for more specialized training.

As for substantiation – a travel diary (notes made in a regular pocket date book) would document the miles driven to meetings and organization sponsored outings. The deduction in this case would be 14 cents per mile (the standard mileage allowance for charity). The fact that the cost of the dog food and toys are on bills from pet stores and groceries should not matter. One would just circle the applicable items and make a note on the individual receipts and save them in a separate envelope. At the end of the year the amounts would be added up and the stipend received would be deducted to determine the amount of the tax deduction.

If the puppy placed by The Seeing Eye is the only dog in the household substantiating the cost of food, etc. is easy. If there is one or more other family dogs in the picture one would have to allocate the food purchases among the dogs, unless a special brand or type of food is purchased for the future guide dog that is different from the food purchased for the family dog(s). In the case of multiple dogs the cost of “toys” may be questionable, unless the volunteer taxpayer is told by The Seeing Eye what specific toys or other aides are to be purchased to assist in the puppy’s specialized socialization training.

Of course, as the email suggest, these volunteer expenses are only deductible if you can itemize on Schedule A.
.
FYI, according to the IRS publication on Medical and Dental Expenses (Pub 502) -

“You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually-impaired or hearing-impaired person, or a person with other physical disabilities.”

So when the guide dog is placed with a blind person, that person can deduct in full, as a medical expense (subject to the 7 1/2% of AGI exclusion) all the costs associated with the dog (i.e food, vet bills, etc).

The guidelines used to determine if the dog-raising expenses of my friend and his wife are deductible can be applied to other types of volunteer work.

For example, if you are a regular “docent” at a museum, or if you are a Board or commitee member of a charity, or if you drive members of your church’s youth organization to group events you can deduct your round trip mileage to the museum, to attend meetings, and to the events. And if you are a scoutmaster you can deduct the cost to purchase and clean your uniform. IRS Pub 526 discusses such deductible expenses in more detail.

So, Jack, I hope that I have answered your question.

Do any of my fellow tax professionals have anything to add?

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

2009-11-18T05:00:00.002-05:00

The BUZZ is “chock-a-block” today! Perhaps the biggest BUZZ yet.

* Let’s start with a great story that has nothing to do with taxes from Stacie Clifford Kitts of STACIE’S MORE TAX TIPS, “A Small Town and A Diabolical Marketing Strategy that Sucked Me In”, which provides a great warning for travelers driving through small towns.

* TAX CPA Marilyn Lawver’s post “Maybe Next Year” - which observes, “It looks like we won't see any significant reform in the near future. No end in sight to massive AMT, endless credits, and a brand new Schedule L, too! Oh goody” – brought me back to her earlier post “How Does That Work”, which included some excellent comments on our current tax system -

“As often happens, I find myself comparing this situation to medicine (which just might have something to do with being married to a doctor). If we only change a code section here, or a regulation there, we're just treating symptoms and not the disease.

Just like when we keep adding new credits and deductions, we keep trying to cure our economic ailments with more and more medication. And from the stories I hear, more medication is not always the best answer! It often makes things worse.”

* TAX PROF Paul Caron tells us about a court case in which “Tax Court Applies Cohan Rule to Allow Deduction for Portion of Unsubstantiated Charitable Contributions”.

The Cohan rule (for, yes, George M Cohan, the “Yankee Doodle Dandy”) is generally applied to employee business expenses, specifically travel expenses. It is interesting to see it applied to charitable contributions, although there apparently is precedent. However, this ruling applies to a 2005 tax return, before Congress enacted strict documentation rules for charitable contributions.

What is the Cohan rule? Check out my post “In the Courts” for a basic description. Perhaps I will write a post on it next week.

{OOPS! It seems I got ahead of myself and published the post on GMC yesterday (Tuesday)! I hope you didn’t pull your hair out trying to find the reference to the Cohan Rule in last Saturday’s BUZZ.}

* Paul also brings out attention to the report “Judging Tax Expenditures: Spending Programs Buried within the Nation’s Tax Code Need to be Reviewed” by Citizens for Tax Justice in his post “CTJ: Judging Tax Expenditures”.

The report’s summary tells us (highlights are mine) –

“Special tax breaks, known as tax expenditures, are generally enacted with goals unrelated to ensuring that the tax system collects revenue efficiently and fairly. Instead, these programs are designed to encourage particular activities or reward specific groups of taxpayers. Because they lack tax policy justification, tax expenditures are often described as spending programs “hidden” within the tax code.

Tax expenditures are exceedingly popular among lawmakers, but not for reasons of good policy. Rather, political attitudes and loose procedural rules are responsible for the excitement surrounding these provisions. This undeserved popularity can and should be reined in, at least in part, by implementing a tax expenditure performance review system. Such a system would impartially judge whether these provisions are fulfilling their stated objectives.”

I have been saying basically the same thing for some time now.

* The NY TIMES has a good article by Ron Leber on “Financial Decisions to Make as You Divorce”.

Ron correctly points out that it is important to consider tax consequences when dividing assets -

“In general, it’s crucial to consider the after-tax value of everything, from retirement accounts to deferred compensation when splitting up assets. Annette Brown, a divorce specialist in San Francisco, also noted that judges sometimes failed to consider which spouse could best benefit when awarding the right to future tax deductions and credits relating to the couple’s children.”

It is important to get a tax professional involved in drafting the divorce document, or at least let one review the document before you sign. A lawyer may be extremely competent and experienced in divorce law but may not know his arse from a hole in the ground when it comes to taxes.

I recently went through a long and tedious situation with the IRS, which I eventually “won”, because a divorce agreement was not properly worded.

Check out my 4-part series on “Till Divorce Does Us Part” – Part I, Part II, Part III, Part IV.

* I like Ron Teuber’s “Friday's Tax Quote - November 13, 2009” at the TAX LAW FORUM blog –

"A fine is a tax for doing something wrong. A tax is a fine for doing something right."
- Anonymous.

That Anonymous guy really said a lot of good stuff!

* Kay Bell discusses a truly unique tax subject that has been getting some press lately in “Dissecting Taxation of Human Body Parts” at DON’T MESS WITH TAXES.

Kay quotes from an item by Lisa Milot of the University of Georgia Law School –

"Transfers of human body materials are ubiquitous. From surrogacy arrangements, to sales of eggs, sperm and plasma to clinics, to black markets for kidneys, to pleas for donations of body materials, these transfers are covered and debated daily in popular and academic discourse.

There are no statutory provisions directly on point, Internal Revenue Service guidance is outdated and conflicting, and the small number of judicial decisions in this area are narrowly written to resolve only the tax liability of the particular taxpayer before the court"

Kay’s bottom line – “Well, it turns out that a pound of flesh (although usually much less) might one day literally be considered when it comes to taxation.”

My special report on DEDUCTING MEDICAL EXPENSES ON YOUR 2009 FORM 1040 (available for $2.00 sent as a pdf email attachment) tells us that, while the value of the donated egg or embryo are not taken into consideration, you can deduct -

“The cost of fertilizing and transferring a donated egg or embryo, as well as expenses to obtain an egg donor that are directly related to and in preparation for receiving the donated eggs or embryo. This includes agency fees, donor fees, the donor’s medical and psychological testing fees, insurance premiums paid for post-procedure assistance, and legal fees for preparing the donor contract.”

* Another Kay Bell item - this time it is not from DON’T MESS WITH TAXES but Kay’s other blog EYE ON THE IRS at Bankrate.com. I offer the post “'Accidental' Mortgage Interest Deduction”. This post discusses the history of the mortgage interest deduction – which Kay has gone from "accident to birthright."

Kay tells us that -

“Many economists believe, however, that the effort to increase homeownership, typically through tax breaks, has played a major role in our current economic crisis.”

And, Kay, thanks for the post on my George M Cohan item!

* Bruce, the MISSOURI TAX GUY, has lots of interesting “stuff” in his weekly “Reads from Last Week” entry. I thank Bruce for the reference to, and thoughts on, my post on a National Sales Tax.

Bruce is always finding new interesting blogs. I especially liked the post he referred to from the OUTBREAK blog, a blog which is also new to me. And, as usual, Bruce links to some good advice from personal finance blogs.

As for “Snoopy music”, I like “Supper Time” from the musical YOU’RE A GOOD MAN, CHARLIE BROWN. And, of course, the tales of Snoopy’s battles with the Red Baron from the 60s.

*Bruce also begins what looks like a series of posts on the dreaded Alternative Minimum Tax with “A Brief Overview of the Alternative Minimum Tax (AMT)”, which details the background and history of the damned thing.

* FYI, JOE TAXPAYER also has a weekly BUZZ-like review of personal finance blog posts which he titles “This Week’s PF Blogger Roundup”. I especially liked the post “5 Dumb Mistakes That Smart People Make” that JT references.

* The OUTBREAK blog that I discovered on Bruce’s post led me to a good “State By State Sales Tax Summary” from Wray Rives, CPA’s self-titled blog. The 9/1/09 post provides details and links for each state that has a sales tax. It is a good post to “favorite” for future reference.

* TIGTA (the Treasury Inspector General for Tax Administration) has issued a report titled “Millions of Taxpayers May Be Negatively Affected by the Reduced Withholding Associated With the Making Work Pay Credit” (now there is a mouthful – say that 5 times fast!). The report discusses a disturbing, but not unexpected, result of the new tax withholding tables instituted to allow taxpayers to take advantage of the MWP credit.

According to the press release (highlights are mine) -

“TIGTA found that the implementation of the MWPC creates the possibility that more than 15.4 million taxpayers may be advanced more of the credit (through reduced withholding) than they are entitled to receive. When filing their tax returns for 2009 and 2010, such taxpayers may ultimately owe additional taxes. Some also may be subject to estimated tax penalties.”

Back when the new withholding tables were instituted I, and just about every other tax blogger, warned about the unintended consequences. As TIGTA explains -

“The MWPC was implemented using new income tax withholding tables. However, the changes to the withholding tables did not take into consideration: dependents who receive wages; single taxpayers with more than one job; and joint filers where one or both spouses have more than one job or both spouses work. Other groups potentially affected include: individuals who file a return with an Individual Taxpayer Identification Number; those who receive pension payments; and Social Security recipients who receive wages.”

* Russ Fox makes a very astute observation in his post “Senator Reid Looking at Increasing Social Security, Medicare Taxes for the Wealthy” at TAXABLE TALK –

“Frankly, the current Administration and the current Congressional leadership has little clue about economic development.”

If any!

* Annette Nellen, CPA/Esq discusses the “Need for Penalty Reform at Federal Level” at 21st CENTURY TAXATION. She tells us that “There are about 130 civil penalties in the Internal Revenue Code”.

The post takes you to a very extensive article on the subject by Annette at another “location”.

* Trish McIntire gave us two good posts at OUR TAXING TIMES on Sunday.

The first, “Buyer Education VII”, continues her excellent series with a discussion of “Advice From Non-Preparers”.

