Thursday, May 31, 2012


{This is a guest post I wrote tor Jim Wang’s BARGAINEERING blog a few years back – rdf}

One of the reasons I am called the “Wandering” Tax Pro is because once the tax filing season ends I enjoy travel via all methods – car, bus, plane, ship and train (not necessarily in that order). In the days before my uncle went to his final audit, I would pack my bags and we would embark on a transatlantic crossing, often on the QE2. We would also visit the Caribbean or take a train trip in the fall. Unfortunately, none of these trips were tax deductible for a tax accountant or a retiree.

However, my annual travel itinerary would also include two totally tax-deductible domestic vacations. I would attend the National Conference of the National Association of Tax Professionals (NATP) and the Annual Convention of the National Society of Tax Professionals (NSTP), held each year in a different US city. I have visited Anaheim, Atlanta, Arlington, Alexandria, Boston, Corpus Christi, Minneapolis, Orlando, Sans Antonio, Diego and Francisco, Washington DC, and other locations as a registrant of these two annual events, and deducted every penny of my hotel, meal and travel expenses.

What You Can Deduct

You can deduct expenses that are “ordinary” and “necessary” for your trade, business or profession. An “ordinary” expense is one that is common and accepted in your specific trade or profession and a “necessary” expense is one that is helpful and appropriate. This is true whether you are a W-2 employee working for someone else or are self-employed, either as a sole proprietor reporting income and expenses on Schedule C of Form 1040, a partner in a partnership which files Form 1065, or an employee of your own “one-man” corporation filing either Form 1120 or Form 1120S.

An employee would deduct such expenses as a “miscellaneous deduction” on Schedule A, subject to the 2% of AGI exclusion. So the deduction is only available if you itemize and could be limited. However if you have a one-man corporation and pay yourself a salary the corporation can pay directly, or reimburse you under an accountable plan, for such expenses and deduct them on the corporate return.

Conferences Are Educational

One “ordinary and necessary” business expense for which you can claim a tax deduction is the cost of education that is (1) expressly required by an employer, by law, or by government regulation, or (2) maintains or improves skills required in your current trade or business. If a conference falls under this category, then the associated registration and travel expenses are deductible as well!

To be deductible, you must show that your attendance benefits your trade or business. Unfortunately, if the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses:

The convention agenda or program generally shows the purpose of the convention. You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes.

Example Deductible Expenses

 The registration fee for the conference or convention and any related books or materials.

 Round-trip airfare, trainfare, or busfare at cost, or the Standard Mileage Allowance for business travel if you drive (or, as an alternative, a percentage of the total actual costs of operating your car) and related red cap tips.

 Taxi fares to and from the airport, train or bus station, to and from your hotel, and to and from other business locations while away.

 Hotel or motel lodging expenses, including tips to bellman and maids and the cost of laundry services.

 All meals (although as with any business meal only 50% is actually deductible).

After I deduct all my travel expenses, I often save enough in taxes to cover the registration fee and some of the travel expenses! I get a free quality education, which benefits my practice, and I save on the actual cost of the trip.

What You Can’t Deduct

If you are travelling with your family, only your expenses are deductible. However airlines often offer discounts for accompanying family members, and a hotel room is generally the same price whether regardless of the number of people in the room. You can deduct what it would cost if you were travelling alone. There are special rules if your spouse also works for your business.

You cannot deduct auxiliary sightseeing expenses while at the conference or convention, such as guided tours or travel to and from attractions, museums, sporting events, theatres, etc (unless you were attending with a client or colleague and the activity qualified as deductible business entertaining).

Record Keeping Rules

As with any other business expense you must keep detailed records and receipts. Use a credit card for all meals, get receipts from taxi drivers, and keep a copy of the detailed hotel bill in addition to the charge card receipt. And be sure to save the conference or convention agenda/schedule to prove its relevance to your trade, business or job.

Just as with business use of your automobile and the Standard Mileage Allowance, the IRS allows you to deduct either the actual out of pocket expenses for meals and “incidental” expenses and lodging or claim a federal “per diem allowance” that is determined by the location of the trip. There is a per diem rate for lodging and a separate one for meals and “incidental” expenses. If you claim the per diem allowance you do not have to save receipts for actual expenses, here are the GSA per diem rates.

