Sunday, January 31, 2010

The Seven Day Work Week

I spent my first Sunday at the office in a while. I am tired and the work week starts tomorrow.

The good news is I got everything done I needed to.

Friday, January 29, 2010

D-Day Has Arrived

The late nights have begun. I will be working the entire weekend. Tax season has started with a bang.

Be gentle. My nerves are frayed already. Wisconsin Department of Revenue has intermittent problems with their My Tax Account program for businesses. They are adding to my workload.

Our normal business hours extend into the evening next week. I have been staying late this week already anyway, so it does not make much difference to my back. And yes, sitting that many hours is hard on the back. I will not mention my mind.

But I am smiling big. Just happy, I guess.

Wednesday, January 27, 2010

Not Worth Dying Over

There is a corner in my office where the paint is gone and the plaster is cracked and falling out. It is the corner I pound my head in when events are too much to take. A year ago I had such an event.

It all started with a new client that was referred to me. I had her sit down with Jeff and go over her tax problems. She had accumulated several years of unpaid tax bills and was very jumpy as the IRS was getting serious about collecting.

She became more animated by the minute. I was asked to step in and see if I could lend some guidance. She talked a mile a minute and never stopped for air. I told her we will need to review her documents to come up with a game plan. She set another appointment for a week later. Jeff and I were drained from the high voltage encounter.

Within an hour, her friend is on the phone complaining we did not do enough to help the new client. I told the friend we needed to review the documents so we can create a plan of action. The friend came within an inch of telling me I’m incompetent.

At this point I normally tell the client I will no longer serve them, but, because she was a referral, I decided I would give it “best effort.”

The next week we meet and I presented a plan that was livable. I got the IRS on the phone to hammer out the details. All the while she rambled on. It was very hectic and stressful.

I explained to the IRS what we had and our offer. The IRS accepted and wanted her verbal acceptance as well; so I put her on the phone. Reluctantly, I might add.

She continued her verbal assault with the IRS. The IRS agent tried to get her to settle down. She then tells the IRS agent she will kill herself if she couldn’t get this done her way. And then it got exciting.

You know how it goes, you threaten suicide and the IRS and tax guys have to take certain step, as required by law. We managed to get New Client settled down without her being hauled away. The IRS calls back a while later to verify the situation is under control. If not, the IRS would bring in the police, etcetera, etcetera.

Long story short, we got the agreement with the IRS done. I told her I could no longer serve her. She left in a huff.

A half hour later, her friend is back on the phone explaining my lineage to me. She was very unhappy with my service. I could not hold back any longer, and said, “Then she should be happy to never return here.” She hung up on me.

Folks, please. Taxes are bad, I know it. But it is not worth killing yourself over. I only bring this up because I had two clients come in over the last eighteen months with large tax issues and never let me do my job and then told the IRS they needed a rope. Stop. Before you say a word, stop. Okay? I can solve a lot of tax issues, but not if you work against me. Remember, your way does not work. You tried it and it lead to the mess you are in. I don’t win them all, but I do win a good majority.

It has been a year since I had all that excitement. The plaster in the corner has been repaired. I am gun-shy, though. Will the next client deal the suicide card? God, I hope not.

Have mercy on your friendly accountant. Smile. We want to help. Really, we do. Answer our questions as best you can. Let us build an action plan for you, one you can live with.

It is not worth dying over.

And now you know why I have no hair on my forehead.

Monday, January 25, 2010

Planning a Crisis

In my line a work I must have a schedule to get anything done. The demands on my time are huge and get bigger during tax season. Everyday is a due date for something.

Every Sunday night I plan out the following week at work. I leave space for the inevitable surprises and overruns. I write a list down the side of the page of things that need to be done, but not this moment. I slip as many of these in as time permits.

Sleeping at night is difficult when I don't make progress on my to-do list. At minimum, I want to make significant progress on a large project or complete it, plus scratch out several smaller things that needed completion.

My schedule has flexibility built into it. However, it is near impossible to plan for a crisis. Planning for one kind of crisis does no good when a different type of crisis strikes. I searched for a common thread in each crisis; the one thing I could plan for in any crisis. I determined 'time' was the one thing each crisis shares. Any crisis, large or small, will consume some, or a lot, of my time. This is where my flexible schedule comes in. Unless the crisis takes out a whole week, I have space built in to handle extra jobs or unforeseen events.

If you see me smile and laugh during tax season, I have not been drinking. I promise. My time management system is working well is all.

Friday, January 22, 2010

Are We There Yet?