Trish correctly says –

“I would suggest calling your tax professional if you are tempted to follow tax advice given by your:

• Barber/Hairdresser
• Real Estate Agent
• Car Sales Person
• Home Improvement Guy or Gal
• The Loudmouth at Work
• The Know-it-All Relative
• The Golf Cart Sales Person
• The Fund-raiser
• Anyone who will make money or benefit from you making the tax decision they are suggesting.

I am sure most of these people are good people. Some of them have heard the info they are sharing and are passing it on. The problem is that they may not understand it well enough to share, or didn't get all the restrictions, or they're wrong. Or, they are trying to sell you something and using tax savings/credit to get you interested or push the sale.”

Hey, I have said for years now that the best tax advice I can give someone is to not accept tax advice from anyone other than a competent tax professional.

Trish then goes on to talk about “Locking the Barn Door”. She tells us –

“My concern is with the tax planning that isn't getting done, now or at any time of the year. These are the major, life changing events and it is surprising how many taxpayers don't think of them until it is too late. A few examples:

• Retirement
• Child leaving home (not just to school) or turning 17
• Starting Social Security (with or without retirement)
• Unemployment
• Starting a business
• Divorce
• Marriage

All these life events can cause a change in your taxes and generally not for the good. But, they can be planned for and adjustments made to withholding and estimates.”

Hey, I have been saying, “Once the ball drops on One Time Square and the New Year is rung in there is little you can do to reduce your tax liability” for decades.

* Over at the INTUIT (Hey, man, I’m not into it) website Terry Myers and Dee DeScherer tell us that “2009 has also seen a number of important new rulings from the IRS and the courts” and that “These new rulings may have a significant impact on the returns of certain clients” in a “Tax Article” titled “New Rulings Impact 2009 Form 1040”, and provides a detailed discussion of some of these rulings.

A tip of the hat to Kerry M. Kerstetter, the TAX GURU.

* Andy talks about “Taxes and Gains I Can Exclude When Selling My Home” in a comprehensive post on the subject at SAVING TO INVE$T.

* The BRAIN DEAD SIMPLE! FINANCIAL ORGANIZING blog has a good post titled “A Tool for Comparing Roth vs Traditional IRAs”.

“This subject has been covered extensively by other personal finance bloggers and authors; the purpose of this post is to provide links to articles covering the basic concepts, and a simple tool for comparing taxable, tax-free Roth and tax-deferred traditional IRA and 401 (k) accounts.”

* The TAXES OBSERVED blog, a new one to me, has been running a series on FAQs regarding the new First Time Home Buyer’s Tax Credit.

* Let me end by wishing myself a happy 56th birthday.

TTFN

BEWARE OF BAD BLANKET ADVICE

2009-11-17T11:44:00.002-05:00

There is very little, if anything, about tax law that is a “no-brainer” – especially when it comes to business taxes. That is why tax professionals exist.

I do agree that all small businesses, regardless of the number of owners, that would not benefit financially by incorporating should register their activity as an LLC to get the liability protection. It is relatively inexpensive to do so, and it can probably be done online by the business owner himself/herself without having to pay a lawyer. But I also believe that a one-person LLC should elect the “default” entity and file a Schedule C. It is my opinion that if you want to file as a corporation you should incorporate.

I believe it is bad advice to tell ALL taxpayers who have a Schedule C business to incorporate. There is no tax advice that applies to all businesses in all situations (except don’t cheat). The decision to incorporate a business requires careful review of all the specific facts and circumstances of the individual situation. And taxes are not the only consideration. In a majority of cases it is not financially beneficial, either in the short or long term, to incorporate.

The advice that one should incorporate solely for the purpose of avoiding an audit seems to me to be saying, “If you want to cheat on your taxes you can incorporate and the IRS will not audit you”. It is not good tax or financial advice.

I have said time and again that an IRS audit is not something that should be avoided at all costs. Tax returns should be prepared, and decisions about choosing a business entity should be made, in such a manner as to generate the absolute least amount of federal, state and local taxes (income and payroll) within the parameters of federal and state laws. If you will pay less taxes (income and payroll), fees and other costs by filing a Schedule C you should do so, honestly and ethically, and not worry about being audited.

If your return is prepared correctly, and you document all items of income and deduction properly upfront, then an audit is nothing more than an inconvenience.

It is very true that one consideration out of many in determining whether or not to incorporate is the fact that the audit profile of the business will be reduced, and more so in coming years. But it is only one – and a minor one at that. At most it is merely “icing on the cake”. Unless, of course, you are a crook.

If you are told that there is a substantially greater chance of being audited if you deduct your $10,000 gift to a qualified charity, which you did properly and have all requisite documentation, it would be bad advice to tell you not to deduct the $10,000. The deduction is genuine and you can prove it. Who cares if the IRS asks you to prove it?

I do agree that there are indeed times when it is “more better” financially to incorporate a one-person business, especially when excessive health insurance costs are involved. But certainly not in all cases.

The decision to incorporate is by no means a “no-brainer”. It involves a lot of brain work!

Fellow tax professionals - what do you think?

I'M A YANKEE DOODLE TAX PRO!

2009-11-17T05:00:00.009-05:00

As promised in last Saturday’s BUZZ here is the story on the famous “Cohan Rule”.

George M Cohan was a playwright, composer, lyricist, actor, singer, dancer and producer who started out Vaudeville with the family act known as “The Four Cohans”. According to Wikepedia he was "Known as 'the man who owned Broadway' in the decade before World War I, he is considered the father of American musical comedy”.

Appropriately his life was made into the Broadway musical GEORGE M!, which was Joel Grey’s follow-up to CABARET. GEORGE M! also starred a young Bernadette Peters as Cohan’s sister.

His life story had previously been brought to the big screen in the classic YANKEE DOODLE DANDY with James Cagney. This movie is usually shown each year on July 4th on TCM or elsewhere. BTW, Cagney reprised the role of GMC for a guest appearance in THE 7 LITTLE FOYS, with Bob Hope as Eddie Foy. And, correct me if I am wrong, but I do believe that Eddie Foy himself appeared briefly as himself in YANKEE DOODLE DANDY.

GMC was famous for the line “My mother thanks you. My father thanks you. My sister thanks you. And I thank you”, which was addressed to the audience at the end of the family’s Vaudeville act.

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Among the many songs written by GMC are "Give My Regards to Broadway", “The Yankee Doodle Boy” (“I’m A Yankee Doodle Dandy”), “You're a Grand Old Flag", "Forty-five Minutes from Broadway", "Mary Is a Grand Old Name" and “Over There". He also taught us how to spell H-A-RR-I-G-A-N.

George M is still represented on Broadway in the form of a statue in the middle of Times Square.

FYI, while he always said he was “born on the 4th of July”, according to his Wikepedia profile a baptismal certificate indicates that he was actually born on July 3, 1878.

The “Cohan Rule” refers to the decision in the federal court case Cohan vs. Commissioner, 39 F. 2d 540 (2d Cir. 1930). This case resulted from one of the first IRS audits. The IRS disallowed Cohan’s deductions for business travel citing Internal Revenue Code Section 162. Under IRC 162 a taxpayer must establish that an expense was (1) paid or incurred for (2) business or profit-oriented purposes and (3) the amount spent.

Fred W. Daily explains the situation in his copyrighted article “Getting Audited? Can't Find All Of Your Records? No Problem”.

“The IRS took the position with Mr. Cohan that even if he could convince an auditor that the business expense qualified for a deduction (satisfy number 1 and 2), that he also must be able to fully document the amount spent (number 3). George replied that he was always on the run, and had little time to document many of his expenses. George challenged the IRS stringent record keeping requirements in court. His lawyers argued that the IRS was wrong because even though records were missing, George had presented other credible evidence of the amount of the expenses on which approximations of the true amounts could be made.

George had explained the necessity of the (undocumented) expenses and offered his recollections and approximations of the amounts incurred. The items ran from cab rides and tips to large hotel and restaurant expenses for George and his entourage. The Federal Appeals Court, in an opinion by the aptly named Judge Learned Hand, held that the sums were allowable business expenses. It was unreasonable of the IRS not to allow, at least some of his earnings, not to be based on Cohan's approximations.”

Another FYI – Judge Learned Hand is the author of the famous quote –

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

What the Cohan ruling says is that since GMC travelled the country to produce and appear in theatrical productions, which was public knowledge via programs and newspaper accounts, it is reasonable and appropriate to assume that he must have incurred certain deductible expenses.

Under the Cohan rule if there is no documentation, but other evidence clearly indicates that some deduction should be allowed, the court may come up with its own estimate. As the Fifth Circuit held, “if a qualified expense occurred, . . . the court should estimate the expenses associated with those activities”.

Over the years Congress has, by statute, required more detailed documentation for certain types of expenses in order for a deduction to be allowed – such as business travel and entertainment, business gifts, listed property (autos, computers, cell phones, and certain entertainment property), and, most recently, charitable contributions.

Is the Cohan Rule still a credible “defense” today? It appears so, as per the item from last Saturday’s BUZZ where it was applied not to business expenses but to charitable contributions.

In an August 2008 blog post from RUBIN ON TAX titled “Is There Life Left In the Cohan Rule” author Charles Rubin refers to the article “Cohen Rule Still Secures Some Deductions Despite Statutory Limits” by Paul G. Schloemer from Practical Tax Strategies. Schloemer conducted a survey of tax cases where the Cohan Rule was invoked to see if the rule still had viability. Rubin tells us, “Happily, he reports that the rule is alive and well”.

Rubin pointed out that –

“Mr. Schloemer notes that there are two key variables that courts will look for in allowing a taxpayer to rely on the Cohan Rule. The first is that SOME documentation will be needed - oral testimony alone probably will not cut it. The second variable is the veracity of the taxpayer's testimony, since the court will need to have some level of trust in the taxpayer's assertions before it will allow deductions under the rule.”

Despite the fact that this “out” exists, you should not use it as an excuse not to keep good contemporaneous records and maintain detailed documentation of all your business expenses.

TTFN

OOPS! THE REFERENCE TO THE COHAN RULE APPEARS IN TOMORROW'S (WEDNESDAY EDITION) BUZZ - IT WAS NOT IN SATURDAY'S BUZZ EDITION. MY BAD

THE WHABAA

2009-11-16T05:00:00.000-05:00

President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) into law on November 6, 2009. It had passed the Senate 98 to 0 and the House 403 to 12. So its passage was almost unanimous.

The Act extends unemployment benefits for 14 more weeks in all 50 states and up to 20 more weeks in states with a 3-month average unemployment rate of at least 8.5%. The temporary exclusion of the first $2,400 of unemployment benefits was not extended into 2010. The additional unemployment benefits is paid for by extending the 0.2 percent Federal Unemployment Tax Act (FUTA) surtax through June 30, 2011.

But since this is a blog about 1040 taxes I want to talk about the provisions that affect the 1040.

As we all know by now the centerpiece of this bill iss the extension and expansion of the First Time Homebuyer Credit, which was set to expire on November 30, 2009. The $8,000 refundable credit is extended for purchases made through April 30, 2010. It will also apply to purchases that close between May 1 and June 30, 2010, providing the taxpayer entered into a written binding contract to close before May 1, 2010.