The per diem rate for meals and incidental expenses includes tips given to porters, baggage carriers, bellhops, hotel maids (the “incidental” expenses) – so the actual out of pocket for these incidentals are not deductible if you claim the per diem. On the first and last day of a business trip you claim 75% of the per diem amount, unless you can show you leave before breakfast on the first day and return after dinner on the last.

You can decide whether to deduct the GSA meals and incidental per diem rate or actual expenses on a trip by trip basis, but you must use the same method for all days within any single business trip. You can use the actual expenses when attending a conference in New York City in May and the per diem rate for an August convention in Las Vegas.

Remember, 100% Business

Make sure to schedule your trip so that it remains 100% business. Let’s look at this year’s NATP National Conference (in Reno) as an example. Registration begins on Sunday, with activities running Monday through Thursday. You would want to arrive on Sunday and leave on Friday. This way you have no “personal days”. However, all you need to do on Sunday is register, leaving the rest of the day to do whatever you want.

FYI, travel extended to get a reduced airfare (such as a Saturday or Sunday night stay-over for domestic travel) is allowed, even though there is no business activity on the extra day, if the extra cost of the stay-over is less than or equal to your airfare savings (IRS Private Letter Ruling 9237014).

So you have always wanted to visit San Francisco. Find a conference or convention related to your business that is being held there and take a tax-deductible vacation!


Wednesday, May 30, 2012


* TAXGIRL Kelly Phillips Erb offers “A Simple Solution for Reducing Taxpayer Fraud” at FORBES.COM.

Her solution echoes what I have been saying for years -

So here’s my great advice: eliminate refundable tax credits. So simple. So easy. And I am sure that it would reduce tax fraud.”

Kelly observes the obvious –

It’s clear that refundable tax credits are synonymous with increased instances of taxpayer fraud.”

As for the number one source of tax fraud, Kelly points out –

Top of the list is, of course, the EITC, which has been a constant source of tax fraud. How much fraud? The IRS believes that between 23 and 28% of EITC claims are paid in error. The result is estimated fraudulent payouts each year of more than $10 billion.”

I especially like Kelly’s bottom line -

I happen to believe that, as a taxpayer, you need some skin in the game. If you’re filing a return simply to get money back from the government that you didn’t pay in, I don’t know if that’s the best use of our country’s limited resources (there are other, better ways for those folks to receive benefits and assistance).”

* Tom Herman answers a question on “Claiming Losses on Worthless Stock” at his Ask Dow Jones blog at the WALL STREET JOURNAL.

He provides an excellent first step -

Start by asking your broker when the company went bust and whether the shares you own are totally worthless.”

Sometimes, as I have seen lately, if the total worthlessness is questionable the brokerage will purchase the stock for one penny so as to be able to include it on your year-end 1099-B.

* So much for $5.00 a gallon.  Kay Bell reports “Memorial Day Gasoline Prices Down, But State Gas Taxes Were Up a Bit in April” in her annual Memorial Day week-end post on gas taxes at DON’T MESS WITH TAXES.

The good news is –

The average price of gas is down 14 cents a gallon from this time last year, and a quarter since the end of March.”  

Kay provides a list of the 10 most expensive states for gas tax.  It is a pleasure not to see NJ on top of such a list for a change.

* Trish McIntire talks about “Moving Expenses” at OUR TAXING TIMES.

* My ears were ringing yesterday morning.  It appears that MISSOURI TAXGUY Bruce and friends mentioned me when talking about grandfathering of longtime preparers for the RTRP competency test.    

Thanks to Jason Dinesen for suggesting that I have forgotten more about 1040s than he knows.

The gang also discusses the differences between an Enrolled Agent, a CPA, a tax lawyer, and a plain old RTRP and when one might need each of these.

Click here to hear the entire discussion

Unfortunately I do not have either a microphone or camera to permit me to join in the fun.

This is a weekly event usually held on Tuesday between 11am and 12 noon - so put next week’s edition on your calendar.


