Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Jul 21

    NOTICE OF INTENT TO LEVY.

    Admittedly, it’s an intention-grabbing way to start a letter, especially when the return address says Internal Revenue Service. And grab Greg’s attention, it did.

    The Athens, Georgia, veteran said the notice, which arrived earlier this year, cited taxes on three months of income he had failed to include on his 2013 tax return – and this was the first he’d heard of it.

    After leaving the military, then 27-year-old Greg, had taken a job in information technology. “I guess when I filled out my taxes for 2013 I messed something up, so I didn’t get my private sector job included into the taxes owed,” he said. Now he owed the IRS more than $1,700.

    The IRS doesn’t keep track of how many millennials incur tax debt, but a survey by NerdWallet found that they are more afraid of filing their taxes than any other generation. 80% of millennials, defined by the survey as 18 to 34-year-olds, fear they will make a mistake, underpaying or overpaying.

    Millennials are generally financially inexperienced and, increasingly, part of a gig economy—driving for Uber, YouTube ad sales,–that requires more care with their taxes than some are able, or willing, to take. For example, people who work in contract jobs typically don’t have any taxes withheld and need to set up estimated tax payments on their own.

    While 38% of all taxpayers will seek help from a tax pro, fewer than 10% of millennials go to the IRS when they have a tax question, and only about a quarter seek help from a tax professional, the survey found. Instead, they tend to turn to a largely unreliable, if well-meaning, group—friends and family. Millennial taxpayers in particular bemoan the long wait times on the phone with the IRS and the agency’s weird penchant for mail (like, so yesterday).

    If the multiple letters from the IRS urging debtors to set up payment plans are ignored, the IRS will use its resources to grab whatever resources debtors have. If you don’t contact them, the IRS will take action to collect the taxes.

    Someone facing a tax bill that can’t pay can usually set up a payment agreement online. No contact with the IRS necessary.

  • Apr 1

    Each year, more than 26 million people – about 1 in 6 – show a balance due on their tax return. Many of those people can’t pay the amount due all at once. Here are 15 things you need to know about IRS collections before and after you file.