The phase range out for purchases made after November 6, 2009 is now “modified” Adjusted Gross Income between $125,000 and $145,000 for single (and head of household and separate) filers and $225,000 and $245,000 for joint filers.

The Act also allows “existing homeowners” to claim a credit of up to $6,500 ($3,250 if married filing separate) on purchases made after November 6, 2009, if they owned and lived in, as a primary residence, the same home for any five (5) consecutive years during the eight (8) year period that ends on the date of purchase of the new home.

Qualified purchasers who close in 2009 can continue to elect to treat the purchase as being made in 2008 and file an amended 2008 return to claim the credit and a check. And qualified purchases made in calendar year 2010 can be treated as being made in 2009, with the credit claimed on the 2009 Form 1040.

So if you purchase a home, and qualify for the credit, in early 2010 be sure to give the Settlement/Closing Statement to your tax professional with your 2009 tax “stuff”. If you plan to purchase by the April 30 (or June 30) deadline but have not done so at the time you give your tax pro your “stuff” be sure to tell him/her of your intentions.

For purchases made after November 6, 2009, the purchase price cannot exceed $800,000. If you close on a home today, and you otherwise qualify for the credit, you will not be eligible for the credit if the purchase price of the home is more than $800,000. Previously there had been no limit.

I, and others, had criticized the previous credit for being too easy to get. All you had to do was ask for it. No documentation or declaration was required. As a result there were many fraudulent claims filed and tons of money was sent to individuals who did not qualify for the credit. To “fix” this Congress added additional requirements and conditions for the credit.

For purchases made after November 6, 2009, you must be at least age 18 in order to qualify for the credit, and you cannot be claimed as a dependent on another taxpayer’s return. And the definition of a “related party” now includes relatives of a taxpayer’s spouse. You cannot purchase the home from an “in-law” (parents, grandparents, children of a spouse) and qualify for the credit.

And, most important, you now must attach a “properly executed” copy of the Settlement or Closing Statement to your tax return. This applies to all qualified purchases made during calendar year 2009 through the 2010 expiration dates where the credit is requested on a 2009 (or 2010) tax return. The National Association of Tax Professionals’ analysis of the Act states that “it does not appear that closing statements need to be attached to amended 2008 returns”. Why Congress did not require this for all claims submitted after November 6, 2009, whether on a 2008 or 2009 return, is beyond me.

Unlike the initial $7,500 credit, none of the $8,000 or $6,500 credit needs to be repaid, unless the new home ceases to be the taxpayer’s principal residence within 36 months of the date of closing, except, or course, for death.

Special rules apply for members of the uniformed armed services, members of the Foreign Service, and employees of the “intelligence” community. The credit is available until April 30, 2011 (or June 30, 2011 if there is a written binding contract in place before 5/1/11) for those qualifying personnel stationed outside the United States for at least 90 days.

And the 36-month recapture provision is waived for qualified personnel who claimed the credit and either sold the home or stopped using it as a principal residence after December 31, 2008, due to government orders received for qualified official extended duty service.

FYI, while I will be thrilled if some of my clients can get a piece of this “pie”, I share the opinions of many of my fellow tax bloggers concerning this credit. If I were a Senator the vote would not have been unanimous.

The other provision of the Act that could affect 1040s is allowing taxpayers to elect to “carry back” a 2009 “net operating loss” (NOL) for five (5) instead of two (2) years. Certain small businesses were previously permitted to carry back a 2008 NOL for five (5) years. For 2009 NOLs the 5-year carryback period is eligible for almost all business operations, not just “small” businesses.

The amount that is carried back to the 5th preceding year may be limited to 50% of the taxpayer’s taxable income, without regard to the NOL, for that 5th year.

The NOL carryback issue is truly a complicated one, whether 2 or 5 years, as I recently discovered. Anyone who may be involved in a NOL situation should most definitely consult a tax professional who is experienced in NOL filings.

Of special interest to me, as a tax professional, is the provision of the Act that requires any tax return preparer who prepares more than 10 individual income tax returns during a calendar year (this includes returns for estates and trusts) to electronically file the returns.

This requirement is effective for tax returns filed after December 31, 2010. So it does not apply to the upcoming tax filing season, but will take effect in 2011 for the filing of 2010 returns.

While it was a common belief among tax professionals that such a requirement was coming, it was not expected to come so soon. We all thought that this mandate would be included in the eventual legislation that would require the IRS regulation of all paid tax preparers.

NATP recently told its members in its weekly email newsletter -

“As it is stated, this is all the new law provides {i.e. e-filing required – rdf}. At this time, there is no guidance on how clients can "opt out" or otherwise file their returns on paper. It appears that a return that is "filed" by the taxpayer does not have to be electronically filed. The way in which the law is written is unclear on this point.”

Many states already have such e-file mandates. NJ requires paid tax preparers, who prepared 50 or more returns in the prior year, to file state income tax returns electronically – but this can be done free of charge, and without using tax preparation software, via the internet and clients can elect to “opt out” and elect to have their state return filed “the old fashioned way”.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’

2009-11-14T05:00:00.001-05:00

* Venerable TAX PROF Paul Caron tells us that the Heritage Foundation has published "Seven Reasons Why Congress Should Repeal, Not Fix, the Death Tax" by William W. Beach in his as usual appropriately titled post “Seven Reasons Why Congress Should Repeal, Not Fix, the Estate Tax”.

The 7 reasons are –

1. Death taxes discourage savings and investment
2. Death taxes undermine job creation
3. Death taxes suppress productivity and wage growth
4. Death taxes contradict the central promise of American life: wealth creation
5. Death taxes hurt those who have tied their savings up in land
6. Death taxes hurt African-American business owners
7. Death taxes hurt women business owners

I don’t want to be “politically incorrect” – well actually I do not want to be “politically correct” – but it matters not whether death taxes hurt African-American business owners or women business owners. It matters only that death taxes hurt business owners - period. To be honest Mr Beach does not properly explain how death taxes hurt African-American and women business owners more than other business owners.

It seems to me that beneath any such statements as these lay some kind of prejudice. It is as if they are saying that African-American and/or women business persons are not as competent or savvy as other business persons and therefore need special protection or advantages.

FYI one of the most successful and savvy business persons I know is a woman!

* EA John Sheeley reminds small business owners of the rules concerning the Form 1099-MISC in his post “Year End Planning: Filing Form 1099-MISC” as his self-titled blog.

John suggests that -

“NOW is the perfect time to review your files and determine to which of the people and companies you did business with during 2009 you must issue a Form 1099-MISC. Well ahead of the end of the year, you should send IRS Form W-9 to the affected payees for completion.”

If I might add a word of caution to small business owners and freelancers – just because you do not receive a Form 1099 does not mean that you do not have to report the income. There are those who will only report as income the amounts identified on the Form 1099-MISCs that they receive. Taxable income is taxable income. Besides – just because you have not received a 1099 does not mean that one was not issued and is in the IRS system. It may have contained an incorrect or outdated address and therefore not delivered, or just plain lost by the Post Office.

On the other hand do not accept a 1099 as gospel without checking the amount reported on the form against your records. If you find a discrepancy contact the issuer immediately.

And be sure to verify that the Social Security or Employer Identification Number on the form is correct.

* TAX GEEK Dana Andrews (no, he was not in LAURA) takes the words out of my mouth with his rant “Arrghhh!!!!! I Hate It When People Give Tax Advice Who Should Not Be Giving Tax Advice”.

On this case Dana is talking about charities telling you “Your payment is tax deductible” –

“This is a huge misconception people have about charities. Let me make this clear, Your Girl Scout cookies are NOT tax deductions. You give them 4 bucks, they give you cookies. A purchase, not a tax deduction. If you were to give the girl a $5 bill, and tell her to keep the change for the troop, that $1 becomes a deduction. (Only if you get here to sign a receipt).”

* To celebrate Friday the 13th, the third one this year, Kay Bell provided links to posts that deal with tax and financial fears in her post “Overcoming Tax Terrors” at DON’T MESS WITH TAXES.

* And, while Kay Bell tells us “Don’t mess with taxes”, Jean Murray suggests “Don't Mess with the IRS - Cases in Point” at JEAN’S BUSINESS LAW/TAXES: US BLOG.

What’s the post about? Jean says, “In honor of Friday the 13th, I am acknowledging some unlucky taxpayers who figured they could get away with cheating the IRS. Silly fools!”

* SMT Associates, the CPA firm behind the BETTER BUSINESS BLOG, has a free “Year-End 2009 Business Guide” to help businesses understand the various year-end reporting requirements. It also includes information about important deadlines between Jan 1 and Apr 15 and tips on year-end closings and good accounting practices to help you stay compliant with IRS regulations and make bookkeeping less stressful.

Click here to download the guide.

* Bruce, the MISSOURI TAX GUY, discusses the tax filing responsibilities you will be faced with if you find yourself named as executor when a loved one dies in his post “A Death In My Family”.

Condolences to Bruce on the passing of his grandmother.

TTFN

ATTENTION TAX PROFESSIONALS!

2009-11-13T09:29:00.001-05:00

As my fellow tax pros begin to prepare their client mailings for the upcoming tax filing season (only 10 weeks away!) it seems a good time for a reminder about the special package of TAX PROFESSIONALS FORMS, SCHEDULES AND WORKSHEETS that I offer for the ridiculous price of only $5.00!

Over the past 35+ years I have developed many specialized forms, schedules and worksheets for use in my 1040 practice. Some of my “homemade” forms are given to clients to help them provide me with the information I need to properly prepare their returns. Some are used as “memos” to the client’s copy and my office file copy to back-up items reported on the returns. Others are used as attachments to the returns. They have proven helpful to me in my practice, and I believe you will find them helpful in your practice as well.

I have added some new forms to the package - but have not added to the price.

The package will be sent as a “word document” email attachment. This way you may edit and revise the forms, schedules and worksheets as you see fit to personalize them to your firm, to customize them be more relevant to your particular practice or clients or for specific professions, or to update information for annual COLAs or tax law changes.

Please be aware that these forms, schedules and worksheets are copyrighted material and is for your internal use only.

Here is what is now included in the package -

SCHEDULE A –

1. Supplement to Schedule A
2. Medical Expense Worksheet
3. Medical Expenses – Out of Pocket Analysis
4. Charitable Contribution Listing – for non-cash contributions
5. Charitable Contribution Record – for cash contributions (2 pages)
6. Charitable Mileage Record
7. Contribution Worksheet
8. Employee Business Expenses – generic format, can be customized
9. Employee Business Expenses – Police Officer – example of customized
10. Conventions, Conference and Education
11. Miscelleneous Expenses #1
12. Miscellaneous Expenses #2

SCHEDULE C – (some of these forms can also be used for employee expenses)

1. Allocation of Expenses
2. Automobile Expense Worksheet
3. Auto Mileage Log
4. Business Expenses of a Freelance Writer
5. Business Travel Record
6. Computer Use Log
7. Election to Deduct Organization Expenses
8. Employee Expense Report
9. Employee Time Card
10. Home Office Deduction Worksheet
11. Cell Phone Log - in “landscape” format - sent separately.

