WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ – TUESDAY EDITION

* Tax pros – have you seen the new post at THE TAX PROFESSIONAL yet?  Why not?

I pose some questions that I would like tax pros to answer.

And please tell your fellow tax preparers about THE TAX PROFESSIONAL.

* Read about my recent trip to Lancaster PA in BOB’S BABBLINGS.    

* Around this time of the year clients begin to receive a Form 5498 for 2014.  They are emailed or postal mailed to me with questions about WTF they are for.

Bill Perez explains the situation in detail in the appropriately titled “Form 5498” at ABOUT.COM -

“Form 5498 is an annual document issued by a financial institution to report information about individual retirement accounts and other tax-preferred savings accounts. Form 5498 is filed with the Internal Revenue Service and a copy is also sent to the person who owns the account. Essentially, Form 5498 provides independent confirmation to the IRS of the amounts you contributed to IRAs and other tax-preferred savings accounts.”

It is basically for information only, and the 2014 Form 1040 does not need to be changed, as any IRA contributions or withdrawals have already been reported.  I do not need to see them – although it couldn’t hurt to have them in the client file.

* Billionaire Warren Buffett makes an excellent statement, but is wrong when it comes to the solution to the problem.  According to a post by Dan Bigman at FORBES.COM - “Warren Buffett: Stop Blaming The Rich for Income Inequality. If You Really Want To Help, Do This” -

“The world’s third-richest man weighed in on the national debate over rising levels of income disparity in the United States yesterday, saying that while the gaps between the country’s haves and have nots are definitely increasing, it is not the fault of those at the top. Nor will it be solved by traditional methods, like improving education or hiking the minimum wage. His solution: Increase access to the Earned Income Tax Credit.”

Buffett is correct when he says (highlight is mine) –

“No conspiracy lies behind this depressing fact: The poor are most definitely not poor because the rich are rich.  Nor are the rich undeserving {some rich are undeserving – the name Kardashian comes to mind - rdf}. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like.”

But Buffet is wrong when he says the solution is to increase access to the Earned Income Tax Credit.  The current access to the refundable EITC, and other refundable tax credits, results in a large percentage of erroneous and fraudulent claims, and billions of wasted tax dollars – about $25 Billion according to a recent TIGTA report.  While federal welfare, which is what the EITC is, may be appropriate, it should not be distributed via the US Tax Code.

Personally I firmly believe that, for the most part, we are ultimately responsible for our own financial condition.  I am not a millionaire today because of the choices I made over the past 40+ years.  I am not complaining – I am happy with most of my life choices.

The problems of income inequality will not be resolved quickly.  But I do believe that improved education is a part of the answer.

* Trish McIntire discusses issues involved with “Graduation and Taxes” at OUR TAXING TIMES.

I had offered graduates some advice in past posts “Dear Graduate” and “Advice for a New Graduate Starting Out in His/Her first Full-Time Job”.

* And, in honor of Memorial Day, Trish also discusses “Taxes and The Military”, providing an overview of the “special tax treatments available to the military; active duty, reserve or retired”.

* In “From the Archives: New Preparer Requirements on Earned Income Credit = Higher Fees forClients” Enrolled Agent Jason Dinesen looks back at his predictions for how the then new excessive due diligence rules would affect his practice –

“What I’ve found in my practice is, the EIC documentation requirements have indeed resulted in higher fees for returns claiming the EIC, but I didn’t raise fees as much as I had thought I would.

I also have found that the paperwork burden is not nearly as bad as I had thought it would be. I don’t deal with a lot of EIC claims, but for those that I have dealt with, getting the needed paperwork and filling out the Form 8867 isn’t that onerous.”

I file only a small handful of EIC claims each year for long-time continuing clients (as you probably know I do not accept any new clients).  I have not required any additional paperwork to support the claims – I am well aware of the clients’ situation based on years of preparing their returns.  The only affect the new requirements have had on me is to waste time filling out the Form 8867 – really nothing more than an inconvenience. 

