Our Taxing Times

Pacing or Procrastination

According to my countdown calendar, there are 15 days until Oct 15th. This year that is a big day for me. Besides extensions (3-6) being due as well as 941s for my payroll clients I have a show opening on the 16th. That is on top of my 32 item to-do list. So, I've decided to pace myself. Why get in a rush to get clear up everything and then have nothing to do? I can get one set of quarterlies done now but why rush it? One return is done but checking but a day wait will give me a clear eye on it. The CPE course can sit a few days longer and the vacuuming has waited this long so a while longer won't matter.

I need to check my mail again to see how many more IRS Underreporting e-mails I've received. Check my Facebook pages and Twitter and the Drake forum. A nap sounds good even though I'm not tired. Write a journal entry. Play Snood. When you have so much to do you need to learn to pace yourself. I have.

Of course, if you do the same thing, I wouldn't call it pacing. I'd call what you're doing procrastination. But that's not what I'm doing.

One Cutback- Two Benefits

In a time of state budget shortfalls for Kansas, it comes as no surprise that Kansas Department of Revenue has not only cut back on workshops but they have also decided to cut the free tax forms they send out to preparers.

Taxpayers who have been preparing their own returns will still receive a modified tax book in December. As I understand it, it will be the forms and the basic instructions. The full instructions will be online or can be requested. What KDOR will not be sending out are the blank forms that grocery stores, banks and the Post Office gave out. And the free forms it sends to tax preparers.

Tax professionals have been able to place an form order with KDOR for the blank forms and addressed envelopes. For many of us, it was a standing order that was sent out in the fall. I didn't order forms but I did take advantage of the free envelopes. Not any more. If I want to buy forms or envelopes, KDOR will be glad to sell them to me for a reasonable cost. 

Besides saving the state some money, making it harder to get forms and envelopes may be the extra kick some preparers need to start e-filing. Last year, Kansas mandated e-filing for preparers who filed 50 or more returns a year. There were 215 mandated preparers who didn't e-file at all. They were responsible for over 25,000 returns filed. E-filing is easier than mailing a return but for many preparers it is a mental hurdle to get over. Hopefully, this will convince the holdouts to give e-filing a try.

If they do, it will save KDOR the money and maybe they will bring back the free workshops. I love free CPEs

Buyer Education IV

What do you want a tax professional to do for you? That is not a trick question. Anyone with a little tax knowledge can prepare a return but can they prepare the return you want and do they offer the services you need?

Do They Have the Skills You Need?

When you are talking to prospective tax preparers, they need to know how complex the return is you need. I don't know how many times I have been told that, "It's a simple return." when it had rentals or a business. I can handle those forms without a problem but they aren't what I classify as 'simple". Is there more than the local state? Are there special issues like injured spouse or EITC after disallowance? Newer preparers may not have prepared these before. Some preparers do only basic 1040 returns. Others will take any 1040 return but nothing else. You have to ask. This goes when your tax situation has changed because you have started a business or sold a property. Check with your current preparer to make sure they can do your new return. It is hard to return paperwork to a client when you discover it is over your head. We want to please (and earn the money) and it is tempting to try to muddle through. If the preparer says "no" to the return, don't push. You have to live with the results.

What Comes With the Return?

What other services do you want or need? A lot of tax professional provide other services. Bookkeeeping, investments and insurance are the major sidelines. But don't forget about services as part of the return. E-filing, bank products, extra copies of the return, off season availablity should also be a concern. How do they handle customer contact or interview? Many preparers have you drop it off your documents and they set an appointment for pick up. Others complete the return on the spot or interview upfront. Don't assume that the way your last preparer handled your meeting is the way the new preparer does it. Are they doing the return or is it someone in the back room? And what is their guarentee? You might not find someone who offers everything you dream of in a preparer but you can get close and everyone works better when they are on the same wavelength.

What Do You Really Want the Preparer to Do For You?

Do you want a big refund/low tax or an accurate return? They aren't mutually exculsive. But if that big refund or low tax is your primary goal and you're willing to let accuracy slide, you need to be cautious in choosing someone to do your return. Most of us are working hard to prepare an accurate return where you legelly pay the least in tax the code allows. So if you are looking for someone who'll take liberties with the tax code, you really need to work friends and family for suggestions of the crooks. Don't get mad at us when we won't do what you want. I don't work for you, I work for me and provide you a service in the form of an accurate tax return. I don't care what your other preparer did. And remember, just because you haven't gotten caught, yet, doesn't make your cheating right. There are plenty of people out there who will be glad to get you the refund you think you deserve.