    1. File the return before the due date. I know it may not seem like the thing to do – after all, why tell the IRS you owe them money before you can pay it? It’s tempting to ignore the problem and just not file. But that would only make matters worse. Not filing can mean a very expensive failure-to-file penalty that can add 25% to the balance due. Remember also, an extension is an extension of the time to file, NOT an extension of the time to pay.
    2. The IRS has 10 years to collect. The law grants the IRS a 10-year statute of limitations to collect taxes. For this reason, they are reluctant to agree to payment arrangements that don’t pay the tax owed during that time, or, if they do, are going to require detailed financial statements and other documentation to prove you don’t have the assets or income to pay the debt.
    3. Set up a payment agreement with the IRS. Depending on the circumstances, the IRS can and will file a tax lien to collect money you owe but haven’t paid. The only way to avoid this enforced collection action is to get a payment agreement in place.
    4. There are options available. There are several types of payment agreements with the IRS. The installment agreement is the most common, but it’s also possible to get an extension of up to 120 days just for the asking. In hardship situations, (as determined by the IRS) the IRS may defer collection of your balance under their “currently not collectible” program, or, in rarer circumstances, settle your debt for less than the amount you owe (called an Offer in Compromise).
    5. Most agreements can be made online at IRS.gov. There have been improvements to the online payment arrangement tools at www.IRS.gov. In fact, usage quadrupled in 2015 over 2014. That’s probably because it’s a whole lot easier, and quicker, to do it online than waiting on the phone, or heaven forbid, the U.S. mail.
    6. Some agreements come with a federal tax lien. Extensions to pay and installment agreements are, if set up before the IRS begins collection activity, a sure-fire way to avoid a tax lien. However, if you owe more than $50,000 or you owe more than $410,000 and can’t pay within six years, the IRS will usually file a tax lien. Once the balance is paid off, you can have the lien removed.
    7. You must file all required returns to establish an IRS agreement. Before the IRS enters into an agreement it will require all tax returns for the past six years to be filed. You won’t get one without it.
    8. Use the streamlined installment agreement to get the best terms. The streamlined installment agreement usually comes with the best terms. With balances less than $50,000, you can make equal monthly payments for up to 72 months. If you owe more than that, the IRS will determine the payment based on your income and IRS-allowed expenses. This can create a much higher monthly payment.
    9. Set up direct debit to avoid default. Missed payments result in ugly letters from the IRS, additional fees to reinstate the installment agreement, or, worst case scenario, the installment agreement becoming immediately due and payable. Taxpayers who pay by check are three times more likely to default on their agreement. Direct debit agreements also have a lower set up fee, $52 versus the $120 fee for payment by check.
    10. Avoid defaulting on the agreement. Default can occur when you have a balance due the next year that you don’t have the money to pay. This often occurs because the taxpayer hasn’t made the necessary estimated tax payments or need to increase their withholding. The IRS will charge you a $50 reinstatement fee.
    11. You won’t get any refunds until the balance is paid in full. The IRS will always take any future overpayments and apply them to the installment agreement. Enough said?
    12. Interest and penalties continue as long as the agreement is in place. The IRS currently charges a 3% interest rate on underpayments. Even with an installment agreement, the failure-to-pay penalty is 0.25% per month, or 3% per year. So, in addition to the set up fee, the cost of an installment agreement is about 6% of the balance owed per year.
    13. Don’t forget to request penalty abatement. Failure-to-pay penalties have continued to accrue for the life of the installment agreement. Towards the end of the agreement, if you have a clean three-year compliance history, you can use the first-time abatement procedures to request a forgiveness of the penalties paid for one tax period.
    14. No agreement may mean no passport. Congress passed a law in late 2015 that allows the U. S. State Department to revoke or deny passports to those who owe more than $50,000 to the IRS, and are not in a payment agreement.
    15. An offer-in-compromise may be possible in desperate circumstances. Offers-in-compromise are an over publicized by late night TV arrangement where the IRS forgives some portion of your tax debt. In my experience, they loathe to do it. Their first position is always that you have some assets you can sell, or you have the ability to earn some money in the future that belongs to them. Nevertheless, if you are one of the unfortunate, rare individuals that fit the IRS criteria, you shouldn’t ignore this avenue.

    It’s not unusual for a taxpayer to file and owe. If you owe the IRS and can’t pay, you can look to us for help.

  • Feb 19

    Like Bama’s win over Clemson – you expected it to happen, but they waited until the last minute to make it happen – Congress has once again extended the “extenders”- a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax saving laws which have been on the books for years, but which technically are temporary because they have a specific end date. This package of tax breaks has repeatedly been temporarily extended for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.”

    Most of the tax breaks expired at the end of 2014. Now, in legislation passed just before the Congressional Christmas break, the extenders have been revived and extended once again, but this time Congress has taken a new tack. Instead of just rolling the package of provisions over for a year or two, it actually made some of the provisions permanent and extended the remaining provisions for either two or five years, while making significant modifications to several of the provisions.

    Key tax breaks for individuals that were made permanent by the new law include:

    • Tax credits for low to middle income earners that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2017: (1) the American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post secondary education, (2) eased rules for qualifying for the refundable child credit, and (3) various earned income tax credit (EITC) changes;
    • the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom; also modified, beginning in 2016, to index the $250 to inflation and include professional development expenses;
    • parity for the exclusions for employer-provided mass transit and parking benefits;
    • the option to take an itemized deduction for state and local general sales taxes instead of the itemized deduction permitted for state and local income taxes;
    • increased contribution limits and carry forward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes; the new law also extends the enhanced deduction for certain farmers and ranchers; and,
    • the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 ½ or older.

