Posted on January 10, 2014May 31, 2016 by Jan Roberg

Why You Deserve An Enrolled Agent

Have you seen the new TurboTax commercial about how awesome you are? It’s a great commercial. And yes, you are totally awesome.

Turbo tax says that you are so awesome that you can do your own taxes. To be quite honest, lots of people can. Some people shouldn’t. Here’s a video of someone who shouldn’t have.

Tim Geitner explaining his tax problems to Congress.

Here’s the thing. Can you do your own taxes as well as I can do them for you? No—probably not. (Sorry, that sounds snobby but I’m really good at what I do.)

But can you do them well enough? Maybe you can. Pretty much, if you only have W-2 income and don’t itemize your deductions then you’re probably fine doing your own taxes. There are some tax situations where no matter how good I am at taxes; I’m just not going to get you any more money back than you’d get for yourself. (My mother would say, “You can’t bleed a turnip.” Yes, my Mom said some weird stuff.)

Now, you’re a “do it yourself” kind of person, and you don’t have complicated taxes, you can go straight to my 1040.com web-site and do it yourself from here: https://fileonline.1040.com/1040/Home/?did=95443 It’s an alternative to Turbo Tax and it’s a little less expensive. You can try it for free and see how you like it. You don’t have to pay unless you actually file your return there.

But—if you are self-employed, have investment income, retirement income, rental income, education expenses, are divorced with children, are a high income earner, have cancelled debt, going through bankruptcy or a number of other issues—you can really benefit from the services of a qualified tax professional.

Here’s a couple of things that I don’t like about Turbo Tax:

There are 4 ways to claim an education expense on your tax return. TT doesn’t always give you the best one for you. It usually does, but not always.

TT categorizes you: home owner, business owner, someone who owns stock or rental property, or someone in the military. Many people fit into more than one category and I’ve got a couple that could claim “all of the above”. A tax professional won’t pigeon-hole you.

TT is not made for splitting a child’s exemption between divorced parents. That’s a matter for an Enrolled Agent.

If you’re a high income earner subject to Alternative Minimum Tax (AMT), TT will just compute the tax, it’s not equipped to help you find ways to reduce the AMT like an EA can.

Here’s the biggest one: most of the audit cases that I handle during the year come from people who prepared their own tax returns using Turbo Tax. I appreciate the business, I really do, but taxes are complicated. They shouldn’t be, but they are. And sometimes you need help.

When I was a kid, my dad had a whole list of things I had to be able to do before I was allowed to go away to college. One of those things was to be able to change a tire. I can change a tire all by myself, thank you very much. But, awhile back, I got a flat on Higway 44 during a snowstorm. It was cold and blowing and the trucks were whipping past me at 70 miles an hour. I was very grateful that I had signed up for AAA.

An Enrolled Agent navigating complicated tax rules is kind of like the AAA guy changing your tire for you during a snowstorm. I kind of like changing a tire. I know that sounds silly but I do. But I’m also smart enough to know when I need help.

You’re awesome, you truly are. You are so awesome, I think you deserve an Enrolled Agent.

Posted on December 24, 2013December 6, 2018 by Jan Roberg

5 Things You Probably Didn’t Know About Santa’s Tax Return

What about Santa’s taxes? Here’s a few things I bet you haven’t thought about before.

1. Given that Santa travels about 75 and a half million miles a year (mostly on December 24th) his mileage deduction (at 54.5 cents per mile in 2018) is $41,147,500.

2. Reindeer are depreciated over a period of 7 years.

3. North Pole elves are considered employees and receive W-2s. Elves outside of the North Pole are considered contract labor and receive 1099s. (There are people who work as “elves” outside the North Pole that work for other organizations–like at the mall, who receive W2s, but they are not real elves and are not employed by Santa himself.)

4. Because the elves live at the North Pole for the convenience of their employer, and since living at the North Pole is a condition of employment, elf lodging is not taxable to the elves.

5. Santa doesn’t actually make any money from his toy distribution operation. Most of Santa’s income comes from royalties from his guest appearances in movies, books, and television commercials.

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Footnotes:

1. Santa’s distance traveled: The Physics of Santa, http://www.daclarke.org/Humour/santa.html

2. Reindeer depreciation: IRS publication 225 Farmer’s Tax Guide

3. Elves are employees: Common Law Rules of employment, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

4. Elf housing: IRS publication 15B Employer’s Tax Guide to Fringe Benefits

5. Santa’s income from royalties: https://en.wikipedia.org/wiki/Royalty_payment

Posted on November 12, 2013May 31, 2016 by Jan Roberg

IRS Letters – the CP 2000: Common Errors and How to Fix Them

Photo by 401(K) 2012 at Flickr.com

Have you gotten a letter from the IRS that says something like this?