However I still feel that this additional due diligence is uncalled for – and still would like to see a lobbying organization for all tax professionals that would fight thrusting this type of additional work on preparers.

TTFN

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

* Tax pros – have you seen the new post at THE TAX PROFESSIONAL yet?  Why not?

And please tell your fellow tax preparers about THE TAX PROFESSIONAL.

* Learn the answer to last week’s Trivia Challenge at BOB’S BABBLINGS.    

* Jason Dinesen continues his lesson with “Why Make Estimated Tax Payments, Part 2” at DINESEN TAX TIMES.

Another reason – if you don’t your Uncle Sam could hit you with a penalty!

* Jean Murray does good work in exposing “5 Myths about Limited Liability Companies (LLCs)” at ABOUT.COM.

* I realize it is a bit early – but Kay Bell issues a “Tax Calendar Alert: 2015 Returns are Due Monday, 4-18-2016”.

And “Maine, Massachusetts taxpayers get even more time thanks to Patriots Day”.

So it looks like I will get an extra day of work during next year’s tax filing season.  Hey – that could be three less GDEs!

* ACCOUNTING TODAY reports “Paul Ryan Tells CPAs about Tax Reform Priorities”.

The best comment on tax reform in the item, however, comes from “Sen. Heidi Heitkamp, D-N.D., ranking member of the Senate Banking Subcommittee on National Security and International Finance, also addressed the issue of tax reform in a separate speech Tuesday at the AICPA Spring Council meeting” –

“Either do it, or stop saying you’re going to do it.”

The idiots in Congress have been talking about tax reform for quite a while now – but have actually not done a fekking thing (they have actually not done a fekking thing about much of anything). 

As Heitkamp goes on to explain in the item, continually talking about tax reform and doing nothing is worse than just doing nothing.

To echo Heidi in perhaps more appropriate terms –

Hey, idiots in Congress, shit or get off the pot!

* Speaking of the idiots in Congress and their incompetence, back to Kay Bell, who asks “Will Congress OK Highway Money Before it Hits the Road?”

She begins her post by making an appropriate addition to a famous quote -

“The only certainties in life, to paraphrase a Founding Father, are death, taxes and the last-minute way Congress does, or doesn't do, its job.”

Kay very properly chastises the idiots –

“Why can't these people get their acts together on something as critical to everyone, regardless of political affiliation, as our highways and other infrastructure? Roads are deteriorating, bridges are crumbling, jobs would be filled to fix them if financing were provide, but no, Representatives and Senators are idling.”

And she suggests –

“Remember Congress' lack of direction as you take a driving trip this upcoming three-day weekend and have to maneuver around potholes and bump across generally crappy roads.”

TTFN

DEDUCTING MORTGAGE INTEREST

In my opinion the area of the Tax Code where proper documentation and strict adherence to the law is perhaps the most overlooked (or actually ignored) is the deduction for mortgage interest – both on Schedule A and Form 6251 (Alternative Minimum Tax-Individuals).

As a reminder – there are three (3) kinds of mortgage debt –

1) Grandfathered debt – debt acquired on or before October 13, 1987, that was secured by a main residence or a qualified second home.  It does matter what the proceeds of the loan were used for, as long as the debt was secured by the property.

2) Acquisition debt - debt acquired after October 13, 1987, that was used to buy, build, or substantially improve a main residence or a qualified second home. A “substantial improvement” is one that adds value to the home, prolongs the home’s useful life, or adapts the home to new uses.

3) Home equity debt – debt acquired after October 13, 1987, that is secured by a main residence or a qualified second home that is not used to buy, build, or substantially improve the property.  There is no restriction or limitation on what the money can be used for; you can use it to buy a car, to pay for college, or to pay down credit card balances. 

Interest on home equity debt is not deductible in calculating the dreaded Alternative Minimum Tax (AMT)

Taxpayers are required to keep separate track of acquisition debt and home equity debt, to make sure that the deduction on Schedule A does not include interest on debt principal that exceed the statutory maximums ($1 Million for acquisition debt and $100,000 for home equity debt – no limit on grandfathered debt), and to determine what interest deduction to add back on Form 6251 when calculating Alternative Minimum Taxable Income.