SCHEDULE D – 1. Cost Basis Worksheet

SCHEDULE E - 1. Multi Family Building

GENERAL –

1. Alternative Minimum Tax Worksheet
2. Does Not Have To File
3. Statement of Dividend Income
4. Statement of Pension Income – in “landscape” format- sent separately

To order send a check or money order for $5.00 payable to TAXPRO SERVICES CORPORATION and your email address to –

PREPARER WORKSHEET PACKAGE
TAXPRO SERVICES CORPORATION
SUITE 304
72 VAN REIPEN AVENUE
JERSEY CITY NJ 07306-2806

After you have received and reviewed the package I would very much appreciate hearing your comments on the forms, schedules and worksheets included in this package, including any suggestions you may have for improvements or additions.

PAY THE SALES TAX AND AVOID THE DIVORCE LAWYER!

2009-11-13T05:00:00.000-05:00

In my reprint of a September 2001 post on the benefits of a national sales tax I mentioned that – “States like New Jersey have had much more success raising revenue from sales tax audits than from audits of income tax returns.”

A while back then Director of the NJ Division of Taxation Robert Thompson – who left office after being charged with “making discretionary decisions while under undisclosed conflicts of interest caused by their receipt of meals, entertainment, golf outings and other gifts” from OSI, the outside collection agency hired by the NJDOT to collect outstanding NJ taxes – told the NJ chapter of the National Association of Tax Professionals about NJ’s special sales tax audit initiative.

The program would target NJ businesses where pretty much 100% of gross receipts are subject to sales tax – like pizza parlors, liquor stores and taverns. NJDOT would get purchase information from vendors who supplied the business selected for audit with “cost of goods sold” items (i.e. wholesale pizza dough and liquor purchases), get a price list or menu from the business being audited, verify inventory numbers, and, using industry standards for spoilage and theft, “back into” what the business should have reported in gross sales subject to sales tax. If this was more than what was actually reported on quarterly sales tax reports the business would receive a bill.

It was not the goal of the program to put the pizza parlors, liquor stores or taverns being audited out of business. The sole purpose was to collect more tax. No criminal or other action was brought against the business by the State and the bill was not overloaded with penalties.

This program was very successful.

Bob Thompson told of the audit of one pizza parlor, which happened to be located around the corner from the NJDOT headquarters in Trenton. The Division asked the parlor to submit a menu, which was reviewed by the auditors. One auditor then visited the parlor and asked the owner, “How come if the menu you sent us says you charge $2.00 for a slice of pizza, when I come in here for lunch you charge me $2.75?” Apparently the owner was not too bright!

My favorite story concerns the state's attempt to collect “use tax” on out of state purchases.

A sales tax is a “consumption” tax assessed and paid at the “point of purchase”. The State of NJ current charges a 7% sales tax on the purchase of qualifying items made within the state. You go to a local McDonalds in Jersey City and buy a Big Mac and you pay NJ state sales tax on the purchase. The sale takes place in NJ and you “take possession” of the Big Mac in NJ – so it is subject to NJ sales tax.

If a New Jersey resident purchases a taxable item in New York and will walk out of the store with that item in hand he/she will pay New York state sales tax on the item, even though the item will ultimately be used in New Jersey, and will not owe any tax to NJ.

But if a NJ resident purchases an item from a New York vendor and has the item shipped to a New Jersey address he/she does not pay New York state sales tax at the point of purchase. That person then must pay a use tax on the purchase to the State of New Jersey.

NJ use tax is paid by any individual who “stores, uses, or consumes” within the borders of the state of New Jersey tangible personal property subject to NJ sales tax that was purchased from an out-of-state seller and no local sales tax was paid at the “point of purchase” to the out-of-state seller. Got that?

So if you order a bracelet from a New York jeweler and have it shipped to your New Jersey address you would not pay sales tax to New York, but you would be liable for New Jersey use tax on the purchase.

Individuals pay any NJ use tax liability as part of the filing of the NJ-1040 state income tax return. Most state tax returns will have a line where the taxpayer can enter an amount for use tax due. Many of these states, NJ included, require that if a resident is not declaring a use tax liability he/she must enter “0” on the appropriate line – so that the taxpayer is “going on record” that he/she does not owe any use tax.

And that is what the story is about.

The NJ Division of Taxation got a hold of the records of a jewelry store located in New York (possibly as a result of a NYS audit of the store – I don’t remember the actual details) and made a list of all purchases where the items were shipped to a New Jersey address and no NY state sales tax was paid. The Division then sent a bill for the appropriate amount of use tax to the registered NJ residences of all those on the list.

One of these bills arrived at the home of a married doctor and was opened by the wife. After she reviewed the bill she immediately called the NJ Division of Taxation.

“I have just received a bill for use tax from the Division of Taxation and I think you have made an error,” she said.

“What is the error,” the DOT employee asked.

“My husband only gave me one diamond bracelet!”

So the moral of the story – if you are going to give your wife and your mistress the same expensive gift don’t buy both at the same time, and be sure to pay state sales tax on the gift for your mistress!

TTFN

UPDATED COMMENTS ON COMMENTS

2009-11-12T12:06:00.001-05:00

I welcome comments to my posts here at TWTP and at the NJ TAX PRACTICE BLOG.

If you like TWTP or NJTPB and agree with the information, advice or opinion expressed in a post please tell me so – and tell me why you agree.

For example - “I enjoyed your post on XYZ. I have found in my X0 years as a “cranist” that . . . .”

But do NOT use praise or agreement as an attempted “foot in the door” to introduce what is really an ad for your site or product.

The following comment is a “no-no” and will not be published -

“I really enjoy reading The Wandering Tax Pro. Did you know that you can get JOE’S WONDER DRUG for a deep discount at www.quackmedical.com?”

You can discuss a particular product or website, whether your own or someone else’s, if it truly applies to the topic discussed and adds to the discussion.

If you disagree with any information, advice or opinion expressed in a post you are also encouraged to tell me so. I want to know if my thinking or advice is incorrect – but be sure to explain in detail why you disagree with the information provided or an opinion expressed or why you find my advice faulty.

And please address the issue. Do not simply comment that because I do not agree with what you believe I must be incompetent or misguided or an idiot. Tell me why you think as you do and why you believe what I have said is incorrect, faulty or misguided.

Do not be concerned if your comment does not appear immediately. I “moderate” all comments to weed out spam and blatant attempts at free advertising. If your negative comment is not immediately published do not automatically assume that I am censoring your opinion. I do have a business and a life, and I do not sit in front of the computer all day waiting for your comment to arrive. I will check and make a decision on your comment when it is convenient to my business and personal schedule.

If I receive a comment that I feel requires a response I may wait until I have composed my response so that I can publish the comment and my reply at the same time.

A while back I encouraged “readers” to submit questions to a weekly “Ask the Tax Pro” feature, and I actually had a separate ASK THE TAX PRO blog for a time. Unfortunately this free service was abused, as most the questions submitted either as a comment or via email were from individuals looking for free specific tax advice.

While I appreciate your confidence in my opinion as an experienced tax professional - I no longer solicit or accept tax questions, either via comment or email.

If you need further clarification on information, advice or an opinion in a post you are certainly welcome to submit a comment saying – “I do not understand how you determine . . . .” or the like and I will very probably publish and respond to the comment.

Or you can send me an email asking that I write a post on a specific tax topic, and I will seriously consider the request. If the topic had been covered in an earlier post I will so advise you, with an appropriate link, via return email.

So comments and emails containing tax questions will generally be ignored without notice.

Many of the questions I do receive arrive during the “tax filing season” of February 1 through April 15 – a period when I am “on hiatus” and do not post to either blog. All questions submitted during this period will certainly be totally ignored – comments rejected and emails deleted unread.

There are other tax blogs that do respond to tax questions, most year-round – such as the regular “Ask the taxgirl” feature by Kelly Phillips Erb at www.taxgirl.com or the “Tax Quips” from Tax Mama Eve Rosenberg at www.taxmama.com. You can also “Ask the Tax Lady” Roni Deutch at ronideutch.blogspot.com.

And please – submit your comments in ENGLISH, preferably that of the King. I am constantly receiving comments to a specific post that I think is some kind of porno spam in Japanese. While I do understand certain words and phrases in some foreign languages (although not Japanese) I do not have the time to waste interpreting comments to see if they are appropriate – and I would definitely not publish a comment written in a foreign language.

So comment away – but be appropriate and reasonable. Tell me that I am right or that I am wrong – but tell me why.

Any comments?

TTFN

OOPS!

2009-11-10T13:48:00.001-05:00

WTF?

The Wednesday edition BUZZ post was scheduled to be published Wednesday morning at 5:00 AM! I don't know why it appeared early.

Whatever. Enjoy anyway.

"Talk" to you again on Thursday.

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

2009-11-10T11:00:00.000-05:00

* Bruce, the MISSOURI TAX GUY, begins the week with his newly revived BUZZ-like “Reads From Last Week”.

Check out “The Proven Strategy for Making Extra Money” link. PTMoney says what I have been saying for a long, long time now – identify what you are passionate about, an activity at which you spend a lot of time and for which you spend a lot of money, and turn it into a business. Or, as PT puts it, “Turn a Hobby into a Paying Gig”.

* While Congress almost unanimously extended the First Time Homebuyers Credit, and extended to not so first-time home buyers, Kay Bell reminds us that “the clock is ticking down” on another stimulus-created tax benefit – the “above-the-line” deduction for sales tax paid on a new car – in her post “Road Ending for Auto Deduction” at DON’T MESS WITH TAXES.

The deduction applies to a qualifying vehicle purchased between Feb. 17 and Dec. 31, 2009. When the ball drops on One Time Square on New Year’s Eve this deduction will be history.

Kay does not think that this deduction will be extended like the home buying credit because “doing more for the auto industry has never been popular with the voting public”.

And Kay hits the nail on the head when she tells us just why the home buying credit was extended -

“We're no fools here. We know that while some home buyers will benefit, the home builders, real estate agents and their membership groups, implicitly waving big political action committee checks in front of members of Congress, are the big winners.”

* Kay is back with her other blog – EYE ON TAXES – over at Bankrate.com. Her post “Wanted: Truth in Legislation Names” continues to discuss the home buyer credit extension and expansion.

Kay tell us – “What we really need, however, is a bill that would require truth in naming for proposed legislation.”

According to Kay – “If such a rule had been in effect last week, instead of getting the Worker, Homeownership and Business Assistance Bill of 2009 as a new law, we would have watched enactment of the We Want to Keep Critical Re-election PAC Money Flowing Bill of 2009.”

Years ago I wrote a post on naming legislation. I will have to dig it up and re-publish it.

* I was truly disappointed to learn from TAX GIRL Kelly Philips Erb that “Girls Gone Wild Founder Gets Plea Deal”.

