WHAT ARE THE OBLIGATIONS OF A TAX CLIENT?

Obviously, tax preparers have ethical obligations.  But what about the obligations of a tax preparation client?  A client also has obligations, responsibilities, and requirements regarding their return.  

In the letter that I give to clients with their finished returns I state –

“There returns are subject to review and examination by the IRS and appropriate state tax agencies. We accept responsibility for the clerical and mathematical accuracy of all returns I have prepared. However, the burden of proving the facts reported on your tax return rests with you. You are responsible for keeping all of the necessary documentation of the income and deductions claimed on these returns for at least three (3) years.”

This letter also says –

“Please examine these returns carefully to be sure all items of income and deductions have been accounted for properly. You are responsible for all the information reported on the returns. If you find anything that is not in order, or that you do not understand, contact us immediately. It is extremely important that you verify the accuracy of all Social Security numbers on the returns before mailing.”

As the National Association of Tax Professional’s Standards of Professional Conduct says – “The client is responsible for any decisions made when the tax return is prepared. When the client signs the tax return, it has the force of an affidavit.”

A client should not take the finished returns from his/her tax professional and just sign and mail, or approve for electronic filing, without actually looking at them.  The client should carefully review all the forms and schedules that make up the returns before signing the return.  Hey, it is the taxpayer who will be hit with penalties and interest if there is an error.

And, just as important, as I explained to clients in this year’s January letter, a client has a responsibility to provide a tax preparer with all income and deductible expense information.  If you receive additional information after your tax pro begins working on your return contact him or her immediately to ensure your completed tax returns contain all relevant information.  And a responsibility to be sure that all income and deduction amounts you provide your tax pro are accurate and that you have all required supporting written records.

Included in my instructions to clients is the following statement –

“When I say ‘I only need numbers’ I mean specific numbers for deductions you are claiming.  ‘Claim the maximum’ or ‘Whatever I am allowed’ or ‘Same as last year’ don’t cut it!  The maximum is what you actually paid – and you are allowed what you actually paid!  I will not make up numbers for you – I need you to tell me ‘$1023.50’ or ‘$20.00 per week for 50 weeks’ or ‘4638 miles’!” 

A Form 1040 is only as correct and accurate as the information provided by the taxpayer client.

TTFN

 

 

 

 

HEY DUDE, WHERE'S MY REFUND?

 

If you haven’t received your federal or state refund check yet don’t call or email your tax preparer!  Once your tax pro has completed and sent you, or submitted electronically, your finished returns their fate is out of his or her hands - there is nothing he or she can do that you cannot do yourself.

 

FYI – the IRS and many state tax agencies are taking a little longer to process refunds this season in an attempt to avoid identity theft.

 

The first thing you should do is to look at your copy of the return to see if you requested direct deposit of the refund. If you did check your most recent bank account statement or access your account online to see if the refund was deposited.  You will not receive a written acknowledgement of the direct deposit from your “uncle(s)” or the bank – the money will just appear in your account.

 

If it has not been directly deposited, or elected to receive a check you can check the status of your federal income tax refund online.  Click here.  

You can also check the status of a NJ state income tax refund online.  Click here.  

 

And you can check the status of a NY state refund online here.  

For any other state you should go to the website of the appropriate state tax agency.  Click here to link to your state.

You must wait at least eight (8) weeks after mailing your return to check on its status.  Have your copy of the tax return in front of you when you check, as you will need information that is on the return.

Contact your tax preparer only if you are told that your return has not been received to request a duplicate copy.

If you are told that your refund has been issued but you have not received it, follow the instructions provided to request a new check.

 

TTFN

 

 

 

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

Again, a day late, but not a dollar short.  It looks like I will be posting only one BUZZ installment a week for a while, on Wednesdays, until the amount of appropriate BUZZ picks up.

* Over at FORBES.COM Ryan Ellis lists the “Top Five Reasons the Death Tax's 100th Birthday Should Be Its Last”.  Some good reasons, especially the top 3, of why the “death tax” should be sentenced to death.

