Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • 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.

  • Oct 28

    In what may come as a shock to many of you, the country is broke and is looking for additional revenues. You should know, it will be looking in every nook and cranny to replenish the federal coffers. What you may not know is the Internal Revenue Service seems already to be engaged in revenue-finding-missions. Among the objects of their affection – in the tax audit – are sole proprietors filing Schedule C, and substantiation requirements for every possible deduction.

    The IRS now views the Schedule C as the repository of all manner of evil taxpayer intentions to reduce their tax liabilities (and, from the perspective of the IRS, federal revenues). IRS agents are reportedly beating the bushes of sole proprietors primarily to reduce, or eliminate, claimed deductions as unsubstantiated to increase both income and self-employment tax liabilities.

    All deductions are a matter of legislative grace, and that grace comes with a price: at a minimum to maintain books and records to support the expenditure, and, in many cases, to meet more exacting substantiation standards than the Code imposes as a condition to deductibility in various circumstances. One might not think of charitable contributions as a source of major contention with the IRS, but in the case of non-cash contributions, the taxpayer is technically required to establish, both the fair market value of the property and the property’s adjusted basis. In some cases, the Code requires an appraisal of property (where the value exceeds $5,000) contributed to a charity.

    However, the property’s adjusted basis comes into question in two cases: first in most cases where the property is inventory in the hands of the donor, and secondly, if tangible personal property that is unrelated to the charity’s exempt function, the amount of the contribution is limited to the donor’s adjusted basis in the property. For example, if a taxpayer donates used clothing to a charity that does not distribute them to poor or indigent individuals, the deduction is limited to the lesser of your basis or fair market value. Now, it may seem like common sense that the current value of almost all used clothing is less than what was paid for it but technically, a claim for a deduction of such items requires some proof of both the fair market value and the cost basis of the property.

    And such was the case I recently read about in Surgent’s Tax Issues Newsletter where a taxpayer was denied a claimed $850 deduction for clothing donated to charity. Yes $850! The return was under audit and the taxpayer submitted photographs of all the clothing donated and matched them up to the current list of retail prices published by The Salvation Army and recognized by the IRS– but that wasn’t enough. The auditor wanted purchase receipts of each item to establish the cost basis. Even if the taxpayer was in the 35 percent tax bracket, the amount of tax at issue was only $298. The IRS correctly assumed the taxpayer would throw in the towel rather than incur additional time, effort and costs to substantiate the deduction. So, the IRS pressed the issue hard enough to deny any deduction. Hooray, the deficit was reduced $300!

    From a practical standpoint, trying to establish the cost of most any item of personal property even shortly after its purchase, much less a couple of years down the road, is extremely difficult. So, nothing prevents the IRS from using similar audit strategies where larger sums of money are involved.

    Echoing the motivation Willie Sutton once famously gave for robbing banks, the Internal Revenue Service knows where the money is.

  • Oct 14

    Q. My husband and I sold our home on Fowl River that we purchased in 1973 for $459,000, and reinvested the profits in a smaller condo in town. Will we be required to pay the new 3.8% Medicare surtax (now referred to as the net investment income tax) on the gain? I understand it applies when your income is above $250,000.

    A. The 3.8% net investment income tax applies to the lesser of the net investment income for the year, or the excess of modified adjusted gross income over the $250,000 threshold. However, it does not apply to items, such as the gain on the sale of your personal residence, which do not have to be reported on your tax return.

    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@CPAMobileAL.com.

  • Sep 16

    Since 2002, the above-the-line deduction for certain classroom expenses of elementary and secondary schoolteachers was in doubt nearly every other year. The temporary provision was renewed six times as an “extender” item – each time retroactively – until late last year when Congress made it permanent, expanded the deduction to cover professional development expenditures and indexed its $250 maximum amount for inflation. Now, qualifying educators can rely on the deduction each year and potentially realize a greater benefit from it.

    Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense does not have to be required to be considered necessary. Expenses incurred to meet the minimum requirements of the educator’s present job or to qualify for a new profession may not be deductible.

    Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education.

    An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in school for at least 900 hours during a school year.