Tuesday, May 29, 2012


{The post has been updated to include the 2012 standard deduction numbers – rdf}

Often times the cost of preparing a short form for a dependent child with an after-school or summer job, solely for the purpose of getting a refund of the in-come tax withheld, is more than the amount of the refund.

Before starting a job, a student is given a Form W-4 to fill out. Line 7 of the W-4 allows an employee to claim exemption from federal and state income tax withholding, if he/she had no income tax liability for 2011 and does not anticipate earning enough to pay income tax for 2012, by writing the word “EXEMPT” in the box indicated.

Writing “EXEMPT” on the form means that the employer will withhold only FICA (Social Security and Medicare) and any required state unemployment and/or disability taxes from the student’s wages.

For 2012, the federal standard deduction for a dependent with a W-2 is the greater of $950 or the sum of $300 and the dependent's earned income, not to exceed $5,950 (plus $1,450 if age 65 or blind). The state amount varies, and may be more of less than $5,950.

If a dependent student with a summer job does not expect to earn more than $5,950 during 2012, including up to $300.00 in interest, dividends and capital gains, the child should claim “EXEMPT” on his/her Form W-4. This way he/she will not have to file a federal income tax return simply to get a refund of the income tax withheld.


Monday, May 28, 2012


If both you and your spouse work, or if you are a working single parent, the cost of sending your dependent child under age 13 to a summer day camp is eligible for the Credit for Child and Dependent Care Expenses.

Only day camp expenses qualify for the credit. The cost of an overnight/sleepover camp does not qualify.

If you have one qualifying child you can claim the credit on up to $3,000.00 in expenses. For two or more qualifying children the maximum is $6,000.00.

The amount of child care expenses eligible for the credit is further limited to the lower earned income of the taxpayer or spouse. If one spouse earns $50,000.00 and the other $2,500.00, only $2,500.00 of expenses is eligible for the credit.

If one spouse works and the other is disabled or a full-time student, the non-working spouse is "deemed" to earn $250.00 per month if there is one qualifying child or $500.00 per month if there is more than one. This applies to only one spouse per month. If both spouses are full-time students during the same month, only one is "deemed" to earn the $250.00 or $500.00.

The amount of credit allowed depends on your Adjusted Gross Income. If your AGI does not exceed $43,000.00 the credit ranges from 35% to 21%. The credit is 20% if your AGI is more than $43,000.00.  In most cases, if you are married you must file a joint return to be able to claim the credit.

The credit is allowed for a dependent who is under age 13. However, you can claim the credit on expenses you have incurred up to the child's 13th birthday. If your child will turn 13 this November you can still claim the credit on any day camp expenses incurred during the summer.

Day camp costs also qualify for reimbursement under an employer-sponsored "pre-tax" Dependent Care Benefit plan. In most cases you will receive a greater tax benefit by running the day camp costs through your employer's "flexible spending" dependent care program than if you claim the credit.

If you will be claiming the credit on payments made for a summer day camp, be sure to get the name, address and Employer Identification Number of the camp when registering. You will need this information to complete Form 2441, the IRS form used to claim the credit.

{It is important to get the federal Employer Identification Number of the Day Camp if it is a “for-profit” business. You must report this number on the Form 2441 - the IRS will disallow the credit if you do not include an ID number. However, again according to Pub 503, “You do not have to show the taxpayer identification number if the care provider is one of certain tax-exempt organizations (such as a church or school). In this case, enter “Tax-Exempt” in the space where the tax form calls for the number. - rdf”}

Some states, such as New York, also allow a Child Care Credit on the state income tax return.


Saturday, May 26, 2012


* Peter J Reilly discusses an interesting issue in his post “Something To Watch Out For If You Have Investment Interest Expense - Possible Refund Opportunity” at FORBES.COM – whether or not to make the election to treat qualified dividends and long-term capital gains as ordinary income for purposes of deducting investment interest.

I very rarely make the election.  Thinking long term, I do not want the client to lose the benefit of the lower tax rate.  But I do always say that when there are options on how to treat an item on the t040 one should do the calculations under all options and carefully review.