I firmly believe that 99.5% of taxpayers do not do this.  I do not know of any taxpayer who does. 

And I expect that the majority of tax preparers do not do this for their taxpayer clients.

Most taxpayers, and a large percentage of tax preparers, merely take the amount of “Mortgage interest received from payer(s)/borrower(s)” reported in Box 1 of the Form 1098 Mortgage Interest Statements and enter it on Line 10 of Schedule A. 

And similarly, most taxpayers, and a large percentage of tax preparers, do not include any adjustment to the Schedule A mortgage interest deduction on Line 4 of Form 6251.

It is sometimes easy to identify the difference between acquisition debt and home-equity debt if the taxpayer has one acquisition mortgage and a separate home equity loan and/or line of credit.  But home equity debt often arises from multiple refinancings and consolidations over an extended period of years.

To be fair to my fellow tax preparers, many do not adjust the Schedule A or Form 6251 deduction for home equity interest because their clients have not kept track of the separate types of debt and therefore do not provide separate principal or interest numbers.

The responsibility for keeping separate track of the two types of mortgage debt (actually three if you consider “grandfathered” mortgage debt) truly lies with the taxpayer client and not the tax preparer.

Obviously the best solution to this issue is to have boxes on the Form 1098 for “acquisition debt” principal and interest and “home equity debt” principal and interest, and require banks and other mortgage providers to properly report these amounts thereon.  But this would require a lot more information gathering and paperwork on the part of mortgage providers, and I doubt if the banking lobby would allow a law requiring this additional reporting to pass.

I have created a “Mortgage Interest Guide” as part of my Dollar Store of Tax Guides.  In this guide I explain the various types of mortgage debt and the deduction limitations, and go into detail on how refinancing an acquisition debt mortgage can result in home equity debt. 

I also include in this guide two worksheets – one for Acquisition Debt Activity and one for Home Equity Debt activity – and provide a detailed example of how to use the debt activity worksheets.  These worksheets will allow homeowners to keep a detailed record of the two types of mortgage debt – so that they will be able to properly complete their tax returns, or to provide the necessary information to their professional tax preparers.

As one would expect, the cost of this Mortgage Interest Guide, sent as a pdf email attachment, is only $2.00!  A printed copy sent via postal mail is $4.00.  {Check out my other Tax Deduction Guides}

Send your check or money order for $2.00, or $4.00, payable to TAXES AND ACCOUNTING, INC, to –

MORTGAGE INTEREST GUIDE

TAXES AND ACCOUNTING INC

POST OFFICE BOX A

HAWLEY PA 18428

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ – TUESDAY EDITION

* Tax pros – check out the new post at THE TAX PROFESSIONAL.  I share some TAXPRO BUZZ and talk about the period for providing comments to the IRS on proposed regulations.  

FYI – I submitted comments to the IRS on the issue discussed at TTP – and yesterday I received the following email from the IRS –

“Thank you for your comments. We appreciate the time and effort you put into preparing these comments.”

Please tell your fellow tax preparers about THE TAX PROFESSIONAL.

* Learn the answer to last week’s Trivia Challenge at BOB’S BABBLINGS.    

* Like the 7 stages of grief, Linda Coussement of ADDICTED2SUCCESS believes there are “6 Common Stages You Will Go Through When Becoming an Entrepreneur”.

I have always felt there were 3 stages of a tax filing season –

Stage 1 – Bring on the 1040s and keep them coming! There is plenty of time.

Stage 2 – Oh my God!  There are so many 1040s to do and so little time.  I will never get them all done.  What am I going to do?

Stage 3 – F**k it!  If they get done they get done.  If not, too bad.

For the last couple of tax filing seasons I find I go directly from Stage 1 to Stage 3.

* JD SUPRA BUSINESS ADVISOR lists “Ten Reasons To Review Your Estate Plan Today”.

* The TAX FOUNDATION provides us with a map showing “Which States Relied the Most on Federal Aid in 2013?”.