Kelly tells us that “Girls Gone Wild” founder, and basic arsehole, Joe Francis “feels he finally got a break when a federal judge okayed a deal that Francis struck with prosecutors. Under the agreement, Francis was credited with 301 days already served and sentenced to one year of probation.”

I was hoping the idiot would get some real jail time and get to play “whose got the soap” in the prison shower. After all, turn about is fair play.

Kelly also tells us that –

“After the hearing, he kissed his mother.

Apparently he really does kiss his mother with that mouth.”

* The Associated Press recently reported that “Corruption Still A Big Problem In NJ”. Constipation, Mr Holmes!

“Nearly two-thirds of New Jerseyans believe there is "a lot" of political corruption in the state, according to a new poll.

The Rutgers-Eagleton survey also found 54 percent of respondents believe the Garden State is more corrupt than other states.” (highlight is mine)

I expect the other 46% either directly or indirectly benefit from the rampant corruption.

Why do you think NJ has the highest taxes in the nation and is almost bankrupt? Legal and illegal corruption!

What is legal corruption – retiring Superintendents of Schools in NJ getting $700,000+ severance packages, mostly because they are paid for every single sick day they never took over the life of their employment with the school system. Apparently school superintendents are never sick – they just choose to “work at home” on certain days.

Sick pay is NOT an entitlement – it is an accommodation. It exists so that employees who are truly sick can stay home without penalty and not have to come in to work (so they will not lose pay) and infect other employees.

What is legal corruption – politicians, and their family members, with two and three (or more) show and no-show paid elected and/or appointed positions who double and triple dip into the benefits pool.

Nobody should have more than two paid political positions and nobody should be allowed to receive more than one set of pension and health benefits.

What is legal corruption – politicians giving the teachers and other government employee unions the moon in return for guaranteed support and votes. Why do you think Christie won by such a small margin?

* Joe Kristan comments on the Forbes column “"Ten Ways To Audit Proof Your Tax Return" which I mentioned in last Saturday’s BUZZ in his post “Can You 'Audit Proof' a Return?” at the ROTH AND COMPANY TAX UPDATE BLOG.

Here is what Joe has to say about “audit-proofing” (highlight is mine) -

“If you really want to avoid an audit, you can do so by having all of your income on 1099s and W-2s and accurately reporting them. That means you can't run or own a business -- not a great tradeoff for the entrepreneur. Rather than worrying about being audited, it's far better to keep good records, hire a good tax pro, and do the returns correctly. Then you don't have to lose sleep over being audited.”

* New tax blogger Dana Andrews (no, not that Dana Andrews - he went to his final audit in the 1990s), an Enrolled Agent who writes the TAX GEEK blog, once again proves that bloggers love lists with his post “10 Tips for Hiring a Tax Representative”. Dana is not talking about selecting a tax professional to prepare your tax return, but “hiring someone to represent you before the IRS” if you are faced with tax problems.

I pretty much agree with the tips on his list, especially these two items -

“5. Don’t hire someone whose advertisements or promotional materials offer ‘pennies on the dollar’ IRS settlements - This is a scam.

These unscrupulous con men are telling you they can do something that they know you wish they could do. In other words, these individuals are trying to manipulate you by telling you what you want to hear, not what you need to hear. It is preposterous that any honest tax professional would or could tell you what she could do for you without first analyzing your case.

6. Don’t hire anyone who sends you an unsolicited letter in the mail after you’ve been served with an IRS lien - These people scour the newspapers and public records looking for anyone who has had a tax lien filed against them. Then they send mass mailings to them offering – you guess it – ‘pennies on the dollar’ settlements.”

TTFN

SO WHAT DO YOU THINK – A NATIONAL SALES TAX?

2009-11-10T09:28:00.002-05:00

While searching the “archives” of THE WANDERING TAX PRO for something else I came across my first post on the subject of the “Fair Tax” – a national sales tax.

While I am certainly not at all sold on the idea, since this is a time when alternatives to the current federal income tax system are being discussed and considered, and there has been talk of a VAT (value added tax), which I do not at all support, the idea of a national sales tax should also be seriously looked at.

I have decided to “reprint” this post from the true “infancy” of TWTP. It was originally posted on Tuesday, September 4, 2001 (I started TWTP in July of 2001). Here is the post in its entirety –

“I labored all through Labor Day, working on various amended returns and assorted “stuff”. I did, however, manage to take time out for dinner with family at the Lincoln Inn in the Heights section of Jersey City (best Chicken Cordon Bleu around).

The older I get, the more I agree with the old adage – ‘Children should be neither seen or nor heard’. Especially in restaurants!

SOAPBOX

This summer, Representative John Linder, along with 7 co-sponsors, introduced THE FAIR TAX ACT OF 2001, which has been sent to the House Ways and Means Committee to review.

The bill attempts to ‘promote freedom, fairness, and economic opportunity’ by abolishing the Internal Revenue Service and repealing the federal income, payroll (Social Security and Medicare), estate and gift taxes. The funds generated by these taxes would be replaced by a National Sales Tax of 23%.

While this particular bill, as written, is not the answer (it calls for a complicated registration of all households and a monthly sales tax rebate program), and certainly will not be passed by Congress, it does bring up a viable alternative to the current tax system – a national sales tax.

1) A national sales tax would be relatively easy to administer. Almost all of the 50 states already have a state sales tax, with all the appropriate collection and auditing functions in place. The national sales tax could be incorporated into the collection and compliance process of the various state sales taxes, with the states receiving a ‘commission’ from the federal government.

2) A national sales tax (with perhaps exemptions for food and clothing purchases) would eliminate the problem of the ‘underground economy’, which escapes taxation under the present system. Everyone, regardless of the source of their income, would pay sales tax at the point of purchase.

3) A national sales tax would encourage saving and investing. As the tax is assessed on retail purchases only, income from investing activities would not be subject to tax.

4) If under the national sales tax system corporate and business income taxes are abolished, along with the need for expense compliance costs, the savings would {I was naive – should have said ‘could’ - rdf} be passed along to consumers in the form of reduced prices and to stockholders in the form of increased dividends.

5) States like New Jersey have had much more success raising revenue from sales tax audits than from audits of income tax returns.”

I still agree with the 5 points made above.

I also still believe that children should be neither seen nor heard - especially in restaurants!
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So what do you think?

TTFN

A LITTLE THIS-A AND A LITTLE THAT-A – WITH THE EMPHASIS ON THE LATTA

2009-11-09T05:00:00.001-05:00

* I recently posted about the problems with Refund Anticipation Loans (RAL) and the companies that offer them. A commentary on the stock of Henry and Richard titled “H&R Block: Stars Are Aligning” had some interesting comments on the importance of RALs to fast food commercial tax preparation chains -

“For example, in fiscal 2009 Jackson Hewitt (JTX) derived $59.9 million of revenue from “financial product fees.” According to analysts and company representatives, greater than 85% of this line item was RAL and RAC fees that have minimal associated costs (according to management it is roughly 80% margin). At 80% margin this represents 104% of pretax earnings of $45.9 million. Simply put, Jackson Hewitt loses money without RAL and RAC fees.

Another large competitor, Liberty Tax, generated $23.8 m(illion) of revenue in ‘bank product and tax discount income’ versus $20.8 million in pretax earnings. Assuming Liberty Tax’s financial services revenue has similar margin characteristics to those of JTX’s, Liberty would also generate almost all of its earnings from RAL / RACs.”

* A post from TAX PROF Paul Caron on “Testimony at Yesterday's Tax Reform Task Force Hearing” led me to read the testimony of John Irons of the Economic Policy Institute at a recent meeting of the President's Task Force on Tax Reform.

On the subject of “Simplicity” Mr. Irons says –

“First, you should take Austan Goolsbee’s advice on the Simple Return, which allows the IRS to fill out tax returns and mail them to taxpayers who could then simply sign and return.”

I am surprised that this idea is still being seriously talked about. It is a Very Bad Idea, as I pointed out in a post with that title back in October of 2007 when BO proposed the concept during the Presidential campaign -

“Taxpayers should be allowed to determine if they will claim the standard deduction – and not be told, or even suggested, by the IRS that this is what they should do. Individual situations change from year-to-year – how does the IRS know that a taxpayer is better off filing a short-form simply from his W-2 and Form 1099-INT information. Taxpayers should also be allowed to consult a competent tax professional to determine if the standard deduction or a short-form will result in the least tax liability.

Let’s face it. There are a lot of taxpayers who would save mucho dinero by itemizing or taking advantage of various other tax adjustments or credits – but who would simply sign a short-form and pay a lot more tax then they would or should have to if the IRS sent them a pre-prepared return and requested a signature.

And looking at the issue from the government side – who is to say that the only income a taxpayer has to report is included on the W-2 and Form 1099-INT information that the IRS has in its computer matching program. Besides, pre-printing and mailing out such forms would be a waste of the government’s money.”

* This has nothing to do with taxes. As a “twit” I do not "follow" many other “twits” – mostly fellow tax bloggers and tax professionals. However I do follow the step-father of my cousins Nell and Anna - Michael McKean, the actor of “Laverne and Shirley”, “Spinal Tap”, and “A Mighty Wind” fame who is currently appearing on Broadway in “Superior Donuts”.

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Michael recently participated in some specialty tweets under the categories “#cowfilms” and “#oxymorons”.

Cow films (from Michael and others) –

• Even Cowgirls Get the Moos
• Dirty Ranching
• Beverly Hills Cow
• The Udder Bovine Girl
• Barn Free
• The Pasteurization of Emily
• S'cream

Oxymorons (from Michael) –

• Fox News
• Larry King Live
• Greater Newark
• Reality Television {my favorite!}

Michael is good to follow on Twitter, as he often “tweets” entries in similar cool categories.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’

2009-11-07T05:00:00.000-05:00

* It seems most tax bloggers and many personal finance bloggers have posted about the Worker, Homeownership, and Business Assistance Act of 2009, which, among other things, extends unemployment benefits and the First Time Homebuyer Credit. As I mentioned in an earlier post I will publish an analysis here at TWTP once I have had a chance to review it in depth – probably early next week.

* A “tweet” led me to “The 10 Most Common Payroll Mistakes” at the website of Complete Payroll, Inc.

I would add an 11th common payroll error - Improper reporting for partners.

According to Internal Revenue Service Revenue Ruling 69-184 you cannot be both a partner in and an employee of the same partnership. A partner cannot receive a salary from the partnership, and should not be given a W-2. Over the years I have come across this error by CPAs several times.

If you are a partner who received “guaranteed payments” during the year and you receive a Form W-2 from the partnership you should go to the partnership’s accounting firm and tell them that they goofed. You can quote me.

CPI also has a blog on payroll issues.

* Fellow tax blogger Stacie Clifford Kitts, of STACIE’S MORE TAX TIPS, was recently interviewed on the OC Talk Radio online program “Critical Mass”. Stacie discussed how her use of social media has affected her practice. Check it out.