Peter provides an example of how an accounting firm (I expect a CPA firm) really FU-ed up a Form 1041 by not thoroughly checking the return that was spat out by a tax preparation software package.  He knows me well, and correctly predicted that I was “gleefully laughing at another comeuppance of an accounting firm” upon reading of the FU.  I continue to scorn “the expensive and unreliable software the rest of us use”.

* Tim Maurer, Pete Reilly’s colleague at FORBES.COM (who writes “about the dynamic and vital intersection of money and life”) gives us “5 Tax Myths Debunked”.

He is basically saying, as I have been saying for years, “don’t let the tax tail wag the dog”.


Let us look not at his 5 tax myths, but at his five “bottom lines” -

1. You should never carry a mortgage for the primary purpose of having a tax deduction.

2. You should never hold an investment with the avoidance of taxes as the primary determinant.

3. You should never purchase an investment for the primary reason that it will benefit you from a tax perspective.

4. The amount of a tax refund has absolutely no bearing on whether or not the taxes were optimally computed.  Take full advantage of the tax law and adjust your withholdings so you neither write nor receive a huge check at tax time.

5. Most people would be best served by having a professional Certified Public Accountant prepare their taxes. 

Tim and I are on the same page on the first 4.  I agree with these statements.

However, when it comes to #5 we part company.  Tim makes the same mistake that so many journalists do when it comes to writing about taxes.  They erroneously assume that a CPA is automatically a 1040 expert by virtue of simply possessing the designation.  This is not true. 

A particular CPA may be a 1040 expert, like, for example, Joe Kristan of THE ROTH AND COMPANY TAX UPDATE BLOG.  But it has nothing to do with the fact that the initials CPA follow his/her name.  It is because of the specific education (including continuing), training, and experience of that unique individual. 

The 5th statement should read “You are best served by having a Registered Tax Return Preparer (RTRP) prepare your taxes”.

I do agree with the following statement he makes under this category -

Your tax preparation software is only as good as the preparer, and don’t forget that our own Secretary of the Treasury, Tim Geithner, couldn’t get TurboTax to work properly!

Tim (Maurer, not Geithner) also has a post of “5 Tax Rules That Work” – and I fully agree with all 5.

* Continuing the above discussion, the question “Is Your CPA REALLY the Right Person to be Completing Your Tax Return?” is addressed over at the QUICKBOOKS FOR CONTRACTORS blog by Sunburst Software Solutions, Inc.

The post’s bottom line (highlight is mine) -

“This is a problem when people are able to prepare your returns and not be required to keep up with tax law changes, or even tax topics in general, and are held with more esteem in regards to taxing issues then those who spend all their time learning all there is about tax to get you the most accurate return prepared that is possible because they have spent the time learning tax law updates along with tax topics. Not to mention they are required to have CPE in tax law and tax law updates.”

Right on!

* Darren Mish elaborates on “Three Cardinal Rules for Your Taxes” at his IRS PROBLEM SOLVER BLOG – “three simple rules to follow to avoid problems with the IRS”.   

They are -

1. Always separate your business from personal expenses.

2. Always keep up-to-date records.

3. Check all 1099s.”

Three excellent rules indeed.

* MISSOURI TAXGUY Bruce MacFarland gives some good tips on how to “Get the Better of Your Mortgage”.

* The IRS has a brief YouTube video that introduces you to a #tax law change that affects employers who hire #veterans in 2011 and 2012.  Click here.


Friday, May 25, 2012


Sorry for the lack of non-BUZZ posts these past weeks – but I have been busy learning QuickBooks (via a 2-day class) and setting up my own and various client companies on the system, dealing with client and IRS/NJDOT correspondence, and trying to catch up on other non-GDE tax stuff.
This week-end (Friday thru Sunday) I will be working away on the NJ Property Tax Reimbursement applications (even though the June 1st deadline is always extended each year, I do not want to rely on the State of New Jersey being consistent) and work on the GD extensions for which I have all the necessary information to complete (I want all such GDEs completed and in the mail by the end of May). 
Monday I will take time off to watch the 12-hour PERRY MASON marathon on the HALLMARK MOVIE CHANNEL.
So again – no time for posting.
During the last days of May I will be posting a series of “summer-reruns” of summer-related posts, with updates as appropriate.
The Memorial Day week-end has always been the “official” start of summer.  One would rent a summer house or cabin from Memorial Day through Labor Day (as I did with high school and college friends for several years in the mid-1970s – each year the house getting bigger).  And television’s summer rerun season is already in its second or third week.
I will continue to post the twice-weekly BUZZ.

