Posted on June 18, 2011May 31, 2016 by Jan Roberg

Father’s Day Quiz

Photo by Etsy Ketsy on Flickr.com

Here’s an easy Father’s Day Quiz for Dads. 1. What’s your wife’s name? 2. What are your children’s names? I told you this was an easy quiz. Now here’s the next part: same questions, but what would the answers have been three years ago? Any changes? If your answers have changed over the past few years, here’s a tougher question for you; did you change your will? How about your 401(k)? Your insurance policy?
You see, it happens to everyone. Our families change, we have children, we get divorced, we get remarried, people die. If we don’t manually go in and adjust who the beneficiaries are on our bank accounts, retirement plans, and such, then the money that we’ve worked so hard to save and care for our families might go to the wrong people.
It happens all the time. A man dies, and accidentally leaves a million dollar life insurance policy to his ex-wife. Perhaps his IRA goes to his dead brother. Or maybe he’s left his entire estate to his three eldest children completely leaving the youngest out of the will because he forgot to change it when the baby was born. These are all true stories: the ex-wife had been divorced for five years, the dead brother had been gone for ten years, and the baby was twenty years old.
We all like to think that our family members would do the honorable thing. Think that all you want. But put your wishes in writing with the proper documents. Even if your family does have the best intentions, and the highest level of integrity, if you don’t take care of assigning your beneficiaries, your assets will be left for state law to divide.
Let’s say you have no problem with your state laws and you agree with how the state determines the way your assets will be split. Fine. Of course, it could take years for the state to decide how to split your assets once you’re dead and your family could starve to death waiting. Let’s say you die and there’s no determination as to who your beneficiaries are. Generally, it takes about a year to get your assets out of probate, but I once worked on a case that took three years. For those three years, you know who got paid? I got paid for doing the tax returns, the financial manager got paid for handling the money in the account and the lawyers got paid a bundle.
You know who else got paid? The IRS got paid because the income from the assets in the account got taxed at the highest rate because we couldn’t pass any money through to the family. The family got nothing until the estate was closed. All that money eaten away by lawyers, number crunchers, and the IRS– what a waste. Is that really the choice you’d make?
So here’s your Father’s Day to do list: check your life insurance policy, your retirement plans, your investment and bank accounts, and your will to make sure that you have the people you want to receive that money listed as your beneficiaries. If you don’t, then that’s the first call you need to make Monday morning.
Your family loves you, and they’ll probably show it Sunday morning by giving you a new tie or maybe breakfast in bed. Let me tell you, you’ll get no glory by walking into the kitchen and announcing that you’ve “changed the beneficiaries” in your 401(k) or rewritten your will. That’s okay, you’ll know you did the right thing and that’s good enough for you strong, silent, Dad types. Happy Father’s Day.

Posted on February 16, 2011May 31, 2016 by Jan Roberg

Tax Tips for Persons with Different Abilities

Click here for link to Paraquad, Independence for People with Disabilities.

I received a notice from the IRS about “Tax Benefits for Disabled Taxpayers” and the first thing it mentioned was an increased exemption for blind taxpayers. I found it a little odd because in other parts of the tax code, blind doesn’t constitute a disability so go figure.

In IRS speak, disabled generally means you can’t work and are unable to care for yourself. But, there are plenty of people who are in wheel chairs, deaf, blind, or with some other “disability” but are perfectly capable or working and fending for themselves. Confused? Me too. This blog post is going to cover tax issues for persons with any type of physical or mental impairment.

So first, blindness: there is an additional standard deduction for being blind or partly blind. If you are partly blind, you must get a certified statement from an eye doctor stating that your corrected vision is not better than 20/200 in the better eye, or that your field of vision is not more than 20 degrees. Keep the statement in your records. Of course, if itemizing your deductions gives you a better return, do that instead.

Disability related payments: certain disability related payments such as Veterans Administration (VA) disability benefits and Supplemental Security Income (SSI) are excluded from gross income on your income taxes. If you receive employer provided disability payments, those are taxable.

Impairment Related Work Expenses: If you have a physical or mental disability that limits your employment; you may be able to claim business expenses in connection to your workplace. This is different from the regular employee business expense deduction because you don’t have to meet the requirement that the expense exceed 2% of your gross income. An example of this kind of expense would be a special computer screen for someone with a vision impairment. The key requirement here is that the expenses must be necessary for the taxpayer to work.