* Fellow blogger John Sheeley led me to “Liberty Tax Makes a Bid for Bank” in a tweet.

It seems, “Liberty Tax Service wants to build on its rivalry with H&R Block Inc. by buying a bank.”

I guess Liberty is not satisfied with just screwing its clients with usurious Refund Anticipation Loans. Now it wants to emulate Henry and Richard by screwing its clients with high fee bank services, which, I expect, will include, like H+R, an IRA investment that is guaranteed to lose money.

* Trish McIntire reports on a change in the Form 1040A supplemental schedule filing regime in “Tax Simplification?” at OUR TAXING TIMES.

I have not yet seen the draft for the 2009 Form 1040A, but is appears that the former 1040A Schedules 1, 2 and 3 have been done away with. According to Trish, for 2009 you would use instead the Form 1040 series form (i.e. Schedule B, Form 2441, or Schedule R).

I haven’t filed a Schedule R in several dogs’ ages.

* A couple of times over the years I have been asked by a client if he can claim the child of a “live-in” girlfriend as a dependent. An item from the JOURNAL OF ACCOUNTANCY discusses the issue of “Unrelated Child as a Qualifying Relative”.

* Tax attorney Robert W Woods gives us his list of “Ten Ways To Audit Proof Your Tax Return” at FORBES.COM.

Woods’ list is a bit controversial, but he does make some good comments –

"• So don't be scared to take deductions and losses you're entitled to, but don't take tax positions you aren't comfortable defending. If you take reasonable tax positions, you'll likely find you won't end up needing to defend them. And if you do face an audit, it will likely be far easier.

• There are many old wives tales saying that certain items trigger an audit: home office deductions, passive losses, schedule C (sole proprietorship) activities, etc. You can't predict the trigger (and you can drive yourself crazy trying), but you can adopt the "be reasonable" mantra about every item on your return, including these.

• Some argue a return prepared by a professional is less likely to be audited, but there's little reliable data to support it. Nevertheless, having a professional prepare your return--or at least advise on anything quirky--is a good idea.

• You'd be surprised how many professionals and amateurs alike try to submit too much information. True, if your return is complex, you may need to add explanations or disclosures in footnotes. Be concise, truthful and accurate, but don't provide copies of sales agreements, settlement agreements, bank statements, etc., unless you are later asked to by the IRS.”

He takes a controversial position, and knows he will “take considerable heat for my opinion on this”, in advising “Don't file electronically”.

Why –

“Paper filing means it's more work for the IRS to access all the information in your return. Your duty as a taxpayer is to be truthful and accurate, but you don't have to make it easy for the IRS. . . you are giving the IRS easy electronic access to information it would otherwise have to enter, enabling the agency to examine your return and mine the data more easily than it otherwise could.”

I don’t file electronically because I cannot do so directly to the IRS free of charge via the IRS website, and not because doing so will increase one’s chances of an audit. However, tax professionals will be required to file electronically beginning with 2010 tax returns.

TTFN

WHO CAN YOU BELIEVE?

2009-11-06T05:00:00.005-05:00

I ended last Saturday’s (Halloween) BUZZ, appropriately, with Prof Jim Maule’s holiday-themed post “Unmasking the Deductibility of Halloween Costumes”.

In this post Prof Maule responds to some tax advice on deducting the cost of a Halloween costume that was presented in an email by a published tax preparer and, apparently, former tax blogger. He took exception to some of the advice given in the email, which said, “Yes, if you bought it to attend a client's Halloween party”.

It seems that I was not the only one who’s eye was caught by this, as I originally described it, “scholarly and well-documented” post. Fellow bloggers Paul Caron, the TAX PROF, and Joe Kristan, of the ROTH AND COMPANY TAX UPDATE BLOG, also mentioned it, it was featured in “Popular Tax Stories from Around the Web” by the Wall Street Journal, and was reprinted at various other online locations.

The post also generated comments from lawyer Jamal Razavian, who was concerned about the problems that bad online advice can create -

“It is quite problematic that Ms. Walker (who provided the advice) fails to discuss the nuances that are relevant to the deductibility of Halloween costumes. Even more problematic, based on a casual review of that website and her own professional site, I noticed that the Ms. Walker generally does not discuss the difficult nuances present in the tax law, instead choosing to focus on blanket statements (which may or may not be inaccurate depending on the advisee’s particular circumstances). My fear is that tax laymen will read advice of this type and (i) mistakenly come to believe that there are more easy answers in tax than there truly are, or (ii) follow such advice blindly and misreport their own income. I worry about the Service’s ability to administer the revenue system when individuals like Ms. Walker are out there providing inaccurate and misleading advice, and I wish there was more the Service could do to prevent such abuses.”

As an aside note – it is interesting that I, and pretty much the entire tax blogosphere, also took exception to bad advice offered by Ms. Walker in the answer to a different question that appeared in her now defunct tax blog. Ms. Walker is one of two tax bloggers that I know who go "postal" when others do not accept their pronouncements as gospel.

Prof Maule addressed an important issue raised in Jamal Razavian’s comments in a follow up post titled “Tax Illiteracy as a Threat” – “the flood of incorrect, misleading, inaccurate, and over-simplified information drowning those who travel the information highway”.

He points out that -

“The internet is replete with sites operated by tax protesters, people who lack expertise, and a variety of people who mean well but don’t quite understand tax law. The problem reaches beyond tax law to other areas of law and other professions and trades.”

And -

“The internet simply magnifies and disseminates more widely the same sort of misguided advice and information that inhabited, and still inhabits, newspapers, journals, magazines, radio, and television. Too many people, particularly those whose entire lives have been accompanied by internet access, think that ‘if it’s on the internet, it’s true’.”

Jim, and Jamal, bring up a very important issue.

In the discussion of regulating tax preparers I have often said that any cafone can hang out a shingle as a “tax professional”. Similarly, any cafone can create a website or blog and fill it with, as Jim puts it, “incorrect, misleading, inaccurate, and over-simplified information” about income taxes or any other subject. How can the “great unwashed masses” know who is giving good and valid advice and information and who is just publishing garbage to see his/her name in print?

How do you know that what I say here in THE WANDERING TAX PRO is valid, or if an answer that Kelly Phillips Erb provides in one of her “Ask the Tax Girl” posts is correct?

One question you can ask is how long has the blog been around? Blogs by non-tax professionals or that provide bad information usually do not last very long. I, for example, have been writing THE WANDERING TAX PRO since July of 2001.

When reading a post be sure to also read all the responding comments. However, you should know that most bloggers will “moderate” comments to weed out “spam”, and so it is possible that comments that point out errors in posts will not be published.

Often a post on a tax issue will include specific references to a section of the Internal Revenue Code, or relevant IRS Revenue Rulings and Tax Court cases, as Jim Maule’s often do. These references can be verified online.

Be skeptical of tax advice in articles, blogs or websites that give quick and easy answers, or, as Jamal Razavian puts it in her comment about Ms Walker’s website, “blanket statements”. As I have said time and again, “The answer to just about every individual or business tax question is ‘it depends’” (see my posts “It Depends” and “Absolutes”).

The best way to verify that what you have read is true or valid is to ask your own tax professional. If he/she is “up to speed” he/she will be able to tell you whether any information or advice you read is correct and relevant or just a load of bunk.
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Whenever providing tax advice in a post, TAX GIRL Kelly Phillips Erb always ends with the following statement -

"Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this sit, contact a tax professional to discuss your particular situation."

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This is also true with information you read in a newspaper, magazine or newsletter, either online or in print or hear on tv or radio. Most items on tax topics that appear in these publications and on air are written not by practicing tax professionals but by writers. Some writers are truly educated on tax issues, like Kay Bell of DON’T MESS WITH TAXES (Kay is not a practicing tax professional but a professional writer) and provide good and valid information, but some are simply quoting press releases or other sources without knowing their arse from a hole in the ground about the Tax Code.

Prof Maule provides an excellent answer to the problem of “tax illiteracy” –

“The answer, it seems to me, is tax education of the citizenry at an early age, with some sort of transitional catch-up for all the people who have made it through 12, 16, 19, or even 22 years of education without learning basic tax principles and concepts, without getting good advice on where to look and where not to look for tax information, without being given the opportunity to learn how tax law is enacted and developed, and without a glimpse into what the IRS and state revenue departments really do.”

Jim uses as an example the Tax Literacy Program, which is based at the Sandra Day O'Connor College of Law at Arizona State University and headed by Professor Marjorie E. Kornhauser. The web page for this program excellently explains its reason for existence –

“Studies show that most Americans are ignorant about general concepts, like the difference between a deduction and a credit; about their own tax situation, including what tax bracket they are in; and about the law. Many people believe the taxes they pay are unfair. And many do not understand why taxes exist.”

Many years ago I was asked by a client to give a brief presentation on preparing a tax return to a high school class. As I recall I walked the students through a Form 1040A. Thinking back at the time I thought this was a good idea. I had no introduction to taxes in any way, shape or form in my high school education and had many misconceptions about income taxes before my formal education with James P Gill and Company. There was a tax course offered at my college, but it was pretty much only for Accounting majors.

Jim is on the right track. High school civics courses, which if not should be mandatory for all students, should include a basic education in income tax concepts. And all college students should be required to take an introductory course in federal income tax geared not toward potential preparers but the individual taxpayer.

Now there is a good project for “post tax season” – develop basic tax education “textbooks” for public high schools and college freshmen.

TTFN

MORE THIS JUST IN

2009-11-05T16:56:00.001-05:00

The House has passed the bill that extends and expands the First Time Homebuyer Credit and unemployment benefits. The Senate had passed in unanimously yesterday.

I will wait until BO signs the Act and I get a chance to review it in detail before posting an analysis.

THIS JUST IN

2009-11-05T14:34:00.001-05:00

From the IRS –

The Internal Revenue Service is looking for taxpayers who are due to receive a combined $123.5 million in the form of 107,831 refund checks that were returned to the IRS by the U.S. Postal Service due to mailing address errors.

“We are eager to get this money into the hands of taxpayers, so don’t delay if you think you are missing a refund,” said IRS Commissioner Doug Shulman. “The sooner you update your address information, the quicker you can get your refund.”

All a taxpayer has to do is update his or her address once. The IRS will then send out all checks due. Undeliverable refund checks average $1,148 this year, compared to $990 last year. Some taxpayers are due more than one check.

Average undeliverable refunds rose by 16 percent this year, which is in line with the 16 percent rise in average refunds for all tax returns in the latest filing season. Several changes in tax law likely played a role in boosting refunds, including the First-Time Homebuyer’s Credit and the Recovery Rebate Credit, among others.

The vast majority of checks mailed out by the IRS each year reach their rightful owner. Only a very small percent are returned by the U.S. Postal Service as undeliverable.

If a refund check is returned to the IRS as undeliverable, taxpayers can generally update their addresses with the “Where’s My Refund?” tool on IRS.gov. The tool enables taxpayers to check the status of their refunds. A taxpayer must submit his or her social security number, filing status and amount of refund shown on their 2008 return. The tool will provide the status of their refund and in some cases provide instructions on how to resolve delivery problems.