“The income and payment information we have on file from sources such as employers or financial institutions doesn’t match the information you reported on your tax return. If our information is correct, you will owe…”

That letter is called a CP2000—it’s from the Individual Automated Under Reporter Unit of the IRS. In 2012, they issued 4.5 million notices with an average of $1,572 in additional taxes owed. That’s over $7 billion dollars!

Just because you receive one of these CP2000 letters, doesn’t necessarily mean that you owe the IRS any money. So before you go writing the IRS a check, you need to take a look at your tax return and the CP2000 letter very carefully to make sure you owe before you pay. Let’s take a look at some of the most common things the IRS is asking about.

Missing W2: You’d be surprised how many people forget a W2 off of their tax return. It’s easier than you’d think. You could have a Christmas season sales job at Macy’s in 2011 but get a pay check for one day in January 2012. When you file that 2012 tax return in 2013, you’ve forgotten about that one paycheck. If you moved during the year, you might never get your W2. If you forgot a W2 on your tax return, usually it’s just best to sign the letter and pay the tax.

Missing stock trades: This is probably the most common type of CP2000 letter that I see and they fall into two categories. The first is employee stock options. If you work for a company that issues employee stock options, when you exercise those options, you pay the tax through your payroll withholding. Even though the stock options are accounted for in your paycheck, you still have to do additional paperwork on your taxes. If you don’t also report the employee stock options on a Schedule D, you’ll get an IRS notice. Usually, if this is what happened, you won’t owe any additional tax, you just need to submit the missing paperwork.

The other category of missing stock options consists of trades that just weren’t reported. Many people who made the election to receive their brokerage notices online didn’t realize that their 1099B notices were online also. I think that’s one of the most common reasons I’ve heard for people not reporting their trades. If you fall into this category, remember that the IRS doesn’t always include stock basis when they figure your tax. If you have stock trades on your CP2000, you’ll need to prepare an amended return and be sure to include the basis of all our stock trades. You may still owe the IRS money, but I’ve never seen one of these cases where the person owed the IRS the full amount that the IRS stated.

Mismatched documents: This happens all the time. For example, let’s say that you have three accounts at Bank of America. One earned $10 interest, another earned $15, and the other earned $20 of interest. You put $45 of interest down on your tax return. And that’s right. But the IRS may get the documents as 10; 15; and 20 and since it’s a computer and not a human that does the matching, you could get a notice saying you didn’t report your interest properly. You can usually solve issues like that with a simple phone call.

These are just a few of the more common and easy ways to solve CP2000 issues. If you receive a CP2000 letter and it doesn’t make any sense, or you just need some help, please call us. That’s what we do.

Check out the IRS link as well: http://www.irs.gov/Individuals/Understanding-Your-CP2000-Notice

Posted on September 3, 2013May 31, 2016 by Jan Roberg

How to Check Your Social Security Annual Statement (And Why You Want To, Even if You’re Only 18)

Photo by 401(K) 2012 at Flickr.com

“Social Security, that’s for old people. Social Security won’t even be around when I retire.”

Let’s look at that second statement first. Social Security won’t be around when you retire. That’s what I was told back in college thirty years ago. “There will be no more Social Security by the time you retire, you’re just paying in and you’ll get none of it back.” That was Gospel when I was 20 but Social Security is still here. We’re still being told doom and gloom stories and granted Social Security is not perfect. I wouldn’t plan on it being my only source of retirement income—but I suspect that it’s going to be around for a long time so you need to make sure your Social Security records are right.

Now I agree that Social Security is mostly for old people, but it also affects your payments should you become disabled and your spouse’s and children’s survivor benefits should you die. We don’t want those things to happen, but Social Security is there for those situations.

The reason you want to check your Social Security statement every year is to make sure that the wages you earned are listed correctly. Most of the time they’re right but not always. Usually if there’s a mistake, it happens in a year when you received two or more W2s. Sometimes they’ll report one or the other but not add them together. Other mistakes are possible, but that’s the most common one.

Here’s why it’s important—Did you know that Social Security uses your top 35 years of wages and self employment to figure your Social Security benefits? Thirty-five years! That’s fine if you graduated from college, got a good job, and worked steadily until you retired. That will give you 35 years and then some, easy.