Medical Expenses: If you itemize your deductions, you may be able to deduct your medical expenses. This is true for anyone whether they have a disability or not. What’s important here is that you can include costs for making your home more accessible as a medical expense. An example of this would be installing ramps or widening doorways to your home. If the improvements you make increase the value of your home, they are not deductible as a medical expense. An example of something that probably wouldn’t be deductible would be a heated spa; while it would be beneficial to have the heated spa to alleviate pain, the spa would also increase the resale value of the home and therefore couldn’t be claimed as a medical expense.

Earned Income Tax Credit: EITC is available to disabled taxpayers as well as to parents of a child with a disability. If you retired on disability and receive taxable benefits under your employer’s disability retirement plan, that’s considered to be earned income for purposes of the Earned Income Tax Credit until you reach retirement age. EITC not only reduces your tax liability, but it may even result in a refund.

It’s important to know that EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.

If you have a disabled child, there is no age limitation for EITC.

Also, taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be able to claim the Child or Dependent Care Credit. There is no age limit to this credit if the child or spouse is unable to care for themselves.

For more information about tax benefits for persons with different abilities, check out IRS publication 907 http://www.irs.gov/publications/p907/ar01.html

Posted on February 2, 2011May 31, 2016 by Jan Roberg

Tax Tips for Senior Citizens

This year seems to be the year that seniors are getting slammed from all sides. First, there was no increase in Social Security benefits, but the Medicare premium they had to pay was increased leaving them with smaller checks. Last year we had a brief, additional federal tax deduction for real estate taxes which was specially designed to help senior home owners, but that was eliminated for this year.

Here in Missouri, the state recently ended the Historic Preservation Credit, which helped control senior’s real estate tax bills. And right now they’re trying to end the popular Property Tax Credit for seniors who rent instead of own their homes. (Some seniors have already felt the bite of this as the credit is now denied to seniors of subsidized housing.)

So instead of just harping on bad news, what are some tax tips and strategies that are available to senior citizens? First, even if you don’t make enough income to be required to file, file a federal return anyway. Why? Two reasons, the first is that you’re on the radar in the event the government offers some sort of tax rebate or credit for senior citizens. Many seniors missed out on the $250 rebate a few years ago just by not filing. Second, and this is probably even more important, is that if you file a return, there’s a statute of limitations where the IRS can’t come back after you for more money. If you don’t file a return, there is no statute of limitations. I’ve had to deal with seniors who now have tax liens on their homes because they didn’t file a return and the IRS came up with something years later. Had a timely return been filed, the IRS would have been too late to make the claim.

Another important strategy for seniors is planning their income. Depending upon your marital status, your social security becomes taxable once you reach a certain income. You don’t have much choice about how much you receive for your pension, and you’re required to take your minimum required distribution from your IRAs, but you have a lot of flexibility elsewhere. Right now, during the early part of 2011 is a good time to plot out your strategy for your next year’s tax return. If you’re anywhere near the borderline on taxable social security, planning is absolutely essential. Some strategies include: moving assets to a tax free munincipal bond fund, using the charitable donation option on your IRS to use your required minimum distribution, and selling stocks that have lost value to offset your capital gains.

A flip side strategy for some seniors would be if you’re already in a situation where 85% of your social security is going to be taxed, go ahead and do even more taxable transactions. This sounds crazy coming from me as I’m always trying to defer income and taxes, but hear me out. When you’re in the “taxable social security zone”, you’re really paying a double tax. If you’re in the 15% tax bracket, then you’re really paying 30% because that social security wasn’t taxable until you hit the zone. If you’re pushed into the 25% tax bracket, that extra income is really taxed at 50%. 50%! So, let’s say you have a year where you’ve already reached the point where 85% of your social security is going to be taxed. Once you’ve crossed that line, the IRS can’t tax anymore of your social security for that year, the remaining tax will be at the regular rate (25, 28 or 32% so it’s a tax reduction now.) It might just make sense to go ahead and do that extra income transaction now, if it will keep you from having to be in the extra tax zone next year. It’s really going to depend upon your individual situation

Posted on January 10, 2011May 31, 2016 by Jan Roberg

How to Stick it to My Ex with the IRS – divorce issues

Photo by Dr. John Bullas

You wouldn’t believe how often I am asked, “How can I stick it to my ex?” People going through a divorce or breakup are so angry and hurting that it’s natural to want to strike back. While I feel deeply for peoples’ pain and suffering, the best advice I can give to that question is don’t. Here’s why.

