Our Taxing Times

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.

Daycare ID Number - Edited

In the world of taxes, there are Social Security numbers (SSN), Employer Identification numbers (EIN), Taxpayer Identification numbers (TIN) and Preparer Identification numbers (PTIN) but no daycare identification numbers. Maybe there should be.

Currently, daycare provides must give parents either their SSN or EIN so that the parents can claim the Child and Dependent Care Credit on their returns. But identity theft is a big problem and daycare providers are becoming concerned about giving out their SSN.

Most individuals providing daycare don’t qualify for an EIN. They file as a sole proprietor on a Schedule C and they don’t have employees that would require them having an EIN. So they use their SSN. Their worry is not just the parents to whom they give their SSN but anyone who has access to the parent’s return. The number is printed on the Form 2441 for anyone to see.

It may be time for the IRS to create a special number for daycare providers who don’t qualify for an EIN. After all, they did that years ago for tax preparers when they created the PTIN. If creating a special number set for daycare isn’t an option, perhaps they can work with Social Security to allow these taxpayers to get an EIN strictly to give to parents.

 I have heard from Frank, Paul and several others suggesting that daycare providers get an EIN. They are easy to get online on the IRS web site. When asked why you want an EIN, most suggest using the "bank account" option. Paul also suggested using the "other " line and adding identity theft. I still think the IRS needs to seem less like cheating by including a "daycare option."

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

Debit Cards

It’s the season to think about tax refunds. The airwaves are already full of car dealerships and furniture stores wanting your refund. Everyone is in a hurry to get their refund and the best way to do that is with direct deposit. But what if you don’t have a checking or savings account?

Last year, the IRS introduced a debit card program to a limited group of taxpayers. Unfortunately, the response was real sad as Kay Bell points out in her blog Don’t Mess With Taxes. Because of the lack of interest, the IRS will not be offering the program this year. As I pointed out last year, mid-January is too late to start a program that targets early filers. Especially a program that requires them to sign up and wait to be approved.

But I don’t think the debit card idea is going away. The Treasury Department announced in 2010 that by March 2013, they would not be sending benefit checks to Social Security and VA recipients. If they didn’t want to do direct deposit, Treasury would issue them a debit card. So, I expect a new debit card program from the IRS. It’s the way financial transactions are being handled now. The Oklahoma Tax Commission will only transfer state tax refunds electronically. The only options for this year's refund are direct deposit and a state issued debit card.

If you don’t have a savings or checking account, there is time to open one before you file your return. Or, is your employer already loading your paycheck onto a debit card? If you have one of these cards, you may be able to load your tax refund on that card. I had several clients that did that last year. It’s actually a direct deposit into the account behind the card. Check with your card company  for the routing and account numbers that you will need. (No, the 16 digit card number will not work.)

 

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

World Ending - Taxes Continue

As I head into the filing season, I wonder if we will see a big drop in return filings in 2012. After all, the world is ending in 2012 so why waste the time on tax compliance?

This is it, 2012, the year that has been pointed to since the beginning of this millennium as the time the world will end. Proponents point to the Mayan Calendar ending in 2012 as proof. And if it’s not the Mayans, doomsayers cite Nostradamus or Revelations or Buddhist Eschatology. Want something more modern? There are end of the world theories that cite a rare planetary alignment in 2012 and let us not forget the planet Nibiru (Planet X) that is suppose to be our downfall.

There is no shortage of theories claiming that 2012 will be planet Earth’s last. And there are no shortages of experts pointing out logical, intelligent responses to each theory. But theories continue to be debated and the History Channel can load its schedule with all the documentaries that have been filmed on the subject.

So what is a taxpayer to do? Should they act normal and file as usual or hold off filing and see what happens. If the end comes, they’ve saved themselves a headache and maybe some money. But if 2013 dawns bright, the procrastinators will have more work to catch up. Actually, I think the “end of the world” defense will be used as a rational for people who would procrastinate and not file anyway. Maybe we’ll see it as an argument to convince the IRS to forgo interest and penalty; “You see, I shouldn’t have to pay interest and penalties because I expected the world to end and I felt the US wouldn’t really need my money.”

 More on all the doomsday theories.

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

Congressional Life Swap

That’s It Congress! I’ve had it with your refusal to do your jobs and your ability to reduce everything you do to a pissing match or a huge game of Chicken. I was at lost for a solution but I think I’ve come up with plan.

Wife Swap. You know that really obnoxious reality show where they switch the Mom’s of two very different families for a while. I’m not suggestion that the wives of Congress be switched but something more like a cross between Wife Swap, A Simple Life and the Witness Protection Program.