    Key tax breaks for individuals that were extended by the new law include:

    • the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; extended through 2016; the new law also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a binding written agreement entered into in 2016;
    • the credit for energy-efficient improvements to principal residence extended through 2016;
    • the deduction for mortgage insurance premiums deductible as qualified residence interest; extended through 2016; and
    • the $4,000 above the line deduction for qualified tuition and related expenses; extended through 2016.

    Key tax breaks affecting businesses that were extended by the new law include:

    • The Work Opportunity Tax Credit was extended through 2019; the new law also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 50% of the first $6,000 of wages;
    • 15 year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements were made permanent;
    • 50% bonus depreciation was extended for property placed in service during 2015 through 2019; the 50% rate is phased down to 40% for property placed in service during 2018 and 30% for property placed in service during 2019;
    • previously increased first-year depreciation cap on trucks and vans not weighing over 6,000 lbs. has been extended through 2017; the increased first year depreciation is lowered for 2018 and 2019 and disappears in 2020; and
    • increase in Section 179 elective business expensing (up to $500,000 annual write-off of eligible business property costs that is phased out as those cost exceed $2 million for the year) is made permanent; also made permanent is the allowance of expensing for computer software and qualified real property.

    Caution: This article contains a general overview of selected tax provisions contained in the PATH Act and does not address all tax provisions contained in the Act. Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Please contact us if you’re interested in a tax topic that is not discussed in this article.

  • Dec 11

    Congress just changed the Social Security benefit rules. On October 30, Capitol Hill lawmakers approved a two-year federal budget deal. As part of that agreement, they authorized the most significant change to Social Security policy seen in this century, disallowing two popular strategies people have used to try and maximize retirement benefits.

    The file-and-suspend claiming strategy will soon be eliminated for married couples. It will be phased out within six months after the budget bill is signed into law by President Obama. The restricted application claiming tactic that has been so useful for divorcees will also sunset.

    This is aggravating news for people who have structured their retirement plans – and the very timing of their retirements – around these strategies.

    Until the phase-out period ends, couples can still file-and-suspend. The bottom line here is simply stated: if you have reached full retirement age (FRA) or will reach FRA in the next six months, your chance to file-and-suspend for full spousal benefits disappears in Spring of 2016.

    Spouses and children who currently get Social Security benefits based on the work record of a husband, wife, or parent who filed-and-suspended will still be able to receive those benefits.

    How exactly did the new federal budget deal get rid of these two claiming strategies? It made substantial revisions to Social Security’s rulebook.

    One, “deemed filing” will only be allowed after an individual’s full retirement age. Previously, it only applied before a person reached FRA. That effectively removes the restricted application claiming strategy, in which an individual could file for spousal benefits only at FRA while their own retirement benefit kept increasing.

    The restricted application claiming strategy will not disappear for everyone, however, because the language of the budget bill allows some seniors grandfather rights. Individuals who will be 62 or older as of December 31, 2015 will still have the option to file a restricted application for spousal benefits when they reach full retirement age (FRA) during the next four years.

    Widows and widowers can breathe a sigh of relief here, because deemed filing has no bearing on Social Security survivor benefits. A widowed person may still file a restricted application for survivor benefits while their own benefit accumulates delayed retirement credits.

    Two, the file-and-suspend option will soon only apply for individuals. A person will still be allowed to file for Social Security benefits and voluntarily suspend them to amass delayed retirement credits until age 70. This was actually the original definition of file-and-suspend.

    Married couples commonly use the file-and-suspend approach like so: the higher-earning spouse files for Social Security benefits at FRA, then suspends them, allowing the lower-earning spouse to take spousal benefits at his or her FRA while the higher-earning spouse stays in the workforce until 70. When the higher-earning spouse turns 70, he/she claims Social Security benefits made larger by delayed retirement credits while the other spouse trades spousal benefits for his/her own retirement benefits.

    No more. The new law says that beginning six months from now, no one may receive benefits based on anyone else’s work history while their own benefits are suspended. In addition, no one may “unsuspend” their suspended Social Security benefits to get a lump sum payment.