* Still at FORBES.COM, TaxGirl Kelly Phillips Erb explains “Fears Over Taxpayer Confusion Mount After It's Revealed IRS Might Be Calling You After All”.

As Kelly points out –

“For months, the Internal Revenue Service (IRS) has been warning taxpayers to be vigilant and not fall victim to IRS impersonation scams. Thousands of victims have collectively paid tens of millions of dollars to scammers calling taxpayers and posing as IRS officials while phone scams remain on the IRS’ ‘Dirty Dozen’ List of Tax Schemes and Scams for 2016.”

The IRS, and we tax pros and tax bloggers, have been telling you that the IRS will never initiate contact by telephone.  But apparently “it ain’t necessarily so”!

In this instance Kelly is not talking about the incompetence of the idiots in Congress, who have stupidly forced the IRS to use outside collection agencies, despite the fact that previous attempts actually lost money for the government.  Here she is talking about the incompetence of current IRS management –

“According to Tax Notes (subscription required), the IRS has been initiating some audits by phone. The issue was raised at one of a series of Taxpayer Advocate Service public forums, this one held in Iowa. At the forum, Robert McHugh, an Enrolled Agent (EA) in Kimballton, Iowa, told National Taxpayer Advocate Nina Olson that his client, an elderly taxpayer, was contacted by phone from an IRS auditor. There had been no prior contact with the taxpayer, including any letter. Another tax professional added, ‘It happens all the time.’”

And –

“ . . .the Internal Revenue Manual did instruct revenue agents that the preferred method for initiating taxpayer contact for audit was by phone.”

My advice – if you are contacted via telephone by anyone claiming to be from the IRS tell them you refuse to discuss personal matters over the phone, and tell them you will only acknowledge and respond if they put it in writing.

* It seems that the IRS has responded to the problem discussed in the previous item.  According to “IRS Modifies Audit 'Call-First' Policy After Taxpayer Complaints” by William Hoffman at TAX ANALYSTS -

“The IRS will begin notifying taxpayers first by letter when they are subject to in-person field exams, ‘in an abundance of caution and in light of pervasive phone scams seeking to extort money from taxpayers,’ the agency said in a statement May 6.

The IRS announcement follows reports in Tax Notes Today that attendees of a public forum held by the Taxpayer Advocate Service May 5 complained that they had received phone calls from IRS employees trying to set up audits. The claims seemed to contradict IRS Commissioner John Koskinen's repeated pledges to taxpayers that the IRS never calls first.

The IRS's May 6 statement said the agency ‘will implement a policy to notify taxpayers in this smaller exam category first via mail that their return has been selected for audit and then contact them to schedule an appointment.’”

My advice at the end of the last item still stands.

* Say what you will about the IRS and its current mismanagement - and there is a lot that can be said - the IRS website does have lots of good resources for individual and business taxpayers. 

Here, for example, is it’s “Small Business and Self-Employed Tax Center”, which provides “a variety of resources for taxpayers who file Form 1040, Schedules C, E, F or Form 2106, as well as small businesses with assets under $10 million”.

* And while for the most part competence is a rarity at the NJ Division of Taxation, it, too, has an excellent website full of helpful resources.

I expect most state tax agency websites are a good source of information and resources.  You can link to your state’s tax agency website here.

* OUR BLOG at IRS Tax Pros warns “Receiving Cash Tips? The IRS Is Watching”.

This is a good review of how to handle tip income. 

Thankfully I no longer have any 1040 clients who are among restaurant wait staff, so I do not have to worry about this any longer.

THE FINAL WORD

What has dangerous buffoon Donald Trump accomplished so far as a Presidential candidate?  He has turned the Republican campaign into a three-ring circus – not much more than a farce.  And he has seriously divided and damaged, if not destroyed, the Republican Party.

Think what he could do if, God forbid, he become President.  This must never happen.

TTFN

NEW 1098-T REQUIREMENTS COULD POST A PROBLEM

Professor Annette Nellen brings up an interesting issue in her recent post “New Rules Can Produce New Problems - AOTC and 1098-T” at 20^th CENTURY TAXATION.