Here’s my idea: all members of Congress and their families become lower middle class families. They’re scattered across the country but not anywhere near their actual homes. They have to live within the income they earn through their jobs. They can’t use their own personal wealth or any credit cards or call upon their own friends and family for help. No money for gas? They’ll have to walk. They’ll learn the uses of Raman noodles and how to clip coupons. They’ll learn you can’t run to the doctor every time the kids have colds because you don’t have health insurance or because of a high deductible if you have insurance. Congress needs to learn the joys of thrift stop shopping for clothes. If they lose their job, they have to live on unemployment until they can find a new one. Let Congress learn that the 2% social security cut can make life easier and how too many Americans still need unemployment insurance. They’re not bargaining chips to get more toys for their rich friends.

I would suggest an initial term of at least 3 months with additional time for not playing by the rules. If the Congressman or women cheats too often, the swap could become permanent. As for their Congressional jobs, how much do they really do? I’ve not seen any evidence of actual work for a while. They all have staffs that do most of the work and their votes seem to be decided by their party leaders or lobbyists. A web site could be set up where they check in and vote when something actually gets that far. Who knows, more might get done this way.

Congress needs to wake up and realize who is paying their salary. Yeah, they’re getting lobbyist and other special interest money but they wouldn’t be getting that money if they weren’t in Congress. As a member of Congress they are suppose to be representing us. Not just the 1% with lots of money to share. I understand each member has a different idea what will help but that has always been the case. Why has Congress lately become less interested in making things better for the country than funding their retirements and playing chicken with people lives. I think they all need a good dose of reality. Let them spend their Christmas riding a trash truck and not skiing in Vail.

The only problem I see is finding a place for all of them. I can see a backlash as hard working people say “not in my neighborhood.” After all, only a few voters approve of Congress at all.

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

Paperless Office

I just ordered a new scanner for the office. It’s one I’ve wanted for a while but couldn’t justify while I had a working scanner. The current one is still okay but it’s taking “breaks” more and more often and slowing the whole process down. I’m to the point that I can’t operate without a scanner. I don’t want to keep all the paper.

I’m a paperless office. That’s actually misleading. I still buy many cases of paper each year for client copies and signing documents. I keep signed copies of the e-filing (with W-2s) forms, the EITC check lists, 7216 disclosures and engagement letter. These I have to keep to meet the IRS’s or liability requirements. The only paper I keep for me is a summary sheet with a copy of the bill that I use when preparing the next year’s return then shred.

What does that mean for my clients? Not much. They still get a full paper copy of their return. But that depends on the tax preparer. All tax professionals have to give their clients a copy of the tax return prepared for them but it can be on paper or digital. Even if a tax pro gives clients a paper return, they may also provide them with an electronic copy if requested.

The paperless tax office is the wave of the future. Not only are tax preparers keeping few paper copies of returns and other documents but new technologies are being developed to streamline the process. My tax software, Drake, is offering 2 new programs this year that rely on electronic document transfers. With one, I scan the documents the client provides and send them into the "cloud". These are organized and returned to me and, if desired, some can be imported into their tax return. (I don't think I'll do too much with this one this year.) The other new program allows clients and me to electronically transfer documents through an online secure folder. Think a tax Dropbox. Currently, I can create a PDF and send it to a client password protected. But they usually can’t send me anything securely. This program will let us both send and receive secure info.

Technology is great but it can also be invisible. That means that taxpayers should take a moment and talk to their preparer about their electronic security. Find out what their backup procedures are. Do they use off site backup? If they do, which company? What do their do with old computers and hard drives? The goal is not only to make sure that you’re protected against identity theft but can the preparer access your old returns if there is a problem in a year or two.

There is no going back. Paperless offices and cloud storage will continue to gain popularity with tax professionals. They need to take special care with their clients’ info and the clients need to make sure they understand where their info is being stored.

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

Do You Know Where Your Tax Return Is?

I’ve blogged about this before but it seems a reminder is in order.

 I don't care if you prepare your own return (by hand or with tax software), have a friend or relative do it, use a national chain, CPA, or other tax professional. If you are not keeping and safeguarding a copy of your tax return and supporting documents, you are making a very stupid tax mistake and you will get no sympathy from me. Why? You will need a copy of your return for:

• Responding to an IRS or state revenue office notice.
• Amending a return.
• Tax or financial planning.
• Buying a house.
• Applying for college financial aid.

So, you would think taxpayers would take a little care with their returns. But it has actually gotten worse the last few years. Returns are being self-prepared and filed by computer but the taxpayers don't think to print a copy or save the file or even save the password to access the file. Inexpensive scanners are all over the place but few people think of scanning in their return let alone the supporting documents. And if they do have a digital copy they forget about backing the files up. Some assume their paid preparer will be around to give them a new copy. Boy, are they surprised when the preparer quits the business or has a computer crash and loses files. You can get a copy of the Federal return but it will cost you and take at least 6 weeks. A return transcript is quicker but it could still take a couple of weeks. And what about the state return? That could be even harder to get.
So, no matter how you have your return prepared, please put a copy away safely and keep it for at least 5 years from the time it was filed. And I really do suggest keeping a digital copy of the return and supporting documents too. It's not hard to do and it could make your life easier down the road.

 

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

Proof of Not Working

How do you prove that you didn’t do something? Specifically, how do you prove that you didn’t work for a particular employer?