The easiest way to mess up someone else’s tax return is to claim their children on your tax return before they can file theirs. It’s that simple. Once the children’s social security numbers have been claimed on a tax return, they can’t be used on another return. That means your ex can’t e-file a return and can’t get the refund she’d get with the kids. It sounds pretty nasty, but there’s a very important downside.

First, if don’t have custody of the children and they haven’t lived with you for at least six months, well then you’d be committing tax fraud. Depending upon the severity of the fraud (especially if you received an Earned Income Credit) it’s even possible that you could see some jail time. How badly do you want to mess with your ex?

But let’s forget the possible jail time. Let’s examine what would happen in a regular dependency dispute. Your ex, if she were smart (or had at least hired someone like me), would still submit her tax return claiming the children. She’d have to mail the return in, because e-file would no longer be available to her. Then because there would be two returns claiming the same children the IRS would issue dependency audits to both of you. That audit letter is around eleven pages long listing several items that you’re going to have to come up with to prove that you are really the custodial parent. The information is fairly easy for a custodial parent to access, downright impossible if you’re not.

So, although you’ve dealt your blow and messed up her refund temporarily, in the end she’ll get the money and you’ll lose the audit. Not only will you have to pay back the tax money you received from the IRS, there will be fines, penalties, and you’ll probably be forbidden from claiming and Earned Income credit in the future (even if you would really be entitled to it.)

So, back to the original question, “Is there a way to stick it to my ex?” The answer is yes, but it will hurt you worse.

Posted on November 4, 2010May 31, 2016 by Jan Roberg

How to Report Tax Fraud

photo by S.E.B.

As an enrolled agent, I have something called client privilege. Basically it means that I can’t tell the IRS what I’ve discussed with a client and I don’t have to share any written information that is not already on the tax return. While it’s illegal for me to file a false tax return, I’m not allowed to tattle either.

But people seem to want me to. I often get calls from people telling me they know someone is cheating on their taxes and they want me to report them. First and foremost, I am not the IRS. If you truly believe that someone is cheating on their taxes and you really want to report it, you have to report it directly to the IRS.

I think the main reason that people call me is they’ve called the IRS first and “nothing happened.” That’s quite possible, and here’s why. For one thing, if you really are reporting tax fraud, you need to fill out form 3949 and mail it to: Internal Revenue Service, Fresno, CA 93888.

Here’s a link to get the form on the IRS website.
http://www.irs.gov/pub/irs-pdf/f3949a.pdf

A phone call won’t do the trick. The IRS wants its paperwork. It has to be the right paperwork and it has to go to the right place.

Second, when completing the form, only answer the questions asked–see the second page of the form for a more detailed explanation of what they’re looking for. Don’t send the IRS anything not specifically asked for. If the IRS is going to build a successful case, they will have to do the work themselves. They have access to an amazing amount of information plus they have the power of subpoena. If they want your evidence, they will ask you for it (but don’t hold your breath.)

Unless you are a crucial witness to the case, you will hear nothing about the audit from the IRS. They won’t even tell you if they perform one. You cannot call them to learn about the audit because the IRS will not be able to tell you anything, it would be a violation of privacy laws. Once you’ve mailed in that form– you’re done. There will never be a phone call thanking you for your assistance. You won’t see the police come and cart the person away. If you’re seeking revenge, you’ll never know if you got it or not.

Here’s another tip: look closely at your motives for reporting the fraud. Are you genuinely trying to report a real tax crime or are you mad at your ex-husband for not paying the child support while buying his new girlfriend a diamond ring? The IRS really does not want to be involved in personal domestic squabbles.

If you are reporting a former spouse, look long and hard at what you’re doing. It’s quite possible that an audit could come back at you. Let’s say you’ve only been divorced for a few months and the IRS performs an audit. If they find that your ex-husband was under-reporting income, they are likely to investigate prior years. If they find that he owes taxes for years that you were married to him, you could be held liable for paying those taxes. Stop and think before you act.

One final thing, if your complaint is that someone claimed your children on his or her return and shouldn’t have, don’t file a 3949 form. Just prepare your return correctly, listing your children as dependents, and mail it in. The IRS will take it from there.

Posted on October 13, 2010May 31, 2016 by Jan Roberg

Business Expenses for Unusual Occupations

Charlee Chartrand as Superman from the Post Dispatch article, see link for full story.

