Our Taxing Times

What You Don't Save May Cost You.

I’ve said it over and over again; keep copies of your tax returns and the supporting documents. That means the state return too. It can save you both time and money.

Here’s the situation. I was asked to help respond to a notice from the Kansas Department of Revenue but the clients didn’t have a copy of the KS-40 return they filed (I didn’t prepare the return.) So, I sent in a request for a copy of the return or transcript info and a copy of a Kansas Power of Attorney. Today, I was told that since I didn’t send in payment for the info I requested, KDOR won’t send anything. A month after I sent my original request, I had to fill out the special form and write a check for $5.00 to get the information I need.

This mess illustrates two lessons. Taxpayers need to keep a copy, paper or electronic, of their tax returns. All returns. And state revenue departments are hard up and previously free information may now come with a price tag. Don’t assume because the IRS doesn’t charge for transcripts and account info doesn’t mean that that your state won’t require payment for that info.

 

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W-2Gs and CP2000s

It’s that time of the year, CP2000 time. The CP2000 is an IRS notice to a taxpayer when there is a discrepancy between what income was reported on their return and what was submitted to the IRS in W-2s, 1099s and W-2Gs. Because I’m so close to so many casinos, I see a lot of CP2000s that deal with missing gambling winnings.

When a taxpayer wins a jackpot, the casino gives them the W-2G for the win at that time. It’s up to the taxpayer to keep the W-2G safe and bring it into me, or their preparer, when their taxes are done. What happens to the W-2G? It gets shoved into a purse or pocket, thrown in the glove compartment or on the desk at home or thrown in the trash by accident. It’s no wonder that gambling income is so easy to get wrong.

It’s up to the taxpayer to create a system to keep track of their W-2Gs. The best solution is the log book for gambling wins and losses that they should already be keeping. That will give them a list of what they actually won during the year. Even if they are missing a W-2G, they will be able to report the income. If the taxpayer doesn’t want to keep a log, they need to have a safe place to put the W-2G the minute they get home.

I’d also like to see the casino be able to give taxpayers a list of the W-2Gs they’ve issued to them for that year. Like a pharmacy gives a taxpayer a list of the prescriptions they bought, a casino should be able to give them a list of their jackpots. That way the taxpayer has a list to check against the W-2Gs they’ve saved. It would not only help insure that all the winnings are on the return but give the taxpayer another source to check a CP2000 against.

The IRS isn’t off the hook though. They need to add the date of the win to the information they provide on the CP2000. The date is on the W-2G so it should be an easy task. Without a date, it is very hard to be sure which W-2G(s) was not on the return. I have a CP2000 listing 25 W-2Gs the taxpayer received and 10 of them were for the same amount. Without a date, I can’t be sure which W-2G wasn’t included on the return.

There are to tax prep issues here. First I want to make sure that I have all the income on the return and if a CP2000 is issued I want to make sure the IRS is correct. The taxpayer needs to keep good records of their winnings and a log would help. But casinos make mistakes and it would be helpful to know what they are showing on their records. A winnings printout could easily catch a mistake or missing jackpot. The IRS just adding the date from the W-2G to the CP2000 would make it easier to check what was still missing and if it was really won by my client.

Working with W-2Gs has gotten easier in the last few years. I see very few handwritten forms and it looks like the casinos are better training their people how to fill out the form. But everyone involved could do a better job of tracking and reporting jackpots. Not just to get all the income on the return in the first place, but to give us a way to verify the IRS’s information is correct.

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Refunds into Savings Bonds

You know that you’re getting a Federal refund. What should you do with that money? Honestly, many taxpayers have that money spent before they get their return prepared. But if you’re planning to put all or part of that refund into savings, you might consider buying a US Savings Bond.

Most taxpayers know that they have the option to have their tax refunds directly deposited into a personal account. But most people don’t know that the refund can be deposited into more than one account. Form 8888 allows the taxpayer to split their refund in up to three accounts. These can be a checking, savings, IRA, or brokerage account. On top of that, you can also buy a savings bond or two.

Form 8888 allows you to purchase Series I bonds for yourself or as a gift. Use Part II to buy paper bonds. Just fill in the amount you want the bond to be. If you’re buying the bond as a gift, you need to fill in the recipient’s and the co-owner/beneficiaries’ name along with the amount of the bond (line 5a or 6a). If the bond is for you, just fill in the bond amount on line 4. The paper bonds will be mailed to the bond owner.

You can also use part I of Form 8888 to add money to your TreasuryDirect account and allocate the money to buy a gift bond or buy a bond for yourself.

Using Form 8888 to buy savings bonds is an easy way to save part of your refund for the future.

 Information about Treasury Direct.

Using your Refund for Savings Bond.

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Catching Up Back Year Returns

This time of the year, I seem to do quite a few back year returns. Sometimes the client has miss only one year, other times it's a lot of years. Sometimes the IRS or state revenue office is providing the motivation, sometimes not. No matter why the taxpayer wants to catch up the basic process is the same.