As Annette points out, beginning with tax year 2016 –

“A 2015 law changes requires an individual to have received a Form 1098-T from the university in order to claim the tax benefit.”

The purpose of this new requirement is to enhance the IRS matching program.

Thankfully, the required 1098-T also must now include an entry in Box 1 to indicate the amount of payments received “from any source” – basically by the student (or the student’s family) or for the student (such as student loan proceeds) for qualified tuition and related expenses during the calendar year.  Previously most colleges only reported the amounts billed – making the majority of Form 1098-Ts as useful at tax time as tits on a bull.  In preparing the tax return I don’t give a rat’s hind quarters how much the college billed – I need to know how much was paid by or for the student.  My clients are, after all, cash-basis taxpayers.

However, the American Opportunity Credit is based on qualified tuition and fees paid during the year, now properly reported on the Form 1098-T, and required books and supplies, which are not reported on the Form 1098-T.

The issue that Annette brings up goes like this –

You cannot claim an American Opportunity Credit for 2016 unless the college issues a Form 1098-T.  If a student who is graduating in May of 2016 was billed, and paid for, Spring 2016 tuition (the student’s final semester) at the end of 2015, then there will be no payments made to the college in 2016 and, I expect, no Form 1098-T issued for 2016.  But the student will still be purchasing books for the Spring 2016 semester in 2016, an expense that is eligible for the AOC.  It looks like the student will be screwed out of a legitimate AOC for 2016, based on qualified book purchases, because no Form 1098-T was issued. 

Annette illustrates the problem with a recent court case.

The problem would be fixed if colleges were required to issue Form 1098-T for all students enrolled at a college at least half-time during the year, regardless of whether or not any tuition or fees were paid.

It also occurs to me that a matching problem might also appear.  Since qualified book and material expense are not reported on a Form 1098-T the amount of expenses, if less than the maximum $4,000, reported on the tax return could be more than the amount reported on the Form 1098-T.  An extra line on the Form 8863 to separately identify tuition and fees per Form 1098 and nor-reported books and materials would fix this potential FU.

TTFN

THE THREE STAGES OF TAX FILING SEASON

Psychiatrists and psychologists tell us that there are 7 stages of grief.  I have always felt there were three stages to the tax filing season.

 

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

 

Stage Two (mid-March):  OMG - there are so many returns to do and so little time left.  I will never get them all done on time.  What am I going to do?

 

Stage Three (the first week of April):  F**k it.  I am not going to worry.  If they get done, they get done.  If not, they get extended.

 

Fellow tax pros - do you agree?

 

TTFN

 

 

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

* Kelly Phillips Erb, FORBES.COM’s TaxGirl, reports “Members Of Congress Push To Shut Down IRS Forever”.  

Another stupid idea from the idiots in Congress. 

Why do away with the IRS?

“In its current form, the Internal Revenue Service (IRS) is at best an inefficient behemoth weighing down our economy. At its worst, the IRS has shown a capacity for outright corruption and political targeting.”

Well, in its current form Congress is at best an inefficient behemoth weighing down our economy, and it has shown a capacity for outright corruption and political targeting”.  Does that mean we should do away with Congress?

The answer to fixing the IRS is to stop giving it additional unrelated jobs, such as administering government welfare and other benefit programs like the Earned Income Credit and Obamacare, provide sufficient funding for its legitimate activity of collecting taxes, and replace incompetent management.

The answer to fixing Congress is to replace the current crop of idiots by voting them out.

* In the MD TAXES NETWORK’s Monthly Newsletter for May Andres Schwartz suggests “Three Steps to Tax Simplification”.

These steps include-

(1) Require all politicians to self-prepare their tax returns each year.

(2) Have the IRS send the President and each politician a notice questioning anitem on their return that was reported correctly.

(3) Make sure each politician gets audited each year.

I think his plan just might work!

* Sarah Brenner lists “10 Rules to Know About 72(t)” at the SLOTT REPORT.

* It’s a miracle!  Michael Cohn of ACCOUNTING TODAY tells us that the “IRS Finds Money to Hire Hundreds More Enforcement Employees”.

“The Internal Revenue Service plans to hire an additional 600 to 700 more enforcement employees in an effort to increase its audit rate.

