Monday, July 16, 2007


As I will be working away on the GD extensions for the next week or so, and will not have time to devote to daily postings, I thought I would take a cue from television and offer “summer reruns” of some of my posts from prior years when THE WANDERING TAX PRO was at Let’s start with a nostalgic posting from Monday, October 16, 2006. rdf

Today is the deadline for filing your extended 2005 Form 1040 (and state return) to avoid paying a penalty for late filing (5% of the balance due per month) instead of a penalty for late payment (.5% of the balance due per month).

Of course if "Sam" owes you a refund it really doesn't matter - you will only be penalized if you owe "him" money. If you are getting a refund you can file your 2005 Form 1040 on April 15, 2008 and you will not be penalized.

I just returned from the Post Office where I sent off my 2005 Form 1040.

As the final deadline for extended returns, today can also be considered to be the official end of the tax filing season - my 35th season in "the business". This milestone has caused me to wax nostalgic about the "good old days" of the tax profession and how tax laws, regulations and procedures have changed over the years.

Those were the days, my friend -

* when a savvy tax preparer could "pull a rabbit out of a hat" and save a client literally thousands of dollars in federal income tax with "Income Averaging" or "10-Year Averaging" (and in doing so be assured a client for life),

* when credit card interest, auto loan interest and personal loan interest, as well as our tax preparation fees, were fully deductible,

* when "Employee Business Expenses" were an adjustment to income and not an itemized deduction subject to a 2% of AGI exclusion,

* when there was no such thing as an Adjusted Gross Income exclusion or threshold or the "phase-out" of a deduction or credit,

* before all the acronyms (PIG, PAL, ACRS, MACRS and so on),

* and when one-half of long-term capital gain just disappeared from the tax return.

I started my career in February of 1972, preparing 1971 tax returns, when a deduction was really worth something and everyone itemized. As we used to tell clients, "Uncle Sam will reimburse you for up to half of our fee!"

In 1971 the top tax rate was 70%. There was a "minimum tax", not yet alternative, and a "maximum tax" (i.e. the maximum tax on "earned income" was 50%). While we did prepare a few maximum tax forms, I do not recall ever preparing a minimum tax form. The Alternative Minimum Tax did not begin to affect out clients until the 2nd half of the 1990s.

I went to work for James P Gill, my uncle's tax preparer, during my first year of college, with no experience preparing tax returns. I had never prepared a tax return before, not even my own! My education consisted solely of the freshman semester of "Accounting 101".

I learned the business the absolute best way possible - by actually preparing returns. On my first day of work I was given a briefcase containing a client's current year "stuff" and a copy of the previous year's return and told to "jump in and swim". If I had a question I would ask Jim, blessed with the patience of a Saint (a trait I soon learned was essential for a tax preparer), who would stop what he was doing to explain the answer to me.

I worked in a true "storefront" office on the fringe of Journal Square, Jersey City's equivalent of Times Square (made famous in the "Jersey Bounce", which "started at Journal Square"), where we dealt with what Jim affectionately referred to as "the great unwashed masses" on a daily basis.

There were no computers in those days. During my first few years we did not even have a copy machine in the office. Returns were prepared by hand on 3-page carbonized forms purchased from Accountant's Supply House. To this day I still prepare all my 1040s manually - in 35 tax seasons I have never used tax preparation software to prepare a return.

As I started out in the tax preparation business the matching of 1099s to 1040s had just begun. I remember a client who came into the office during my first or second year with a humungous print-out from the IRS listing by source all the interest and dividends that he had failed to report on his previous year's 1040.

Back then a tax preparer was truly in many ways also a "father confessor". One day a widow came into the office dressed in her black mourning outfit and waited to see Jim. Once in the "inner sanctum" she confessed that while her husband was alive she filed a joint return with him, prepared by our office, claiming only his income, and she also filed a single return, elsewhere, under her own Social Security number to report a small pension she received in her maiden name. In those days only the Social Security number of the husband was required to be entered on the return - and not that of the spouse. After giving her "absolution" Jim commenced to fix the situation.

During my early years you were also not required to list the Social Security number for dependents claimed on your return. One year a married client, let's call him John and call his wife Mary, left his "stuff" off at the office, which included a handwritten sheet listing, among other deductions, "dependents" John, Mary, Paul and George. The college student who prepared the return that year (not me) listed as dependents John, Mary, Paul and George. The client received the refund requested on the return without question.

The next year John came in and stayed while I prepared the return. I asked if he was still claiming his four kids, John, Mary, Paul and George, and he told me that he only had two children - Paul and George! The John and Mary he had listed on the sheet the previous year was apparently he and his wife. It appears that the student who had prepared the earlier return had forgotten our first, and most important, rule of tax preparation - always review the prior year's return when preparing the current 1040.

At the recent IRS Tax Forum it was reported that in the first year you were required to list a Social Security number for all of your dependents about 5 Million dependents disappeared from tax returns.

Over the years, due to our proximity to New York City, we prepared the returns of some "semi-famous" taxpayers. One year in the late 1970s we prepared the 1040 for the then captain of the New York Giants football team, who was partner in a local restaurant with one of our long-time clients. This was well before the days when professional athletes all had multi-million dollar contracts, but I do recall being surprised that his W-2 was only $100,000+. FYI, this person was one of the rare clients, I can count them on the fingers of one hand, who "stiffed" Jim over the years.

When the drummer for the original off-Broadway production of ONE MO' TIME became sick and a local union musician, whose return we prepared, took his place we welcomed as new clients most of the members of the cast, who came up to New York from New Orleans where the show had originated. It was the first year we added the Louisiana state income tax return to our repertoire. I remember having complimentary tickets for the show upstairs at the Village Gate and going backstage after the performance to deliver finished returns. We also did the tax returns for the road company.

Our clients were extremely loyal. If they moved out of state they would continue to mail their tax returns to us. We had one client who had retired to the Netherlands and still had us prepare her 1040!

Some clients were also compulsively consistent, coming in to have their returns done on the same day each year. Back when Abe Lincoln had his own separate legal holiday February 12th was a busy day for us, especially with teachers. We also had our share of clients who would wait until the very last day of each tax season, generally April 15th, to come in. When we saw Wally Weinmann, usually the last person on the last day, we knew that it was over! We even had a tv repairman who was always a year and a day late - he would come in on April 16th of 1975, for example, to have his 1973, not 1974, tax return prepared!

Of course in the "good old days" we never filed an extension. We finished all the returns on April 15th - even if we had to stay up until 3 am to do so!

A lot has changed since those days. Reagan completely rewrote the tax code with the Tax Reform Act of 1986, doing away with a lot of the loopholes and deductions we had used to work magic. Jim decided to retire when he turned 75 and handed his practice and office over to me. He would come in to help during the last weeks of the season until he passed away three years later.

As you may know, I now work out of a home office and no longer take on new clients. While I do not miss dealing with the "great unwashed masses" I do miss the "good old days". Every now and then a long-time client, faced with a large balance due to "Sam", will ask if we can Income Average and I think back to the days when we could "pull a rabbit out of a hat".

And of course, most of all I miss the days when come April 15th it was truly over - and we didn't have to spend the next six months dealing with GD extensions!


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