This time of year tests the resolve of tax professionals to the hilt. If I retire from the profession early, the impatience of people will be the cause. Time is at a premium now as deadlines loom. When I spend 3-4 hours a day explaining I don’t have your W-2, 1099, or K-1 done yet, it only makes you wait longer. Calling me several times a day until I call you back only delay your tax documents more.
Of course, you can persist if you want.

Anyone out there looking to buy a cheap tax practice?

Wednesday, January 20, 2010

5 Steps To Retire Rich

I published a long article on acquiring and maintaining wealth. Check it out.

5 Steps to Retire Rich

Tuesday, January 19, 2010

Choices For Small Business

Only taking tax issues into consideration, small businesses have a difficult decision on when to either incorporate or organize as an LLC. For tax purposes, an LLC can be a single member, treated as a sole proprietor; a partnership, the default for a multi-member LLC; and a corporation or S-corporation. Your circumstances will determine how you wish to organize your business.

Most businesses are organized as an LLC, electing for the tax treatment of choice. As a rule of thumb, a very small business with a small profit or loss should default to a single member or partnership. Once a business has earning of $50,000, an S-corporation has advantages over other forms of taxation.

Organizing your business as an entity has long reaching ramifications. The decision should not be taken lightly. It is important you have a serious conversation with your friendly local accountant on how your business is organized. Delays can add to your tax burden. With increased complexity in the tax code, a regular consultation with your tax advisor is advised.

Monday, January 18, 2010

Increase Social Security Benefits Up to 32%

I wrote a detailed article on Social Security over the weekend and published it on HubPages.

You can read the article here:

Increase Your Social Security Check By 32%

Thursday, January 14, 2010

W-2 Season

We are preparing W-2s at a ferious rate with all the complementary side forms: W-3, 941, 940, WT-6, WT-7, UCT-101, ST-12, and on and on. Jeff is looking a little frazzled, but is about half done.

I started preparing my first tax return of the season yesterday. Take a deep breath... breathe. (Me, not you. I have to pace myself. I know what is about to hit.)

Wisconsin requires all employment forms and sales tax to be electronically now. If they get their "My Tax Account" online software to work I should have time for a cat nap each evening.

I will continue to write blog posts during tax season, but they may be short on the busy days. I'll try to give you an inside view of a tax office during crunh time with tax saving ideas when they come up. Excuse my spelling and grammer. I will write and click and return to tax returns. Wish me luck.

Wednesday, January 13, 2010

Fun Facts

The day the average American has earned enough to pay his taxes for the entire year is called Tax Freedom Day. According to the Tax Foundation, 28.2% of income was paid in taxes in 2009. Below is a list showing Tax Freedom Day since 1930 and the percent of income paid in tax that year.

1930 February 12 (11.7%)
1940 March 7 (17.9%)
1950 March 31 (24.6%)
1960 April 11 (27.7%)
1970 April 19 (29.6%)
1980 April 21 (30.4%)
1990 April 21 (30.4%)
2000 May 3 (33.6%)
2001 April 30 (32.6%)
2002 April 19 29.8%)
2003 April 16 (29.0%)
2004 April 17 (29.3%)
2005 April 23 (31.1%)
2006 April 26 (31.7%)
2007 April 26 (31.8%)
2008 April 23 (30.4%)
2009 April 13 (28.2%)

From the chart above, it looks like the government discovered they kill the bloodied taxpayer once Tax Freedom Day moves to late April. It is interesting to note that the Bush tax cuts didn't push back Tax Freedom day much. It may be because the taxing burden was shifted to the states.

The early Tax Freedom Day in 2009 is a result of all the stimulus checks, financed with debt. We'll pay for that eventually, plus interest.

Tuesday, January 12, 2010

Substantiate or Lose the Deduction

CPA trainer extraordinaire, Jack Surgent of Surgent-McCoy CPE, LLC, is fond of saying, “In taxes, form trumps substance.” What Jack means is that you need documentation if you intend to take a deduction. If you don’t, the IRS will levy penalties against the taxpayer AND tax preparer. The penalties can be steep.

Most deductions require a receipt only to prove the deduction. However, when deducting auto expenses and meals and/or entertainment, you need more. The IRS will disallow a deduction based solely on a receipt.

When you keep records of vehicle miles for business, you also need to state where you went, whom you saw, and the purpose of the trip. For meals and entertainment, you need to include on the receipt, who you were with and the purpose of the business meal or entertainment event.

