Posted on August 23, 2013May 31, 2016 by Jan Roberg

Your Job Search and Your Taxes

Photo by kate at Flickr.com

People often ask me about deducting job search expenses on their tax returns. Every year I hear stories on the news, “Don’t forget, your job search expenses are tax deductible!” While this is true that job search expenses can be deductible—many times, they really aren’t.

For one thing, if you’re job hunting, you can only deduct your job search expenses if you’re looking for a job in your current occupation. I do taxes; I’m in the accounting field. If I decide to chuck it all and become a belly dancer—I couldn’t deduct those job search costs since belly dancing is not related to accounting. (Tap dancing—maybe: http://www.youtube.com/watch?v=fNKRm6H-qOU)

But say you truly are looking for a new job in your field, what can you deduct? Here’s a pretty good list:

Employment and job placement agency fees
Cost of preparing and mailing copies of your resume
Travel expenses to look for a new job, but only if the trip is primarily to look for a job. (If you’re a professional snow remover and you’re job hunting in Honolulu it’s really not going to fly with the IRS.)
You can deduct your job search expenses even if you do not find a new job

After you figure out what your qualified job search expenses are, it goes as a miscellaneous itemized deduction on your Schedule A. That means that your job hunt expenses will have to be more than 2% of your adjusted gross income before they even start to count. And remember that even then, you’ll need enough other items on your Schedule A form to make it worth your while—also known as itemizing deductions.

Here’s an example: Christie is an office manager for a small law firm and makes $50,000 a year. She paid $500 to a professional resume service, and $2,000 to a placement agency to help her find a new job. Although most of the out of state companies that interviewed her paid for her travel, she did have $100 of out of pocket travel expenses. In this case, Christies total job search expenses were $2,600.

Now 2% of Christies adjusted gross income is $1,000 ($50,000 times .02 = $1,000.) So in this case, Christie would have a miscellaneous deduction of $1,600. ($2,600 expenses – $1,000 threshold = $1,600.) So if Christie had other deductions to go along with it, great, then she could benefit from claiming her job search expenses. If she didn’t have any other deductions, then she’d still be better of claiming her standard deduction.

You cannot deduct your job search expenses if you are looking for a job for the first time. This rule keeps most recent grads from claiming job search expenses.

Don’t let not being able to claim a deduction keep you from spending money that you need to spend to look for a job. If your resume needs help, hire a resume writer. If a placement agency can help you, use one. Be sure to put your best foot forward.

For some good free advice about job hunting, check out this website from BestCollegesOnline.com. Although the article is written specifically for online students, there’s so much good and basic job hunt information in there it’s worth checking out. Face it, when you don’t have a job, free is a pretty good price. Here’s a link: http://www.bestcollegesonline.com/career-skills-learn-school/

Posted on August 20, 2013January 14, 2017 by Jan Roberg

Top 5 Reasons Your Tiny Business May Not Be Doing As Well As It Could Be

If you don’t take care of your tiny business, it’s like flushing money down the toilet.

The government defines small businesses as companies making less than $7 million a year or having fewer than 500 employees. The companies I work with generally have three or fewer employees and only dream about seven million dollar revenues. I call these “tiny” businesses.

As tiny businesses, we’re generally ignored by the government. When you hear something in the news about Congress passing legislation to “help” small business owners—they don’t mean us. That’s okay with me. We tiny businesses can get into enough trouble all by ourselves. Here are my top 5 picks for tiny business problems.

1. Not working around Roadblocks. Every tiny business has roadblocks; you need a license, or special training or there’s a law change. No matter what type of business you have, there will be roadblocks. The successful tiny business finds a way to work through or around them.

True story: There was a small business owner who was basically ready with her business; the only thing left was to get her web-site up. She had asked me for some help. Mind you, the only thing stopping her business from getting off the ground (at least as she explained it to me) was her website. I gave her names of people who could make her website for a fee and I also gave her free website resources as budget was an issue for her.

Six months later we met again. She still didn’t have a website. The work was stalled because she couldn’t find the “right” art for it. She wanted a picture of a compass. She had hired a high school kid to draw it for her for free. He wasn’t done yet. Okay—go to Google images, type in compass and you get hundreds of pictures. Granted, she’d probably have to pay to use one of those pictures but her “free artist” hadn’t gotten the work done in six months.