    To some lawmakers, file-and-suspend amounted to exploiting a loophole. Retirees disagreed, and a kind of cottage industry evolved around the strategy with articles, books, and seminars showing seniors how to generate larger retirement benefits. It was too good to last, perhaps. The White House has wanted to end the file-and-suspend option since 2014, when even Alicia Munnell, the director of the Center for Retirement Research at Boston College, wrote that “eliminating this option is an easy call … when to claim Social Security shouldn’t be a question of gamesmanship for those with the resources to figure out clever claiming strategies.”

    Gamesmanship or not, the employment of those strategies could make a significant financial difference for spouses. Lawrence Kotlikoff, the economist and PBS NewsHour columnist who has been a huge advocate of file-and-suspend, estimates that their absence could cause a middle-class retired couple to leave as much as $70,000 in Social Security income on the table.

    What should you do now? If you have been counting on using file-and-suspend or a restricted application strategy, it is time to review and maybe even reassess your retirement plan. Talk with a financial professional to discern how this affects your retirement planning picture.

  • Oct 30

    According to the article “Donald Trump’s tax plan would help the poorest Americans” on www.cbsnews.com, the Republican presidential candidate’s tax plan is both “really, really good for Donald Trump” and at the same time “should put more money in the pockets of the poorest Americans.”

    Guess what happens when you take less from both ends of the spectrum…

    That’s right; the ones in the middle get SQUEEZED like a fresh orange at the Florida Welcome Center.

    Assuming, of course, that the plan is revenue neutral and most commentators say that, despite Trump’s claims otherwise, it just isn’t so. Most tax experts say that in order to reduce the revenue collected from the poorest and the richest American, severe tax cuts are required. The conservative Tax Foundation estimates that Trump’s plan would decrease revenues by nearly $12 trillion dollars over the next decade and increase the debt by over $10 trillion.

    So what do the lowest-income Americans pay? Well, if you looked strictly at the standard deduction and exemptions, a single person should start paying taxes when they earn more than $10,300 and double that for a couple. However, when you take into account the benefit many lower-income earners receive from the Earned Income Tax Credit (EITC) and the Child Tax Credit, the basic rule of thumb, according to the Tax Policy Center’s Elaine Maag, is that a family of four doesn’t start owing income taxes until their income is about twice the poverty level.

    Last month, The Tax Policy Center reported that 77.5 million households won’t pay any income tax in 2015 out of a total of 171.3 million.

    That’s 45.3 percent of American households!

    That figure is up roughly five percentage points from the Center’s 2013 estimate of 40.4 percent.

    Maag told CBS News that, under Trump’s plan, “most people could earn more money without owing taxes and not be worse off than under current law since they would still get their refundable EITC and CTC.”

    The downside to such a “generous” plan, according to the article, “is that it comes at a high cost to the U.S. Government.” REALLY? And where do you think the government gets “its” money?

    Americans are generous people, but can we afford for our government to be generous on our behalf? Generous to the American poor, generous to the foreign poor, generous to the rich, generous to our soldiers, generous to those who support us, generous to those who don’t, generous to… everyone?

  • Sep 4

    If you are one of the many unemployed Americans looking for work, you may be able to write off some of those expenses to find a job. There are a few hurdles, but you wouldn’t expect anything less from the IRS, would you?

    • You must be looking for work in the same field in which you were previously employed or self-employed.
    • This cannot be your first job.
    • You cannot have a large time gap between when you were laid off and when you start looking again. For example, you got fired and decided to take a few years off to be with your kids.
    • You must itemize deductions on your tax return and the expenses must be more than 2% of your adjusted gross income.

    Now that you have jumped those hurdles, what kinds of things can you write off?

    Deductible expenses include transportation costs incurred as part of the job search, including: mileage for driving, tolls, and parking fees. Also included are employment agency fees, costs of printing resumes, postage, and food and lodging if your search takes you away from home overnight. You can still deduct these items even if you haven’t found a job by year end! It is important to maintain good records of your expenses and be able to document the mileage. But if you have to be out looking for a new job, at least you can get a tax break.

