Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Feb 20

    For various liability issues, I’m loathe to actually mention this company by name, but let’s say for the purposes of this conversation that there’s a big, popular company which made its fortune on the backs of lower income taxpayers called H&P Black (a name picked completely at random). This company floods the airwaves each winter with a program offering free tax preparation.

    Maybe you’ve heard about it? Well, like many such things, there are, shall we say… strings.

    First of all, here are the restrictions: it only covers those filing the 1040EZ federal form, which covers only the simplest tax issues. It can’t be used by anyone who has dependents, makes more than $100,000 per year, is age 65 or older, claims adjustments to income like alimony or tuition deductions, or itemizes deductions. Thus homeowners who deduct mortgage interest or people with large charitable contributions can’t use the 1040EZ.

    Plus, filers have to pay fees for state preparation and other fees incurred — which have a tendency to pile up.

    Asked by stock investors why [said company] was doing this, an executive replied: “Our ability to monetize this program means a minimal impact on our net average charge,” [said company] Retail Tax President Mazzini told analysts prior to the program’s roll out.

    It’s always enlightening to look at executive interactions with stock analyst to see why public companies do what they do, I found.

    So — in summary: don’t be seduced by the siren call of getting something for nothing. You usually end up paying for it, in a whole host of ways.

    In fact, one of our revenue centers over the years has always been in fixing the mistakes made by these big box retail tax outfits and off-the-shelf software programs, and discovering loads of missed opportunities and overpayments.

    Because, speaking of software: do you remember when our former Treasury Secretary used the leading tax software to do his taxes, unintentionally created a bunch of errors with it, and then blamed it for all of his tax problems in front of the Senate? Not an uncommon issue, I’m afraid.

    The old adage is an adage because it’s so often true: you get what you pay for. It’s the foundation for a stable economic system because it is almost always true.

  • Feb 7

    Q: What’s my tax liability in a foreclosure?

    A: When you borrow money it’s not a taxable event because it’s assumed you’ll pay it back. But with most types of debt relief, you have income because it’s an enhancement to your balance sheet. That’s true even if you never actually received any cash. The IRS considers any forgiven debt of more than $600 as taxable income.

    There are some exceptions however:

    1. a discharge of debt in a bankruptcy proceeding under Title 11;
    2. a discharge when you are insolvent outside of bankruptcy;
    3. a discharge of qualified farm indebtedness;
    4. a discharge of qualified real property business indebtedness, and
    5. a discharge of qualified principal residence indebtedness before January 1, 2014.

    Note the date in number five above. Since January 1, 2007 there has been an exception for qualified principal residence indebtedness. Taxpayers did not have to recognize income from the discharge of that debt. However, that’s now gone away. Assuming, of course, Congress doesn’t change the law retroactively.

    Think of it this way: John ran up $15,000 in credit card debt but he settles the debt for $10,000. If the lender is unable to collect the remaining debt and writes it off as a loss, then John should expect to pay taxes on the $5,000 of the debt that was forgiven. The IRS considers that $5,000 of debt relief as a windfall because you used that money to buy stuff, like clothes, dinners at restaurants, a new bike, and you no longer have the obligation to pay it back.

    Be on the lookout for a Form 1099C. If you had debt relief, it’s an important tax document and should be reported on your tax return for the year in which the debt was forgiven.

    Many people don’t realize they have to report it, just don’t think about it, or they ignore the form and just toss it out.

    You also need to make sure the Form 1099C is correct. Nina Olson, head of the IRS’s Office of the Taxpayer Advocate, has warned Congress that financial institutions have issued 1099Cs for debts they haven’t even tried to collect for some time. Beware, taxpayers have been known to receive duplicate 1099Cs for the same debt and have found it difficult to reconcile with the IRS, according to Ms. Olson.

    Do you have a question for the Taxpert that you’d like to see answered in a future Taxing Times? Or perhaps just an issue you’d like the Taxpert to address? Send the Taxpert a note to Taxing Times, 1050 Hillcrest Rd., Ste A, Mobile, AL 36695 or an email to: taxpert.zl@comcast.net.