The rules can get tricky when deducting vehicle expenses, travel, meals, and entertainment. It is a wise investment to consult your friendly accountant to avoid nasty surprises in an audit. Also, don’t give your friendly accountant the evil eye when he requests you keep documents in the fashion listed above. He is working to protect you and keep his own career. The IRS has no problem penalizing and barring tax preparers that flaunt the rules.

Monday, January 11, 2010

W-2s Are Required Before Filing

W-2s and 1099-Rs must be in hand before you file your tax return. The IRS assesses penalties against taxpayers and tax preparers that file a tax return without W-2s and 1099-Rs at the time of filing. If you can not acquire a W-2 or 1999-R or can not get an incorrect one corrected, you can file Form 4852, Substitute for Form W-2 and 1099-R. You can file Form 4852 after February 15th. A reasonable effort to acquire a missing W-2 must be made before filing Form 4852. A paystub can be used to calculate Form 4852.

Sunday, January 10, 2010

Valentine's Day

Valentine's Day is right around the corner. Give your sweetie a gift that she is sure to remember.

I know how hard it is to get out and buy a gift. Remember, I work about 90 hours a day in February. Really. I do. I wrote an article for HubPages listing 5 great Valentine's Day gifts to keep your sweetie happy.

But it is your life.

Friday, January 8, 2010

Annuity Taxation

Annuities are tax advantaged vehicles that aid in tax planning when handled correctly. Money invested in an annuity is not deductible unless it is a traditional IRA contribution meeting the qualifications of a deductible IRA. For this blog post, I am talking about non-IRA annuities.

Money withdrawn from an annuity is taxed one of two ways: 1.) all the profit first and then principle, or 2.) profit is taken pro-rata. Lump-sum distributions from an annuity come from taxable profit first and then principle, which has already been taxed and will NOT be taxed again. If you annuitize (take a stream of income), principle and profit come out in proportion to the account value. In English: If you have a 25% gain in your annuity and annuitize, then only 25% of the payment is taxable income and 75% is a return of your own money.

Unlike a traditional IRA, there is no requirement to withdraw money at a certain age. You can let the money grow tax deferred as long as you like. The biggest drawback of annuities is cost. The internal expenses of annuities make them a last resort for tax planning. There are many other ways to invest and save taxes before you consider annuities.

If you already own an annuity, be careful about cashing it in. If you are under age 59 1/2 you will be hit with a tax penalty on the gain. I recommend you consult your friendly accountant, one that doesn't sell insurance, mutual funds, or investments, to review your options.

I also publish articles on a variety of subjects at Hub Pages. Here is a sample.

Thursday, January 7, 2010

Do I Have to Charge Interest If I Borrow Money to the Kids?

Young families wanting to take advantage of the First-Time Homebuyers Credit face a challenge: the down payment. Mom and dad can come to the rescue and lend the money, co-sign the loan, or own the home jointly with their son or daughter. Let's review the options and the consequences.

The worst option, in my opinion, is owning the home jointly with your child. The home must be a principle residence to qualify for the credit and owning the home jointly will not work in many cases. Worse, when the home is sold, your child gets a section 122 exclusion of the gain; you, as the joint owner, get a capital gain tax bill. In the future I may go into a detailed analysis of this situation.

Under new banking regulations and tighter lending standards, co-signing a loan may not be enough. A down payment will be required. You can gift the money to your child, but if you have more than one child and want to distribute the wealth equally, the well may not be deep enough for you to give an equal amount to each child. All that remains is a loan of the down payment.

Lending money to family can be tricky. The IRS says you can make an interest-free loan to your child (anyone for that matter) if:

1.) The amount is under $10,000, or
2.) Up to $100,000 if the person's investment income is less than $1,000.

If you lend over these amount you must charge at least the federal rate (AFR), which is:

.78% for a loan of three years or less,
2.5% for a loan over three years and under nine years, or
3.4% for a loan term in excess of nine years.

The AFR rates are low at this time and home price are about as good as they'll ever get. Kick in the First-Time Homebuyers Credit, and now may be the ideal time to help the kids begin their lives as homeowners.

Wednesday, January 6, 2010

IRS Hangs Up 70% of the Time

The IRS expects you to prepare an accurate tax return and file it on time. To help you accomplish this goal, the IRS answers their phone about 70% of the time. If you get lucky and get through, you will wait an average of 12 minutes before a live person speaks with you.

The IRS admits they have problems and blame the issues on new temporary tax law changes over the last few years. The news is not all bad, according to the IRS, as 93% of callers that got through received accurate information in 2009.

The IRS should consider the following adage: There is never enough time to give accurate information, but plenty of time to audit.

