Saturday, May 26, 2012
WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’
* Peter J Reilly discusses an interesting issue in his post “Something To Watch Out For If You Have Investment Interest Expense - Possible Refund Opportunity” at FORBES.COM – whether or not to make the election to treat qualified dividends and long-term capital gains as ordinary income for purposes of deducting investment interest.
I very rarely make the election. Thinking long term, I do not want the client to lose the benefit of the lower tax rate. But I do always say that when there are options on how to treat an item on the t040 one should do the calculations under all options and carefully review.
Peter provides an example of how an accounting firm (I expect a CPA firm) really FU-ed up a Form 1041 by not thoroughly checking the return that was spat out by a tax preparation software package. He knows me well, and correctly predicted that I was “gleefully laughing at another comeuppance of an accounting firm” upon reading of the FU. I continue to scorn “the expensive and unreliable software the rest of us use”.
* Tim Maurer, Pete Reilly’s colleague at FORBES.COM (who writes “about the dynamic and vital intersection of money and life”) gives us “5 Tax Myths Debunked”.
He is basically saying, as I have been saying for years, “don’t let the tax tail wag the dog”.
Or, as I put it on the list of “my best tax advice” - THE FIRST CRITERIA FOR EVALUATING ANY TRANSACTION, STRATEGY OR TECHNIQUE YOU ARE CONSIDERING SHOULD ALWAYS BE FINANCIAL. TAXES ARE SECOND.
Let us look not at his 5 tax myths, but at his five “bottom lines” -
1. You should never carry a mortgage for the primary purpose of having a tax deduction.
2. You should never hold an investment with the avoidance of taxes as the primary determinant.
3. You should never purchase an investment for the primary reason that it will benefit you from a tax perspective.
4. The amount of a tax refund has absolutely no bearing on whether or not the taxes were optimally computed. Take full advantage of the tax law and adjust your withholdings so you neither write nor receive a huge check at tax time.
5. Most people would be best served by having a professional Certified Public Accountant prepare their taxes.
Tim and I are on the same page on the first 4. I agree with these statements.
However, when it comes to #5 we part company. Tim makes the same mistake that so many journalists do when it comes to writing about taxes. They erroneously assume that a CPA is automatically a 1040 expert by virtue of simply possessing the designation. This is not true.
A particular CPA may be a 1040 expert, like, for example, Joe Kristan of THE ROTH AND COMPANY TAX UPDATE BLOG. But it has nothing to do with the fact that the initials CPA follow his/her name. It is because of the specific education (including continuing), training, and experience of that unique individual.
The 5th statement should read “You are best served by having a Registered Tax Return Preparer (RTRP) prepare your taxes”.
I do agree with the following statement he makes under this category -
“Your tax preparation software is only as good as the preparer, and don’t forget that our own Secretary of the Treasury, Tim Geithner, couldn’t get TurboTax to work properly!”
Tim (Maurer, not Geithner) also has a post of “5 Tax Rules That Work” – and I fully agree with all 5.
* Continuing the above discussion, the question “Is Your CPA REALLY the Right Person to be Completing Your Tax Return?” is addressed over at the QUICKBOOKS FOR CONTRACTORS blog by Sunburst Software Solutions, Inc.
The post’s bottom line (highlight is mine) -
“This is a problem when people are able to prepare your returns and not be required to keep up with tax law changes, or even tax topics in general, and are held with more esteem in regards to taxing issues then those who spend all their time learning all there is about tax to get you the most accurate return prepared that is possible because they have spent the time learning tax law updates along with tax topics. Not to mention they are required to have CPE in tax law and tax law updates.”
* Darren Mish elaborates on “Three Cardinal Rules for Your Taxes” at his IRS PROBLEM SOLVER BLOG – “three simple rules to follow to avoid problems with the IRS”.
They are -
“1. Always separate your business from personal expenses.
2. Always keep up-to-date records.
3. Check all 1099s.”
Three excellent rules indeed.
* MISSOURI TAXGUY Bruce MacFarland gives some good tips on how to “Get the Better of Your Mortgage”.
* The IRS has a brief YouTube video that introduces you to a #tax law change that affects employers who hire #veterans in 2011 and 2012. Click here.