Here’s the situation. In January, you receive a W-2 or 1099 from a business that you don’t recognize. Or, you get a CP2000 from the IRS with W-2 or 1099 info that wasn’t on your original return. Either way, you have to prove that the W-2 or 1099 doesn’t belong to you or you will be liable for the taxes on that income.

You need to take the lead in solving the mystery. The first thing to do is to compare the employer’s name with the businesses you remember working for that year. Do you have a W-2 from all of them? That may be your answer. A fast food restaurant or other franchisee may issue employment docs in the franchise owner’s name (individual or business) and not under the common name. If that doesn’t solve the problem, check with the employer on the W-2 or 1099. Many times there is a contact phone number on the form. If not, you’ll have to do a little research for more info. Then call or write the company. It may be a carryover check from the previous year. Or you may have forgotten about the 2 days you worked there. If that doesn’t work, you need to see what records you have that will prove what you did do. The best records for this are your pay check stubs and bank deposits.

That means that you need to save check stubs and bank records. Set up a folder for your pay stubs and automatically add to it on payday. If you’re set up for direct deposit, you should still receive a pay report. Save it. If you are working for a company that doesn’t give pay stubs (especially if you are being paid in cash), keep a log with the date, and the amount that you receive and any details you can of the work week such as hours worked, the job worked. But you have to have some kind of contemporary documentation if you want to prove that the W-2/1099 is wrong.

How does this happen? Sometimes it’s the taxpayer’s problem. They don’t remember a short term job or employer. But it could be a former employer padding their business deductions to save on their own taxes. It could be a glitch in data entry but it could also be identity theft. But the key to proving that you didn’t work for someone is to prove who you did work for and that means you have to keep your pay and bank records safe.

Tax Training Class

I’ve been having an e-mail conversation with a young lady about bank products and she asked this question. I thought I would share my answer.

What do you think is the best tax courses to take? I am deciding to enroll in incometax school online or attend one of liberty tax servcs courses, JacksonHewitt to gain good knowledge on income tax or tax system before I can prepare taxes.  I don't want to depend on softwares to outline my interview formats or process, I want to be able to answer any questions a client has, I want to be confident and knowledgeable.  I was hoping you can give me some ideas on tax training so I can be helpful to clients.

 I can’t recommend any specific tax class because I have not taken or used one for a very long time. I use to be able to recommend the H&R Block class. It’s how I and millions of other practitioners learned to prepare taxes. The last I saw the curriculum for the Basic class, they had reduced what was covered in the course. The big problem is that they have pretty much closed the classes to people who are not planning on working for them. I guess they got tired of training their competitors. (And if you do work for them you have to sign a non-compete forcing you to wait at least a year before you can do taxes for someone else in that area.) My suggestion would be to spend a little time on the internet and see what your options are and don’t forget to look at local colleges and trade schools to see if they have a tax class. Then start culling the list. The first step should be to understand how you work. Can you work independently or do you need deadlines to put pressure on you? Then look at what the course covers, how much it costs, what materials are included, and any testimonials from prior students. A word of warning, you will find a lot of classes being offered right now that are a review for the IRS licensing test. These are not what you are looking for right now. You’re looking for a training course not a review class.

As you work on this course, if they don’t have it set up that way, do as much as possible by hand on paper. If you need forms, you can download them from IRS.gov. Learning on paper can give you a much better idea of how the forms flow to each other.

You mentioned that you want to learn taxes and not be dependent on the software. That is great but one class will not get you there. This is a profession that requires continuous learning. So, as you research for your preparation course, keep an eye out for late fall update courses. Some will simply cover tax law changes but others will throw in other topics too. That keeps you current. And make IRS.gov your friend. Get to know what is there and how to find it. The same goes for finding a good desk reference for quick look ups. I use the TaxBook now and Quickfinders before that. There are other books like these also. You have to understand that you will always be asked questions or encounter situations that don’t exactly match the textbook examples. After 23 years, I still have to check my books to give the client the correct answer.

From this and prior e-mails, I get the impression that you are new to the field and are planning on being ready to go in January of 2012. You have plenty of time to make that date but let me call your attention to something you might not be aware of yet. Preparer Licensing. If you do not have a PTIN (Preparer Tax Identification Number), you need to get one now. The IRS is still planning on the competency testing beginning in the fall. If you have you PTIN before that, you will have to 2013 to pass the test. (The review courses I mentioned above) But once testing is open, you will have to pass the test before you can get the PTIN. By law, you have to sign any return you prepare and include your PTIN in the signature section. If you wait until the testing has begun and don’t pass the test, you can’t get a PTIN so you can’t prepare taxes. Also, you will be required to electronically file and that will require a EFIN (Electronic Filing Identification Number). My suggestion is that as you take your tax course, you take some time to apply for your PTIN and EFINs too. You have six months before the next tax season. That’s plenty of time to be ready but not if you procrastinate. Good Luck!