The IRS found money within its existing budget to hire the additional employees after a series of budget cuts in recent years at the hands of Congress.”

Let us hope that the funding does not come from money previously allocated to taxpayer service functions.

THE FINAL WORD

A sad day for the country, and the world.  A dangerous, deluded, narcissistic buffoon is the presumptive Republican candidate for President.

Unfortunately voters will not have a choice in the upcoming Presidential election.  The only intelligent option is the Democratic candidate, who will be Hillary Clinton.  A Trump Presidency would be a total disaster.    

TTFN

CALLING A SPADE A SHOVEL

I was disappointed to find dangerous buffoon Donald Trump on the cover of the May issue of FORTUNE.  But after reading the article I am glad that Fortune decided to “tell it like it is” and “call a spade a shovel”.

The article, “Business Trump Way: What Does His Record Say About How He’ll Lead”, as the title suggests, asks the question “As the {God forbid – rdf} Leader of the Free World, how would he lead?” and identifies “five overriding themes that provide a blueprint for running things the Trump way”.

Here are some of what the article has to say about these 5 themes –

 (I) He Always Comes First -

“Whatever the deal Trump must be the star.  He routinely values two things above all, even over making money: being the boss and gaining publicity.”

“’He lives to see his name praised in the press,’ says a former associate who has worked closely with Trump. ‘When it comes to choosing between getting more publicity and making good deals, I’d say it is a tie.’”

(II) He Wants You To Know How Rich He Is –

“One thing Trump hasn’t felt like doing is release his tax returns, so we can’t know anything about his money.  But we have enough information to conclude this: Trump is exaggerating the size of his empire.”

The fool keeps saying he is worth 10 Billion.  But FORTUNE’s estimate of his net worth is $3.72 Billion.

(III) He Sues First, Asks Questions Later –

“When Trump reads this, will he threaten a lawsuit?  It wouldn’t be surprising.”

“And on the stump he has vowed that if elected, he will ‘open up our libel laws,’ effectively overturning the US Supreme Court’s 1964 ruling in New York Times v. Sullivan, which gave the press heightened First Amendment protections against defamation suits for articles about public figures – like Donald Trump.”

 (IV) He’s Taken On Debt Recklessly –

“Trump claims that as President he would use his business prowess to tackle one of America’s most urgent problems: the skyscraper-high national debt.  As evidence, he claims that the businesses he runs have ‘very low debt and tremendous cash flow.’

But a close examination of how Trum ran one of America’s biggest gaming enterprises demonstrates an entirely different kind of thinking from the belt-tightening rhetoric he spouts on the campaign trail.  In fact, Trump has a record of recklessly piling on debt – with disastrous results.”

(V) He Thinks He’s Great At Everything –

“Several executives who worked for Trump, all of whom declined to speak on the record because they fear his wrath, say they were constantly warned by managers who knew him best that ‘Donald’s ego is so big, he believes he can run anything.’”

While it did an excellent job of describing the Donald as the deluded narcissist he truly is, I expect FORTUNE is “preaching to the choir”.  It is very doubtful that any of Trump’s hapless fanatical supporters read FORTUNE.  There is some questions as to whether many of his supporters can actually read.

After winning the Nevada primary, when it was reported that he did well with “poory educated voters”, Trump proclaimed, “I love the poorly educated!”  And well he should.  They are the people who have gotten him where he is in the campaign today.

It is still inconceivable for me to believe that anyone with any degree of intelligence, and any degree of concern for the future of America, would ever consider the Trumpster for any elected office.

A Trump Presidency would be a bigger disaster than Katrina and Sandy combined.  See my previous post and, please, please, please, “Just Say No To Donald Trump”.

TTFN

NJ HOMESTEAD BENEFIT ISSUED

The NJ Department of the Treasury has announced that most New Jersey homeowners who were eligible and filed for a 2013 Homestead Benefit will receive the benefit as a credit on their May 2016 property tax bills.

 

Homeowners will receive their benefit in the form of a check in early May if their home was a unit in a co-op or a continuing care retirement community, or they indicated when filing that they no longer owned the home that was their principal residence on Oct. 1, 2013.

