Monthly Archives: February 2017

The more you spend, the more you… 1


Spend. Period. Repeat after me “Spending money does not save money.” Repeat it again. And again. And again. Repeat it as often as you need to until it sinks more save more

You see signs like this one often during the holidays. My inner capitalist says they are excellent marketing, but my inner finance coach says “Run away!” You never save money by spending money. Especially not by spending money on impulse items. That’s one reason I recommend both shopping with a list or at least a purpose (I need some new pants and tops for work) and walking away from impulse buys for at least one day and only coming back and purchasing if you are still thinking about the item/deal.

I especially recommend walking away from the “Buy 1 Get 1 Half Price” deals that are becoming increasingly common. That’s not a 50% discount on one item. That’s a 25% discount on two items. The thing is, maybe you don’t need two items. Maybe you don’t even need or want the one item. Unless you actually need or want both items, it’s usually best to pass on these offers. Buy only what you need and save the money you would have spent on the extra item instead. Put the cash in an envelope and add it up at the end of the year. The amount might surprise you.

This time of year it’s also important to remember that “the more you spend, the more you spend” principle also applies to your federal income tax return. Do not let someone sell you more house than you can afford because “you can deduct the mortgage interest on your tax return.” That’s not a dollar for dollar savings. Depending on your tax bracket you are spending a dollar to save 15 to 25 cents (on average). The same goes for charitable contributions. If you usually make cash donations to charity or are feeling generous, great go ahead and make those donations and definitely take any corresponding tax benefit that applies. But don’t donate money you can’t afford to save on your tax bill. It’s a false economy.

Learning to spend mindfully is an excellent habit to cultivate and it will reward you in the long term.

Owe the IRS? Don’t believe those radio and television ads.

You’ve heard them. I’ve heard them. We’ve all heard them. Those exciting sounding ads that have someone shouting about how they can resolve your tax bill for “pennies on the dollar.” They make it sound like they have special expertise, a private hotline to the IRS, and magical powers that make them uniquely qualified and capable of handling IRS accounts that have gone into collections. It’s just not true. The process they are describing is called “Offer in Compromise” or OIC.

Offers in compromise are just one of the many different ways the #IRS has to collect on tax debts and they are one of the hardest to obtain. Once your account goes into collections the IRS may place liens on your assets (home, bank accounts, etc.) that can prevent you from selling those assets even to pay your bill. It can also issue a levy where it takes away your property and/or garnish your wages. But, like most things with the IRS, the collections process is formal and slow. You have many options and quite a bit of time from the time you receive your initial tax assessment until the time the IRS starts taking your property and you have options available that are not as complex, not as expensive, and are much more likely to be granted than requesting an OIC. Maybe you ignored the problem hoping it will go away—it won’t. Congress has recently allowed the IRS to once again use private debt collection agencies to attempt to collect back taxes from individuals in collections. So, while the IRS won’t call you about your overdue taxes you can be sure that if your case is sent to a private collections agency you will be getting called.

Rather than panicking and falling prey to scammers (not all collection calls are legitimate) or calling one of these expensive, predatory firms you’re hearing on TV or radio, call an #EnrolledAgent. This article from Forbes discusses how the predatory firms work (or don’t work), but it really doesn’t understand or explain what an Enrolled Agent can do. EAs can handle more that just “routine” matters before the IRS. No, they cannot litigate in U.S. District Court or Tax Court (neither can CPAs) but many of the EAs I know have been trained and continue to take CPE in how to represent taxpayers in IRS examinations, collections, and appeals. In many cases they can be more knowledgeable about IRS procedure than an attorney. Attorneys know the law. They are trained to litigate. Few are trained in IRS procedure the way that EAs who specialize in representation, not return preparation, are trained (some EAs are excellent at both “prep” and “rep”). The article also does not mention US Tax Court Practitioners. These are individuals who are not admitted to the bar but who have been specifically trained and passed a grueling exam so that they can represent taxpayers in Tax Court (not District Court). Always consider an EA who does representation as an excellent option to resolve your tax collection issues and a USTCP if you are headed to Tax Court.

Need help now? Find an EA here.

About that Executive Order and Obamacare…

The National Center for Professional Education provided one of the clearest explanations regarding ACA compliance and the recent Executive Order:

The instructions for individual taxpayers involving the ACA has been to indicate on their Form 1040 filing whether they had health insurance, an exemption from coverage or made a shared responsibility payment. In recent years, tax returns silent in that regard were still processed.This year the IRS put in place system changes that would reject tax returns during processing in instances where the taxpayer didn’t provide that information.

The recent Executive Order directed federal agencies to exercise authority and discretion available to them to educe potential burden.  Consistent with that, the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status.

However, legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayer remain required to follow the law and pay what they may owe.

Processing silent returns means that taxpayer returns are not systemically rejected, allowing them to be processed and minimizing burden on taxpayers, including those expecting a refund  When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed.

As an #EnrolledAgent I must comply both with U.S. Treasury Circular 230 and with existing law. The recent Executive Order does not change existing law. So, while the IRS may process returns that are silent on (do not answer) the healthcare coverage question, I cannot legally file a return that does not answer the question. If I am preparing your return, I will be asking for proof of healthcare coverage for all members of the household and calculating the Shared Responsibility Payment as necessary.

