Our Taxing Times

Not Over Yet.

One of the big problems with all the hype about April 15 as Tax Day is that it gives taxpayers the idea that they don’t have to think about their income taxes once the returns have been filed. So before the sun sets on Tax Day 2013 please let me make a few suggestions that might make you tax life easier in the future.

Before you safely put away your tax return, back it up. Make a digital or paper copy and file it in a different place. I don’t know how many times the last few months I’ve heard from clients who weren’t able to find a past year return. This is especially necessary if you are doing it yourself. It’s hard to fight the IRS if you don’t know what you did in the first place. While you’re backing up the return, take time to secure the supporting documents you used for the return. Back them all up if possible. There are small scanners that are made to copy receipts. Remember that some receipts fade over time and a copy might save you if audited later. Also, I can give a client a copy of their return and will have copies of some of their documents but I don’t keep copies of all the receipts I go through. They’re your receipts and returns; you need to keep them secure.

Did you owe on your tax return or get a large refund? It might be a good idea to look at your withholding and make changes to it. By doing it now, you have plenty of time to let the changes take effect and to check to see if the changes will be enough to cover your tax debt or reduce your big refund.  

This is also the time to think about tax planning. Life changes can affect your taxes and need planning. Will you retire in 2013 or start to draw Social Security? Most pensions don’t withhold income taxes unless you tell them with a W-4P. A tax pro can help you fill one out. And remember Social Security can be taxable and you may need to set up withholding through SS or make estimates to cover the extra tax.

Are you getting married or divorced? Are you having a baby or becoming empty nesters? A little time with your tax pro can help you plan for your 2013 taxes. No one likes a bad surprise when they do their taxes. But too often, taxpayers don’t plan for changes until they’ve seen what happens on their return and have to write a big check they weren’t planning to write.

It’s April 15^th and for most taxpayers, their taxes are done and they won’t think about them again until next January. But a little time now to secure your return and the supporting documents or to talk to your tax pro about changes you expect in 2013 can protect you from problems and surprises in the future.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

That Reminder - 2013

Your Failure to Plan Is Not My Emergency!

 

There are only 3 weeks before tax returns are due. But that does not mean you should wait until the last minute to get your return to me (or any tax pro). Yours isn’t my only return on my desk. If you leave it too late, I won’t be able to get your return done without an extension.

I know there are all kinds of reasons why you procrastinate, but that doesn’t really matter. The bottom line is there are only 24 hours in the day and I can’t pull extra tax time out of thin air to accommodate late returns. The longer you procrastinate I have less time to work on your return. This is when missing info or unexpected circumstances can hold up the tax prep past April 15^th. You don’t want that to happen.

The best idea is to get your tax documents to your preparer ASAP. If you put it off, don’t look for too much sympathy from me. You have been warned.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Form 8863 Held - Update

On Sunday, the IRS added Form 8863, Education Credits,  to its list of late season holds. This is a major form and will effect a lot of clients. If the return has been filed, the IRS will hold it and begin processing when they release the form. If it's filed now, it will be rejected until it's released or held if mailed in.

Complaints? Talk to Congress.

IRS has announced (IR-2013-10) that the 8863 will be accepted by the middle of Febuary.

 

Who Do You Believe?

The most frustrating phrase to a good tax preparer when it comes to tax information is; “This guy at work said….” And it doesn’t have to be a co-worker. Substitute brother-in-law, beautician, relator or any other non-tax expert for the co-worker and we (I at least) cringe.

The problem generally isn’t the tax advice or information that is shared. Nor is explaining and educating the client why their source is wrong on an issue.  The issue is the client fighting me once I explain the tax rules and why their source is wrong.

For example, Joe is told by a co-worker that he can deduct the mileage he drives to work every day (commuting).  The co-worker assures Joe that his preparer does it all the time. Joe comes into see me and tells me he wants to deduct his commuting mileage. I explain to him why he can’t deduct commuting miles. Then he argues with me about who is right; me or his friend.

I don’t know if Joe’s co-worker is really deducting his communing mileage. That’s between him and his tax pro. I will venture a guess that the co-worker brings in the info and assumes that it’s on the return. But I have seen returns where the commuting mileage has been deducted.  And just because the return was never audited doesn’t mean that the deduction is correct. It means that it wasn’t caught.

Joe’s problem is that he thinks he’s found a deduction that will save him lots of money and he wants that deduction. He’ll fight for that deduction and honestly believes that he can bully me into giving it to him. Not!