 

The 2013 benefit, which will be paid in 2016, is based on the 2006 property taxes for the applicant’s principal residence on Oct. 1, 2013.  If no property taxes were assessed on the home for 2006, the state will determine the amount of property taxes that would have been due.  Confusing enough?

 

You can check the status of their homestead benefit here. And find additional information about the NJ Homestead Benefit here.

WHY I WANT TO KNOW THE DATES OF BIRTH OF MY CLIENTS

I need to know the date of birth of all my 1040 clients, as well as that of their spouses and dependent children.

Why?  It is not that I am nosey.  And I do not send out birthday cards to all my clients.  There are several federal and state tax benefits and applications that take effect, or disappear, at certain ages.

Perhaps the most well-known age-based tax benefit is the additional Standard Deduction amount that is allowed for a person who is age 65 or older at the end of the year.  This additional Standard Deduction amount also applies to a taxpayer who is legally blind.  For 2016 the additional Standard Deduction amount for the age 65 or older or blind is $1,250 for married individuals and $1,550 for Single and Head of Household.

Back in “the day” a person turning age 65 would get an additional personal exemption, currently $4,050 for 2016 returns.  But this was changed to an additional Standard Deduction, effective with 1987 returns, via the famous Tax Reform Act of 1986.

One day back in the late 1980s, when I was still working occasionally with my mentor James P Gill at his storefront office in Jersey City during the tax season, while in the course of preparing the return for a woman Jim happened to say-

“Now be sure to tell us when you reach age 65.”

The client blushed, chuckled, and told Jim –

“I’m 70.”

The very next morning we hung a sign in the waiting area of the office that read “PLEASE TELL US WHEN YOU ARE AGE 65”.

Some states, including NJ, still provide an additional personal exemption for a person age 65 or legally blind.

You can take a distribution from a retirement account - like an IRA, SEP, or 401(k) plan – without having to pay a 10% penalty once you reach age 59½.  And some distributions from a qualified retirement plan (not an IRA) are penalty free once you reach age 55 or age 50.  In these cases the actual date of birth, and not just the year, are important.

If you are age 65 or older the AGI exclusion for medical expenses on Schedule A is 7.5 percent. This applies on a joint return even if only one spouse has reached 65. For those under 65, medical expenses are deductible only if they exceed 10 percent of AGI.  This applies for tax years through 2016 only.  For 2017 the 10% exclusion applies to all taxpayers.

It is important to know the date of birth of dependent children because –

ü  You can claim a exemption for a dependent child under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student during any part of 5 months during the year, regardless of the amount of the dependent’s income.

ü  The Credit for Child and Dependent Care Expenses, and the pre-tax treatment of Child Care FSA payments, apply only to a dependent under age 13.  Here the actual date of birth is important, as the credit or exemption can be claimed on expenses incurred prior to the child’s 13^th birthday.

ü  The Child Tax Credit applies to dependent children under age 17 at the end of the year.

States also have certain age-based tax contingencies.  A NJ taxpayer who was 62 or older on the last day of the tax year may be able to claim a Pension Exclusion or Other Retirement Income Exclusion on the state return.  NY has an age-based “Pension and annuity income exclusion”.  NJ allows an additional personal exemption for a dependent child under age 22 at the end of the year who is a full-time student at “an accredited college or postsecondary institution”.  NJ requires that you enter the year of birth for all dependents on the NJ-1040, and NY requires the actual date of birth for all dependents.

The date of birth is also necessary to access needed state information online.  NJ asks for one’s date of birth to submit a return directly to the NJ Division of Taxation online, without using tax preparation software or a third-party, via the NJWebFile system, to download a Form 1099-G for state income tax refunds, to find out the amount of the NJ Homestead Benefit issued to a qualified homeowner, and to access a record of estimated tax payments.

So be sure that your tax professional knows your date of birth, the date of birth of your spouse, and the dates of birth of all of your dependents.

TTFN

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

“No matter how much you push the envelope, it will still be stationery.”