  • Aug 21

    Q) My granddaughter, Cindy, lived with me for three months of the year and with friends for the other nine months. However, Cindy had no income last year and I provided more than half of her support. Can I claim Cindy as my dependent?

    A) Yes. Although Cindy does not meet the definition of a “qualifying child” because she didn’t live with you for more than one-half of the year, she does qualify as your dependent under the definition of a “qualifying relative” since she didn’t earn more than the exemption amount for last year ($3,950 in 2014) and you provided more than one-half of her support. A qualifying relative does not have to live in the same household.

    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., Suite A, Mobile, AL 36695 or an email to taxpert@CPAMobileAL.com.

  • Jul 10

    Many business taxpayers overlook legitimate business deductions, resulting in an overstatement of their tax liability. Some of the more commonly missed deductions include business expenses paid out of personal funds, expenses related to a home office, and the use of personal telecommunication devices for business purposes.

    General Business Expenses
    Generally, a deduction is allowed for all ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. Business owners who use their personal funds for business expenses, such as office supplies, often fail to deduct this as a qualifying expense.

    A trade or business expense is deductible as such only if it is “ordinary and necessary.” An “ordinary” expense is generally one that is normal, customary, or usual for a business under the facts and circumstances of the situation. A “necessary” expense is one that is appropriate and helpful for the trade or business. A final requirement is that this expense must be reasonable.

    One of the more commonly overlooked general business expenses is the business use of personal telephones, cellular telephones, and Internet connections. If you carefully document how much these devices are used for personal and business use, the business portion may be deductible.

    Home Office Deductions
    If you use part of your home as a home office, you may be entitled to deduct expenses related to your home office based on the square footage the home-office occupies. Related expenses include mortgage interest, property taxes, utilities, insurance, and repairs.

    To qualify for the deduction, the portion of the home that is used for the home office must be used regularly and exclusively as your principal place of business. To be your principal place of business your home office should be the place where, in the normal course of business, you meet with patients, clients, or customers.

    Meals and Entertainment Expenses
    Business owners will frequently use their personal funds to pay for meals and entertainment expenses. These expenses qualify as a business deduction, subject to certain limitations. To be deductible as business expenses, entertainment expenses must have a proximate relation to your trade or business and be reasonably expected to benefit the trade or business.

    Deductions for business meal expenses are subject to the same business connection requirements as entertainment expenses. However, the deduction will be denied if the meals are lavish or extravagant or if you or an employee are not present when the food or beverage is served. The deduction is allowable when the customer’s spouse, your spouse or both are present at the meals, provided the general conditions for deductibility are otherwise present. The cost of entertaining business associates and customers at home is also deductible. However, in the case of business meal entertaining at home, you must be able to clearly show that the expenditure was commercially rather than socially motivated.

    Substantiation
    Regardless of the type of cost you are trying to deduct as a business expense, you must be able to substantiate each expense and how it relates to your trade or business. The importance of keeping accurate and appropriate records cannot be over emphasized.

  • Jun 5

    Bryan Martin had always dreamed of owning his own business, but, according to a Time.com article, it wasn’t until insurance giant Zurich shuttered their regional Indianapolis office where he worked that he decided to strike out on his own.

    “It’s the scariest thing I’ve ever done,” the article quoted Martin, who had just turned 51 and has a wife and 13-year old twins. “Right now, I’m just worried about financially making all this work.”

    Are you out there with Martin? Has the rising unemployment rate sent you into the entrepreneur minefield? Are you crawling along like a soldier, poking the ground with a stick, trying to find, identify, and avoid the tax mines just to pay your mortgage and put food on the table? A growing number of the nation’s jobless are doing just that.

    But as the ranks of brand new entrepreneurs swells so is the likelihood of errors and even, dare I say it—IRS audits! The IRS audits individual returns with Schedule C income at twice the rate of those without. Since the IRS’ Tax Gap analysis identifies underreporting of business income as a $109 billion problem, accounting for more than half of the total underreporting by individuals, the chances of those audits increasing are pretty good.