And letting a high school kid that you’re not even paying be the reason your business hasn’t gotten off the ground? That’s ridiculous. Now in fairness, the compass idea was a cool idea and it tied to her business theme. But—it wasn’t necessary to her business. She could have already been up and running for 6 months while waiting for this art that she wanted so badly.

Sometimes, we’re our own worst enemies. If you’ve got a roadblock that’s holding your business back get a second opinion. There’s usually more than one way to skin a cat.

2. Not knowing who your customers are. If you own a business you’re selling something. The tough question is who’s going to buy it?

I once knew a woman who had started a business making bows. She had made hundreds of bows, invested in a bow making machine and lots of expensive ribbons. She hadn’t sold a single one. She really liked making bows so that was what she was doing with her time, but she hadn’t figured out who would buy them. At that point, that wasn’t really a business it was just a hobby. You have to have customers, someone willing to pay for what you’re selling to be a real business.

3. Partner problems. Recently I was asked, “Why do you hate partnerships?” It was a fair question, I was being pretty negative. The truth is, I don’t hate partnerships, I’ve just had to dissolve too many of them. Partnerships get started because two or more friends decide they want to go into business together. Good friends (or spouses) do not always make good business partners. If there is a disagreement—how do you settle it?

I recently sat down with a couple that had a pretty good business plan and they seemed to be a good choice for a partnership. But I was asking a lot of questions and I’m glad I did. It seemed that Adam and Eve each had two income streams that they were thinking about for the partnership—sales of widgets and sales of thingamajigs. Adam was going to cut back on his widget sales to pursue the thingamajig sales full time in the partnership. Eve couldn’t sell thingamajigs she was just going to help Adam with that and in the meantime she would still sell widgets. It all sounded like a good plan.

Except: Widget sales was technically another job. The money Eve earned selling widgets was outside the partnership—just as Adam’s widget sales were outside the partnership. Adam was counting on Eve’s widget income to help support him because he knew that the thingamajig income wouldn’t be enough to support him during the first year. Eve was hoping the thingamajig income would supplement her widget income; she wasn’t planning on turning over half of her widget income to Adam.

The bright side to this scenario is that they were thinking and talking before they made the partnership. They hit a roadblock, yes, but they’re smart and will work around it somehow. Too often I see partners who went into business together and later wind up fighting because they didn’t spell out their expectations up front.

4. You gotta work at your business—I can’t tell you how many times people have come to me because they bought a business or invested in a business that required no work—and they lost their money. If it sounds too good to be true, it probably is. And if you’re picking a business, do something you love to do—because you’re going to be at it a lot.

5. Not planning for your taxes—This wouldn’t really be a tax blog if I didn’t mention taxes now would it? The whole idea about owning a business is that you want to be profitable. If you’re making a profit, then there are going to be taxes. If your small business is making enough money to support you and your family then you know you’ve got self-employment taxes to pay.

Screwing up one year—that happens. Screwing up two years—you need to be more careful. But if you screw up and don’t make your estimated tax payments after you’ve been profitable and owed tax money for three years in a row—you’re asking for trouble. Our business cards say, “If you don’t have a strategy for your taxes, you’re probably paying too much.” Taxes take a huge chunk out of your earnings. Don’t let IRS penalties and interest make matters worse.

Posted on August 13, 2013May 31, 2016 by Jan Roberg

The Petty Cash Account

Photo by Laura Gilmore at Flickr.com - Some companies use a bank bag with a lock to keep their petty cash in.

Petty Cash Expenses Template – This is a free download to keep track of your petty cash. Please feel free to share it or alter it to suit your needs.

A while back I did a post about taking cash for your business out of the ATM machine. I said you should never do it. I’ve gotten a lot of push back from readers who need to use cash for their businesses on a regular basis. Here’s an example from Tracy who writes:

“What options do I have when I need to pay for cash transactions like Mass Transit & Taxi’s (I don’t drive) which total over 250/mo.(expendable as fringe benefits per IRS 15-B), or even office & software supplies?

Credit Cards don’t issue without corporate credit (which will take a year +), so can only use Prepaid Cash cards – which have to be paid by cash.

There are very few places where I can use my corporation check. So using checks as a paper record is out.

What do I do?”

Tracy has a good point. What do you do when you’ve got to use cash? You need to set up a petty cash account. In Tracy’s case, I’d say her petty cash account needs to be $250—but it’s really up to her as to how much cash she needs to keep around for her business. I have one client who regularly keeps $1000 cash available; it all depends upon your type of business and what works for best for you.