NJ is near the bottom of the list at #41, despite the large amount sent to Washington by its residents.  I do better now as a PA resident – PA is #29.  North Dakota is #50.  The top two states are Mississippi (#1) and Louisiana (#2).

* Kelly Phillips Erb, FORBES.COM’s TaxGirl, exclaims “I'm Going Back To The Movies!”.

“Back by popular demand, this summer, Taxgirl is going back to the movies! That’s right, with Memorial Day blockbusters waiting in the wings, I’m reviving my ‘Taxgirl Goes To The Movies’ feature.”

What is it all about?

“From time to time, beginning after Memorial Day, I’ll choose a movie to review. It may be a popular flick or it might be one that’s already been packaged for DVD or available on Netflix.

I’ll post my review – but it won’t be your run of the mill film review. Instead, I’ll focus on the tax considerations – and consequences – of the plot of the film as well as how the decisions made by the characters would play out in real life.”

What can you do?

“I encourage my readers to nominate movies for review – especially those movies that have an interesting tax twist – just leave a note in the comments below or on Facebook. If I choose a movie that you’ve suggested, there may be (at my discretion) a fun thank you prize in it for you.”

I look forward to KPE’s reviews.

* Just one more report detailing the error rate of EITC claims – and one more reason why the EITC, and refundable credits in general, do not belong in the US Tax Code.

TAXPRO TODAY reports on the latest TIGTA report in “Improper EITC Payments Totaled $17.7 Billion in FY2014”.

The report also talks about another refundable credit – the Additional Child Tax Credit, aka ATCT (highlight is mine) –

“. . . the ACTC improper payment rate is similar to that of the EITC. TIGTA estimates that the ACTC improper payment rate for fiscal year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion.

TTFN

NO INCOME IS TAXED ALONE

Fellow tax blogger Trish McIntire, of OUR TAXING TIMES, recently gave us an excellent post titled “No Income is Taxed Alone”.

Trish was talking about withholding – and the problem that arises when there are multiple sources of income or couples who both work.

As Trish points out in her post –

“Withholding is based on that particular income source; paycheck, IRA distribution or other income.”

If a spouse fills out a Form W-4 with her employer claiming “Married – 1” the withholding will be based on the often false assumption that the wages from which the tax is being withheld is the only source of taxable income. 

If the other spouse does not work, and the couple does not have substantial other income, the withholding should be sufficient to cover the tax cost of the wage income.

But what happens if the other spouse also works, and makes more money, and/or one or both of the spouses is collecting Social Security or Railroad Retirement, and/or is self-employed, and/or the couple has a substantial capital gain or substantial interest and dividend income?  Then the “Married – 1” withholding on the wages will be nowhere near enough to cover the tax cost of that particular source of income, and the couple could end up with a huge balance due to Uncle Sam and their resident state.

But if the couple also has substantial itemized deductions – state income and real estate taxes, mortgage interest, charitable contributions, etc – the balance due will be less.

You must take all sources of income, and all deductions, into consideration when deciding what to claim on a federal and state W-4 (while the federal W-2 usually also covers state income tax withholding - you can often file a separate federal W-2 and state W-4).

As a general rule I advise my two-income couples to have the spouse with the smaller wage income claim “Married, but withheld at the higher Single rate – 0”.

Just what is the tax cost of a particular source of income?  You might think it is your marginal tax rate.  If you are in the 25% tax bracket you would expect that $10,000 of additional income would cost $2,500 in federal income tax.  Or $1,500 if the income is qualified dividends or long-term capital gains. 

But this is very often not necessarily the case.  Why?  Because additional taxable income will increase your Adjusted Gross Income (AGI), and many tax deductions and credits are reduced or totally eliminated based on one’s Adjusted Gross Income or a “Modified” Adjusted Gross Income (MAGI).