Tax Problems? It could be worse, you could be Johnny Depp…

Or Billy Joel, or Wesley Snipes, or Willie Nelson, or…let’s face it, the list gets long fast. So many celebrities, professional athletes, and others making what seems a lot of money to “average” taxpayers get into financial or tax trouble. It’s true that the more you make, the more complicated your personal finances and your tax returns become. Sometimes they get so complicated that, I think, people simply give up even trying to understand what’s going on or what they are signing and the next thing you know you’re seeing articles like this one about Johnny Depp in the New York Times. Johnny undoubtedly pays his financial people well for managing his money and preparing his tax returns. And, in my opinion, there’s enough blame to go around on both sides of this issue.

My stance on your tax returns is this: You may forget it by the time you’ve gotten off the elevator, but when you sign your return you will understand what you are signing.

And you can always call and ask me to explain something again. If you are paying a #taxpro, that person should take the time to work with you until you understand what is on your annual tax return before you sign it. You may not need a long appointment every year if your tax situation hasn’t changed much, but if it has and you want to know why and how it affected your tax return I encourage you to ask. Most #taxpros love to educate taxpayers on how our tax system works (or “works”). The level of explanation and understanding a qualified professional can provide is one thing you are paying for when you choose to hire a professional instead of using DIY software. So always choose carefully and know what you’re signing.

New Client Question: “Do you file married filing joint returns for same sex couples?”

Absolutely. Married filing joint returns can and will be filed for any couples who are legally married (same or different sex). The Gray Agency does not discriminate on the basis of anything: race, religion, sexual orientation, gender, income level, political affiliation. Nothing. The only returns we refuse to file are those for people who refuse to provide accurate information and/or payment. We welcome your business and are happily accepting new clients.

New Client Question: “How much do you charge?”

My post on choosing a #taxpro mentions that price should not normally be one of your top five questions. Still, I recognize that people want to have at least some idea of what they will be charged for return preparation. The problem is that it is extremely difficult to estimate charges without at least seeing last year’s return. My fees are based on a set price for a Form 1040 and then an additional fee for each additional form or schedule required. If I don’t know the forms and schedules you will need, it is hard to give an accurate estimate. Even if I have last year’s return to make a more accurate estimate, changes in your tax situation or in, for example, IRS due diligence requirements for certain tax credits means that you may need to file forms that weren’t necessary last year. Occasionally your tax situation changes in your favor and forms that were required the previous year (maybe you were able to itemize deductions or maybe you had some capital gains or losses) aren’t required this year.

My last post mentioned a 4+ hour trip “down the rabbit hole” doing due diligence for a client with a political campaign. Preparing an accurate return and working to ensure that you are in tax compliance (that is actively working to prevent ‘nasty surprises’) sometimes means that estimates (no matter how carefully they are created) don’t always conform to the reality of a given situation. The longer you work with your chosen #taxpro the easier it is to get an accurate estimate. I encourage my clients to call during the year with questions. A certain amount of basic Q&A is built into the cost of your tax return preparation fee and if your questions get more complicated, I will always warn you that you are straying into “billable hours” territory before we proceed. Usually if we stray into that territory I will ask you to make an appointment to come in for a consultation that is billed at an hourly rate.

If you landed here simply wondering how much The Gray Agency charges for return preparation, please call one of the offices for more information. I can assure you that we work hard to keep our prices within the average in the areas we’re serving (Albuquerque, NM and Nye County, NV) and that we are committed to providing value for your return preparation dollar.

Remember, the lowest bidder is not always your best option. When choosing a #taxpro, choose wisely, choose well.

Running for Office? Consult A #TaxPro First! 1

The latest in the “There are no ‘quick questions'” files. A client calls to ask if he needs to provide a 1099 to his campaign manager. He ran a political campaign and paid her “out of his personal funds.” Now, on the surface it looks like the answer to that question would be “no” because individuals are not required to issue 1099s. Businesses, however, are and this political campaign had an EIN and its own bank account. The candidate’s “personal funds” were actually contributions he made to his campaign. So now the answer is “yes.” Easy, right? Well, if the personal funds had been paid back they could have been considered loans and we’re back to “no.” And a good #taxpro will also work to keep you in compliance in general so more due diligence was required. Four or more hours down the rabbit hole later I found the following potential filing requirements:

  • IRS Form 8871 (required for tax exempt status if the gross income for the campaign reached over $25K)
  • IRS Form 8872 (required if you are running for a federal office OR if you are not reporting your state/local campaign income and expenses to your state authorities)
  • Form 1120-POL (may be required for certain types of non-exempt campaign income that exceeds $100)
  • Form 990-N, 990-EZ, or 990 (tax return for tax exempt organizations all with different filing thresholds and requirements and which are just slightly different if your tax exempt organization is a political organization)

Lucky for me and my client, his campaign was fairly small and many of the forms that might have needed to be filed didn’t need to be filed (just the 1099 and the 8871). I did give him and his campaign treasurer a heads up on the applicable thresholds and filing requirements and told them that if things “started to get big or gain a lot of momentum” to be sure to contact me so we can stay up to date with all of the requirements and necessary bookkeeping.

Your campaign may be small and you may think it’s not a big deal, but the tax consequences can be hefty for non-compliance. Better safe than sorry! Consult your #taxpro and stay safe.