With a petty cash account, you have your base amount-we’ll use $250 for Tracy’s example. The first step is to write a check (or take out the cash) to Petty Cash. Establish a place to keep the petty cash money separate from your regular spending money. As Tracy spends down the money—on Taxis and subway fares and other business expenses, she keeps receipts for everything. Or at least a log of things like subway fares. Technically, what she should do is make a report like what I’m showing below:

7/24 Subway 1.20

7/25 Taxi 18.00

7/25 Office supplies 24.76

7/25 luncheo n 12.16

7/26 taxi 23.45

7/27 office supplies 88.22

7/29 Subway 4.20

Total 171.99

At the end of the week, or month, or whenever it makes sense to replenish the cash supply, Tracy would write another check for $171.99 to bring the petty cash account back up to $250.

That’s the technically correct way to maintaining your petty cash account. Basically you have a base amount and there are receipts for whatever cash is no longer in the bag.

But what about real life? I say that because 80% of the people who use cash for their businesses aren’t going to be so disciplined. But I don’t want you getting into audit trouble for your cash withdrawals from the ATM.

Let’s use John as an example. If you look at John’s business bank statements for the past year, he’s got about 100 ATM transactions over the course of the year, usually taking out $40 at a time. If John were to be audited by the IRS, the IRS would count that $4000 business profit which is taxable to John, even though he spent that entire amount on business.

I can tell John to do the Petty Cash account the way I explained above, but being realistic it’s never going to happen. He’s going to keep going to the ATM and grabbing cash whenever he needs it. So how does John cover his behind? Keep receipts! If you don’t get receipts, write everything down.

For example: John has a property management company that takes care of several single family homes and some small apartment buildings around town. One of the homes is currently vacant but he needs to keep it looking good so it can rent. Although a tenant would be responsible for mowing his own lawn, John hires a neighbor kid to mow the grass a few times while to house is still vacant. It costs him $40 a pop. He’s paying a kid, not a business. No 1099MISCs, (he won’t get close to paying him $600). The kid might not even have a checking account so he can’t accept a check or credit card. The kid is not issuing receipts-he’s a kid.

John goes to the ATM, gets $40 to pay the kid and he writes down on the ATM slip a few notes about the expense. (Paid Walter $40 to mow 541 Mockingbird St. house.) John keeps that ATM slip with his business records to act as his business receipt. As long as John spends less than $75 on something—that will be acceptable. If John spends more than $75, he needs a receipt from the vendor. (Even if the vendor is a 16 year old kid.)

I still recommend not using the ATM for your business expenses whenever possible, but if you must, you can protect yourself from having the IRS count your cash transactions as income to yourself—and paying more taxes by keeping good records of the transactions.

Posted on August 6, 2013May 31, 2016 by Jan Roberg

What is a Progressive Tax? What is a Flat Tax?

Photo by Images Money at Flickr.com

I see a lot of internet questions about flat taxes and progressive taxes. It seemed that since I do a tax blog, it was time to tackle those basic questions.

A flat tax is a tax that is the same for everyone, under all circumstances. A good example of a flat tax is the sales tax rate. It doesn’t matter whether you are rich or poor; everyone pays the same sales tax percentage. Some cities have a flat income tax. For example: The City of St Louis, Missouri has a 1% income tax on wages of people who live or work within the city limits. It doesn’t matter whether you make $15,000 a year or $150,000 a year; you still pay the 1% city tax.

A progressive tax increases as your income goes up. This is what our current federal tax code is like. For a single person, the first $9,750 isn’t even taxed. Then the next $8,700 is taxed at 10%, the next $26,650 is taxed at 15%, the next $50,300 at 25%, the next 93,300 at 28%, the next $209,699 at 33% and anything over $388,351 is taxed at 35%.

Those rates change if you’re married or filing as head of household. I’m not going to post all the tax rates here. If you want to look, check out the tax rate tables at the IRS website: http://www.irs.gov/pub/irs-pdf/i1040tt.pdf The tax rates are all listed on page 14.

Tax Incentives are tax rules that are intended to influence behavior. Things like the mortgage interest deduction which is designed to help people buy homes, or the charitable donation deduction which is designed to get people to donate to charity are examples of what would be considered tax incentives.