    Many new entrepreneurs, strapped for cash, try to cut corners and make the rookie mistake of forgoing the use of accountants and attorneys and picking up TurboTax® to handle their taxes on their own.

    The Internal Revenue Code is fraught with obstacles and the wide-eyed rookie is unlikely to recognize the danger signs. “My neighbor told me I could do this,” won’t stand up against the glare of an IRS examiner. Many budding business owners hear about the generous tax benefits for business expenses from travel and entertainment to the holy grail of tax deductions, the home office. But most have no clue what is allowed and what will send up a red flag. There are many misconceptions about the tax laws and the wrong decision can turn dreams into nightmares.

    The sheer magnitude of available tax breaks causes problems for many rookies. When you’re a self-employed small business owner, nearly everything looks like it should be deductible. After all, many feel they don’t do anything that isn’t business related.

    But the pearly-gate vision of deducting everything leads many an entrepreneur to forget the rules of mine clearing and wander off course into profit-bleeding blunders. Some of the most common mistakes include poor record-keeping, questionable tax deductions, putting expenses on the wrong tax form or line and failing to pay quarterly estimates to Uncle Sam.

    It’s critical that businesses maintain books, records, separate bank accounts and credit cards from their owners. In the event of an audit, people often lose, not because they were trying to get by with something, but because of poor records. When a taxpayer can’t produce records to match the tax return, the auditor smells blood. They have spotted a weakened wildebeest separated from the herd and they are going in for the kill.

    Make no mistake, it will be painful.

    But it doesn’t have to happen. With the proper records and the right advisor you can successfully chart a course across the tax minefield and come out unscathed.

    If you’ve entered the minefield, or are thinking of entering it, remember, our experience can help you identify the obstacles, spot the dangers and chart a successful crossing.

  • Apr 30

    Do you have unexpected areas of overspending in your small business?

    First of all: Why would any expense be unexpected? I mean, as a small business owner, are you sure you’re getting accurate financial statements every month? Do you understand what those statements say, or did you just use the closest QuickBooks chart of accounts template? I don’t mean to be harsh, but if you’re overspending, it’s a sign that you’re not on top of your game.

    That said: there are two key areas in almost any business where overlooked costs can spiral out of control. What’s sinister about them is that they may appear benign on your income statement—just the cost of doing business. It’s not until you compare the numbers against last quarter or last year that red flags pop up.

    Nearly every business sells something or provides a service to customers/clients/patients (or both). The direct costs associated with this activity should be recorded in the cost of goods sold or cost of services provided section of your income statement. However, I find that with many small businesses it’s quite common for these costs to end up under operating expenses, where it is easily overlooked.

    When I started working with a securities systems company, all the payroll costs were lumped together under operating expenses. Because it was easier. But in reality, he had no idea how much his payroll was affecting his profitability and his long-term success. Unless all these direct costs are correctly split out into the appropriate categories, there is no way to accurately calculate the gross margin on your products or services. At worst, you could be in for a nasty surprise— you could actually be losing money on each sale or job.

    If this seems simple, it is. I can tell you from experience that many entrepreneurs inadvertently overspend in the cost of goods category in the name of growth.

    Businesses have a laundry list of insurance coverages: workers’ compensation, unemployment, general liability, general property and casualty, vehicle, health and other employee benefits. It’s a lot of paperwork and a lot of hassle—so much so that many entrepreneurs are reluctant to change their routines, despite high costs.

    When was the last time you shopped around for insurance plans? I’m not referring to the options your insurance agent/broker presents to you; rather, to shopping among several agents/brokers to see who comes up with the best deal for your business.

    While you’re at it, ask each candidate to evaluate your current program for limits that are too high or too low and for areas in which coverage may be lacking entirely. Experts tell me, if it’s been a few years since you went through this process, you should be able to save at least 20% on your insurance premiums.