Wednesday, May 23, 2012


* Russ Fox has a good warning for small business owners in “CPA Allegedly Practices Theft of Funds” at TAXABLE TALK.

The post discusses two CPAs who had clients make payments for federal and state tax liabilities directly to themselves, with the assumption that they would submit the payments to the appropriate tax agency.  Instead they just kept the money.

Russ tells us –

I haven’t met an accountant who would want you to make checks for your taxes payable to the accountant. If that’s what your accountant wants, be afraid.”

He also points out –

Finally, I’d like to point out that Mr. Voltz, like Mr. Murray before him, is a CPA. He presumably has taken his ethics requirements. That hasn’t stopped him from being accused of what anyone would call a serious violation.”

While Russ is saying that registration/licensing of tax preparers will not stop tax fraud, with which I agree, my take is that forcing all preparers to sit through 2 hours of ethics classes each and every year will not turn a crooked preparer honest.

* Russ also warns us “Beware: Lots of Incorrect IRS Notices”.

He tells it like it is (highlights are mine) -

“Many IRS notices are wrong. Indeed, of the CP2000 notices I’ve seen this year at least 80% are wrong. Yet I have clients who just want to pay the IRS to get them off their backs. I cannot overemphasize that most IRS notices are not reviewed by a human before they’re sent to you. You will be the first person to read the notice. Do not assume a notice is correct just because the IRS says so.”

This is nothing new – I have been saying for years that more than half (I was being conservative) of IRS notices are wrong.  And when it comes to state tax notices, especially NJ, the percentage is higher.

This is the program under which certain “tax resolution” companies advertise you can settle your IRS debt for “pennies on the dollar”.  It ain’t necessarily so.  However a reputable tax pro can use an Offer In Compromise to reduce your tax debt.

* Another self-explanatory IRS release title – “IRS Releases the Dirty Dozen Tax Scams for 2012”.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.”

* Over at the CHICAGO TRIBUNE Steve Rosen provides us with “Kids and Money: A Primer on Tax Deductions”, which discusses “some of the importantissues that summer workers and parents need to know”.


Saturday, May 19, 2012


* Prof Annette Nellen provides us with a sign of hope in “Congressman Camp Seeking Comprehensive Tax Reform” at 21st CENTURY TAXATION.

She quotes from a recent speech by House Ways & Means Committee Chairman Dave Camp of Michigan –

"If we are to unlock new opportunities for job creation and strengthen the economy, then we must take even larger steps toward comprehensive tax reform.  At the Ways and Means Committee, we have established a framework for comprehensive reform that brings the corporate and the individual rate in line at a top rate of 25 percent on both sides."

Camp wants to “Collapse the six rates on the individual side to two rates of 10 and 25 percent” and “Eliminate the AMT, which should have been named the ‘alternative maximum tax’”.

* Trish McIntire of OUR TAXING TIMES warns us of a new “Energy Scam” – and gives some excellent advice -

Bottom line, any time you hear of a government program giving you a credit, talk to a tax pro. If it’s legitimate, we should know.”

* Jason Dinesen answers the question “You Hired A Nanny – Now What?” at the DINESEN TAX TIMES. 

Must reading for anyone who has just done so – especially if you want to run for office or be appointed to the Supreme Court or as a cabinet official in the future.  

* Paul Neffer reminds us to “Make Sure You Get Written Confirmation of Donation!” at FARM CPA TODAY.

* And TaxGirl Kelly Phillips Erb reminds us that “National Ride Your Bike to Work Day Offers Chance to Lower Tax Bill” at FORBES.COM.

Under the Tax Code, your employer can provide to you – tax free – a de minimis transportation benefit. . . . One of those de minimis transportation benefits is the qualified bicycle commuting reimbursement.”  