There’s been a lot of talk about changing the tax code. Right now, we have a progressive tax code with lots of tax incentives. Major changes to the tax code will be difficult to pass; there are many lobbyists and interest groups that all have their own agendas. There will be lots of pressure on our representatives to keep the tax loopholes. The whole concept of changing the code is so controversial that the Senate Finance Committee leaders have offered to keep Senator’s ideas secret for 50 years. http://www.businessweek.com/articles/2013-07-25/congress-will-keep-senators-tax-reform-wishes-secret-for-50-years

The tax code has nearly doubled in length over the past two years. If I had any say in the voting, I’d like to see the tax code made easier. Yes, a difficult tax code keeps me employed, but I can live with the consequences. I think a simplified tax code is good for the country.

What changes would you make? What deductions do we really need, if any? What needs to go? Post your answers, I’m curious. Your post won’t show up immediately. My site has a delay to screen for spam. You wouldn’t believe what kind of weird comments there’d be without it. But if you make a post, it will show up within a day or two. Thanks.

Update: I posted this blog on Tuesday morning, August 6. Tuesday evening I saw this segment on The Daily Show. I’m pretty sure that John Oliver doesn’t read my blog, but he’s at least on the same wave length. http://www.thedailyshow.com/watch/tue-august-6-2013/don-t-mess-with-taxes

Posted on August 2, 2013May 31, 2016 by Jan Roberg

Why Am I Being Audited By the IRS?

Photo by redjar at Flickr.com

The first question I’m always asked when someone receives an audit notice is, “Why me? What’s wrong with my tax return?”

If you received an audit notice, that’s a perfectly legitimate question, and you have the right to ask. It’s a very important question too. The answer you get from the IRS can help you to limit the scope of the audit—that‘s really important. If you know what the audit is about, you know where to focus your energies.

Often times, an IRS agent may respond with, “Oh, I don’t know why your return was pulled, it’s just a random audit.” However, sometimes they don’t seem so “random”. Actual random audits (and yes, they do occur) involve reviewing every single line item on the tax return. They’re used to help determine how future audits are handled. Most audits, are not random, and if you’re being audited you have the right to know why.

So what does trigger an audit? The most common type of audit is called a correspondence audit. Usually what happens there is that the IRS received a notice saying you received income from a source and it doesn’t match anything on your tax return. They call it “document matching.” (Hey, it’s the IRS; creative names are not their forte.)

Document matching audits are usually pretty simple. For example, the IRS gets a W2 from a job you had for 2 weeks in January but you completely forgot about it at tax time. You never got the W2 so you didn’t include it on your return. That’s a fairly typical correspondence audit. In a case like that you just sign the form and pay the tax. That’s a simple “oopsies.” You’re not a criminal, you just made a mistake.

Sometimes, document matching is kind of screwed up. For example: I just handled one where the document matching showed three interest statements for “First National Bank”; one for $21, one for $16, and the third for $54. The tax return showed interest for “First National Bank” as $91 ($21 + $16 + $54 = $91). We just handled that with a phone call. Document matching is done by computer. Normally, a human would have caught the numbers added together and the audit letter would never have gone out, but the computer isn’t that sophisticated.

One of the best ways to prevent document matching audits is to make sure that you report everything on the correct line. If you have a 1099 with an amount in box 7 and you don’t have a Schedule C with your tax return—that will generate a correspondence audit. Another common correspondence audit involves capital gains. If you’ve bought or sold stocks or had stock options through your job—there should be a Schedule D with your tax return.

If you’re dealing with something new in your taxes, even if you’re very good at preparing your own, I recommend at least having a second look done before you file.

In-person audits are more often based on statistical data. The IRS uses something called a “DIF” score. To put it in simple terms, a DIF score basically highlights when things on your tax return are out of the “normal” range. Basically, a computer algorithm kicks out something like: “Joe Schmoe’s charitable contributions are out of line with his income. So Joe will be audited for his charity donations.

So how do you know what’s normal? That’s the magic question isn’t it? The IRS does not release its DIF score formulas. Even if they did—if you have a legitimate deduction, you shouldn’t let DIF scores (or the threat of DIF scores) keep you from claiming what’s legitimately yours.

I once worked on an audit for a fellow whose return was being looked at for the mileage he claimed. In truth, his actual mileage was much higher than what he reported, but his co-workers had convinced him that he shouldn’t claim all his mileage because he’d get audited. Claiming the lower mileage didn’t protect him from an audit—and—it cost him money for all those years that he didn’t claim what was rightfully his.

Your best defense against an audit is always going to be doing your taxes right in the first place and having the documentation to back up your claims.