Taxpayers checking on a refund over the phone will be given instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

The IRS encourages taxpayers to choose direct deposit when they file their returns because it puts an end to lost, stolen or undeliverable checks. Taxpayers can receive refunds directly into personal checking or savings accounts. Direct deposit is available for filers of both paper and electronic returns.

ONE MORE REASON TO AVOID H+R AND THEIR ILK

2009-11-05T05:00:00.000-05:00

During my “wandering” on the net I came across another sting operation aimed at tax preparers.

This time the operation was conducted in Philadelphia by Community Legal Services of Philadelphia and the Campaign for Working Families, and in Durham, NC by the Community Reinvestment Association of North Carolina. The details of the operation are reported in “Tax Preparers Tax a Bite Out Of Refunds: Mystery Shopper Test Exposes Refund Anticipation Loan Abuses in Durham and Philadelphia” compiled by the Consumer Federation of America and the National Consumer Law Center.

While, as the title of the report suggests, the main target of the undercover operation was providers of Refund Anticipation Loans (RAL), the results also pointed up many tax return errors made by, for the most part, local branches of the national fast-food tax preparation chains.

According to the report’s Summary –

“Nonprofit groups in Philadelphia and Durham conducted 17 ‘mystery shopper’ tests of paid tax preparers. The results reveal an industry that varies tremendously in terms of providing consumers with information about refund anticipation loans (RALs), and in its overall quality of services.”

And –

“One of the most disturbing test results involved the quality of tax preparation. Several preparers made serious errors that significantly affected tax liability.”

The non-profit consumer organizations recruited 17 taxpayers to become testers, “about 12 of whom received the Earned Income Tax Credit (EITC)”. These testers were not given a uniform tax scenario to bring to all the chosen preparation offices, but were simply instructed to have their returns prepared and obtain RALs from the commercial preparers. So each individual tax situation handled by a preparer was different.

A total of 12 tests were done in Durham and 5 in Philadelphia. Of the 17 targets, 3 were branches of Henry and Richard, 5 were branches of Jackson Hewitt, and 2 were branches of Liberty Tax. Also tested were an “Instant Tax Service”, a “Quick Refund Income Tax”, and 5 “independent” offices.

Regarding the Refund Anticipation Loan issue, the operation discovered many abuses –

• failure to failure to disclose that a RAL is a loan,
• presenting the RAL as a default, without presenting other options,
• failing to disclose the free e-file with direct deposit option,
• confusion and lack of transparency,
• rushing clients through documents without allowing time to review or comprehend them, and
• providing factually incorrect information (i.e. lying).

The actual tax preparation fees ranged from $355 at Jackson Hewitt to $60 at the “Quick Refund Income Tax”. The fees from branches of the 3 major chains ranged from $173 to the $355. The “independents” charged from $75 to $180. The returns in question were not complicated ones, with the Earned Income Credit probably the biggest issue.

When RAL and other ancillary fees and charges were added the total cost ranged from $185.00 (from an “independent”) to $501.53 from Jackson Hewitt. Overall Jackson Hewitt was the most expensive preparer. RAL annual percentage rates ranged from 83% to 300%.

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“Test results found a significant number of preparers still do not inform taxpayers that a RAL is a loan. Three preparers in Durham and two in Philadelphia did not explain to testers that a RAL is a loan. Two other preparers in Philadelphia made this disclosure only after being questioned by testers.

Even when testers were told that a RAL is a loan, they were confused because many preparers did not give clear price information about RALs, other bank product options, and tax preparation fees. Only one preparer in either city informed the tester of the option to receive a fast, free refund by e-file and direct deposit.”

Regarding actual tax advice, one preparer advised a tester not to include investment income on a return, “essentially recommending tax fraud”.

What about the “independent” preparers? According to the report, –

“One independent preparer turned out to be primarily a gift shop and the other was a small loan lender. However, another independent preparer steered both testers who went to her office away from RALs.”

I expect that the independent preparer who advised against a RAL was probably the only true “independent” tax professional in the target group.

Let’s look at one individual case in which a tester went to an H+R Block office in Philadelphia.

The tester (identified in the study as AR) was a student with total income of $7,770 who qualified for the Earned Income Credit.
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When the tester first asked both the receptionist and the actual preparer about the cost she was told there was a basic flat rate of $87 and then the price could go up from there. She was assured that, as she was single without dependents, the fee would not be too high.

The total charges for this return was $242.93 - $184.00 for actual tax preparation and another $58.93 for RAL loan fee, “dummy bank account” fee and “check fee”. A total of 66% of the Earned income credit and 29% of the total refund was last to Henry and Richard’s fees. Not too high?
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The case study tells us that –

“The preparer then reviewed all of AR’s tax documents and entered her information into a computer program. Her refund was calculated to be $837 on her federal return ($469 for withholding and $368 for the earned income credit) and $87 for her state return.”

The tax preparation fee of $184.00 (H+R was nice enough to round down instead of up from $184.75) was made up as follows-

1040 Fee = $74.50
W-2 Fee = $3.25
EIC “eligibility” = $34.75
EIC “worksheet” = $16.25 (total EIC cost = 51.00)
Interest/Dividends Fee = $7.25
PA State Refund Fee = $37.25
PA “Tax Forgiveness” Fee = $11.50

The tester was given several options for getting the refund, including just sitting back and waiting for the refund for 6 weeks and 4 others that all included additional fees for special H+R services and accounts. But she was never told that she could just e-file and request direct deposit in her own account and get the money in 8-15 days. The only direct deposit option discussed involved using an H+R Block checking account, which would cost an additional $30.00.

It is no surprise that Henry and Richard, Jackson Hewitt, and Liberty Tax Service all charge ridiculously high fees, for actual preparation and various ancillary services and accounts, push RALs and unnecessary ancillary accounts and services on clients, which they do not properly or completely explain, and make errors on tax returns.

This study is another reason why it is obvious that no taxpayer should ever use a fast-food tax preparation chain to prepare their tax returns. It is also another reason why taxpayers should avoid Refund Anticipation Loans.

BTW, I am also not surprised that the true “independent” preparer charged relatively reasonable tax preparation fees and advised against a Refund Anticipation Loan.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

2009-11-04T05:00:00.000-05:00

* Oi vey! How could I have missed the November Tax Carnival? See what those GD extensions can do!

Even though I completely forgot to submit a post I managed to close out the Carnival in a unique way.

Anyway – make sure you do not miss “Tax Carnival #59: Standard Tax Time” compiled by Kay Bell, the yellow rose of taxes, over at DON’T MESS WITH TAXES.

* Bruce, the MISSOURI TAX GUY, has resurrected his regularly Sunday BUZZ-like “Passing the Week” post, which has been renamed “Reads From Last Week”.

Bruce visits a lot more personal finance blogs than I do, and this post links to some good reads, tax-related and not, from that part of the blogoshpere.

Thanks, Bruce, for including TWTP. BTW, good picture of you and Stacie!

* Bruce’s weekly review took me to TAXABLE TALK, where Russ Fox correctly tells us that the obvious answer to the question “Do Businesses Base Decisions on Taxes?” is YES.

The legislature of the State of New Jersey should read this post. I would also point out to the cafones in Trenton that individuals also base decisions on taxes, hence the mass exodus from NJ, and other highly taxed states, over the past years

* And the tax guy from Missouri also “turned me on to” a post from Dan Meyer at TICK MARKS last Friday that I missed in my “wanderings”. Dan tells it like it is about the extension of the First Time Homebuyers Credit in “Fool Us Once, Shame on You; Fool Us Twice…”.

As Dan puts it – “given the fraud history and expansion of qualifying parties--thus adding to the revenue loss at a time where new taxes and tax hikes are being floated as trial balloons almost every day--it is hard to see how this extension could be a good idea for the taxpaying public as a whole.”

* TAX PROF Paul Caron quotes from a report by Lawrence A. Zelenak of Duke University titled “Complex Tax Legislation in the Turbotax Era” that makes some good points.

“When tax returns were prepared with pencil and paper-in an era now gone forever-Congress did not impose income tax provisions of great computational complexity on large numbers of taxpayers, in the belief that it was unreasonable to require average taxpayers (or their paid preparers) to struggle with computationally complex provisions.”

But, according to Zelenak as a result of the advent of tax preparation software, Congress now imposes “unprecedented computational complexity on large numbers of taxpayers, primarily through the expanded scope of the alternative minimum tax and the proliferation of phase outs of credits, deductions, and exclusions”.

I agree with the author when he says -

“Unfortunately, computationally complex provisions generally constitute bad tax policy, even apart from computational concerns.”

Just a note – I take exception to “tax returns were prepared with pencil and paper-in an era now gone forever”. The era has not yet gone for me. Although I use a pen and not a pencil.

* TAX GIRL Kelly Phillips Erb reports that TIGTA (the Treasury Inspector General for Tax Administration) thinks that "‘Complexity of Tax Law’ Not a Challenge for IRS?”.

TIGTA recently released a report on the most serious management and performance challenges confronting the IRS today, and “Complexity of the Tax Law” was not among the top 10.

* Over at WALLET POP Kelly tells us that “The Taxman Cometh: IRS Audits Likely on the Rise”.

“As if you don’t already have enough money worries. This is the year to double, no triple-check your taxes before filing. The IRS is looking for the money it’s owed with renewed vigor, and that means a lot more people can expect to be audited.”

Read Kelly’s post to see if you will be among the “lot more people”.

* Just got an email from Steven Zelin, The Singing CPA.

Steve would love to see you at his upcoming Holiday Comedy Show at Don't Tell Mama, located at West 46 Street (bet 8-9th Avenues in NYC), at 7:00 PM on Wednesday, December 9, 2009. He will be singing songs from his newest CD "No Accounting for the Holidays". $10 + 2 drink minimum.

TTFN

TAX PREPARERS SOUND OFF ON REGULATION

2009-11-03T05:00:00.001-05:00

I recently viewed an advance online copy of the Fall 2009 issue of the National Association of Tax Professionals’ “TAXPRO Journal”, to which I am a frequent contributor. It includes an interesting compilation of comments on the regulation of tax return preparers titled “Sound Off”, taken from those submitted to the IRS from July 24-31 in response to the Service’s request in IRS Notice 2009-60.

The comments in the compilation came from just about all “categories” of tax preparers, EAs, CPAs, “unenrolled” preparers, and volunteer preparers (none from attorneys), as well as one from a “Senior Tax Compliance Officer”.

It is interesting to note that each “category” of tax preparer who supported a federal regulation regime for tax preparers generally had somewhat or completely selfish reasons for supporting certain requirements or exemptions from requirements within the regime. This is just human nature.

For the most part CPAs are all for licensing, testing and regulating “unenrolled” preparers, but feel they should be exempt from the regime because they have already passed a competency test and are required to take annual CPE. However the test they took was not a competency test in 1040 preparation but in accounting and auditing, with perhaps a few 1040 questions (I am not familiar with the exact make-up of the CPA exam), and CPE requirements do not specify any classes in taxation.