Wednesday, May 16, 2012


* At the invitation of blog author Peter J Reilly I provided my 2+ cents on his earlier post Divorce Lawyers - Frequently Not the Best Tax Advisors” with a guest post titled “Wandering Tax Pro On The Tax Aspects of Divorce”.

* Kay Bell reports on a recent analysis by that tells us “Friendliest States for Small Businesses? Idaho,Texas, Oklahoma and Utah” over at DON’T MESS WITH TAXES.

Small businesses are made the most welcome in Idaho, Texas, Oklahoma and Utah, according to a recent analysis by, in partnership with the Ewing Marion Kauffman Foundation.

Those four states each got an A+ grade from small business owners and managers.

Disappointing report cards went to California, Hawaii, Vermont and Rhode Island, each of which received an F.

New York eked out a D.”

For a change NJ was not last on the list, although “small businesses rank New Jersey among the top ten least friendly states for small business”. It got a grade of D+, which is better than NY!  Perhaps Chris Christie is making some progress.

* And Kay also tells us “Tax Refunds Smaller in 2012”.

This is actually misleading.  I believe the main reason for the reduced refunds is the disappearance of BO’s Making Work Pay credit, which was replaced for 2011 (and 2012) returns by the 2% reduction in employee Social Security withholding, and the mess it made of withholding. 

When taking the 2% reduction into consideration taxpayers actually put more money “in pocket”.  I found that many of my clients got twice as much or more via the reduction – and some taxpayers who did not get the credit due to level of income got $4,000+ “in pocket” via the reduction!

I posted on this topic on Tuesday at my THE TAX PROFESSIONAL blog.

* Trish McIntire provides a good overview of “Limited Parnerships” at OUR TAXING TIMES.  She ends the post with some good advice (highlight is mine) –

Limited partnerships are not for most investors. They are tax complicated and too often the broker selling them really doesn’t understand what they’re selling. It’s easy to get drawn in by the guaranteed distribution and assume that your investment is increasing in value when it’s actually decreasing because you’re just getting your money back.

Investor Beware!

Regular visitors to TWTP know that I hate Limited Partnerships because waiting for the K-1 often delays the return, and carrying the various K-1 items over to the various schedules and forms of the1040 is often a real PITA for the tax preparer. 

* Bruce, the MISSOURI TAX GUY, provides a “Blog Guide for New Small Business Owners”.

While you are there you should visit his Store.

* Prof James Maule discussed the new book “Tax Cheating: Illegal – But Is It Immoral?” by Donald Morris in his post “Tax Cheating and Tax Complexity” at MAULED AGAIN.

Jim once again eloquently describes the trouble with our current Tax Code (highlight is mine) -

There is no doubt, as Morris and many others assert, that the tax law is woefully complicated. There is no doubt it ought not be so complicated and need not be so complicated, and that at least some of the complexity is attributable to the campaign and other political games played by the legislators entrusted with the fiduciary duty of providing the nation with the best possible tax law. There also is not doubt that the pervasive complexity of the tax law causes taxpayers to make mistakes, even when they are putting forth their best efforts to comply.”

* Mary Beth Franklin provides some good advice in “Retirement: Avoid the IRA Tax Trap” at CHICAGO TRIBUNE BUSINESS.

She correctly points out that “when it comes to taxes, not all income sources are created equal” and joins many financial advisers in recommending “you diversify the taxability of retirement assets by spreading them among taxable, tax-deferred and tax-free accounts to manage cash flow during retirement”.

* If you suffer from BUZZ withdrawal between the Wednesday and Saturday entries there is always Joe Kristan’s “Tax Roundups” over at THE ROTH AND COMPANY TAX UPDATE BLOG.


Monday night Jay Leno told us about a study that indicates talking about oneself can provide as much pleasure as eating or sex.

In related news it was announced that Donald Trump is the happiest man on Earth.


