Our Taxing Times

Employer Identification Number

An Employee Identification Number (EIN) is like a Social Security number for a business, estate and trust. So, if you are starting a business (most banks want one for the checking account and you must have one if you have employees), creating a trust or administering the estate of someone you, may need one.

To obtain an EIN, you need to fill out the SS-4. This can be mailed in but it can be done online in just a few minutes. The first step is to download the form from the IRS web site. Use the form to compile the info you will need. The next step is to go back to the IRS web site and use their EIN application tool. (I run a search for "ss4 online" and it's the first result.  They will walk you though and at the end of the process you will have a number. Just make sure you print that page. Then you will have the option of downloading the official letter or having it mailed. No matter which option you chose, keep the letter safe.

There is no need to do one of the commercial EIN generators. These will cost you extra (the IRS is free.) The prices I saw began at $9.99 and go up. I talked to someone trying to do it himself and the site he chose wanted $189. No, there is no need to use a paid service for something the government offers for free. If you're not comfortable applying online, the completed and signed application can be mailed or faxed to the IRS. Or you can apply over the phone. All the details, numbers and addresses, are in the SS4 instructions.

Backlog

Monday was the first day that returns with itemized deductions and several other deductions could be e-filed and I am sure that most preparers had a stack of returns they were holding. I know I did. So when the returns that would have been normally filed on Monday and all the held returns were filed the inevitable happened...a logjam.

Normally, I file a return in the evening and get the acknowledgement for it in the morning. This week they have been running a day behind for me. (The actually delay depends on the service center a preparer files with.) I was a little concerned last night because of the cut off for the IRS drain times. Unless the return is selected to be processed under the MeF, the IRS holds the returns until Thursday noon, drains the returns in their holding "tank" and begins processing them. A return that comes in Thursday afternoon will sit there for a week until the next drain. The good thing is that it makes refund dates fairly predictable.

My concern was that the returns I sent and were stuck in the backlog would miss the cut off and I would have to contact a bunch of clients to tell them that their refund will be delayed. Right now it looks okay for my clients. But if your return had to be held until the IRS opened e-file for it, please don't spend the money until you actually receive it. The backlog may have delayed your refund.

Turn The Light Off.

Another interesting week in the world of tax prep.
The Department of the Treasury has issued a report on Refund Anticipation Loans. "Characteristics of Refund Anticipation Loans and Refund Checks and Their Users." You can download the report here. there were no surprises for those of us who do/or have done RALs. RAL users are lower income taxpayers in inner cities and across the south and southwest. But there are some good charts and a lot of FAQs about the RAL providers and tax prep companies.
On Friday the 11th, news surfaced that Republic Bank has received correspondence from the FDIC questioning their RAL program. Of course, this hit their and Jackson Hewitt's Stock price hard. It looks as if they are planning on fighting the decision and a hearing has been set after tax season.Finally, Ohio Valley Bank announced that it has been told by the FDIC to stop offeringRALs after this season. The FDIC cited the IRS pulling the debt indicator last year as a primary cause of concern. That just leaves River City as the only RAL provider who hasn't announced a letter from the FDIC. I expect they will be getting one too.
Looks like it will take a miracle to save RALs. It's the end of an era.

Another Top 50 List

Our Taxing Times was listed on Bschool.com's 50 Best Blogs Get You Through Tax Season. Look for it under the personal finance and advice section.

Thank you Bschool.com

 

Yes, It Still Goes On Your Return...

...even if they "took" taxes out of it.

I hear this all the time. "I took some out of my IRA/401K but I've already paid the taxes on it".  Nope! They withheld taxes for you but that may or may not be enough to cover the taxes. If it's a lump sum, the amount withheld is usually a percentage. I see 10 or 20% a lot. There may or may not withholding for the state. A lot depends on the IRA/401K trustee.

The tax withholding from the IRA/401K is just a payment towards your tax. Just as the withholding from a paycheck is a pre-payment. The amount of tax on that distribution will depend on the income and deductions on your return that year. It could be higher than the percent held for you and you will get it refunded to you or it could not be enough and you will still be owing on the money you took out.

If you don't want to get a bad surprise when you get your taxes done, please check with your tax preparer when you make a withdrawal.

Social Networking Works Both Ways.

Turbo Tax has a problem on their hands. They offer, through Santa Barbara Bank and Trust (or a portion of that bank), a program which will allow their clients to have the cost of Turbo Tax and filing their return come out of their Federal refund for an extra fee. The taxpayers can opt to have their refund directly deposited into their account. The problem is that there is a mess up and hundreds/thousands (no count yet) of TT users are discovering that their refunds are not being directly deposited. They are being mailed. If they are lucky, they will only have to wait the extra week to 10 days a mailed check takes. However, some are reporting longer waits.