If you’re a W2 wage earner, the most likely audit area will be your charitable contributions and employee business expenses, because most everything else can be determined through document matching.

Small business owners (Schedule C) are much more likely to be audited—mostly because there’s so much more to audit. In every Schedule C audit I’ve ever worked on, the IRS has requested the mileage log. Every audit—mileage log. Every single one.

In addition to the mileage log, they’ll often want to examine the expenses or the revenues, sometimes both. If you own your own business, I can’t stress enough the importance of keeping good records.

If you’re being audited, the IRS agent should be able to tell you why. If you honestly don’t know why you’ve been selected, and you’re not getting clear answers from the IRS, hire someone to represent you. A professional can usually find the audit trigger (or triggers) within a matter of minutes.

Posted on July 30, 2013May 31, 2016 by Jan Roberg

How Much is Obamacare Going to Cost Me?

Photo by Tom Hart at Flickr.com

Recently Congress delayed the requirement of businesses with over 50 employees to provide health insurance to their workers. They were supposed to start in 2014, but now that’s been extended to 2015. Congress did not extend the requirement of individuals to have insurance in 2014 though.

If you don’t already have health insurance coverage, what are you supposed to do? Good question. This isn’t something you’re just going to figure out in two minutes. I don’t have any easy answers for you. But I can help you get some of the answers you need to make your decisions.

What’s better, buying insurance or paying the penalty? Let’s be real, having insurance is better than not having insurance–but what’s it going to cost? You can’t buy insurance if you can’t pay for it.

First, let’s figure the cost of the insurance. Right now, the exchanges aren’t ready yet, but if you’re reading this after October 1, 2013, you should be able to go straight to the exchange and get solid dollar figures: https://www.healthcare.gov/

But in the meantime, I’ve found that the subsidy calculator from the Kaiser Family Foundation to be really helpful. Using their tool, you plug in your family income, ages, whether you smoke or not, and it will spit out what your insurance premium would be if you paid the full premium, and also how much of a subsidy you’d qualify for. Now remember, this calculator is based on averages from around the country. You may live in a more expensive or less expensive area. But at least this will give you some kind of clue as to what kind of money we’re talking about.

For example: let’s say we have a young couple with a baby. They don’t make very much, just $30,000 together for the year. They don’t smoke. According to the calculator–if they had to pay full price for their insurance, they’d pay $8,792 for a “silver plan” health insurance per year. Yowza! On a $30,000 a year income, there’s no way a family could afford that. But, because their income is low, they’d qualify for a subsidy. With the subsidy, they’d only pay $1,250 a year for that health insurance. That’s still kind of high when you only make $30,000 a year though. But if they chose the “bronze plan” their subsidy would completely cover their insurance and they’d be paying zero dollars to have health insurance. Zero’s a price I think they can live with.

What’s this “bronze” and “silver” stuff? The health plans are coded, bronze, silver, gold, and platinum. Bronze is the least comprehensive, platinum being the most. With a bronze plan, you pay 40% of your own costs, silver; 30%, gold 20% and platinum 10%. Basically, the more you pay for the premium, the lower your co-pay is.

In our earlier example, the couple wound up qualifying for free health insurance. What would happen if our couple made $50,000 a year instead? Same circumstances so the full premium would stay the same at $8,792. But, their subsidy would go down to $4,679 and their out of pocket would be $4,112. Or they could enroll in a bronze plan which would have them paying $2,607 after subsidies.

So the question becomes, do you buy the health insurance or do you pay the penalty for not having it? If they can’t afford the $2,607 how much is the penalty? For a married couple, (I’m using 2012 numbers because I don’t have 2014 yet), to compute the penalty for not having health insurance you would take their income (which is $50,000 in this example) and subtract the filing threshold (which for a married couple is $19,500) and then multiply by 1%. Like this:

$50,000 – $19,500 = $30,500 (they call this excess household income)

Then take 1% times the excess household income: $30,500 x .01 = $305

So for this couple, paying the penalty for not having insurance in 2014 will cost less than the insurance premium. I’m not saying they shouldn’t buy the insurance–I think insurance is a good thing. But you need to know what the options are. What it costs to have insurance, and what it costs to go without.