What do you do for a living? Are you in advertising, construction, real estate? When you tell people what your job is do they seem to have a grasp of what that means? Some people’s jobs aren’t so easily defined, like Superman for example.

Actually, his name is Charlee Chartrand and he dresses as Superman for his job. This is not your every day occupation. Now I don’t know Mr. Chartrand and I don’t do his taxes, if I did, my confidentiality rules wouldn’t allow me to talk about him. I read about him in Sunday’s Post Dispatch. I did contact him and ask for his permission to use him as an example though.

The main part of Mr. Chartrand’s job is that he dresses as Superman, hangs around at Cardinals games and collects tips for posing in pictures with fans and tourists. He’s also been performing at birthday parties. If you think there’s no money in this, think again, he can earn as much as $400 in tips in a day. And that’s why he’s going to need to figure out his deductions before he files his tax return.

So what can Superman deduct? Let’s hit the obvious thing first: the costume–all of it. Cleaning, repairing, replacing, clearly this is one clothing expense that will count as a business expense. I would also include his undergarmets. You can’t dress as Superman and wear any old boxer shorts.

The hair: most of the time hair cuts and styling products, etc are not considered legitimate expenses for business, even if you are a professional actor or television personality. In Superman’s case here, I would claim his hair expenses. He has to dye his hair black to be Superman, and he uses four different products to get just the right effect–including the “S” shaped curl on his forehead. I think that goes far beyond what would be normal for Mr. Chartrand during his off duty hours.

I can’t tell from the photo if Superman is wearing make-up or not. He doesn’t look like it, but if he was, I’d allow it. (He might need to darken his eyebrows to match his hair.) A note about make-up: generally, make up is frowned upon by the IRS as a business expense. A clown wearing clown make-up would qualify for a deduction, but most women in any business would not. I once helped a dancer with her return and as we went through her expenses she claimed “a gallon of eyelash glue.” Now, I thought that was an excessive amount even for a professional dancer. “Not for eyelashes,” she said, “It’s to keep my costume on!” Evidently, during a dress rehearsal she had had a “wardrobe malfunction”. In order to keep herself looking decent, she glued her costume on to make sure she stayed covered. That clearly fit the category of “necessary” and I put it in. (Even the meanest IRS agent couldn’t argue that one.)

Let’s get back to Superman, He can probably claim either a home office deduction or rent for his work space. And, since he travels from his home office to his gigs, he can deduct his mileage as well. These are expenses that are pretty normal for many small businesses. It’s important to remember that even unusual businesses have normal types of expenses. Another normal type of expense for Superman might be advertising, if he has flyers or cards that he distributes to get new business.

Here’s another expense that I would use for Superman that might seem out of the ordinary: comic books—Mr Chartrand uses comic books to compare against his costume and maintain the authenticity of his look. I’d count it as a valid business expense.

Also, Mr. Chartrand has a goal of moving to Los Angeles. Making a permanent move to Los Angeles would count as a moving expense, as opposed to a business expense. But, if Mr. Chartrand makes a trip to Los Angeles, to test the market so to speak, he could probably write off most of that stay as a business deduction. This would give him a chance to test out the market and give himself an out to come home if he found Los Angeles wasn’t the place for him.

When claiming business deductions, the key phrase the IRS uses is “ordinary and necessary”.

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

When you’ve got a one-of-a- kind type of career, it’s not always easy to figure out what ordinary means. Hopefully, Superman’s example can give you some ideas about what’s ordinary and necessary for your business.

To read more about Charlee Chartrand, aka Superman, this link will take you to the St. Louis Post-Dispatch article about him:

Superman Story

Posted on September 1, 2010May 31, 2016 by Jan Roberg

Open letter to Charlie Dooley

Dear Mr. Dooley,
I read in the St. Louis Post that you recently released your personal income tax return for public inspection. I do taxes for a living so of course I had to check. The first thing I noticed is that you prepare your own taxes. The second thing I noticed is that you missed a big deduction. Mr. Dooley, you forgot to claim the real estate taxes that you paid in 2009. You missed out on a $1,056 deduction (real estate taxes paid is public record.)
Mr. Dooley, the tax money you would have saved on this deduction alone would have covered the cost of having your return professionally prepared. Who knows what else you could have missed that I can’t just pull up on the internet.
Mr. Dooley, I’m looking forward to seeing you in my office this coming February. If you’re going to be making your tax returns public, they’d better be right.