A LITTLE THIS-A, A LITTLE THAT-A

+ I owe an apology to McDonald’s, Burger King, Wendy’s, Taco Bell, etc. for using them in a description of Henry and Richard and other commercial tax return mills of that ilk.

I have always said that H+R et al “charge gourmet restaurant prices for fast food service”.  Basically, I am observing that Henry and Richard, and the others, ain’t cheap, or even reasonable, and the fees are certainly not commensurate with the service.  But comparing the service at tax preparation chains to that received at fast food chains is not fair – nor true.

Prior to being diagnosed with diabetes I was a frequent patron of McDonald’s, Burger King and Wendy’s.  For the most part, I found the service provided by these chains to be most definitely “appropriate”.  And, again for the most part, I most certainly received value for my money. 

Those who use tax preparation chains will NOT be able to say the same thing when describing their experience.

And I must point out that nobody at McDonalds, Burger King or Wendy’s tried to force me to buy fries or onion rings that I neither wanted nor needed.

So, more appropriately, H&R et al “charge gourmet restaurant prices for service that is inferior to the service you get at a fast food chain.”

Of course, to be fair, I must always include in my assessment of tax preparation chains the following statement –

It may actually be possible that the best tax preparer, at the best price, for your particular situation is an H+R Block, or other chain, employee.  But this is only because of the individual education, experience, ability, temperament, and other factors that are specific to that individual preparer or perhaps that unique and specific franchisee.

Hey, it is better to be safe than sorry.  Bottom line - don’t use Henry and Richard or another chain to have your 2017 income tax returns prepared.  If you are looking to find a tax pro you can start here.

+ Hey fellow tax pros – did you see Monday’s post at THE TAX PROFESSIONAL?

+ This past Sunday was the first payroll I processed for a business client using the new tax withholding tables that were revised to reflect the changes of the GOP Tax Act.  I was curious to see if employees were actually getting any more money in their paychecks.

The gross payroll – total wages paid - for 20 employees for the 2-week pay period was up about $3,600 from the January 8^th payroll, but the federal income tax withholding was $1,050 less.  So, there actually was more money in the paychecks.

However, the pay checks of the two highest paid employees, including the millionaire owner of the business, with the same gross income for the two payroll periods being compared, were increased by over $750 due to reduced federal income tax withholding.  Obviously, the increases in the paychecks of the lower paid employees were small.

I do worry, being cynical, that the withholding tables are a bit too “generous” to try to prove that serial liar Donald T Rump was telling the truth for once when he said workers would see increased paychecks thanks to the Act.  I expect that, while individual paychecks will be slightly higher, 2018 tax return refunds may be lower, or balances due higher, especially for employees who live in New Jersey, as the employees of the above client do.

I am not alone in my concerns.  In “Democrats raise concerns about IRS withholding tables” at TAXPRO TODAY Michael Cohn tells us (highlights are mine) -

“The ranking Democrats on the tax-writing House Ways and Means Committee and Senate Finance Committee are worried the Internal Revenue Service might succumb to political pressure by releasing withholding tables this year that cause employers to withhold too little in federal taxes from their employees’ paychecks to make it appear the tax cuts are larger than they really are, with the result that taxpayers will end up owing more money on their taxes next year.”

+ Speaking of business clients and the GOP Tax Act, also this past week-end a business client, a family owned “regular” (non-S) corporation with 2 shareholders that usually has net taxable income of under $50,000, asked if its tax will be reduced under the new tax law.

When the lower corporate tax rate was originally discussed I had thought the entire rate scale would be reduced. I think I had read somewhere that those currently paying 15%, based on net taxable income, would pay 8% under “tax reform”. However, everything I have read says the income tax rate in the Act is a flat 21% tax rate on net taxable income for all “regular” (non-S) corporations.

So smaller closely held corporations, with net taxable income of $50,000 or less, who previously paid 15% in federal income tax will actually see a 6% tax increase, and, because the sliding scale of tax rates is gone, those with $75,000 or less in taxable income will see a 2+% increase.

Once again true small business gets screwed!

+ FYI - some guidance from the IRS on one of the changes in the GOP Tax Act.

The weekday daily “Checkpoint Newsstand” email newsletter tells us what it learned from the “Frequently Asked Questions” (FAQs) posted to the IRS website -

“The FAQs clarify that a Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by Oct. 15, 2018. A Roth IRA conversion made on or after Jan. 1, 2018, cannot be recharacterized.”

+ The last word - As with any post, your appropriate comments, and not “praise” that is really only trying to promote your site or product, are always welcomed.  I also want to know if you find any tax law inaccuracies, or typos or other clerical FUs, in the post.

TTFN

FROM THE TAX COURT – PUTTING YOUR KIDS ON THE PAYROLL

Another recent court case emphasizes the fact that it is vital that you keep detailed documentation of your deductions, regardless of what the deduction is.

John and Lisa Fisher, TC Summary Opinion 2016-10 deals with the deduction for wages paid by a parent’s company to minor children. 

The Fishers were lawyers with three children under age 9.  Lisa Fisher had her own law practice.

During the summer Lisa brought her kids to her office and had them do shredding, mailing, photocopying, and answer phones (to be perfectly honest, I would not have a child under age 9 answering my office phone or using a shredder).  She claimed a total of $29,000 in “wages to minor children” on her 2006, 2007, and 2008 Schedule Cs.

During these years Fisher did not keep any payroll records or issue W-2s to the children.  She did not actually give money to the children, either in cash or by check.  The “wages” were paid via contributions to 529 college savings plans for the kids.

The IRS disallowed the deduction, and the Court agreed because the Fishers did not substantiate the deduction via proper documentation.  The Court could not determine the actual amount paid to each child each year because there were no records of the hours worked or the rate of pay.

Surprisingly, the Court felt that the children actually did some work for Fisher and allowed a deduction of $250 per child per year.

The moral of the story - as I point out in my book AN INTRODUCTION TO SELF-EMPLOYMENT: THE BASICS OF SCHEDULE C - is: 

“It is very important that you “cross your t’s and dot your i’s” when it comes to documenting a deduction for dependent wages. You must make sure you pass the “duck test” (if it waddles like a duck and quacks like a duck . . .). Forget that these are your kids and treat them as you would any other employee.

• Create a written job description for each position held by your child outlining the duties and responsibilities involved.

• Pay the kids on an hourly basis.

• Use a time card or sheet to document hours worked and work performed.

• Write a company check as payment each week or every-other week.

• Even though the wages are not subject to FICA and FUTA tax and possibly state unemployment and disability contributions, file all appropriate quarterly payroll tax returns, such as the federal Form 941 (you can indicate that the wages are exempt from FICA on the form), submit an annual federal Form 940 indicating the amounts paid as “exempt”, and issue a W-2 in January to report the wages paid.

• If you have other employees make sure the kids’ wages are included on the quarterly and annual payroll tax returns.”

As an aside, I have always wondered why the IRS in their attempts to “control” all tax preparers felt that lawyers did not have to take any tax test or maintain any tax CPE to indicate to the Service and the public that they know anything about preparing federal taxes, and this case is a good example that many do not.

TTFN