    Naturally, the IRS recommends that educators keep all receipts and other documentation in order to substantiate their qualified expenses.

    Any unreimbursed educator expenses that exceed the $250 ceiling may be claimed as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income- (AGI) floor.

  • Aug 19

    Don’t you just love Congressional tricks?

    One of my personal “favorites” is when they cram a bunch of unrelated business into their bills.

    Which is just what happened about a year ago, and it could affect you…

    H.R. 3236, popularly known as “The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (yes, that’s how these things are named) brought some tax-law-related changes.

    Individual tax returns are still due on April 15th — and a six month extension period is still available. But …

    * Partnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year.

    * C corporation tax returns are due April 15, NOT March 15. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year.

    * S corporation tax returns remain unchanged–they are still due March 15, or the third month following the close of the taxable year.

    On TOP of that, another doozy: audits can get you for six years now, instead of three. Without going into all of the details, essentially if you withhold reporting of 25% or more of your income, the IRS has six years to figure it out. They’ve always had unlimited time for fraud or criminality … but there was some wiggle room for underreporting in the past. No longer.

    All this (and MORE!) in one measly highway bill.

    So, it pays even more to work with a pro, yes?

    These sort of issues are what we specialize in worrying all about — so you don’t have to. Because YOU have to keep your head in a bigger picture.

    Entrepreneurs know that hard work and a great idea don’t guarantee success. Fortunately, most of them also know that failure isn’t final — almost every successful business owner client of mine has crashed and burned at least once in his/her career.

    One of the best ways to pick yourself, or your business, back up off the ground is to take a fresh look at things that you “thought” were set in stone. Here are some strategies I compiled for you to possibly give your business a fresh lease on life, come fall, or into 2017…

    Re-target your market. In the heat of start-up passion, entrepreneurs frequently try to interest too broad a market: “Everyone will want to buy this!” The result: getting lost in the crowd. The more closely you define your market, the more success you will experience.

    Re-examine your price. Price is obviously supremely important. See how you can lower your overhead or cut production costs. Perhaps there’s a new way to package your products, so that your average transaction value can go up?

    Identify and push your best product. Focus on what works. If your hot product is coffee cups, look for ways to highlight and expand that niche instead of veering into new territory. How about different colors and holders for those cups?

    Make your marketing materials more memorable. Emphasize the benefits — SPECIFICALLY how features of your product or service will improve business or the quality of life for your customer. And scrutinize your advertising. Using big media is not always the answer, especially when you have narrowed your market. Don’t overlook narrowly-targeted marketing efforts or joint promotions.

    Keep promoting! Make sure your message sinks in. Find affordable ways to reach your target market, and use these avenues as often as you can. Try social advertising!

    These ideas are to get you started. There may be longer conversations to be had. If so, that’s what we’re here for.

  • 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.

  • Jun 10

    Between January 2011 and February 2013, Patrice Taylor, an Albany, Georgia resident, conspired with her husband, Antonio Taylor and Jarrett Jones to file over 1,100 fraudulent tax returns. At least 1,089 of the returns were e-filed from two IP addresses registered to Taylor, both located at her home. Patrice was employed at Tift Regional Hospital and used the personal identifying information of five patients to file fraudulent federal income tax returns. Taylor also used the identities of 531 sixteen-year olds to file fraudulent returns.

    The individuals were sentenced to prison terms up to 147 months and ordered to pay restitution to the IRS totaling $2,310,563.

    In Tampa, Florida, law enforcement officers recovered lists and medical records containing the personal identifying information of more than 7,000 victims.

    In Montgomery, Alabama, Keisha Lanier and Tracy Mitchell were sentenced for their roles in a large-scale identity theft ring that filed more than 9,000 false federal income tax returns that claimed more than $24 million in fraudulent refunds. The defendants obtained the stolen identities from various sources, including from the U.S. Army, several Alabama state agencies, a Georgia call center and employee records from a Georgia company.

    Identity theft is growing worse every year. The Federal Trade Commission reported that it has been the top consumer complaint for 16 years straight.