Sometimes the co-worker is right or partially right. If not, it gives me a chance to educate my client. But if clients like Joe won’t listen to what I say or ignores the documentation I show him, they won’t convince me to do what I know is wrong. And I bet we’ll both agree that he should talk to his co-worker’s tax pro.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

98 Days and Counting

Today is the due date for returns under extension. Taxpayers can still file returns but they lose the protection the extension gave them.

This is also the last day a return can be e-filed. This is very disappointing. I had hoped that with most returns transmitted under modernized e-file (MeF) we would get year around filing this year. But it’s not to be. A return not transmitted today will have to be mailed.

So, now is the time to look forward to tax season 2013. The date that is showing up in tax forums and boards as the first date we can e-file is January 22, 2013. That’s the day after Martin Luther King’s holiday. The same day as last year’s start. That is 98 days from today according to my program. The question is; will we actually be able to file then? The problem is Congress.

According to a report from the Joint Committee on Taxation, JCX 1-12, there are 101 tax provisions which expired in 2011 or will expire in 2012. And another 8 tax provisions relating to disaster relief for the 2 years will expire. While it’s doubtful that all of the provisions will be extended, some of them will but not until Congress gets back to work after the election.

And then we’ll have to wait while they argue and point fingers before seeing any new laws. Once we have new tax provisions, the IRS needs to work them into the tax returns, create instructions and worksheets, distribute that info to tax software companies and print new forms. The longer Congress takes to deal with the expiring provisions, the less likely tax season will start on time.

We’ve had this problem before. In 2009, the expiring tax provisions were not extended until December. There were 2009 tax year returns which couldn’t be filed until February 15, 2010 because the IRS needed time to implement changes.

Delaying the start of the tax season, even for part of the tax returns, impacts on clients needing their refund and preparers who need early season income. The biggest problem right now is that we can’t do much tax planning. Tax rates, the amount of credits, Alternative Minimum Tax, the estate tax, bonus depreciation and many more tax provisions are up in the air. That makes it very hard to advise clients.

We’ll see what happens next month. Will we be able to file in 98 days or will the start of the tax season be delayed?

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Isaac Tax Relief

If you live or have a business in one of the Louisiana or Mississippi locations that was hit by Hurricane Isaac and has been declared a disaster area, the IRS is giving you until January 11, 2013 to file your returns or to make your tax payments.

The returns and payments eligible for deferment are any which were due after August 26, 2012 and include

• Business returns with an extension until September 17^th.
• Individual returns with an extension until October 15^th.
• Third quarter estimated tax payment due September 17^th.

The IRS will waive any interest, late-payment and late filing penalties on these returns and deposits. They will also waive penalties for late payments for federal employment and excise taxes as long as all payments are up to date by September 10^th.

Currently the tax deferment applies to the following areas:

• In Louisiana: Ascension, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist and St. Tammany parishes;
• In Mississippi: Hancock, Harrison, Jackson and Pearl counties.

If FEMA adds more locations to their disaster list, residents in those areas will be eligible for the delayed filing and paying dates also.

For more info:

IRS Disaster Page

Disaster Assistance.gov

IRS YouTube Video – Help for Disaster Victims (English version)

IRS Podcast- Disaster Assistance (English Version)

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Taxing Social Security

As we listen to the candidates’ tax plans there is one tax reform idea that I am sure we won’t hear about; taxing Social Security. That is, doing something to reduce the tax on Social Security. A little honesty here; this is a pet peeve of mine. I understand the idea behind the taxability but it bothers me that Congress set up the rules without regard for the future. The longer I practice the greater percentage of clients I see getting taxed on their Social Security.

Calculating taxable Social Security isn’t straight forward. The amount a taxpayer is taxed on depends of the income on the return. Basically, if half of the Social Security received and all the rest of the income on the return is less than $32,000 for a couple filing jointly, $25,000 for everyone else (one exception), then the Social Security is not taxable. Above that, taxability phases in up to a maximum of 85% taxability. Since this is the tax code we’re talking about, the actual calculations are not as simple as it sounds. There is some excluded income that has to be added into the calculation. And if the taxpayer is filing Married Filing Separate but lived even one day with their spouse, they go to 85% taxability and skip the phase in. You get the picture.

