Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Oct 29

    IRS Announces Plan to Crack Down on Unlicensed Tax Return Preparers Not Already Subject to Oversight

    Each year thousands of tax preparers come and go. The large volume stores typically train a new batch of part-time tax preparers to man their store-fronts or kiosks each filing season. Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.

    The IRS kicked off 2010 by releasing, in early January, the results of a landmark study that proposes new registration, competency testing and continuing education of unlicensed tax preparers. Licensed tax preparers such as CPAs, attorneys, and enrolled agents are already subject to these requirements by their states. The goal, according to the IRS, is to significantly enhance protections and service for taxpayers by raising the standards within the tax preparer community.

    “The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers,” said IRS Commissioner Doug Shulman. “Our proposals will help ensure taxpayers receive competent, ethical services from qualified professionals and strengthen the integrity of the nation’s tax system.” Taxpayers are ultimately responsible for what is on their tax returns and “should protect themselves from unscrupulous preparers.”

    Based on the study results, the IRS plans to:

    • Subject unlicensed preparers to a limited tax compliance check to ensure they have filed required returns and paid all the appropriate personal and business taxes.
    • Require competency tests for all unlicensed paid tax return preparers.
    • Require ongoing continuing professional education for all unlicensed preparers.
    • Extend the ethics rules which apply to CPAs, attorneys and enrolled agents to all paid preparers.

    The IRS expects to implement these plans over future filing seasons, but they are already taking action to step up oversight of preparers this year. Approximately 10,000 paid tax return preparers have received letters from the IRS reminding them to be vigilant in areas where errors are frequently found, including Schedule C income and expenses, Schedule A deductions, the Earned Income Credit and the First Time Homebuyers Credit. Revenue Agents from the IRS will be following up those letters with visits. 

    During this effort, the IRS announced, it will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate.

  • Oct 22

    Some job seeking expenses can be tax deductible. A taxpayer can only deduct related job seeking expenses if you are looking for a job in the same occupation as before or that you are presently employed. One can deduct employment and outplacement agency fees that you may pay while seeking a new job in the same field; however, if these fees are paid back by the employer in a later year, the amount must be recorded as gross income in the year you received it. You can deduct the price of preparing and mailing copies of resumes to prospective employers if it’s in the same type of occupation. When or if you have to travel to look for a new job in the same/prior occupation, as long as the trip is primarily for finding a new job, expenses can be deductible. You cannot deduct job seeking expenses if there is a substantial break between your last job and the time you begin looking for a new job. If a taxpayer is seeking a job for the first time, you cannot deduct job seeking expenses.

  • Oct 15

    High-income taxpayers will be hit with two big tax hikes under the recently enacted health overhaul legislation: a tax increase on wages and a new levy on investments.

    To help offset the cost of providing health insurance to millions of Americans, the new law imposes an additional 0.9% Medicare tax on wages above $200,000 for individuals and $250,000 for married couples filing jointly. In addition, for higher-income households, the new law adds a 3.8% tax on unearned income, including interest, dividends, capital gains and other investment income.

    Higher Medicare tax on wages and self-employment income. The Medicare tax is the primary source of financing for Medicare’s hospital insurance trust fund, which pays hospital bills for beneficiaries who are 65 and older or disabled.

    Under current law, wages are subject to a 2.9% Medicare tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes).

    Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker’s wages without limit.

    Under the provisions of the new law, which take effect in 2013, most taxpayers will continue to pay the 1.45% Medicare tax, but single people earning more than $200,000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over those thresholds.

    It should be noted that the $200,000/$250,000 thresholds aren’t indexed for inflation, so it is likely that more and more people will be subject to the higher tax in coming years.

    Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. However, companies won’t be responsible for determining whether a worker’s combined income with his or her spouse made them subject to the tax.

    Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Married couples with combined incomes approaching $250,000 will have to keep tabs on both spouses’ pay to avoid an unexpected tax bill.