Here are just some of the tax items that are affected by AGI or MAGI –

 

·      losses from rental real estate activities,

·      traditional IRA contributions,

·      the ability to contribute to a ROTH IRA

·      student loan interest,

·      qualified tuition and fees,

·      medical and dental expenses,

·      casualty and theft losses,

·      miscellaneous deductions,

·      the Credit for Child and Dependent Care Expenses,

·      the American Opportunity and Lifetime Learning credits,

·      the Retirement Savings Contributions Credit, and

·      the Child Tax Credit

And additional taxable income could increase the amount of Social Security or Railroad Retirement benefits that are taxed.  An additional $1,000 could increase your taxable income by as much as $1,850!

And additional taxable income will increase Alternative Minimum Taxable Income, which could in turn reduce the exemption allowed under the dreaded AMT.  $1,000 in additional income could add $1,250 to income subject to the dreaded AMT.

Even though we are told that the maximum tax on qualified dividends and long-term capital gains is 0%, 15%, or 20%, under both the regular tax and the dreaded AMT, the actual tax cost of additional qualified dividends and long-term capital gains, under both the regular tax and the dreaded AMT, could be much more than 0%, 15%, or 20%. 

We certainly know that investment income could be subject to the 3.8% Net Investment Income Tax (NIIT).  SInce qualified dividends and long-term capital gain are included in investment income, additional qualified dividends and long-term capital gains could be taxed at 18.8% or 23.8%.

So not only is no income taxed alone, but no income is taxed separately, or in a vacuum. 

This is just more proof of the complexity of the US Tax Code.  And of the need for careful year-round tax planning with the help of a tax professional.

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ – TUESDAY EDITION

* Tax pros – what do you have to say about “The Mortgage Interest Dilemma”?

* One of the unanswered questions from last week’s BOB’S BABBLINGS is answered in this week’s post.  While you are there, can you answer the question in my Trivia Challenge 

 

* Kelly Phillips Erb’s latest “Fix The Tax Code Friday” question was “What Should We Do About The Earned Income Tax Credit (EITC)?”

 

Kelly points out -

“Critics call the credit confusing and an opportunity for fraud; that’s also statistically true since most billions of dollars are paid out for EITC in error every year.”

The answer to her question is that the EITC should be removed from the Tax Code.  There should be no refundable credits – they are a magnet for fraud.

Check out the answer I gave Kelly in the comments section of the post.

* And, in honor of Mother’s Day, Kelly lists “11 Things I've Learned About Tax From My Mom”.

* Speaking of Mother’s Day, Kay Bell gives us “A Mother's Day Tax Gift: 10 Child Care TaxCredit Tips” at DON’T MESS WITH TAXES.

* Over at ABOUT.COM Jean Murray provides a wealth of information for those who use their car for business in “7 Useful Tax Tips for Business Driving”.  Each tip links to a more detailed post.

* KHON in Hawaii brings some good news to frustrated taxpayers waiting for a refund check - “State Tax Refund Will Earn Interest as Delay Lengthens”

This deplorable situation is not because of state budget problems – but because of taxpayer fraud.

“More bad news for those looking forward to their state tax refunds. The state now tells us it will take even longer, up to four months now, to get that check.

When we first reported this to you, the state said the refunds will take eight weeks. That’s because the state tax office is giving refunds more scrutiny to prevent fraud.

Two weeks after that, the state said refunds will take 10-14 weeks. Now, it will take 16 weeks, all for the same reason.”

How much will they earn?

“Returns will earn four percent annually, or one-third of a percent per month.”

Hey – that’s certainly better than what banks are paying on savings.

* Hawaii is not the only state that is taking longer to process tax returns.  The NJ Division of Taxation has posted the following message regarding 2014 refunds –

“We know you want your refund as quickly as possible, but there is something you should know.

The Division of Taxation has made a commitment to protect your personal and tax information.

The filing of fraudulent tax returns is growing. Because of the increase in these tax filings, we are using more security measures when processing returns. 

All electronically submitted returns are reviewed to make sure the information provided on the return belongs to the filer so your refund is not sent to an imposter.

This means your return may take longer to process than your tax preparation software may suggest, and it could take us more time to send your refund than it has in previous years because we are making every effort to protect your identity.  

