Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Jul 7

    How to Write Off Katie’s Soccer Camp

    Yes, it is quite do-able. But, like many things in the tax code, the devil is in the details. Let’s see if I can cut through the Tax Mumbo Jumbo for you.

    If Katie (or Bruce) is younger than 13 and goes to a DAY camp (overnight doesn’t work), and you are both working (or “looking for work”) then,…

    Cha-ching.

    You can then choose to pay for the camp using a Flexible Spending Account (FSA) or you can take the child care credit. Remember credits are better than deductions. With both the FSA and the child care credit, other eligible expenses include the cost of day care or preschool, before or after school care, and a nanny or other babysitter while you work.

    The size of the credit depends on your income and the number of children you have who are younger than 13. You can count up to $3,000 in child care expenses for one child, or up to $6,000 for two or more children.

    There are some limitations. The credit is only good for families of a certain income range and the percentage of eligible costs varies with income.

    All told, it’s a good deal which you should take advantage of, if you qualify.

    Bonus… If you have two or more children and child care costs exceed $5,000 for the year, you can benefit from both accounts. You can set aside up to $5,000 in pretax money in your FSA for child care costs, then claim the child care credit for up to $1,000 in additional expenses.

     

    Other strange, but true deductions

    You can pay your significant other (pay attention now) to do legitimate work for you and take a deduction.

    Bruce hired his live-in girlfriend to manage his rental properties. Her duties included finding furniture, overseeing repairs, and running his personal household. He went to Tax Court and fought the IRS which had disallowed the entire deduction. He won a deduction for the portion of his payments which could legitimately be tied to her business work.

    A married couple owned a junk yard and put out cat food to attract wild cats. Why, you might ask? The feral cats they were trying to attract dealt with snakes and rats on the property. That made for a safer junkyard for customers.

    And that made cat food a business deduction. The IRS first thought this was ridiculous, but before the case reached the Tax Court the IRS agreed!

    The details are always important, so be careful and ask us for advice first.

  • Dec 31

    Last year, in Phenix City, Alabama, tax preparer Lasondra Miles Davis was ordered to pay $1,941 in restitution to the IRS, sentenced to two years in prison, and one year of supervised release for her involvement in a stolen ID tax fraud.

    Davis pleaded guilty to one count of aggravated ID theft. Her mother, Teresa Floyd pleaded guilty earlier in the year to one count of conspiracy to defraud the U.S. and one count of aggravated ID theft.

    News outlets cited court documents that said that between March 2011 and May 2014, Davis and her mother operated several tax preparation businesses where she obtained stolen IDs. Floyd then used the information to file more than 900 false federal income tax returns that claimed more than $2.5 million in refunds.

  • 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.

  • 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?

  • Apr 3

    Does that tax refund burn a hole in your pocket every year? Is it spent before you ever get it? The average tax refund for the American family is a little less than $3,000. However, consumer behavior studies show that tax refunds could be contributing to your bad finances.

    Studies have shown that people spend money at the rate in which they earn it; therefore tax refunds are usually spent at a faster rate.

    Many people use these refunds for desired wants, car repairs, vacations, and so on. I know I’m guilty of falling into the urge of the splurge and spending my refund before giving it some serious thought. After spending the refund on that luxury vacation or the newest electronic, you sit back and a week later, reality sets in…

    You’re back at work or the newness of your latest electronic device has worn off. Or you increase your debt by purchasing that beloved item because you just can’t wait. However, when your refund comes you can’t pay off the debt because now you “have” to use that money on something else. I have three better ways to use your refund:

    • Pay down debt. Just think of all the money you could possibly save if it wasn’t going to those unnecessary high interest rate fees. Being debt free is a much better feeling than anything you could possibly get from that splurge.
    • People are starting to live longer these days, so what’s a better way to invest your refund than to put it into an individual retirement account (IRA)? I came across this wonderful example on MSN Money that illustrates the possible savings and return on investment:
      • “Putting that amount aside in an IRA would give you an immediate deduction that could reclaim as much as $1,000 in tax savings—and you still would have your original $3,000. If you put it into a dividend fund or other investment that pays just 5%, you will have a total of $6,000 in 14 years and $12,000 in just under 30 years.”
    • The last way to better use your refund money is to fund your emergency savings account. The future is always unknown, so an emergency savings fund is a grand way to utilize your tax refund. Experts suggest that you have enough in your emergency savings account to pay six months worth of expenses.

    Let’s be different from all the consumer behavioral studies and think before we randomly spend our tax refunds. Let’s reflect on the value of our money and put it to better use than the urge to spend it as soon as we get it.

    Now, I know that many of your friends, neighbors and even your families might poo-poo these suggestions, but, as Dave Ramsey says, “If you will live like no one else, later you can live like no one else.”