Take a look at the numbers for your family. Go to the Henry J Kaiser Family foundation website and check out their subsidy calculator. Here’s the link: http://kff.org/interactive/subsidy-calculator/

If you want to read more about penalties for not having insurance, check out my other blog post: http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-1/

For more information about the Affordable Care Act, here’s a good, easy to understand video: http://www.youtube.com/watch?v=JZkk6ueZt-U

Posted on July 26, 2013May 31, 2016 by Jan Roberg

Tax Preparer Fraud—How to Avoid Being Taken

Photo by chuck holton at Flickr.com

I’ve seen a lot of stories in the news lately about tax preparer fraud. The IRS is catching these folks and they’re going to jail. That’s a good thing in my opinion. Those of us with licenses and who play by the rules really hate the crooks; they’re bad for business.

The IRS tried to regulate preparers by setting up the Registered Tax Return Preparer (RTRP) designation. I made all my employees take (and pass) the test as a condition of employment, but the RTRP requirement was thrown out in court so anybody can hang up a shingle saying they’re a professional tax preparer and they don’t need to do didly squat to prove they’re competent.

So how do you tell if the person you’re hiring to do your taxes is legit or not? I was recently asked that question at a panel discussion about Enrolled Agents on the web the other day. The feedback I was getting from the non-tax preparers is that they don’t know what questions to ask, or what to look for when hiring a preparer.

Enrolled Agents are licensed by the Department of the Treasury to represent taxpayers before the IRS. That means we are hired by and work for citizens to help them with their IRS issues. We do not work for the IRS. CPAs and attorneys are also allowed to represent citizens before the IRS; they are licensed by their respective states. EAs are federally licensed.

So, being an EA, I’m going to recommend you hire an EA. My buddy the CPA will say to hire a CPA. And I’ve got a couple of tax preparer friends who don’t have any initials after their names that, to be perfectly honest, are really good tax preparers. But the biggest issue I think a regular person has to be aware of is—how do you know the person you hired isn’t a fraud?

Face it, I can tell you I’m an EA until I’m blue in the face, but how do you know? Ask to see my license! Oh sure, I’ve got a nice little document hanging on my wall. I got that back when I first became an EA. But EAs need to renew their licenses every three years. You want to take a look at the license I keep in my wallet. (I’m not going to post it online to prevent some fraud monster from copying it.)

Another way to check out a preparer is to go online and look them up. You can check on an EA by going to the National Association of Enrolled Agents website: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx

If you want to check out a CPA, you can find out their status at CPA verify: http://www.cpaverify.org/

One thing that everyone who prepares returns professionally must have is a PTIN number, that’s a Preparer’s Tax Identification Number. Anyone who gets paid to prepare tax returns must use one of these numbers when preparing your return. You can check on a PTIN number by checking out this directory: http://www.ptindirectory.com/ the big problem with that directory is that if the preparer hasn’t enrolled in it, she won’t be listed. Now, the IRS is supposed to have their own directory, but they charge you $35 and they send you a CD, so that’s really not a user-friendly option.

It’s important to know that non-paid preparers, like the volunteers at VITA or AARP, do not have to use a PTIN on your tax return. So if you’re using one of those services and there’s no PTIN number on your tax return, that’s okay. VITA does have a pretty decent training program for its volunteers.

This is important: If you pay someone money to prepare your taxes and there’s no PTIN number for the preparer down by the signature line—Walk away and do not pay for the return. That’s the number one sign of tax fraud. The PTIN is the IRS’s way of keeping track of tax preparers. Anyone not using a PTIN is hiding something.

Here’s another thing to watch out for: If your preparer promises you a big refund before she even sees your paperwork. How can they know how much you’ll get back if they haven’t even looked? That’s another deadly warning.

Another big fraud scam is when they say they can get you money for something you haven’t done: for example—college tax credits. That’s the most recent scam that tax preparers went to jail for in my city.

What’s scary is, I think I spoke to one of their clients on the phone last year. I received a call from a fellow asking me what I’d charge to do a tax return with a college tax credit. I asked the man a few questions about his return and I realized that he didn’t qualify for a college tax credit—and I told him so. He didn’t seem to care he just wanted me to prepare the return, claiming the illegal credit, and charge less than the other guy who told him about the scheme. I told him I wouldn’t do that return for him. I’m not sure who he had gone to, but at least one group of preparers is now going to jail for illegally preparing returns claiming credits. http://www.stltoday.com/news/local/crime-and-courts/owner-of-st-louis-mo-money-tax-prep-franchise-pleads/article_804ad59d-d455-5865-a2f8-28b15a49d6fd.html

So, here’s my best piece of advice: if a tax preparer tells you that you can get money back for something you know isn’t true, DON’T DO IT! You could wind up in big trouble, and your preparer could wind up in jail.