You will be notified in writing if we need additional information in order to process your return.

Thank you for your patience as we work to make sure that you get your refund – not someone else.”  

While I have heard from clients about delayed federal refunds, I have not been contacted about any delayed NJ refunds.

* Will the IRS make it easier to determine one’s “shared responsibility payment” next tax season?    ACCOUNTING TODAY’s Michael Cohn tells us “IRS Prodded to Ease Compliance with Obamacare Individual Mandate”.

“The report, from the Treasury Inspector General for Tax Administration, recommends the IRS instead offer an online tool that would make it easier for taxpayers to find out if they owe a “shared responsibility payment” because they lack “minimum essential coverage” under the health care law, and how much they would owe. Such a tool is already available to IRS examiners and appears to work well at estimating the payment. The TIGTA report suggests the same tool be provided on IRS.gov to taxpayers. The IRS agreed with TIGTA’s recommendation and plans to look into providing an online tool for estimating the shared responsibility payment.”

Will this online tool also provide assistance in determining if the “unaffordable” or any other exception to the payment applies?

* Jason Dinesen will take two posts to answer the question “Why Make Estimated Tax Payments”.  Click here for “Part 1”.

Jason tells us that “contrary to the H & R Block commercials, tax refunds are not a magical creation”.

TTFN

WHAT TO EXPECT WHEN WRITING TO THE IRS

Do you plan to write to the IRS, or will your tax professional be writing to the IRS, to respond to a “CP” notice?  Here is what you can expect.

About 45 days after mailing out the letter you will receive a form-letter response from the IRS that says it has received your correspondence but needs an additional 45 days to review and respond.

Then 45 days later you will receive a second form-letter from the Service saying that it needs another 45 days to review and respond.

About 45 days later you should receive a letter that actually addresses the issue, either resolving it, reaffirming its original determination or assessment, or asking for additional information. 

This has been IRS procedure for a couple of years now – even before the recent budget cuts and resulting decline in the quality of IRS “customer service”.  Perhaps now each letter will say 90 days instead of 45 days.

The bottom line – don’t expect a prompt response to your correspondence with the IRS.  It will take at least about 5 months before your issue is finally resolved.

And one more thing – more than 50% (in my experience more than 75%) of all correspondence from the IRS, or a state tax agency, that assesses additional tax is incorrect. 

Never assume that the IRS, or the state, is right and automatically pay a notice or bill. 

And never assume that because you have received a notice your tax preparer made an error. 

And, perhaps most important, also never ignore a letter, notice, or bill from a tax agency.  As soon as you receive any such correspondence give it to your tax professional immediately. 

TTFN

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

* Tax pros – what do you have to say about “The Mortgage Interest Dilemma”?

* Have you ever wondered “Does your State Have an Estate or Inheritance Tax?”  The TAX FOUNDATION provides the answer – (highlight is mine)

“Currently, fifteen states and the District of Columbia have an estate tax, and six states have an inheritance tax. Maryland and New Jersey have both.”

What does tell us?  Don’t die as a resident of New Jersey or Maryland – especially New Jersey! 

* Can you help with any of my “Unanswered Questions”?

* As if the Service wasn’t in enough trouble.  We now discover, thanks to ACCOUNTING TODAY, that a new TIGTA report found the “IRS Didn't Fire Hundreds of Lawbreaker Employees” –

“Nearly a thousand Internal Revenue Service employees who willfully violated the tax laws received suspensions, reprimands or counseling over a 10-year period instead of being fired, according to a new report.

The report, by the Treasury Inspector General for Tax Administration, found that the IRS mitigated proposed terminations in over 60 percent of the cases involving willful tax noncompliance by IRS employees and did not clearly identify the reasons why some of the employee terminations were reduced to lesser penalties.”

* CCH HEADLINE NEWS reports “Four New Delivery Services Added to IRS’s List of Private Delivery Services and Five Removed”.

* And CCH also tells us about “Tax Relief Available for Victims of Severe Storms, Tornadoes, Flooding, Landslides and Mudslides in Kentucky”.    