Putting Back RMD

A quick note from materials I received at an IRS/KDOR Tax Symposium I attended yesterday.

Thanks to a law changes last year, taxpayers over 70 and 1/2 are not required to take a required minimum distribution (RMD) from their IRA or pension plan in 2009. But what happens if you did and have changed your miind (or your plan executive didn't tell you about this year's special rules)? You can put it back. There has always been a 60 day rollover to repay a distribution. But this year the rollover has been extended to Nov. 30th. So if you took a distribution in 2009, you can put back up to the amount of your RMD and not pay taxes on the returned money if you can get it back in 60 days or Nov. 30th which ever is later. Rollovers are limited to one a year from each account and this hasn't been changed. And it only applies to taxpayers required to take RMDs. If you have questions about this, check with your tax professional.

Thank You Sgt. Juden

Our thoughts and prayers go out to the family and friends of Sgt. Tyler Juden. Sgt. Juden was killed when a convoy his unit was protecting was targeted by rocket-propelled grenades and small arms fire near Turan, Afghanistan. Sgt. Juden was a decorated soldier who had earned a Bronze Star, the Purple Heart. the Army Commendation Medal with bronze Oak Leaf Cluster among several others. He will be accorded full military honors and members of the Patriot Guard will provide an escort to the cemetery and flag perimeter once there. Honors befitting the hero he was. Thank you Sgt. Juden.

Mandatory E-Filing?

I'll get back to the Buyer Education series soon but I have some big returns needing work and have limited time to blog. And the bright, shiny, new ideas are taking my attention and blogging time.

Prof. Paul Caron at the TaxProf Blog has posted a blog about a TIGTA (Treasury Inspector General for Tax Administration) audit. The audit report recommends the IRS seek mandatory e-filing of individual returns by paid preparers and use current scanning technology to scan the rest of the paper returns into electronic returns.

Because of transcription errors, the error rate for paper returns is much higher than for electronically filed returns. They also take longer to process. Years ago I had a great chart from the IRS that showed the path a paper return went through being processed as opposed to an e-filed return. The paper return path looked like a comic from Family Circus showing Billy's path "straight" home from school. Many state currently scan paper returns (Kansas).

The bottom line is that these changes could result in almost a 27% increase in e-filing with a cost savings of $66.6 million a year. The IRS as responded that it will seek the needed legislation from Congress for mandatory e-filing in it's 2010 budget and is looking at scanning options.

The press release is downloadable. But link to the full report was not working when I tried. But as Prof Caron mentions, it looks like a revised press release will be issued.

The IRS on the Web

Sometimes I forget what I have blogged about and what I planned to write about. Thanks to Kay Bell at Don't Mess With Taxes for the heads up that lead to my remembering.

The IRS has long had a strong, informative web site and e-mail updates (mail lists not correspondence) but they are branching in to other areas. A short time ago, I received notice that the IRS has begun to use You Tube videos for tax tips. What caught my eye at that time was I could get Tax Tips Today as a podcast into iTunes. But they also have short informative videos on tax credits (also podcasts) the You Tube videos are not just in English but there are some in Spanish (I am sure more will be added) and in American Sign Language. This one is about checking withholding because of changes from the Making Work Pay Credit.

Kay Bell just posted about following the IRS using Twitter. You can find their Twitter page here.

Legislative Spam

A special thanks to Doug Lee for posting this on a tax forum.

This is a prime example what is wrong with how the tax code gets treated. H.R. 3501.

Rep. Thaddeus McCotter (R-MI) introduced the "Humanity and Pets Partnered Through the Years (HAPPY) Act on July 31, 2009 and it has been referred to the House Ways and Means Committee. If passed it would allow a deduction of up to $3500 in pet care expenses per qualified pet a year. This would include anything, including vet bill, except acquisition expenses. This would include any legally owned, domesticated, live animal except research animals, animals used in businesses or service animals. If passed, it would start in 2010.