There are some special problems with taxability of Social Security benefits. The first is that they can be taxed on more than was actually received. The taxable amount is figured on the total amount credited to the taxpayer and that includes attorney fees and Workman’s’ Comp pay back. I have also seen where gambling winnings have triggered taxable Social Security. While the client may have losses to offset gambling income, they are still stuck paying taxes on the Social Security. Also, if you receive a lump sum that includes back years benefits, there are some special calculations that might reduce the taxability. Please talk to your tax preparer. There is also a “marriage penalty” aspect to this process. As mentioned above, a single taxpayer won’t pay tax on their Social Security until half their benefits and all the rest of their income is over $25,000. But a married couple only gets an extra $7000 in income before they start paying on their Social Security.  A second taxpayer receiving Social Security could trigger taxability for a couple.

However, my biggest problem with taxing Social Security is there has never been an adjustment for inflation. When I started preparing taxes in 1988, I seldom saw taxable Social Security. Benefits were much lower and few retirees worked or had large pensions to trigger taxability. Now, it is rare to not have taxable Social Security. I’d like to see the thresholds tied to inflation but with the deficit and other tax issues, I don’t see this happening.

If it looks as if you will have taxable Social Security, you might want to set up withholding from SSA, up the withholding from another source or make estimate payments to keep from an underpayment of estimated tax penalty. Yes, you can have Social Security withhold for Federal. It’s a set percentage; 7%, 10% or 15%, your choice. It may not cover all the tax but it’s a start.

The good news is that many states don’t tax Social Security benefits. In Kansas, if the Federal Adjusted Gross Income is less than $75,000, the taxable Social Security is subtracted from the Federal income. Unfortunately, if the income is above $75,000, there is no deduction. Oklahoma, however, allows taxpayers to deduct all the taxable Social Security no matter how much income is involved. Check with your state for their policy.

Retirement should be a time of relaxation and not stress about taxes. The best idea is to check with your tax professional about what you can do to protect yourself from tax surprises. And make sure that they are taking taxable Social Security into consideration. Just don’t expect it to be an issue in the election or tax reform. It brings in too much money.

 McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Dear CPE Spammers

Please note: I am making a list of all the CPE providers who are putting their commericals in my comment section. Not only will I not use you, I will strongly suggest to anyone looking for CPE not to use your company. It really makes me wonder about the quality of your material when you use such low rent marketing techniques. And I will delete the comment.

Crystal Ball

I have a problem; my crystal ball is broken and there is no way to get it fixed before the end of tax season. So I need some help from my clients and potential clients.

• If I’m holding your return for you to make a decision or to find more info, please let me know what you’ve decided or found. Reading your mind is impossible right now.
• I'm sorry to bother you with questions. Without my crystal ball, I can’t read your cryptic notes let alone know what they mean.
• I’m sorry I didn’t save you the appointment time/date you wanted. I never knew how much I depended on fortune telling.
• Speaking of fortune telling, unless you tell me what your income and expenses are, I have no way of knowing them and preparing a correct return.
• Without that crystal ball, I have no way of knowing which “John” left me a phone message.

It never fails, each tax season some major tool goes down. This year it’s my crystal ball. But hang in with me and we’ll get through tax season.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Not A Miracle Worker

I can only speak for my practice, but it has several patterns. I know when I will have the highest number of returns brought in and I know when clients with the most complicated returns will be in. Right now, I have my usual suspects; clients who always wait to the last minute. A good part of those who visit the last two weeks are really no problem to complete but some walk in with a stack of unorganized papers and expect me to work miracles. Sometimes the return will get done but this time of the year, I reserve the right to extend your tax return.

It amazes me why anyone would wait to the last minute to get their return prepared. I understand procrastination but do they not understand what is happening this time of the year? Again, I can only speak for my practice. I have been working 10 to 12 hours days for 12 weeks, that’s 7 days a week. I have been living on fast food, diet Coke and chocolate. The closest thing to “me time” were the two Women’s Fairs- I had booths and promoted the office. I have 1^st quarter payroll reports to prepare for all my payroll clients. I will also be reprinting payment vouchers for both taxes and estimates because the client has misplaced the originals. There will be phone calls looking for refunds and DIYers trying to get information to do their own return. And there will be returns picked up and IRS notices brought to my attention. And in this craziness, will come clients who think they’re “cute” when they bring in a mess to decipher. I don’t deal with “cute” well this time of year.

So if your 2011 tax return hasn’t been presented to your preparer yet, don’t be surprised if it’s extended. And if it’s complicated or will need extra time for research or bookkeeping, you might suggest it to your preparer yourself. Wouldn’t you rather have a rested tax pro working on your return?

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.