Posted on July 23, 2013May 31, 2016 by Jan Roberg

What Can an Enrolled Agent Do for Me that I Can’t Do Myself?

Photo by T M Tonmoy Islam @Flickr.com

The other day at a networking meeting I was asked the question, “What Can an Enrolled Agent Do for Me?” I really had to think about that. You see, I had two different answers: The first one was, “nothing” and the second one was, “everything.” Both answers are right. Let me explain.

An Enrolled Agent is someone who is licensed by the Department of the Treasury to represent taxpayers like yourself in front of the IRS. Let’s say you are getting audited, you can hire an Enrolled Agent to help you through it. If you have an Enrolled Agent, you don’t have to talk to the IRS at all; the EA can do all the talking for you. That’s probably one of the biggest advantages.

You can represent yourself, but most taxpayers really should not try to represent themselves during an IRS audit. You’ve probably heard the saying, “The defendant who tries to represent himself in court has a fool for an attorney.” It’s pretty much the same in an audit. Honest, intelligent people can get themselves tripped up by the IRS.

For example: one taxpayer was trying to represent herself when the IRS denied her refund claim on an amended return. She had made numerous phone calls and written letters to the IRS explaining her claim, but was getting nowhere. When she called me in, I discovered that she had been responding to what she “thought” was the problem, not what the IRS was asking for. It’s actually a fairly common mistake—talking to the IRS can be confusing.

Another issue is debt resolution. You might have seen those tacky TV commercials where the little old lady says, “I settled my taxes for pennies on the dollar.” That’s known as an Offer in Compromise (OIC). And while that company is out of business now (they used some questionable practices) an Offer in Compromise is something that an Enrolled Agent can do for you. But there’s a really important thing about preparing an Offer In Compromise in the first place: it’s knowing if you really need one in the first place. For example: I once received a call from a woman who wanted me to prepare an OIC for her because the IRS said she owed them $15,000. Well, I could have just done the OIC paperwork, but I reviewed her tax returns first and found that the IRS actually owed her $8,000 instead. An $8,000 refund is a whole lot better than paying anything to the IRS isn‘t it?

Enrolled Agents are required to prove their competence in all areas of taxation, representation and ethics before they can practice before the IRS by passing a three-part federal exam. All enrolled agents specialize in taxation. This is very different from attorneys or CPAs who are licensed by their respective states and may not specialize in taxation at all.

An Enrolled Agent can prepare a tax return, represent you in an audit, and help you settle your IRS debt. Some Enrolled Agents can even represent you in Tax Court, but only those EAs that have passed a special Tax Court exam can do that.

The Enrolled Agent designation was created back in 1884 when Congress passed the Horse Act. At the time there were lots of dubious claims for Civil War reparations—there were more claims for horses then there were horses lost in the Civil War. Most of the dubious claims were from agents representing the people with claims as most of the agents were scam artists and con men. Congress decided that the agents needed to be regulated. They created a standard which required suitability checks, criminal record checks, moral character, and testing. When the income tax was passed in 1913, the role of Enrolled Agent was expanded to include claims for relief of citizens whose taxes had become inequitable. As tax regulations became more cumbersome and complex, the role for EAs kept expanding.

As an Enrolled Agent, I can do a lot to help you with your taxes; but, I’m no longer able to get Congress to give you a horse.

For more EA information you can check out the McTax Hangout video: https://plus.google.com/u/0/106432421922678528479/posts/iKYcxFGzZjn?cfem=1

Posted on July 16, 2013November 15, 2018 by Jan Roberg

What Every Divorced Woman Needs to Know About Retirement: Social Security

Ex-spouses may claim Social Security based upon their exes' earnings.

If you’re divorced, but were married for more than 10 years to your ex-spouse, you may be able to claim Social Security benefits based upon his income.

This may come as a surprise to you, but your ex-husband could turn out to be good for something after all. If you were married for at least 10 years, you may be entitled to Social Security benefits based upon your ex’s income—that is, if he’s entitled to Social Security benefits.

Here’s how it works: let’s say you’re thinking about retiring. You go to the Social Security website and find out what your benefits would be if you retire at 62, if you retire at your full benefit age, and if you retire at age 70. Then you call Social Security to find out what your benefits would be if you used your ex’s Social Security benefits. The number is (800) 772-1213. If you retire at 62, you can get 35% of his benefit; at full retirement age, you can get 50% of his benefit.

