Personal Finance Tips and Info

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.

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.

Time to prepare your 2016 tax return! DIY or #TaxPro?

Three things usually come to mind when people start to think about doing their taxes: using TurboTax, hiring a CPA, or walking into a big franchise that does a lot of advertising. All of those are perfectly viable solutions, but there are other options. You should choose the option that best meets your needs.

Do It Yourself With Software: Whether you choose a package like TurboTax or file online for free through the IRS website, this option will work for you if you have a basic understanding of what needs to be done and if your tax situation is relatively uncomplicated. When I say “relatively uncomplicated” I mean that you are a W2 employee with a minimal number (or no) itemized deductions and only basic banking and investment accounts. Of course, the requirements of the Affordable Care Act (a.k.a. Obamacare) add a level of complexity for anyone who doesn’t have Medicare or employer-provided coverage for everyone in the household. If you changed jobs, had a gap in coverage, or received the Premium Tax Credit, you still may want to consult a tax professional even if the rest of your return is fairly simple.

Pay a Professional: If you own your own business, have a rental property, have brokerage accounts that are not retirement accounts, are eligible for the Earned Income Tax Credit, have higher education expenses, have income in more than one state, or any number of other “complicating factors” it may be in your best interests to consult a #taxpro. I know that the tax software companies want you to believe you can have a rental property or own your own business and still do your taxes yourself, and maybe you can, but the consequences of failure are relatively high so maybe you don’t want to. If you decide you don’t want to it’s important to realize you have more options than a CPA or a Tax Attorney. You can choose an Enrolled Agent or what is known as an “unenrolled preparer.” Click here for more information on the different types of #taxpros.

5 Questions to Ask Your #Taxpro

If you have never used a #taxpro before, or if you usually walk in to a tax preparation chain, or even if you are thinking about changing preparers, you need to remember that the person who prepares your tax return has access to your entire financial identity. You need to be sure the person you are using to prepare your taxes meets your needs and your expectations. Before making your final decision ask each potential preparer the following questions:

  1. What are your credentials? (CPA, Attorney, EA, Annual Filing Season Program Completion, etc.) Read this earlier post to find out what all those letters mean. You might also ask about professional affiliations. Is the practitioner a member of the NATP, NAEA, AICPA, etc? While membership in professional organizations does not necessarily indicate competence, it may indicate a certain level of seriousness about the profession.
  2. How much continuing education do you normally do each year? Each credential comes with its own requirements. Note that CPA and Attorney continuing education requirements do not necessarily have to be in tax matters while those for Enrolled Agents and the AFSP are specific to tax matters and professional ethics. In my opinion 15 hours of continuing tax education each year is the bare minimum for maintaining professional competence. As an EA, I am required to get 72 hours of continuing education every three years (so 24 hours per year on average). I usually get 50-100 hours of CPE per year.
  3. How long have you been preparing returns and how many returns do you prepare each year? Experience isn’t always required, but it is helpful. I was talking to someone recently who said that she had a former IRS employee interested in buying her tax practice. She said that during her first conversation with him it came up that he had never actually prepared a tax return. Depending on the complexity of your return, that could be important. The number of returns prepared per year speaks both to the preparer’s experience and to his or her availability. My personal opinion is that even with outstanding office processes and a certain amount of support staff it is difficult for any one preparer to handle more than 200 or so returns per year (at least during the ‘tax season’ proper part of the year, if a percentage are put on extension that means more can be processed). If a preparer is part of a larger office where interviews and data entry and other tasks are handled by support staff the number of returns per year could be larger (even much larger). This is a judgment area for you. How much personal interaction do you need/want with your preparer? Are you willing to pay more for more/better access (some preparers offer ‘concierge’ service for a premium)? The answer to those questions may help you to determine if your potential preparer is right for you.
  4. How much experience do you have with my type of return? If you have rental properties; live abroad; are clergy; are in the military; have income from multiple partnerships, trusts, etc.; or if the return is a business entity return (or any number of other highly-specialized situations) it is important that your preparer have experience with that type of return. People who routinely work in multiple states (truck drivers, pilots, flight attendants) need specialized support as do farmers, ranchers, and professional fishers. It’s OK to go with someone who has only limited experience, but you should be comfortable with their ability and willingness to research the necessary issues (which is one reason why that continuing education question is so important). For example, I recently declined a potential client because I don’t generally do returns for retail businesses (the business return side of my practice focuses more on the needs of freelance professionals and personal service providers).
  5. How will you protect my information? Don’t expect an extremely detailed explanation, but your preparer should have computer security policies in place (firewall, malware protection, and update schedules are the bare minimum). In addition to computer security policies, the preparer should also have policies on staff training (if applicable) and physical protection of your information (how paper files, laptop and desktop computers, and backup media are secured). Finally, you should ask about their data storage and backup plans. This post contains a few more specific questions related to computer security. Again, don’t expect specifics, just enough information to ensure that your data is reasonably protected from being damaged, lost, or stolen.

Notice that not one of these questions is “How much do you charge?” Preparer fees exist on a continuum and those competing on price alone are rarely your best option. Cost is always a concern and, as someone who also does personal finance consulting, I would be remiss if I told you to simply throw caution to the wind and to hire whomever you want. Many preparers can and will give you an estimate based on prior year’s tax returns if the current year’s return is expected to be similar. When evaluating cost consider the preparer’s credentials and continuing education (those are expensive to maintain), the office overhead (support staff and large offices are obviously more expensive to maintain than a lone preparer working out of a home office), and level of service provided (can they represent you, are they in the office all year, etc.). As with all financial decisions trade-offs exist. Find the preparer that best meets all of your needs and realize that may not be the lowest cost option. Of course it is important to remember that higher price is not a guarantee of quality service. Choose wisely, choose well.

Phishing Scams—Not Just Fake IRS Calls

The latest is an e-mail that pretend to be from the Social Security Administration. This article provides more information about the scam, how to protect yourself, and where to report phishing e-mails. I tell clients all the time that the scammers are getting increasingly sophisticated and the e-mails are looking increasingly authentic. To protect yourself, never (NEVER!) click a link that is in an e-mail. Use your internet browser to browse to the appropriate website (,, etc.) and then use the keyword search or the menus on the website if you want to verify or update your information.

Cancer survivor gets $19,000 tax bill for GoFundMe donations | TaxPro Info

Source: Cancer survivor gets $19,000 tax bill for GoFundMe donations | TaxPro Info

Charitable donations. One of my favorite tax topics ever. The single most important thing to remember is that if you take the standard deduction as opposed to itemizing, you cannot deduct your charitable contributions. The second most important thing to remember is that your donation must be to a 501(c)(3) charitable organization (and they will almost always give you proper receipt or acknowledgment letter).

This article shows, however, that there are financial issues for the recipients as well as the donors in certain circumstances. The income you get from your most worthy GoFundMe or KickStarter campaign is considered taxable income by the IRS.