* Trish McIntire explains a basic concept of taxation that you need to understand in “No Income Is Taxed Alone” –

“The problem is that no income is taxed alone. It’s added to the rest of your income and taxed that way.”

 

Perhaps I will write in depth on this topic in a future TWTP post. 

* Kay Bell, the yellow rose of taxes, provides still another reason why refundable tax credits are a bad idea in “IRS Issued $5.6 Billion in Erroneous Education Tax Credits” at DON’T MESS WITH TAXES (highlight is mine) -

“The Internal Revenue Service issued $5.6 billion in erroneous education tax credits, primarily the American Opportunity Tax Credit (which is a temporary replacement of the Hope Credit through 2017) and the Lifetime Learning Credit, in connection with claims on 3.6 million returns filed for the 2012 tax year, says TIGTA.

Around $2.5 billion of the wrongly issued credits were refundable, meaning the money went to taxpayers even if they owed no tax bill. The remaining $3.1 billion in erroneous credits were nonrefundable.”

 

TTFN

ADDITIONAL THOUGHTS ON THIS YEAR’S TAX FILING SEASON

Some more comments on “That Was the Tax Season That Was 2015”.

+ When I made my first library visit in late January to look for 2014 tax forms (specifically the 1040, 1040A, Schedules A, B, and D, and Form 8949) I came across a notice taped to the front door that said due to IRS budget cuts the availability of 2014 tax forms would be minimal, if at all.  So this was the first year that I got all of my federal tax forms from the IRS website. 

I miss the days, not too many years ago, when I would go to my local Post Office in January and grab a generous handful of the above forms, returning to that source when I needed more.  Actually the local PO employee in charge of putting out the forms knew of me and my business and gave me a heads up when the forms had arrived.

And I still remember when, during the first years of my apprenticeship, I would make a run to a warehouse in Newark NJ and fill up a suitcase with tax forms.

+ I had, and continue to have, more emails from clients telling of delays in receiving refunds this year than any other tax season I can recall.  Apparently the returns were all actually received by the IRS, but the delay arises in the “processing”.

I was aware that the IRS was doing a more thorough check before issuing refunds, in an attempt to combat identity theft and fraudulent returns.  And I was also aware, as pointed out by the Commissioner before the beginning of the season, that budget cuts would take a toll on “customer service”.  

Some delays were the result of more than just excess “processing”.  I talked about some of the weird reasons in an earlier post (click here).  And the length of the delay speaks to more than just being careful.  Some clients who mailed out their returns in early February have still not received their check, or direct deposit of their refund. 

Just a word to any readers who are also experiencing delays.  Don’t expect your tax preparer to do anything – there is nothing he/she can do.  You have to call the IRS, and wait on hold for perhaps more than an hour, and ask them to explain the reason for the delay.  And you have to keep after them.

Back in the day when a client would complain to my mentor Jim Gill that a refund was late Jim told them to call their Congressman.

TTFN

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

Sorry to be a day late – but not a dollar short – with the BUZZ.   

* Attention tax pros – THE TAX PROFESSIONAL is back as a weekly blog.  I discuss “The Mortgage Interest Dilemma”.

* And Bob (that’s me) is babbling again!  Check out the return of BOB’s BABBLINGS.  I discuss “Unanswered Questions”.

* Ken Riter reminds us “2015 Brings a Big Jump In the Penalty For Not Having Health Insurance” at the interestingly titled blog TAXBUZZ (highlight is his) -

“The law included an increase to that penalty that would take effect in 2015, and the jump is significant. In 2015 the penalty will be the greater of $325 per adult and $162.50 per child with a maximum penalty allowable totaling $975, or two percent of household income minus the family’s tax filing threshold amount.”

You will note that the penalty is the “greater of” the fixed amount or “two percent of household income minus the family’s tax filing threshold amount”.  The 2% of household income can add up to a substantial amount.

* According to the “Return Preparer Office Federal Tax Return Preparer Statistics” as of April 1, 2015, only 43,588 “previously unenrolled” tax preparers were issued a Annual Filing Season Program “Record of Completion”.  This is only 10.75% of the “unenrolled” PTIN-holders.