Let me show you with an example: Jane is 60 years old and she’s contemplating what she wants to do about retiring, whether to start taking benefits at 62 or hold out until later. She runs the numbers on the Social Security website ( www.ssa.gov ) and gets the following information:

Retire at 62, monthly benefit: $ 585
Retire at 66, monthly benefit: $ 820
Retire at 70, monthly benefit: $1,040

Those aren’t great numbers. Jane didn’t always work because she was raising a family, and when she did work, well, she didn’t make all that much money. But Jane’s ex-husband, Tom, made plenty of money. Using the Quick Retirement Calculator at ssa.gov: http://www.socialsecurity.gov/OACT/quickcalc/index.html.

Jane estimates Tom’s Social Security earnings will be $2,586 per month at retirement. Now she’s going to want to actually talk to the Social Security folks to get the real numbers, but the calculator will give her a rough idea.

So, if Jane retires at 62, she can qualify for 35% of Tom’s money which would be $905 per month. If she waits until her full retirement age, she can qualify for 50% of Tom’s money which would be $1,293. For Jane, she can make more money retiring using Tom’s benefits than she can make on her own.

This is really important to know:

Your ex-husband will not lose his Social Security benefits if you use them
You cannot be currently remarried and qualify for your ex’s benefits
If you have had more than one marriage that lasted for over 10 years; you may use the spouse that gives you the greater benefit

If you claim Social Security based upon your ex-husband’s benefits before you reach full retirement age you will not be able to switch back to your full benefit at age 70. You really want to think long and hard about those numbers before you retire early.

What you’re eligible to receive from Social Security is very personal. It’s all based upon your individual contributions, you can’t make any assumptions based upon what your friends or neighbors get. You can learn what you’re eligible for by creating your own account at the Social Security website. It only takes about 10 minutes. Finding out about benefits from an ex-spouse will take a bit longer because it involves a phone call and the hold times can be pretty long. Isn’t it worth finding out?

Posted on July 9, 2013May 31, 2016 by Jan Roberg

Where’s My Amended Return?

Photo by Kate Sumbler on Flickr.com

What do you do when you file an amended tax return but you haven’t heard back from the IRS? Well now you have access to an online tracking tool to let you know what’s happening. It’s called “Where’s My Amended Return?” Okay, so the IRS isn’t so great at catchy names, but that’s probably what you’d type into Google if you were researching it right?

And the best part is, it’s not that difficult to use. Here’s a link to get you there: http://www.irs.gov/Filing/Individuals/Amended-Returns-(Form-1040-X)/Wheres-My-Amended-Return-1

If you don’t want to do this on the internet, you can always call them. The number to follow up on an amended return is: 866-464-2050. That is a toll-free number, I recommend not calling when you can click the link and get the information much faster. Save calling the IRS for those times when you absolutely need to.

In order to access the amended return information (whether you call or use the internet) you’re going to need to provide the following information: social security number (if you’re married filing jointly you’ll need the social of the primary taxpayer–the primary is the person whose name is on the top, not necessarily the one who makes the most money. You’ll also need your of birth (or the primary’s) and your zip code.

The “Where’s My Amended Return?” website will only access information on 1040Xs for the current three eligible years. If you amended old tax returns or you have Net Operating Loss Carry-backs–this website won’t have any information for you, you’ll have to call the IRS directly for that information.

While this new web tool is good for most returns, there are a few other things you won’t be able to get information on: injured spouse claims, returns with foreign addresses, and business returns are not available here. Also, if your amended return was re-routed because of some special circumstance; such as you amended your return because of a CP2000 notice (that’s one of those IRS nasty little ‘whoopsie we think you made a mistake’ letters.)

Even though there are many types of returns that aren’t listed in the “Where’s My Amended Return” website, it’s the best place to start. Any time you can get an answer from the IRS without having to actually call and wait on hold it’s a good thing.

Generally, you’ll have to wait at least three weeks before you can access information from the “Where’s My Amended Return?” website. Most amended returns take 12 weeks to process and some can take even longer. If you’re looking for a refund, think in terms of waiting at least three months before you’ll see the money.

Of course, if you owe, you should pay right away, because the debt will back date to the date the original return was due and the IRS will start charging you penalties and interest from that point in time. For what it’s worth, they do pay you interest if you have a refund coming.

Amended returns are not the fastest thing happening at the IRS, but at least now you have a tool for tracking them.