First, I need to have information on their income and expenses. For most, I'll need the W-2, 1099s and other tax info they would normally provide their preparer. If the client hasn't kept that info, either they or I will have to get wage and income transcripts from the IRS. If I do it, I'll need a signed form 2848, Power of Attorney. And the client will have to figure their deduction amounts for their Schedule A and income and expenses for their businesses from their records. All the IRS will have on file are the 1099s and 1098s. And I really want to see the last return they filed. This is especially true if I'm preparing more than a year or two returns. And it's also the last thing most clients will have and the more returns I have to do, the less likely they will have the return. Whoever is preparing the return, myself or the taxpayer, should want to start with the oldest return. Too often there is info that needs to carry forward to the next year.

With the exception of the 2011 tax return, all returns will have to be mailed. Past year federal returns can't be e-filed. And if the taxpayer qualifies for a refund, they may not get the money if they have waited too long. You have 3 years from the due date of the return to file the return. If you miss that date, you still need to file the return but you won't get your refund. (Only refunds for tax year 2009 and later will get refunded or credited.) But if you had a balance due, you will still owe that plus interest and penalties.

Don't assume that if you haven't heard from the IRS or state that you don't need to file return. There are some people who actually don't have to file but most of us do. Remember, the IRS has a matching program and you may not have received a letter because they estimated a refund. But if you want to do an installment agreement or Offer in Compromise, you will need to get all outstanding returns filed even those with refunds.

So if you're behind in filing your income taxes, summer is a good time to catch up. After all, it's too hot outside.

Rummage Sales (By Any Name)

As I was out and about this morning, I noticed on the corner at one of our busiest intersections a cluster of signs. Surrounding a yard sign advertising the summer rec center programs were at least seven homemade signs announcing garage/ rummage/ yard sales. (I would have loved to get a pic but I would have had to get out in the middle of the intersection to do it. I don’t think so!) Our local newspaper listed 87 classified ads announcing the sales. The local AM radio station has a shorter list but they announce the sales on air early on Saturday mornings. Around here, rummage sales are a big part of weekends (generally Fridays and Saturdays) especially during early summer.

So what about the money you make at a rummage sale, is it taxable? It actually depends on individual sales. According to the IRS discussing online sales through eBay and the like:

If your online sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales if you did not receive more than you originally paid for the item you sold. In a garage sale, you generally sell household items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable. Losses on personal use property are not deductible, either.

So that blouse you paid $25 dollars for but sell for $3 isn’t reportable because you sold it for a loss. Let’s face it; garage sales are for cleaning out unwanted items and picking up a few bucks doing it. If you have collectables that have increased in value, selling them from a table in your front years won’t bring the best price (and may be taxable.)

So, you probably won’t be subject to income taxes, but what about sales tax? I can’t speak for all states, but Kansas isn’t worried unless you are in the garage sale business. If you have one or two sales in a year, you don’t have to worry about collecting sales tax. But if your garage sale seems to be a weekly event, then KDOR might classify you as a retail seller and want some money.

Your sale is over, what are you doing with the unsold items? If you’re boxing them up for your next sale, fine. But if you are boxing and bagging them up to take to your local charity thrift shop, taking a little time now might save you some tax money next spring. Get some paper and as you bag up the remains write down what it is, the price you were selling it for and the condition it’s in. When you drop off the bags/boxes at Goodwill, Salvation Army or your favorite thrift store get a dated receipt. Staple the receipt to the list and put away until tax time. You have a charitable deduction that might save you some tax money.

Garage/ rummage/ yard sales are a way to clear out unused items, make a little money and maybe save a little on your taxes.

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

Fix Your Withholding Now!

Before you lock away your tax info and return for the year, look at your refund or balance due. Are you happy with it? Do you consistently owe the IRS or your state? Are you getting a big refund every year? Or, are you going to lose a deduction or credit on your 2012 tax return? Then this is the time to make changes in your withholding.

First, talk to your preparer. I like to see a check stub(s) with year to date info. Based on the info from that meeting, change your W-4 with your employer. You can change your status (Married/Single), the number of exemptions, or have them take out a specific dollar amount from each check. Then check the next paycheck to see if the changes were made. And you might have to handle your Federal withholding differently than your state withholding, so look at that also.

Let's face it, it's easier to deal with a smaller paycheck than write a balance due check to Uncle Sam. Or better yet, give yourself a pay raise because you always get a big refund. The choice is yours.

Disasters

I hope you weren’t hit by this weekend’s storms but if you were and haven’t filed your tax return yet, keep an eye on the news. The IRS has been known to give taxpayers caught in a disaster a little more time to file their tax return. I haven’t seen anything yet, but as soon as I do, I’ll post the info. But don’t get too excited, the last time I remember, the extra time was only a couple of weeks.