* The title to Roger Russell’s item at ACCOUNTING TODAY is excellent advice – “Saying No to Outside Agencies in Tax Collections”.

The idiots in Congress have once again proven themselves to be idiots by passing a law that requires the IRS to use outside collection agencies.

Roger points out the folly of this action-

“For starters, it’s been tried before, and failed – twice. Both efforts, from 1996-1997, and 2006-2009, lost money. And given the current atmosphere of high cybercrime, ID theft and tax refund fraud, it doesn’t make sense to give taxpayers’ personal data to third parties”.

My advice to taxpayers who are contacted by outside collection agencies legitimately representing government tax agencies has always been (I've been saying this since 2007) – tell the outside collectors, and write to the IRS or state tax agency, that you refuse to deal with a private collection agency and will only deal directly with the IRS or the state agency.

* Jason Dinesen continues his series on “Basics of Taxes” with “Part 2: How to File” at DINESEN TAX TIMES.

* Jamaal “Stikks” Solomon, who had previously blogged as THE TAX GUY, is back blogging at STIKKS TALKS TAXES.  His premiere post is “Chronicles of Stikks aka ‘The Tax Guy’: I’m Not Mad”.

JSS has some good advice for fellow tax pros –

“My plea to my fellow tax professionals is to never take abuse from clients. Have pride in your abilities and knowledge to know when you are right.”

* Oi vey!  Kay Bell reports “Tax Gap Hits $458 Billion”!

“In tax years 2008 to 2010, new IRS data show that the tax gap grew to around $458 billion a year.”

Why did the gap grow?

“During the years used to calculate the latest tax gap, the economy was in the depths of recession. People either didn't have the money to pay taxes and/or were doing any and everything they could to hang onto every possible penny.

There's disgruntlement with government in general. For most folks, their most direct contact with the federal apparatus is via the IRS. The most tempting and easiest way to express that hate is by trying to keep the agency from getting what's due.

And then there's the reduction in tax audits.”

* Over at her other blog, at BANKRATE.COM, Kay explains “How Your Tax Dollars are Spent”.

* A blast from the past, via a recent tweet, from Jim Blankenship at GETTING YOUR FINANCIAL DUCKS IN A ROW -  “4 Ways You Can Make IRA Contributions –Without a Job!”

TTFN

HOMEY DON'T PLAY THAT!

It seems a bit funny, and sometimes bothersome, that the public often thinks that just because a person - say a tax preparer - is trained and experienced in one set of government forms – say preparation of federal and state individual income tax returns – he or she automatically knows how to fill out every other federal and state government form.

A client recently asked me if he should report his sideline business, a loss-generator, on a Financial Disclosure Statement.  How do I know?  I have never seen, let alone filled out, a Financial Disclosure Statement.  Back in “the day”, when I was an apprentice preparer with JP Gill at his storefront office near Journal Square in Jersey City, clients would bring their census forms to us.

I am trained and experienced in preparing tax returns.  I have no clue when it comes to census forms, immigration forms or applications, FHA or other mortgage or loan applications (I have never had a mortgage), prescription drug or utility discount applications, FBAR or FinCen filings, college financial aid applications (I have never had a child), etc, etc, etc.

If it does not have anything to do with the proper and complete preparation of a 1040, or 1040A, I don’t know it – and I do not want to know it.  Homey don’t play that! 

While other tax preparers may want to establish a post-season side-practice preparing college financial aid applications or something similar, I certainly do not – especially at this point in my career as I am winding down 1040 preparation.

It is not that I do not sincerely want to help my clients if I can – but I do not know anything more about these forms and applications than they do.  And often less than they do.  There is nothing I can do that they cannot do themselves – and there is no special “insight” or “trick” on completing the form that I can provide.

It is somewhat bothersome if I am asked to fill out these forms during the tax filing season.  From February 1 through April 14^th I barely have time to relieve myself, let alone do anything that does not involve preparing a 1040 or 1040A.

What I do tell my clients is that I can provide them with any information from their tax returns that is applicable to the form.  For example, NJ has a “Property Tax Reimbursement” program for senior and disabled homeowners.  While I will not prepare the application in full, I will complete the section of the form that asks for income, based on the information used in preparing their tax return.  But this I will not do until May.