Auditing is an inefficient way to collect monies owed the government. The bulk of the calls reveived by the IRS are from the 20% of the people that do their own taxes, an area the IRS is auditing heavy due to taxpayer mistakes.

There are other resources available. The IRS website has information on nearly every topic, including forms and publications. Some tax organizations will answer your question for a fee of $50 or so. Considering all the time and expense needed to prepare an accurate return that reflects all the credits and deductions you qualify for, it may be time for a tax professional. It sounds self-serving, but a good tax pro can save you many times the fee he charges.

Every year we field numerous calls from people that want us to answer tax questions on their self-prepared return. We decline in every case. I don't need the added liability when I get no revenue for my time. If you have tax questions, it indicates you are in need of a professional. But it is your life, do what you want. Audits are always a nice source of revenue during the summer.

Tuesday, January 5, 2010

Before You Prepare Your Own Return

More people than ever will try their hand at preparing their own tax return this year to save money. I’m all for the idea. You can even use the same professional tax software accountants pay over $1,000 per year for at my website: Click the box in the upper right hand corner. I have the lowest price of any firm in the nation.

Before you get too excited, I need to offer a few warnings. A software program can not prepare your return for you. It can do a lot, but you need at least a little tax knowledge. Be sure to read the instructions on areas of the return that apply to you.

Also note that the IRS is auditing self-prepared returns harder than ever. The IRS discovered a few years ago that self-prepared returns are riddled with errors and are low hanging fruit for bringing in more money to the U.S. Treasury. The IRS also knows that if they audit a self-prepared return, it is less likely the taxpayer will seek professional help. As a result, it is easier to talk a taxpayer into over-paying out of fear or lack of tax knowledge.

You can avoid the audit bug-a-boo by paying attention to accuracy. If your refund is less than you expect or want, this is not the opportunity to fudge numbers. If you owe money in an audit, they will add penalties and interest. Not fun. Trust me on this one. Use tax planning instead to lower your tax bill.

Simple errors can also trigger an audit. We had an audit this summer on a self-prepared return where the taxpayer claimed several million miles of commuting as a deduction. We did damage control in the audit, but the taxpayer still had a large balance due.

We are seeing a significant jump in audits of self-prepared returns. Prepare an accurate return and your chances of audit drop. And if you are audited, it is nothing more than a little wasted time.

If you use my website, I even answer questions if you give me a call. If it is too involved, I charge; if it is minor, it is on me.

Monday, January 4, 2010

Expect To Spend More Time At Tax Preparers Office This Year

Significant tax changes will require the majority of taxpayers spending more time in the tax preparer's office this year. Straight forward choices in the past are no longer simple. The choice between the standard deduction and itemizing has been muddied by additions to the standard deduction. Sales tax on the first $49,500 of a new vehicle purchase in 2009 is added to the standard deduction and itemizers. Multiple vehicles count.

More credits will make the tax return thicker. The tax preparer will ask questions that lead to more questions that may lead to a tax credit or deduction. This is the same as in the past, except that there are more questions than ever to determine which credits and deductions apply to you.

If you drop your information off at the preparer, expect a phone call with questions. The only way to prepare an accurate return will require a litany of Q&A.

As annoying and time consuming as this can be, it is to your benefit. Not only is your tax return prepared correctly, but all legal deductions and credits should be applied. Tax are going up and the best way to keep it civil is to take advantage of the the credits Congress has thrown our way. Tax simplification is over, as if it were ever simple.

Don't shoot your tax return preparer just because he wants a little more of your time. All he wants is the best deal for you.

Saturday, January 2, 2010

Drinking and Driving Get Tax Break, Tax Court Says

Drinking and driving is illegal. The costs of drinking and driving (DUI ticket, court costs, classes, and increased insurance costs) are not deductible, unless you wrap your truck around a tree.

The Tax Court recently ruled (Rohrs, TC Summ. Op. 2009-190) a drunk driver can deduct his totaled truck as a casualty loss. The Court determined he was not grossly negligent because he had made arrangements to be driven home from the party, but later thought he was OK to drive elsewhere. His blood alcohol level was just over the limit and his insurer denied his claim due to the DUI arrest. The Court granted the deduction because he tried to act reasonably.

The Court would have denied the claim if he drove straight home from the party. They consider that gross negligence.

I hang my head in shame. The Tax Court has taken a position of encouraging drinking and driving. Lower taxes are always better in my opinion, but supporting an illegal act is crazy. Next, the Court will rule that property seized due to drugs will be rewarded with a large tax break. Maybe the Tax Court can hand out free drinks and weed in the last hour before closing time.