But disasters like this should make us all think about how secure our financial records are. I saw a video of a house getting hit by a tornado last night. The house was raised into the air about 20 feet and then it exploded. That homeowner will never find their tax records. And it doesn’t have to be a huge disaster to take your records. A water leak can do enough damage to make your old tax returns unreadable.

Now may be the time to digitalize your tax records. Tax returns can be scanned and kept in a separate location or in the cloud. Your tax pro might even be able to give you a digital copy. (My clients can always bring in their thumb drive and I will give them the return and any supporting documents I have.) With scanners getting better and cheaper, a small company can copy their receipts very economically.

Its times like this that should make us think about protecting our financial info.

It’s also times like this that should make us realize how luck we are. Please don’t forget the good work disaster relief organizations do at these time and may be share a little of your tax refund with the American Red Cross or the relief organization of your choice.

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

Aging Parents

One of the best things about my job is the clients. Yes, some can be the pits but many are a joy to see each year. But each year we all get a little older and clients are no different. It’s sad to read or hear about a client passing away. But also it’s hard when the client slips mentally and physically especially when that impacts their taxes. Clients who were always prepared for our meetings with their source documents and notes organized begin to forget basic things like 1099Rs. Their notes stop being organized and become confusing. I get all the info I need but it takes several long calls to get what’s missing..

But it also means that I run into tax issues I would have never seen when they were are the top of their game. Balance dues and estimates not paid, minimum distributions from IRAs not taken, stocks sold but with no idea of what they paid for it. You get the idea.

Oh, and one other, family members sticking their nose in after the damage is done. I’m not talking about the son who brings dad in for his appointment and helps answer my questions. Or the granddaughter who drop off grandma’s stuff because grandma can’t drive but can answer my questions if I call. No, I’m talking about the family member who calls because they find a tax bill or they are shown a return with a big balance due. They call wanting answers I can’t give without a release from my client (too often they are family members that I’ve never dealt with before.) They rant and try to blame me. They don’t want to get a release but they want answers. Too often they want an easy, for them, solution.

I can’t control what happens when I give the client their copy of the return and anything they need to file or pay. The same goes for decisions made that impact on taxes. I’m only brought in to do the return. The family has to recognize that they may have to start stepping in and taking control of their loved one’s tax situation. It’s a delicate situation. I had to do it for both parents and a Grandmother. You want them to feel they have control over their taxes but at the same time you want to make sure everything is done correctly. What can you do? Become familiar with their return so you know what needs to be paid or filed. If there is talk about moving money, suggest they talk to their tax pro and offer to go with them. Get a tax power of attorney if necessary.

Any good tax pro is going to try to file the most accurate return possible. But that’s all we can do. The rest is up to the client and their family if the taxpayer can’t do it any longer.

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

Don't Spend the Money

With the IRS funding delays this year, I'm getting calls from taxpayers who didn't listen when I said not to spend the money until they see the money. The IRS has always given themselves another week pass the target date they give. If they take longer than that, there are offsets or return problems.

IRS refunds are  still running behind so don't spend the money until you actually get it. That means pay rent, buy a car, payback loans, pay utilities.... You get the idea. The bad check charges will be more than any late payments you will have.

Just in case you missed it:

Don't spend your refund until you see the money.

 

Listening to the Complaints

Okay IRS, we’re registered and testing has begun. It’s time for you to use the info we are giving you to protect taxpayers and good preparers from the preparers not following the rules.

I bet you know who I’m talking about. This tax chain has received a lot of media attention. Near riots at their offices tend to do that. Clients are alleging many problems with some offices but I just want to focus on one complaint, filing returns with pay stubs.

This company offers loan based on pay stubs. Some taxpayers who took advantage of that program are being told that their return had already been filed when they go in with their W-2s. Others, who try to use a different preparer, are learning when their return is rejected that there is already a return on file. These taxpayers are alleging they didn’t give permission for their return to filed. (If there is a signed 8879, did they sign it knowing what they were signing or was it just another paper in all the loan papers?)

So IRS, are you investigating these offices? It’s your rule; returns can’t be e-filed without the W-2s, W-2Gs and 1099R to back up the income. Are you contacting the taxpayers in the stories to get more info? Are you contacting, or investigating at all, reports from other preparers about tax offices filing with pay stubs? Have you contacted the news outlets with educational materials about filing before the taxpayer has their W-2s and what to do if it happens? Are you running reports for returns rejected because a prior return was filed and looking for trends?

E-filing without the W-2s/1099R may sound like a little infraction but what bigger issues will turn up under investigation? Reading some of the taxpayer’s stories make me wonder about fraud on the part of the tax office. Is that a big enough issue to get you involved? And if they aren’t following the rules about e-filing what about their EITC due diligence, Section 7216 forms and other paperwork preparers have to do.

I’m not advocating a witch hunt against the company but looking into allegation of misconduct at specific offices. You owe it to all the good preparers.

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