Tax Accounting Blog
News and Views in the Tax Preparation, Accounting, and Financial Investment World
IRS Penalties Go Up as 2017 Tax Rates Go Down
Bloomberg BNA has just published its 2017 Projected Tax Rates along with a projection of tax items that have been adjusted for inflation. That means that the cost of noncompliance will increase. The good news is that individuals and businesses can look forward to lower tax liability because of higher deductions and credits. You can view the full report here. Congress has passed legislation that may revoke the passports of taxpayers who currently have serious delinquencies in tax debt. This has caused a trend toward higher penalties. Congress has provided more predictability for business taxpayers by returning to annual increases for the business expensing limits. The report includes projections for income tax brackets, personal exemption, standard deduction, and penalties that will give taxpayers and tax planners a reference to save more tax dollars in 2017. It also includes over 320 that are contained in more than 55 Internal Revenue code provisions. The official statement from the IRS will be published later this year. Amounts are based on the Bureau of Labor Statistics inflation adjustments. Kevin Thompson, CPA says “Watch out for more penalties.” The IRS code will be imposing...
Retirement May Not all it’s Cracked Up to Be
Retirement isn’t for everyone. It turns out many retirees aren’t satisfied with the way it’s been going for them. The Employee Benefit Research Institute did a study between 1998 and 2012. They interviewed the same 20,000 retirees every 2 years. Here is what they found: Only 31.7% - 40.9% reported moderate satisfaction with retirement and just over 10% were completely unsatisfied. Very satisfied retirees dropped from 60.5% in 1998 to 48.6% in 2012, which is below half. Kevin Thompson, CPA says “I think most people think retirement will be easy. I think most people forget just how much of their time was consumed by their careers and young families and neglect to plan for that time.” Although the study didn’t research the reasons for the rise in dissatisfaction, other studies say that financial difficulties are the cause. For one thing, retirement income from traditional pension accounts has fallen from 38% in 1980 to 20% in 2008. Other reasons that retirees have become dissatisfied is that they had raised expectations about what it would be like. Some are searching for new ways of creating a retirement income that would give them flexibility. Baby Boomers are clearly not as happy...
Get Transcript Data Breach Still Affecting Taxpayers
The IRS’s online Get Transcript app (GTA) (https://www.irs.gov/individuals/get-transcript) experienced a data breach during tax season that is still affecting taxpayers, according to a report released by the Treasury Inspector General for Tax Administration (TIGTA). The report was released a day after the IRS relaunched the app with fixes to prevent identity theft. Kevin Thompson, CPA says “TIGTA was established in January 1999 in accordance with the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98) to provide independent oversight of Internal Revenue Service (IRS) activities. As mandated by RRA 98, TIGTA assumed most of the responsibilities of the IRS' former Inspection Service.” For more information on this function, click here https://www.treasury.gov/tigta/about_what.shtml. The GTA was taken down in May 2015 after the agency discovered that thousands of taxpayers’ transcripts had been accessed by thieves. It turns out that 390,000 taxpayers were affected and 295,000 more had their transcripts targeted but not stolen. In an effort to help victims, the IRS provided taxpayers with Identity Protection PINS as well as free credit monitoring. Unfortunately, the...
Should the IRS Have the Power to Regulate Tax Preparers?
The Senate Finance Committee has been trying to decide whether or not to give the IRS the authority to regulate tax preparers. Senator Elizabeth Warren and others have proposed that the IRS be required to fill out simple tax returns. That would deal the “Free File Alliance,” led by companies like Intuit, H&R Block and Jackson Hewitt a major blow. The decision has deadlocked Congress and Warren’s bill is stalled. Kevin Thompson, CPA states “I like the idea that the IRS fill out the simple tax returns. They have all of the data for these returns. They can prepare and send a copy to a taxpayer with a “if you disagree …” letter and we can be done with that return and the millions like it.” The question is; are continuing education, and tests for tax preparers the answer or would another solution be more effective? The IRS has tried in the past to impose regulation on preparers without success. Wouldn’t it be a better solution to get rid of bad preparers who may cause financial disaster for their clients? Thompson says “again, I like the idea of getting rid of the bad preparers. What I don’t like is that the people making and enforcing the rules get to decide who is bad. Seems...
Do it Yourself Tax Software Can Be Messy
Many taxpayers use “do it yourself” tax software to file their income tax returns. However, a fair amount makes a mess of it and pay the price when they make mistakes. It’s not unusual for tax preparers to receive calls from clients asking them to fix their messed up self-filed returns. What’s ironic is that the IRS is increasingly regulating paid tax preparers but not the providers of tax preparation software. E-file providers top priority is the security of taxpayer’s accounts. Publication 4557, Safeguarding Taxpayer Data as well as Publication 4600 Safeguarding Taxpayer information provide best practices and guidance. Last year, Intuit, the makers of Turbo Tax, found incidences of stolen identity fraud when personal information was taken and used to file fraudulent claims. Victims of the fraud had to manually file their tax returns as well as file police reports to prove their identities had been stolen. They also had to keep an eye on their credit reports to make sure their information was not being used fraudulently in other ways. Even still, Intuit was not subject to penalties and only had to make changes so it wouldn’t happen again the next year. One of the main problems...