I have a few questions:

1. How long does Spot have to live with you? Does he have to be in the house the whole year? This is especially important if Spot dies during the year because of illness or injury and there are vet bills. But will there any penalty if the family gets tired of Spot and gives him to the local shelter or will they get the whole $3500?
2. If a partial year counts (like with dependents) and Fluffy has kittens, are they each entitled to a $3500 deduction even if you give them away?
3. Are acquisition expenses just the adoption fees or purchase cost or do they include the initial purchase of beds, leases, clothes. And if the shelter requires spay or neutering, is that a vet cost or an acquisition cost?
4. Will there be Pet Mileage (like medical mileage)?  To the vet, groomer, to the store 50 miles away that has those treats Fluffy likes best.
5. Will this include entry fees for dog/cat shows or other competitions? Hotels for the pet and support staff or just the pet?
6. Can the deduction be split? If not who gets the deduction? For example, Spot is owned by Joe but he can't keep the dog where he lives so Spot is at Mom's house. Who gets the deduction?
7. Can replacement of carpets and furniture be included in the pet deduction when pet damage is the cause of replacement?
8. Will there be a Pet Tax Number? If not, how are you going to track which pet has been deducted?
9. Where will the deduction be taken? Will it come directly off income as an adjustment or will it be added to the itemized deductions.

I am sure more questions will pop into my head but I think I have made my point. The idea of a pet deduction is a fun diversion on a dreary Friday afternoon but it highlights a major problem with the US Tax Code. Congress and the Executive branch, both sides, have for too long used the tax code to reward, punish or encourage the behavior of individuals and businesses. The tax code should fairly raise money to run the country. It's nice to be assured of job security as taxpayers need help getting through the tax maze. However, the US has some major issues to deal with and bills such as this waste the time and resources. They are nothing more than Legislative Spam.

Buyer Education III

Part three of the series of taxpayer tips for working with a tax professional. This series is not to replace but supplement the IRS's tips.

Signing the Return.

Anyone who has prepared a income tax return for compensation is required by the IRS to sign the return and complete the paid preparer section of a tax return. This is the copy that goes to the IRS. The actual signature doesn't have to be handwritten but the preparer's ID and business info does have to be completed. Preparers are not required to sign the client copy of the return. If the return is e-filed, the 8879 acts as the signature form for both the taxpayer and preparer. Since this form must remain on file with the tax preparer for 3 years, e-filed returns don't generally have a signature problem.

I see this problem on returns which were hand prepared or with the box (basic software). By signing, the preparer takes responsibility for that return. And in most cases that is why the return isn't signed. There are bad preparers out there. They are bad because they don't keep up with the tax law changes or they are creating fraudulent returns to get their clients larger refunds. So does that mean the preparer is bad if they won't sign your return? It depends on why they refuse to sign it.

Some preparers won't sign the return because they don't want to put their SSN out where anyone could see it. This is why the IRS created PTIN, Preparer Tax Identification Number. Getting a PTIN is simple. Filing the form W-7P with the IRS will get any paid preparer a number that can be used on tax returns they prepare. Then there are people who don't understand that the rules apply to them. Excuses I have heard include, I just do it for a couple of cases of beer, I only charge a few dollars or I don't do this full time. No matter the rationale, if you receive something for preparing a return from someone else, you should be signing the return. The preparer needs to take responsible for the return as if it is their own return. You sign your own return, so you need to sign any return you had a hand in creating.

The responsiblity issue is behind most non-signings and the most troubling for taxpayers. If the person you are paying won't stand behind their work with a correctly filled out and signed signature section, then I would think about finding someone who will. It won't help you with an IRS issue. Even with a signed preparer on the return, you are the one the IRS will hold accountable for most problems. Taxes can be scary enough without adding to stress a tax preparer who won't stand up for their work. I would ask myself, what do they know they aren't telling me? A little paranoid thinking may help protect yourself.

Even More Phishing.

In the middle of a comment spam attack on the community theatre blog I maintain, I start getting e-mails from the IRS. These are very bare bones e-mails. Just a few lines under the subject of Notice of Unreported Income. This is expanded in the body of the e-mail and includes the word "fraud" to induce fear in the recipient.

The fraud is these e-mails.

The IRS does not send out notices by e-mail. They don't even correspond much by e-mail. The IRS policy is posted here. A quick note, in the IRS policy they suggest looking at the URL of the link provided in the e-mail. It should start with irs.gov. You have to look further since phishers have gotten smarter. This set of e-mails have a link that begins with irs.gov but when you look further that it is actually a .eu address which includes irs.gov in the address.

Say this over and over - the IRS does not send e-mail notices.