  • Oct 18

    The consequences that can result from having your tax identity stolen can be onerous. If your identity is stolen your tax refund will, more than likely, be held up by the IRS. A victim sometimes does not see her refund for a minimum of eleven weeks or until the victim can convince the IRS that she is truly a victim of identity theft. The burden of proving you have become a victim of identity theft is primarily placed on you, the victim. Victims of identity theft are sometimes faced with the possibility of lost job opportunities, being refused loans, education, housing or cars, or even being arrested for crimes she did not commit.

    Over the past year the IRS has put filters into place to address different issues or flags of identity theft. In 2012, the IRS planned on spending approximately $330 million to fight against identity theft, but due to limited resources additional funds are needed. The filters that were placed in service this last year help to differentiate justifiable returns from counterfeit ones and prevent recurrence. If a return is caught by a filter, it is reviewed manually to validate the information. To validate the information the IRS may contact the taxpayer to verify the correct information or the IRS may send a correspondence audit notice to the taxpayer.

  • Mar 8

    Now is around the time when things begin to really crank for us around here.

    But, there’s also a temptation that I hope you resist. Sadly, my writing this could easily be seen as self-serving, but that doesn’t keep it from being true. Here’s what I’m referring to:

    Trying to prepare your taxes correctly on your own.

    You see, I don’t like to crow about other people’s mistakes.

    In fact, in our line of work, much of what we get to do is *fix* or alleviate those mistakes, at least when it comes to their tax implications. This year (of all years) carries so many changes that users who fall prey to screaming offers from the “cheap” options are more exposed to wallet-sucking mistakes, or even an audit.

    Do you remember when (even) the now-departing Treasury Secretary, Tim Geithner, testified about tax irregularities in his own personal returns? Do you remember where he placed the blame?

    Turbo Tax.

    And he’s not alone. But, there’s a good way to fix that problem…

    You may have heard me say it before, but it’s true: Did you know that we accountants like to joke to one another about how good these online software programs (TaxSlayer, TurboTax, etc.) are for our business? Firstly, they are not as “easy to use” as claimed, and secondly … they cost you an arm and a leg.

    You might think they’re cheap. And on the surface, you might be right (though, in the last few years, a $1 Billion class action lawsuit was filed in the federal court in Philadelphia alleging gross misstatement of fees and deceptive standards of the federal “FreeFile” program … so even on the surface, it wasn’t always cheap). But, I’m not even talking about the money for the service itself.

    Using those programs can end up leaving hundreds, or even thousands, of your dollars in the coffers of Uncle Sam … even if you follow all of their instructions to a tee. I see it all the time–frustrated clients bringing in their prior year’s tax return, astonished at all the “hidden money” my staff and I are able to find for them!

    Even worse…

    Choosing the wrong method, or forms, in filing your taxes can place you directly in the crosshairs for an audit.

    Even if you don’t owe a ton of back taxes, you still don’t want your record to show some IRS agent that there has been a discrepancy of some kind in the past, so that red flags begin to fly, and then more bureaucratic people start looking through all of your past tax filings and current income holdings … basically taking your social security number, and poking around in your private life.

    (And if you think they won’t do this, read a little online about the increased “enforcement” measures the IRS is taking this year.)

    They can do a lot of things you won’t want them to do. However, if you keep a clean slate (no IRS correspondence with you, related to filing your taxes incorrectly), the opportunities for them to mess with your personal stuff will be limited.

    Here’s another reason why this is so important … now more than ever. New government regulations in 2012, delays in Congressional action, and issues with refund “loans” from the big chains continue to create a mess in the tax industry … and the “Big Brand Names” (you know who I’m talking about) do NOT want you to know about it. In fact, they’re doing all they can this year to hold on to their business, and trust me — it is not good for you.

    Yes, it can be seductive to “go it alone” … to trust a piece of software to point out possible deductions. To trust your work to poorly-trained preparers in a big box office. To protect against your chances of audits through online chatroom support or hourly employees.

    But it can be a big trap.

    Just ask Tim Geithner.

  • Jan 25

    Taxpayers enjoy the idea of knowing when they are likely to receive their federal income tax refund. We all know the state is usually a little slower getting their refunds out, but the IRS has recently stated taxpayer’s federal refunds may be delayed this year. In the past, tax preparers have been provided an e-file refund cycle chart issued by the IRS. This chart provided an estimated date of receiving federal refunds based on the e-file date of the return. However, this year, the IRS is not producing an e-file refund cycle chart and the IRS has revised Publication 2043 due to the uncertainty of issuing federal refunds. The IRS has stated that, “most taxpayers will have their refunds within 23 days.” This is a considerable delay from prior years.

    One might ask why there will be such a delay this year. The IRS’s reason behind the refund delay is because they have a new processing method. This new processing method focuses strongly on fraud prevention and identity theft. The IRS will be analyzing the returns by completing multiple fraud checks. These fraud filters consist of looking for “Incoming Transactions.” The IRS is not stating what defines an “incoming transaction,” but this could be anything from a change in dependents to a change in address. These returns will be placed in a different category for refunding purposes which could cause a delay in receiving refunds.

    So, before you make plans on how you might spend your federal refund, you need to consider the fact that you will not be receiving that refund as quickly this year as you have in the past.