So, clients, do not assume that just because your tax preparer knows all about individual income tax returns that he or she knows anything about any other government form or application.

And tax preparers, don’t be afraid to tell your clients, nicely of course, that “Homey Don’t Play That” when they ask you to fill out non-tax forms and applications that you know nothing about. 

TTFN

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

A day late – but hopefully not a dollar short.  I am back at my desk working away on the GD extensions.

* Did you celebrate this past Sunday?  According to the TAX FOUNDATION “Tax Freedom Day 2016 is April 24”.

“Tax Freedom Day® is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. Tax Freedom Day takes all federal, state, and local taxes and divides them by the nation’s income. In 2016, Americans will pay $3.34 trillion in federal taxes and $1.64 trillion in state and local taxes, for a total tax bill of $4.99 trillion, or 31 percent of national income.”

It appears “Tax Freedom Day is one day earlier than last year, due to slightly lower federal tax collections as a proportion of the economy”.

Each state also has its own Tax Freedom Day.  New Jersey’s Tax Freedom Day is May 12^th- #49 on the list - a day after New York’s.  Connecticut has the latest Tax Freedom Day – May 21^st.  Pennsylvania’s was April 22^nd - #32.  Mississippi was #1 – celebrated on April 5^th.

* Good news from Michael Cohn at ACCOUNTING TODAY – “Senate Committee Drops Tax Preparer Regulation from Identity Theft Bill”.

* Do you really need more reasons not to use a fast food tax preparation chain to prepare your tax returns?  Well, here, also from ACCOUNTING TODAY, is another one – “Liberty Tax Shuts Down More Offices”.

* This week Jean Murray deals with “Starting a Corporation - The Details” at ABOUT.COM.   

* And Jean provides a primer on “How and When to File Form 941 for Payroll Taxes”.

 

* CCH has published a “2016 Post-Filing Season Update”.

* The IRS tells us “Houston Area Taxpayers Affected by Severe Weather May Qualify for Relief from Penalties on Late Tax Returns”.

 

* Fellow tax pro and tax blogger Russ Fox of TAXABLE TALK also felt “The 2016 Tax Season” went smoothly (did you see my assessment?).

While certainly I do not oppose the use of tax preparation software by tax professionals, I do not agree with Russ that “it’s essential for any tax professional” or that “it would be impossible for most tax professionals to complete complex returns without it”.  But then, I guess I am not “most tax professionals”.

TTFN

THAT WAS THE TAX SEASON THAT WAS - 2016

And another one bites the dust – another tax filing season that is.  It was my 45^th!  Only 5 more to go.

The message on my answering machine on the last day of tax filing season (this year April 18^th) begins –

“Tax season’s over!  My face it has a big smile.”

My face really had a big smile on April 18^th.  I was apparently especially efficient this season - I ended it with slightly less than half the number of GD extensions than last year – only 24.  Perhaps the least amount of GDEs since I began keeping track of season-end GDEs! 

11 were because the client’s package was received after my deadline for timely filing of March 19^th.  5 were “red-filed” – needed more information.  And 4 were requested by clients who did not send me any 2015 tax info yet.  

Only 4 were due to my workload, and were for “expediency” sake.  Each of these sets of returns were received before March 19^th and were opened and the federal and NJ returns were worked up to determine, or estimate, a liability.  The expediency issue was to postpone the time consuming process of writing up, compiling, copying, and collating the actual returns – each one was a project. 

One of these was extended because the client had more than 30 dreaded GDMF limited partnership K-1s (limited partnership K-1s are worse than the dreaded AMT and GD extensions combined).  Another one would require the preparation of a Massachusetts state return for the sale of rental property by non-residents.  I have never prepared a Massachusetts state return, and am only doing so in this case because of the relationship of the client.  I was certainly not going to stop everything and learn how to prepare a Mass state return during the last week of the tax season. 

So, to pat myself on the back, all returns that were in my hands by the deadline of March 19^th that I announced to clients in my annual January mailing were dealt with. 