 Turbo Tax hasn’t explained what caused the problem. (They are blaming the IRS- everyone’s fall guy) From what I’ve read, the problem seems to be a programming error. The direct deposit info isn’t getting to the IRS. Some TT users are reporting that the IRS is telling them that the return wasn’t sent in the new system. The IRS is in the 2^nd year of a 3 year conversion to a new processing system. (I’ve written about modernized e-file before.)

 The problem with writing about this issue is that Turbo Tax isn’t saying much and the info is coming from the users posting on their Facebook site. TT has admitted that there is a problem and they are communicated with the affected uses and issuing fee refunds. But the damage is done. We are now in the era for social network sites like Facebook and Twitter. Every time a business is listed in a yellowpages or online directory, users can rate the business. Gone is the time a business can sweep a mistake under the rug confident that the customers across the country will be seen as isolated incidents. Today, they can band together and use your own promotional sites to air their grievances. The days of a bland corporate apology are over. This could have been defused last week, but now, it’s got a good chance it’ll go viral. Once that happen, potential users of Turbo Tax may think twice about their choice of software. Tax and problem are not words most people want to hear in the same sentence.

 I hope this is a limited problem and that the people affected get their refunds checks soon. And I hope Turbo Tax (and other big businesses) learn that customers with problems are no longer isolated but grouped, vocal and using the company's own promotional sites to complain.

Check Your Bill

I'm starting to get horror stories about ticket shock when people are picking up their tax returns. If you get a bill bigger than you expect, ask about the price. Ask why the price is higher than the previous year, why it's larger than quoted, what, besides tax prep, have you been charged for and did you know you were paying for that service?

A good preparer has a pricing procedure. It could be based on time spent doing the return, the forms used, there are several options. They shouldn't have a problem telling you how they calculated their price. Don't expect them to change their price just because you don't like it. But they might find a mistake in the pricing. Even if they don't change the price, you might see why the price is justified.

Please remember-until the return walks out the door and/or is e-filed, you have the right to ask for your papers back. The preparer does not have to give you the completed work but they can't hold your W-2s and other documents hostage.

HRB- Please Define "Error"

Much has been made the last few days about Jackson Hewitt suing H&R Block for mis-leading ads. JH has two issues. First, some of the ads currently running  suggest that no one is offering the RALs. While HRB isn't able to offer those products, JH and many independent offices do have RAL programs. But it's the second set of ads that tickle me. HRB has run a series of ads that JH contends say that they (HRB) found errors in 2/3 of the JH returns they reviewed. Kelly Erb at TaxGirl did some searching and didn't find an ad which specifically mentions JH. She did find a HRB reference to errors in 2 of 3 returns prepared in "other retail tax preparation offices". The lawsuit is a funny diversion while I wait for people to come in. I've heard the "no one doing RALs (or a version of it) ad. In fact, I called the local office and was told 2 weeks was the fastest any business could get a refund back. But it's the errors claim I really want to talk about.

I want HRB to define "errors" for the purpose of this claim. Are they including spelling errors or a W-2 or 1099 being a dollar or two off? Are they working with the same information that the original preparer had? (It's amazing how taxpayers can learn how to answer questions after talking to someone else.) The ad is another example of HRB spin (maybe they should change their logo to a top). First, they are dealing with a group of returns that people are already concerned about. The taxpayer didn't like the result, or questioned something, or was just looking for some money and decided to check their returns just in case. Not an independent sample. Then, to sell a service (and future services), they have to find a mistake. It doesn't have to be a major mistake, just something that will shake the taxpayer's confidence in their current preparer. I'm actually surprised that there were a third of the returns where they couldn't find errors.

My other question is how would HRB returns fare under the same conditions? Can they actually say their returns are perfect? Are they willing to let an indpendnet auditor use their "error" test to their returns.

Tax software has taken some errors out of  preparing a return. There is less chance of any math error cropping up. SSN and dates of birth carry forward (at least in most professional software). Some programs have double entry of items for verification. But tax preparation is interpretive. The preparer takes the facts and sees how they apply to the tax code. Another preparer may not interpret the rules the same way. They might not be given the same facts, have some outside info, or they might have new clarification from the IRS or courts on that rule.

If you have a concern on your return, please do get a second opinion. Then look at the "errors" found and see if they are real issues or the reviewer is simply trying to get your business by suggesting your preparer made a mistake. Before you let the reviewer "fix" the return, talk to your preparer. If they did make a mistake, they should be willing to fix the problem for little or no cost. Or, explain to you why they don't believe they are wrong.

FYI

I've never been an everyday poster here. but the next couple of weeks it'll be a little slower due to the main crunch of my tax season. It's started a little slow because W-2 and 1099s are later than usual this year and now a major snow storm is keeping people home. Then it will be crazy for 3 weeks. But by late this month, I should dig out enough to post. For anything I post in the next few weeks I ask forgiveness, it will be fast and less thought out and checked than usual.