Tax Tips and Info


Tax Exempt Organization Does Not Always Equal Tax Deductible Contribution

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I saw this sign as I was driving home a few weeks ago and thought “Yikes!” Your neighborhood association dues, homeowners association dues, and many other payments or contributions to tax exempt organizations are not tax deductible. For a donation to be tax deductible it must be made to a recognized 501(c)(3) charitable organization. If you make your donation by cash or check those organizations will almost always provide you with a letter that acknowledges the contribution. If you received goods and/or services in return for the donation, the amount of goods or services will also be noted on the letter. You can only deduct the amount in excess of the goods or services received. Raffle tickets and purchases of auction items are also not deductible, no matter how worthy the cause. You also may not deduct contributions made to individuals (via gofundme or other types of crowdfunding) or contributions made to charitable organizations outside the U.S. (again, to be deductible the organization must be a 501(c)(3)).

Also please remember that if you take the standard deduction (you do not itemize your deductions on Schedule A) you cannot deduct your charitable contributions. Donate if you want to, but don’t ever make a donation just to save money on taxes. Your donation may not be deductible and, as I mentioned in this post, it is not a dollar for dollar savings.

If you have tax questions it’s always better to ask your #taxpro than to trust what you hear or read. Sometimes even trustworthy sources provide bad information!


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.


Why We Are Not “While you Wait” #TaxPros

The complexity of the tax code and the uniqueness of each client’s circumstances are why I don’t prepare your tax return while you are in the office. If I had a quarter for every time someone called with a “quick question” or said “my taxes are really simple” I could probably retire (not that I want to). If you’ve ever called me with a “quick question” you’ll know that most of the time my answer is either “Off the top of my head I’d say this, but let me do some more checking and call you back.” or “I’ll have to run the numbers and call you back.” Truth is, in general, there are no quick questions. The tax code is complex and highly dependent on individual facts and circumstances—not to mention actual numbers. Just because a friend or relative or neighbor got this or that credit or deduction doesn’t necessarily mean that you get that credit or deduction too. Even if you think you are in similar financial circumstances you may not be. It never hurts to ask of course and our offices welcome your questions, but we may not always be able to give the answer you are hoping to or expect to receive.

When it comes to answering your questions and preparing your tax return, I like to ensure that we have a chance to enter all the data; review the numbers, your situation from last year, any new information, and this year’s return; and prepare a list of our own questions if necessary. To do this requires a great deal of focus and, I’ll admit, I just don’t have the focus I need when I have an audience (and neither does Anna). On more complex returns we like to set the return aside and review it a day or two later just to make sure we have thoroughly considered all of the circumstances and haven’t missed anything. We also like to spend some time just talking with you each year and maybe planning for next year and it’s easier to do that when we’re not trying to work at the same time. That’s why we offer you an appointment to come in and review your return and sign it. Of course if you would rather skip the appointment (and the chitchat) that’s OK too. Occasionally, Anna (in the Tonopah office) will do a “while you wait” return for a returning client with an extremely simple 1040 or a 1040-EZ, but that is the exception, not the rule, and it is solely at her discretion.

Returns prepared in the office must be mailed in, uploaded, or dropped off at the office. If you are a returning client and would like some time to review the information in the organizer when you bring it in (or after we have received it) we can consult with you in the office for an additional charge. New clients are asked to come in for a (free) intake interview for identity verification and a brief document review. All clients should be aware that there are many questions I cannot answer until I have had a chance to enter the data into my software and review the results.

As always, our goal when preparing your tax returns is to give you the highest quality service while maintaining reasonable prices. Our office processes and policies help us to do that. We are committed to building long-term relationships with our tax clients and appreciate your business and your referrals. I’d like to take this opportunity to thank you for your business in past years and for coming to us in the 2017 filing season.


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.