    “Tax-related identity theft is an evolving criminal activity that can happen to anyone.” Rep. Jim Renaccie, R-Ohio, CPA turned lawmaker, said in a statement last month. “In fact, last tax season, my identity was stolen and used to file a fraudulent tax return.”

    In the U.S., someone dies every 7 seconds but there is an identity theft victim every 2 seconds. Seventy percent of those whose identities are stolen need the help of an attorney to resolve the issue. Costs can run into the thousands as well as hundreds of hours of your time.

    Being a victim of identity theft is no picnic. But it is a major warning sign to take action. If you have been a victim, it is self-evident that your information is being bought and sold. Few victims have the highly technical skills and complex tools required to find where their data has been spread and to stop it.

    Ideally you need to have a plan in place before the theft. Unfortunately, most don’t. Fortunately, it’s not too late to protect yourself from further breaches. If you have been a victim, or know someone who has, and would like a referral to someone I know and trust to help, give us a call, or shoot us an email and we’ll be happy to put you in touch.

  • May 12

    “Success is simple. Do what’s right, the right way, at the right time.” – Arnold Glasgow

    Now’s the best time to get rid of unnecessary paperwork, as well as to ensure that you caught everything for your 2015 tax return.

    But before I get to what to do if you find something pertinent to your recently-filed tax return, here’s a guide for how long to keep your records…

    Taxes: Seven years
    Richard’s Reasons Why:
    There are three, actually:
    1) The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
    2) The three-year deadline also applies if you’d like to make some sort of amendment because you discover a mistake in your return and can claim a refund.
    3) The IRS has six years to challenge your return if it thinks you underreported your gross income.
    All this adds up to keeping that info for seven years. Beyond that, there’s no reason — except for posterity.

    IRA contribution records: Permanently
    Richard’s Reason Why:
    You’ll need to be able to prove that you already paid tax on this money when the time comes to withdraw.

    Bank records: Usually just one year
    Richard’s Reason Why:
    Those related to your taxes, business expenses, home improvements and mortgage payments will obviously need to be included for next year’s taxes. But, unless there is some sort of emotional or posterity reason, get rid of everything after one year.
    Brokerage statements: Until you sell
    Richard’s Reason Why:
    To prove whether or not you have a capital gain or loss for tax purposes; after this point, shred it.

    Household bills: From one year to permanently
    Richard’s Reason Why:
    When the canceled check from a paid bill has been returned, you can shred the bill with a clear conscience. However, bills for big purchases — such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. — should be kept in an insurance file for proof of their value in the event of loss or damage.

    Credit card receipts and statements: 45 days/Seven years
    Richard’s Reasons Why:
    Some families don’t even bother to match up their statements, but if you do so, shred the receipts once you’ve verified everything. There’s no reason to keep everyday receipts – unless they support a deduction — beyond this point. For tax-related purchases, you need only keep the statements (and receipts supporting tax deductions) for seven years — after that, shred it, baby!

    Paycheck stubs: One year
    Richard’s Reason Why:
    This is to verify that when you receive your annual W-2 form from your employer, the information from your stubs match. If so, shred all of the stubs … if not, request a corrected form, known as a W-2c. After that’s been handled — shred.

    House/condominium records: Six years/permanently
    Richard’s Reasons Why:
    You’ll want to keep all records documenting the purchase price and the cost of permanent improvements — such as remodeling, additions and installations, as well as records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home.

    Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. Therefore, you lower your capital gains tax when you sell your house.
    Now, in this cleansing process, sometimes you’ll find a receipt or documentation which really would have changed your prior year tax return. That’s when you might have us file an “Amended Return”. However, this decision should be balanced against the cost of doing so, as well as the expected benefit — often these items can be dealt with the following year.
    But here are some other, common reasons to amend…

    * You neglected to report some income earned.
    * You claimed deductions or credits you should not have claimed.
    * You did not claim deductions or credits you could have claimed.
    * You filed under one filing status, but you should have filed under another.

    If you find something like this, let us help you.

    Regardless, let this be a cleansing process for you, and sleep easy knowing you’ve handled this stuff properly.

    Oh, and make sure you use a good shredder!

  • 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.