Tuesday, May 15, 2012


Thanks to BO’s recent “endorsement” of same-sex marriage the internet is a-BUZZ with the topic.  This includes the “tax blogosphere”.
A few of my fellow tax-bloggers cover the tax aspects of same-sex marriage extensively.
Peter J Reilly, author of the blog “Passive Activities” for FORBES.COM (where I have been a frequent guest-poster), writes frequently on the topic.  Click here for his latest gay-marriage post.
Also Enrolled Agent Jason Dinesen, who writes “Dinesen Tax Times”.  Jason posts every Monday about gay marriage and taxes.  Click here for his latest related post.
Currently the federal government, and the IRS, does not recognize same-sex marriages, as per the Defense of Marriage Act.  From an income tax point of view I expect most same-sex couples would not be better off if they were offered the same filing options as “traditional” married couples.  However there would be potential for substantial benefit when it comes to the federal estate tax.
I have very few clients who I either know, or suspect, are a gay couple.  Only one couple would benefit from being able to file tax returns as married.  With the others, both partners are employed and would probably pay more tax, thanks to the “marriage penalty”, by having to file as married taxpayers.
In states that recognize same-sex marriages, and permit gay couples to file as married, the fact that these taxpayers cannot file the same way federally causes extra work for the tax preparer, but also generates corresponding additional income.  I have not yet had to deal with this situation in my practice.

I am not opposed to the legal recognition of gay marriage on the federal or state level.  I am also not an active advocate.  I would not campaign against the issue, nor would I campaign for passage of supportive legislation.  If it happens I would be fine with it - but it is not a priority issue for me. 
I expect that I would leave the issue to the individual states, and would allow same-sex couples whose tax home is in a state that recognizes the marriage to file federal returns as married couples.         

Monday, May 14, 2012


This past tax season has once again proven that IRS information return 1098-T, which is supposed to provide information for claiming the various education tax benefits, is as useful as tits on a bull.

Box 1 of the 1098-T is for payments received “from any source” for qualified tuition and related expenses.  This is the information I need.  However in the years that this form has been in use I have only seen an entry in this box once – and it was incorrect.  It showed only the payments received directly from the student (actually the student’s parents).

Box 2 is for amounts billed for qualified tuition and related expenses.  This is the box that is always filled in.  To be honest, I don’t care a rat’s hind quarters how much was “billed”.  My clients are cash-basis taxpayers – I need to know what was paid during the calendar year, not what was billed.

Colleges will generally bill students for the semester beginning in January of the following year at the end of the current year.  So the amount in Box 2 usually includes this amount.  But parents or students do not always pay this amount until the following year.

In my instructions to clients I ask for not only the Form 1098-T, but alsoall the ‘Bursar’s Reports’ for the year”.  Often a student can access his/her financial account history online, and I ask parents to provide me with a print-out of this report.

Thankfully some colleges and universities will provide a supplement to the Form 1098-T mailing that itemizes the various charges and payments made for the year by date, which is extremely helpful.  But unfortunately not all.

This past tax season I received a Form 1098-T for a student who had graduated in 2011.  Box 1 and Box 2 were both empty, but there was an amount for scholarships and grants in Box 5.  Upon questioning the taxpayer I discovered that there were indeed payments made for qualified tuition and fees in calendar year 2011.  These payments had been billed in 2010, and were included in Box 2 of the 2010 Form 1098-T. 

I further learned that the student did not receive any scholarships or grants from anyone in 2010 or 2011.  The amount reported by the school in Box 5 was a payment for tuition and fees made via a student loan.  The school really FU-ed – the amount reported in Box 5 should have been reported in Box 1!  As a result I was able to claim one of the tuition tax benefits.  If I had relied on the Form 1098-T I would have claimed nothing.

If the IRS is going to have a Form 1098-T with a Box 1 asking for payments made from all sources for the calendar year then it should require educational institutions issuing the form to include an entry in Box 1.  Why have this box on the form if it is not required to be used?  And, based on the above experience, perhaps the schools should be required to identify the amounts reported in Box 5 by source somewhere on the return.  

Of course I do believe that there should be no tuition tax benefits on the Form 1040.  These benefits should be distributed as direct student financial aid and administered via the FAFSA.

Thank you for allowing me to rant.  Do other tax preparers feel as I do about the Form 1098-T?


Saturday, May 12, 2012


* Trish McIntire offers some good advice to tax pros in her post “Learn to Say No” over at OUR TAXING TIMES.  

