Tuesday, May 26, 2015


* 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.


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