As I expected this program was certainly not a success – it was basically a big waste.

I still believe that there is a need for a voluntary and independently administered tax preparer credential with actual value. 

* The Tax Foundation’s TAX POLICY BLOG explains “How the Government Spends Your Tax Dollars”.

You will notice in the “pie-chart” of “Federal Revenue by Source as a Percent of Total Revenue, 2014” that the federal estate and gift taxes make up less than 1% of the total federal revenue.

* Jason Dinesen gives us the “Basics of Doing Business in Other States” at DINESEN TAX TIMES.

* This is not good.  CPA PRACTICE ADVISOR reports “Nearly 1/3 of Americans Have No Retirement Savings, Says Survey”.  

What about you?

* But here is some good news from Jeff Stimpson at ACCOUNTING TODAY – “Fewer Returns for Large Tax Prep Chains”.

“Major tax prep chains Liberty Tax Inc. and H&R Block reported that the number of returns they prepared this tax season were flat or down slightly.”

So I guess Henry and Richard’s ridiculous ad campaign about getting your billions back was not a success.  Perhaps the stupidest commercials I have seen in years. 

* Unfortunately, Jeff’s colleague at ACCOUNTING TODAY, Michael Cohn, tells us “Jackson Hewitt Sees Strong Tax Season”.

“Jackson Hewitt Tax Service reported the best results it has seen in over five years this tax season, in contrast with competing tax prep chains H&R Block and Liberty Tax.”

TTFN

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

A short BUZZ today – not much to share.  However I hope you agree with me that some BUZZ is better than no BUZZ.

* MARKETWATCH.COM reports on the “Maryland 2015 Tax Amnesty Program - September 1, 2015 to October 30, 2015” – (highlight is mine)

“The 2015 tax amnesty period will be September 1, 2015 to October 30, 2015. The Program will waive civil penalties and one-half of any interest on taxpayers who failed to file, underreported, or did not pay the tax liability for Maryland state and local income tax, withholding taxes, sales and use taxes, and admissions and amusement taxes due on or before December 31, 2014. In order for the penalties and one-half interest to be waived, the taxpayer must (1) file delinquent returns and pay the tax, including one-half of any interest, due under the return; (2) pay the tax, plus one-half of any interest, due on a previously filed return; or (3) enter into an agreement with the Comptroller to pay the tax and one-half interest. Taxpayers who were granted amnesty under prior Maryland Tax Amnesty Programs held between 1999 and 2014 are not eligible.”

One of the criticisms of amnesty programs, and a reason there has never been a federal amnesty program, is that officials fear taxpayers will put off paying outstanding taxes due between amnesty programs because they know they can avoid interest and penalties when the next one comes around.  This program does not allow those granted amnesty in past programs to use the current one to avoid penalty and interest.

* Jason Dinesen begins a new series of posts on the question “Are HRAs Always Appropriate for Sole Proprietors?”.

* Bond Beebe’s IT’S TAXING blog suggests a way to avoid tax on a “backdoor” ROTH IRA contribution in “Reverse Rollover: A Bridge over the Backdoor Roth Trapdoor”.   

* Kelly Phillips Erb, FORBES.com’s TaxGirl, gives us “10 Tips To Help You Stay Married To A Tax Professional”.   

* An IRS twitter account - ‏@IRStaxpros – has been “tweeting” the following lately – “Tax Pros: #IRS launches directory of qualified return preparers. Are you listed?”. 

THIS IS NOT TRUE! 

The directory referenced in the “tweet” is NOT a directory of “qualified return preparers”.  It is a directory of return preparers who have a recognized designation, such as CPA, JD, EA, or who hold an AFSP certificate.

The directory itself is titled “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications” – and I would question the term “select qualifications”.

As I have responded to the tweet – there are tens of thousands of qualified return preparers who are not on the list!

When looking for a tax preparer you should most definitely not limit your search to those included in this directory.

TTFN