* Disappointing news from REUTERS.COM in “No Tax Reform Plan Yet: Obama Aide”. 

President Barack Obama's nominee to be the top tax official at the U.S. Treasury Department said on Tuesday that the administration is not actively working on a plan to revamp the tax code, frustrating some of Obama's fellow Democrats.

‘We'd be negligent if we weren't doing foundational work ... But at this point there is no plan that has been developed,’ Mark Mazur, Obama's nominee for Treasury's top tax job, said at a Senate panel hearing on his confirmation. ‘We'll see how this plays out.’

Both Republicans and Democrats, including Obama, call revamping the complicated tax code a top priority, but acknowledge this will not happen until after the November 6 elections.”

* One of Joe Kristan’s Tax Roundups at THE ROTH AND COMPANY TAX UPDATE BLOG led me to this great on the money comment from “Flabbergasted by Obama on Tax Reform” by Christopher Bergin at TAX.COM -

Our tax code isn’t about collecting revenue. It’s about taking care of political friends and being used as a campaign election issue to divide and conquer the electorate. The point of Washington is to get reelected. And ‘can-kicking’ – which I define as avoiding any difficult tax policy decision -- is an Olympic sport in Washington that our politicians excel at. That is why my answer to the question “When do you think we will get tax reform?” is now ‘Not until something really bad – and I mean really bad – happens’.  Is this a great system or what?


Thursday, May 10, 2012


When you receive your finished tax returns from your tax preparer don’t just sign and submit the return.  it is very, very important that you carefully review the return first, and ask the preparer about any items you do not understand.
The letter that I include with all finished tax returns I have prepared includes the following statement –
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 me immediately.” 
It also states –
These returns are subject to review and examination by the IRS and appropriate state tax agencies.  I accept responsibility for the clerical and mathematical accuracy of all returns I have prepared.  The burden of proving the facts reported on your tax return rests with you.”
A tax season story from NCPE Fellowship Executive Director Beanna Whitlock (who has been preparing 1040s for slightly longer than I have), which appears in the Fellowship’s May newsletter, highlights the need to understand what is being claimed/deducted on your return.
She was approached by a couple when they received a written request from the IRS for information on deductions and credits claimed on their 2009 and 2010 tax returns because the person who had prepared the return was “unavailable to talk to them”.
The returns included an adjustment to income for tuition and fees and the full American Opportunity Credit – even though “neither taxpayer went to school in 2009 or 2010”.
It also included an energy credit for solar power – even though “no energy improvement had been made on their home during 2009 or 2010”.
And each taxpayer had a separate Form 2106 to claim business mileage.  Beanna points out – “When I asked how they used their auto for business they said they went to and from work”.
The taxpayers received refunds for 2009 and 2010 only as a result of these erroneous items.
Beanna tells us –
I asked the taxpayers to go back to their return preparer and ask why he had prepared the returns with the erroneous credits.
The response from the return preparer was ‘You should have purchased our audit insurance and we would have represented you before the IRS.’”
The taxpayers had paid for a Refund Anticipation Loan, but not for the “audit insurance”.
Clearly the tax preparer, in this case from “an independent firm with 7 locations in the city”, was a crook.
But, while Beanna says “It was clear these taxpayers were innocent in the preparation of their return”, this is not entirely true.  They were apparently happy to be getting refunds and did not look at the return they were signing. They are certainly not without some responsibility in this situation.   
A review of the bogus return would have shown the taxpayers that deductions and credits were being claimed for expenses that did not exist, at least in the college tuition and energy credit areas. 
One would think that, seeing a deduction on the front page for tuition and fees, and knowing full well that they did not incur any such expenses, the taxpayers would ask the preparer what this was about.  Or am I giving the taxpayers credit for too much intelligence?
The moral of the story – carefully review your finished tax returns before sending them off to Uncle Sam or your state.  As I state in my client memo - You are responsible for all the information reported on the returns!
A final word of advice on the topic-  If you do indeed find something on a return that you do not understand do not call up the preparer and tell him/her, “You made a mistake on my return”.  Simply say that you have a question about something reported on the return.