The season-end GDE results are testimony to the fact that my 2016 filing season ran smoothly.  There were no weather, equipment, computer, or other issues.  The idiots in Congress passed the PATH Act in mid-December, which, in a rare show of intelligence, made permanent many of the more appropriate “extenders”.  So there was no delays in the beginning of tax return processing or the availability of IRS forms.  I do not know if electronic filers experienced any delays – but such delays would not affect me.  I was able to begin my tax season as always on February 1^st. 

IRS consumer service and return processing reached historic lows last season – due to the continual reduction of the IRS budget by the idiots in Congress and continued IRS mismanagement.  I heard from more clients about seriously delayed refunds and processing FUs last year than in all the years before combined – including one client who was told by the IRS that his refund could not be processed because he was dead (he had to have the Social Security Administration certify that he was still alive – and finally got his refund 8 months after filing the return).  But there were no similar FUs or delays, that I was made aware of, this season.  I only heard from two clients whose NJ refunds appeared to be a bit late.  I expect this is because the states, and the IRS, was taking a bit longer to process returns in attempts to avoid identity theft.

As the basis reporting requirements become “older”, more and more investment transactions are becoming “covered”, which increases filing efficiency.  And there is now more uniformity in 1099-B reporting by brokerage and mutual fund houses.  While there were still corrected Year-End Tax Reporting Statements issued by brokerages, there seemed to be less corrections (not more than one per account), and they were issued earlier in the season than past years.

This was the first year that Obamacare Forms 1095-B and 1095-C were required.  In most cases, as I have been telling clients when they ask about these forms, they are just additional wasted government paperwork.  Generally I do not need these to determine if clients are covered by “appropriate” insurance.  And I do not need actual “proof”, other than a client’s representation, that all applicable family members are covered. 

The IRS delayed the filing deadline for these forms until mid-March.  Some were sent out early, but most arrived late - often after I had already prepared a client’s return.  I got tons of emails in late March with attachments of 1095-Bs and Cs, which wasted some valuable time.  The few 1095-As I needed were all issued in early February, so no delays there.

This season none of my clients had to pay the Obamacare “shared responsibility” penalty, the very few without insurance were exempt due to “affordability”, and only a handful of returns involved the advance premium credit reconciliation. 

I did discover an issue involving the “second lowest cost silver plan” numbers that are included in the calculation of the allowable credit.  In one case the numbers provided for 2015 were substantially different, higher (and therefore resulting in a lower allowable credit amount), than the numbers given for 2014 for the same family situation.  When I went to the Marketplace website tool to search for the SLCSP numbers for 2015 using the family’s information I came up with different, lower, numbers.  I used the lower online amount in the reconciliation, with an attached statement of explanation, which resulted in a smaller credit payback.   

On the state side – I was extremely pleased with New York’s new “enhanced” online Form IT-201 and IT-203 “fill-in” (but manually filed) forms.  The “enhancement” automatically did the math and actually calculated the tax – saving valuable time.  I used the new enhanced process for all of the 20+ New York returns I prepared – and continued to add to my invoice a $5.00 “New York State Tax Preparer Extortion Fee Surcharge” for all clients with NY state returns.

I continued to use NJWebFile to electronically submit NJ-1040s directly to Trenton, free of charge and without a “middleman” (I wish the IRS would initiate a similar program), whenever possible (unless specifically forbidden by the client’s request).  However there are still too many situations where this option is not available.  When I had to manually prepare the return for the client to mail I used the online “Fill-In” Form 1040, which did some math but did not automatically calculate the tax.   I did not encounter any issues with NJ returns – yet.

I do think the delayed filing deadline – April 18 instead of April 15 this year – and the additional day provided by being a leap year did help somewhat in reducing season-ending GDEs.  As usual the tax season ended for me not on April 18^th but on April 17^th (see my 4/18/16 post). 

So there it is – another tax season come and gone.  Let’s hope the next 5 seasons go just as smoothly as this one – and I continue to reduce the number of season-end GDEs.

As I usually ask my fellow tax pros at the end of this post each year – did I miss anything?

TTFN