    Medicare tax extended to investments. Under current law, the Medicare tax only applies to wages and self-employment income. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000 (unindexed).

    Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by the deductions that are allocable to that income. However, the new tax won’t apply to income in tax-deferred retirement accounts such as 401(k) plans.

    Because the new tax on investment income won’t take effect for three years, that leaves more time for Congress and the IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax actually takes hold in 2013.

  • Oct 11

    It’s been said that most people know between two and three hundred people. Isn’t that plenty for a network? A major key to building a powerful business network is diversity. Yet, it’s natural for us to be attracted to people much like ourselves. We tend to hang out with others in our age group, our income, our social status. People with our interests. The problem is that when you surround yourself with similar contacts, you may find it hard to connect with new people or companies you want to do business with. The more diverse your business network,  the more different groups you might have connections into. Linchpins that link people together in ways you never would have thought about. When it comes to business networking, you never know who people know.

    In “The 29% Solution” Dr. Ivan Misner talks about one of the most profitable referrals BNI has ever seen. It was passed by—are you ready for this—a Mary Kay consultant! It seems the Mary Kay consultant was giving a facial at a woman’s home in West Los Angeles. As the consultant worked, the customer’s husband walked by several times with a sheet of paper, grumbling and cursing under his breath. Finally his wife asked, “What’s wrong honey?”

    The husband said, “I gotta fire this graphic design outfit. They’re doing a horrible job. The problem is, I need someone to take over the project quickly.”

    Hearing this, the Mary Kay consultant turned to the woman’s husband and said, “Gee, I know a great graphic designer. I think I have his card right here.” She opened her business card file, “I’m going to see him tomorrow morning. Would you like me to give him your card and have him call you?”

    “Absolutely!, “ replied the husband.

    The Mary Kay consultant made the connection and the graphic designer got the job. Here’s the kicker: the husband was a movie producer. The graphic design work was for a new movie. The referral turned into a six-figure contract, and the designer did such a great job that he got the producer’s next movie project as well.

    The moral here, is that you never know who “they” know.

    If you wish to build a powerful business network, you’ll need to build one that includes people who don’t look like you, sound like you, speak like you, or share your background, education or history. The only thing they should have in common with you is that they should be really good at what they do. Create a network like that, and you’ll have a network that can help you succeed at anything.

  • Oct 1

    In 2012, businesses will be required to include the value of health care benefits they provide to employees on W-2s, beginning with W-2s for 2011. The set of forms going out in 2012 will reflect coverage provided in 2011.

    Obviously, this will require employers to work with their insurers and, for self-insured plans, with their third-party administrators (TPA). Regardless of the entity that ultimately provides the health care insurance, the employer has the responsibility to make sure that the documentation is accurate.

    Although the new rule applies for employees’ tax years beginning after December 31, 2010, payroll systems will need to be updated for this change by January 2011, meaning that this issue must be addressed in 2010. This deadline must operate because employees are entitled to request their Form W-2s early if they terminate employment during the year.

    While it is expected that most Form W-2s for 2011 will be issued in January 2012, Form W-2s reflecting the new health insurance information must be available no later than February 1, 2011, in the event a terminating employee requests one.

    There’s been a lot of talk, especially on the Internet and via email blasts, that once the value of employer paid health coverage begins showing up on the Form W-2 that the currently tax-free benefit will become taxable to the employee. Some fear the taxability begins immediately, others worry that the reporting is the precursor to the benefits being taxable in the future.

    There’s no way to predict what Congress will do in the future, but as of right now, health insurance benefits will not become taxable when the value is reported on the W-2 nor is there any law, rule or regulation currently on the books which would make them taxable in the future.

    So what’s the deal? Starting in 2016, you’ll be subject to additional tax if your health insurance premiums exceed $10, 200 per year for employee-only coverage, or more than $27,500 per year for a family plan. Oh, and would you believe, Congress actually had the foresight to index these thresholds for inflation?