For the most part EAs are all for licensing, testing and regulating ALL tax return preparers (CPAs and attorneys included) and would require an initial competency test for everyone, without any “grandfathering”, and federal background checks. This is because they were required to take an initial competency test and undergo a federal background check to become “enrolled”.

For the most part “unenrolled” preparers who have been in the business for many, many years, as many as 48 in the case of one respondent, are all for licensing, testing and regulating ALL tax preparers (CPAs and attorneys included), regardless of previous designation, but feel it necessary and important to “grandfather” preparers like themselves.

As a member of the third category, an “unenrolled” preparer with 38 unblemished tax seasons under my belt, I do admit that my call for a “grandfathering” exemption from any initial competency exam is somewhat selfish. I do not want to go through the inconvenience of a competency test at this point in my career to prove that I know what I have been doing for almost 4 decades. I feel that a consistent history of substantiated CPE credits is sufficient to document my education and competence. My argument for “grandfathering”, however, also considers the real world practicality of having the IRS test over 1 Million tax preparers (CPAs and attorneys included) within a relatively short period of time.

I must also note that volunteer preparers who work with the VITA program, again for the most part, ask for an annual testing process to assure currency, because VITA volunteers are themselves apparently testing each year.

While there are those, I am sure, in each of the categories who are totally against a federal regulation regime, for a variety of selfish and sincere reasons, what just about everyone in all categories can agree on is that some form of registration and licensure should be required, at least for currently “unenrolled” preparers, with initial competency testing for “some” members of the preparation community, minimum required annual CPE in taxation, and an official designation such as Licensed Tax Preparer or Licensed Tax Practitioner or Licensed Tax Professional.

From what I have recently read about IRS thinking on the subject, it appears that the IRS will suggest a regulatory regime beyond simple central registration that would include testing and required CPE components and that, I am pleased to say, would apply to ALL tax preparers, including CPAs and attorneys.

It is my firm belief that if a regulatory regime is to be instituted it MUST include ALL individuals who prepare tax returns for a fee, including CPAs and attorneys (EAs are already subject to a strict testing and CPE regime and would not be required to do anything more than be included in the registry, and perhaps having their designation changed to “Enrolled Tax Practitioner” or “Enrolled Tax Professional”). The same requirements for testing and CPE in taxation must apply to ALL who prepare 1040s.

What follows are excerpts from some of the comments from preparers like myself –

* “I am in favor of registering all tax preparers. And tax update classes should be mandatory. I have done taxes for almost 25 years. I am not in favor of testing someone like me. . . Every year I have gone to a minimum of 5 days of tax classes, which I enjoy. The classes, along with the tax publications I subscribe to, keep me current. If you insist on testing, is there any way to grandfather those of us who have prepared returns meticulously, have followed the tax laws to the best of our ability, and have had none or very little audit interaction or other problems with the IRS?”

* “I have been preparing income tax returns since 1981. . . Just because a preparer is licensed or knowledgeable enough to pass a test, does not mean they are ethical. I feel those of us who have been preparing returns for many years should fall under a grandfather rule. . . I take pride in my work, in my business, and in the reputation I have established in my community. That is what is missing today, and no amount of testing or licensing will take the place of that.”

* “I do not have a CPA degree but I feel that I do a better job for my clients then some CPAs do. Just because these people have a degree does not automatically mean that they keep up with the changes in the tax law. I have seen a lot of returns done today by both CPAs and lawyers that were horrible. . . I have had my own business for 31 tax seasons.”

* “Over the years, I have found that many preparers purchase the latest Turbo Tax software, but have no idea about the latest regulations. They miss deductions and have no idea what to take for auto depreciation.” {note – in practice since 1975}

* “I prepared my first tax return in 1960. I have been a professional tax preparer for forty-eight years. . .I have unfortunately seen less than professional work from some of my colleagues who are CPAs, enrolled agents, etc. I don’t want to dwell on this but it is a fact.”

* “No test will ensure competence. I know any number of CPAs and attorneys who know nothing about taxes. I know any number of unenrolled, unlicensed, uncertified accountants who do. So testing is not really the solution. . .But too many individuals who shouldn’t be doing tax work have already passed a test. Another test won’t change that, but will give the public the false assurance that a level of competence has been achieved when it has not. That leads to even more trouble.”

As the introduction to the compilation suggests – “To review more comments, visit www.irs.gov and type Notice 2009-60 in the search field”.

TTFN

KEEP YOUR EYES ON THE PRIZE – AND GET A GRIP!

2009-11-02T08:00:00.002-05:00

Attention New Jersey voters -

Regardless of how attractive a candidate you may find Chris Daggett, or how sick you are of both political parties, or how much you want to send a message by supporting a “third-party” candidate – and I do sympathize to some degree on all counts - it is very important that you remember that the goal of this election is to vote Governor Jon Corzine out of office.

While I do not think that Daggett was put up as a candidate by the Democrats as a “spoiler” (nor that it is just his ego at work like Ralph Nader), he has become just that. Unfortunately a vote for Chris Daggatt will end up a vote for Jon “the biggest disappointment” Corzine.

If we want to make a start at ending the rampant legal and illegal political corruption in New Jersey, perhaps the most politically corrupt state in the union, we must make sure that Corzine becomes a one-term governor. Granted that Chris Christie is basically a “one-hit wonder”. But that one hit is successfully prosecuting corrupt New Jersey politicians – and I can think of no other “hit” that is more appropriate.

I also cannot think of a single reason why any New Jersey resident who is not a direct beneficiary of the state’s political corruption would want four more years of Corzine. He has done absolutely nothing to make New Jersey any better than it was before he took office. He has not kept the promises he made during his first campaign. He is truly, as the ads say, a FAILURE.

Many different studies and lists compiled by many different organizations tell us that New Jersey is the most expensive state in the US to live in, with the highest taxes, and is the worst state in the US in which to do business. Residents of NJ know this to be true.

To make more than just a start at ending corruption and fixing the mess in New Jersey you must also get a GRIP and vote out any incumbent politician that is running for re-election.

As you go to the polls keep repeating this phrase to yourself – GET RID OF INCUMBENT POLITICIANS!

WHY SHOULD TAX PROFESSIONALS BE LICENSED?

2009-11-02T05:00:00.000-05:00

Licensing tax professionals will not close the Tax Gap. It will not even make a dent.

Licensing tax professionals will not do away with incompetent and unethical tax preparers. Regulation of CPAs, attorneys, doctors, architects, contractors, etc, etc has not done away with incompetent and unethical practitioners of these professions.

The IRS has a legitimate need for a central registry of all those who prepare tax returns for a fee. I believe that this is all the IRS really wants. I do not believe that the IRS started with the intention of getting involved with testing and monitoring CPE for the 1 Million + paid tax preparers. However registration and licensure will probably eventually become law.

For me the main reason to create a Licensed Tax Practitioner credential is for public education and protection.

Currently any cafone can hang out a shingle as a tax preparer. The general public has no way of knowing who is competent and current when it comes to 1040 tax law. The initials CPA have absolutely positively nothing to do with preparing 1040s, so that does not provide any indication of one’s ability as a preparer. Passing the bar and becoming a lawyer, in itself, has absolutely positively nothing to do with preparing 1040s, so that, also, does not provide any indication of one’s ability as a preparer.

It was Albert Einstein who said, “The hardest thing in the world to understand is the income tax”. So being considered intelligent and competent in one discipline does not mean that one knows his arse from a hole in the ground when it comes to the mucking fess that “the income tax” has become.

Having the initials EA after one’s name does indicate that a person is most likely competent and current in 1040 preparation – but the title “Enrolled Agent” is confusing to the average taxpayer. It implies, although incorrectly, that the person is an employee, representative or agent of the Internal Revenue Service. Most taxpayers have no clue as to exactly what the initials EA actually mean.

The general public does currently hold a totally erroneous misconception that a CPA is a 1040 expert. The AICPA knows this full well and exploits it. The Institute feels, and has said so, that it “owns” the tax preparation niche.

This misconception is, however unwittingly, perpetrated by uninformed journalists who will say, “See your CPA”, or “Consult a CPA”, or “Check with a CPA” when writing or talking about 1040 issues - instead of more properly saying, “See your tax professional”, or “Consult with a competent tax professional”, or “Check with a tax professional”.

If registration and licensure of tax preparers is properly done, and ALL those who prepare 1040s for a fee – CPAs and attorneys as well as currently “unenrolled” professionals - must register and meet the same requirements to become a Licensed Tax Practitioner in order to be able to continue to prepare 1040s for a fee (all EAs should automatically be designated as an LTP without further qualifying requirements – but perhaps be designated as an “Enrolled Tax Practitioner”) then the public would know for sure exactly who are truly likely to be competent and current in 1040 filing.

And if the process is properly done it should not create a financial hardship on tax preparers, and therefore should not significantly increase the cost of tax preparation. And it should also not place a significant additional burden on the federal budget. It should actually pretty much pay for itself.

Licensure of tax preparers has absolutely nothing to do with granting currently unenrolled preparers the ability to be called “tax professionals”. Most unenrolled tax preparers are already true tax professionals, and have been so for many years. A license will only make them “licensed”, and properly put them on equal footing with those CPAs and attorneys who also happen to be tax professionals in the eyes of the public.

TTFN

WHERE THE FAKAWI?

2009-11-01T05:00:00.000-05:00

I have completed my last 2008 Form 1040 (although I am waiting to hear from a CPA who prepared the Form 1065 and Form K-1 for a client who is 1 of 3 general partners in an investment before I can complete the last NYS IT-203).

I am up-to-date on client-related IRS and state correspondence, waiting for “stuff” from one client before responding to IRS and awaiting response from IRS and NJDOT on others.

I still have a GD extended fiscal-year Form 1120 (and NJ-CBT-100) to complete. And there is an IRS correspondence audit (they asked us to send them certain documentation) that is pending (client currently in Europe).

And, oh yes, a box of “stuff” that I put off till after the initial tax filing season that I finally need to get to – but no pressure or deadline.

While I must deal with the above at sometime during November – it is my plan to spend most of the month writing reports, articles and columns for publication and submission, updating my websites, and serious cleaning up the apartment – room-by-room.

I already have my what has become annual trip to Atlantic City for 2 days of year-end tax classes booked for the beginning of December. And I will also be organizing, compiling and printing my annual January 10 client mailing in December. And, of course, there are W-2s to be typed on Christmas Eve and New Year’s Eve.

Next tax season I hope to have all GD extensions that are not waiting for a K-1 completed by the end of April. If needed missing information for a GDE is not in my hands by end of April I may decide to send what I do have back with a “too bad” note. There should only be 4 late K-1 related GDEs, which I should be able to have completed by end of September.

One of the reasons I got into the tax business in the first place was because I could work my arse off for 2 ½ to 3 months in the beginning of the year, and relax the rest of the year while it grew back!

TTFN