Expect More Tax Audits as the IRS Hires More Workers
Do you think the IRS has been lax on enforcing tax audits lately? Well, think again. They are in the process of hiring 700 new employees, which means there’s more of a chance you will find an audit letter in your mailbox. Kevin E. Thompson, CPA www.kevinthompsoncpa.com adds “it has been years since we have seen the IRS add bodies solely to undertake examinations. If taxpayers have been aggressive, they could get caught up in this catch-up move.” The agency has had a 24% drop in employees since 2010 with audits at an 11 year low. IRS commissioner John Koskinen stated that the IRS is losing $4 -$5 Billion a year because they haven’t had enough employees to enforce collections. Despite the fact that the IRS and the Obama Administration have been asking Congress for more funds to hire more employees, they have had little success. Instead, the funds are coming from retirements, other employees leaving and by refiguring their budget. New hires will focus on small businesses and those who are self-employed. Thompson says “it’s risky for the economy to examine small businesses. They do not have the resources to afford representation nor the additional taxes that may be due.” Even after...
Worst Ideas about Paying Taxes
Kevin Thompson, CPA, did a recent internet search revealing some horrifically interesting ideas about paying taxes. Below are just a few of some of the worst ideas that people have come up with regarding doing their taxes. Thinking that filing taxes is unconstitutional by citing the 16th amendment. The whole idea of being “free men” and the unconstitutionality of taxes has been played out for decades. Ask Wesley Snipes how that worked for him. Folks, this has been acted upon by every court in every state and nary has a one expressed any interest in the idea. If this is your position, let it go as it will not work. Telling people they didn’t pay taxes because they received a refund. (It actually means they had too much deducted out of their paycheck.) “In my practice” says Kevin Thompson, CPA, “with our average taxpayers, we try and get clients in the $1,000 range of either owing or receiving refunds.” Thompson goes onto say, “this philosophy has changed for the higher net worth clients. With interest rates at all-time lows, it is often more strategic to overestimate taxes and eliminate the exposure to expensive, nondeductible penalties.” California no longer offers a safe harbor...
Woman Given 2 Years for Giving False Information to the IRS
While this is a cautionary tale, it’s certainly entertaining and worth telling. This story highlights the importance of doing your homework before entrusting someone with your financial information. I would guess the client also had to pay some additional taxes (it is still your responsibility to sign or not sign the return, attesting to the truth of the information reported on it). A 36 year old female tax preparer named Marie Anderson gave false information to the IRS, and was sentenced to 2 years in prison in federal court. She had attempted to fudge information on a couple’s tax return so that they would receive a larger refund. The couple was retired and didn’t own a business, partnership or joint venture. Anderson entered figures regarding their business income, business mileage, car and truck expenses with no documentation to show or information provided by the client. She had been preparing tax returns for the couple for 2 years prior. The couple received $4,955 as a refund for their 2010 return filed by Anderson. Anderson was an employee of Four Seasons Finance and worked out of her home. Her sentence will include 1 year of supervised release and she is ordered to pay...
The Question of Dependency for Exemption
Often times, my clients come to me around February or March, with the April 15th tax deadline looming, asking about exemptions or credits or deductions, and how they can get them. Well by that time, it is too late. With one of the most contentious tax preferences in the books – children of divorced or separated parents, I will offer some advice ahead of time. Only one parent may claim the dependency exemption for their child during a tax year. They cannot split the exemption. Normally, the custodial parent takes the exemption. Being the custodial parent means he or she cares for and lives with the child over 50% of the time. However, this can be negotiated especially if there is more than one child involved. The exemption may be able to be split if the non-custodial parent is paying child support. If there is only one child the exemption may be able to be alternated. If one parent is in a high tax bracket, the exemption may not make much of a difference. Therefore, the parent with the lower tax bracket may receive more in savings with the exemption. Also, when determining which parent receives the exemption, the parent paying child support must be current in their payments in...
Errors at the IRS are Staggering Says TIGTA
According to the Treasury Inspector General for Tax Administration (TIGTA), the IRS is working to comply to an executive order for reporting requirements. Even though there has been a decline of improper payment for Earned Income Tax Credit (EITC) since the 2003 fiscal year, errors at the IRS have increased from $10.5 billion in 2003 to $14.5 billion in 2013. In a report to TIGTA, the IRS reported improper payment in 2013 of EITC totaling approx. $60 billion and that 24 % were paid in error. This prompted an audit because Executive Order 13520 (Reducing Improper Payments and Eliminating Waste in Federal Programs) requires that TIGTA assess IRS compliance with the order annually. This is so the TIGTA could determine if the IRS has complied with the Executive Order. They found that the IRS was not in compliance for 2013 because it has not established annual payments in error reduction target as required. It seems the government is making more and more mistakes, costing taxpayers even more money to fix them. It’s been my experience that the mistakes are affecting individual clients rather than the taxpayers in general (meaning, you are more likely to get a letter making it seem like...