For the rest of us, life happens. We get laid off, we have babies, and maybe we start our own businesses and have negative income for awhile. We get some zeroes on our Social Security statement. Never in a million years would I have dreamed that the $2.50 an hour job I had back in 1976 would affect how much money I’d get for my Social Security retirement benefit. But it will—because that $2.50 an hour job is better than some of the zeroes that will be affecting my Social Security statement.

So how do you go about checking your Social Security statement? First you’ll need to set up an account with the Social Security Administration. Go to the website: www.ssa.gov . On the left hand side of the screen, you’ll see a picture of a lock and it will say “My Social Security”. That’s where you’ll create your account, or log in if you already have an account.

When you set up your account you’ll need your name (as it appears on your social security card), your social security number, and mailing address. You have to have a valid email address to set up the account. You also have to be at least 18 years old, so if you’re only 16 and working, you won’t be able to verify your employment yet.

One thing the Social Security website is really good at is security. They’re going to ask you questions to identify yourself. Be prepared to freak out a little by how much they know. The SSA gets the information off of your credit report to generate the questions.

Once you’ve got your account set up, you can go in and look at your Social Security Statement. Here’s a sample one that you can see: http://www.socialsecurity.gov/myaccount/SSA-7005-OL.pdf

Page 2 shows how much your payments would be at retirement, assuming that you continue working at your current income. It also shows what your disability payments would be if you became disabled today and benefits your spouse or children could receive if you die. If you haven’t worked long enough to qualify for benefits yet (generally 10 years) it will tell you that too.

Page 3 will give you a breakdown of the wages that have been reported over the years. 2012 wages should be posted now. It’s a slow process; the annual wages that you report on your tax return in April don’t show up on the Social Security Statement until September. So now’s a good time to check. If you find a mistake, you’ll need to contact the SSA and notify them. Usually you’ll need to prove the error by providing them with copies of your W2s.

See why it’s a good idea to do this once a year? Who keeps W2s for 35 years? (No, I don’t. You were thinking geeky accountants weren’t you?)

Make sure you keep your Social Security user name and password in a safe place. You’re going to want to access the account once a year and just check the information to make sure it’s accurate. Labor Day is a good time to check—it’s a celebration of workers, and your Social Security statement is your documentation of your years of working. (Okay, it’s because the information gets posted in September, but that’s not as easy to remember.)

For Labor Day, check your wage history at www.ssa.gov.

Posted on May 21, 2013May 31, 2016 by Jan Roberg

How Long Should I Hold My Tax Returns? Forever If You Live in Missouri!

Photo by Jimmy Emerson at Flickr.com

Forever! That’s what I said. I realize that I’ve made posts about keeping your tax returns before and I’ve said ten years, or even less, but I’ve changed my mind. Keep your tax returns forever! Keep your W-2s also.

Why am I going all crazy about this? Because it seems the state of Missouri doesn’t care how old your old tax issues are. If they think you owe back taxes, there is no statute of limitations. Let me repeat that—NO STATUTE OF LIMITATIONS!

Over the past few months I’ve seen them go after people for back taxes from 2000, 1999, 1995, and my favorite: 1987. Yes, 1987, that’s 26 years ago. If you were asked to produce your tax returns from 26 years ago, could you? I couldn’t.

Here’s the thing—if Missouri believes that you have not filed, or that you perhaps filed but still owe, you’re going to need to provide some sort of proof of payment or filing. If you didn’t keep your tax returns, how can you prove it?

Here’s how it works: Let’s say you filed your federal taxes back in 2000 but for whatever reason your Missouri return was never received by the state. If you had a state tax liability of $1,000 back then, with penalties and interest added, you’d owe $1902 today (May 2013). That’s almost double your tax liability. But it’s not just the fact that your tax liability doubled—Missouri has no record of the withholding you paid. It’s quite possible that you already paid all of your taxes with your withholding, but since Missouri doesn’t track that information, they have no record that you already paid those taxes. Unless you’ve held onto your W2s from back then, you can’t prove you’ve already paid and Missouri is going to want their money.

So, I have officially changed my position. From now on, I say keep all of your tax returns and your W-2s forever. It’s okay if they are digital copies, but it’s absolutely essential that you retain those copies. Hopefully, you won’t need them. But if you do, you’ll be glad you’ve got ‘em.

Posted on February 1, 2013May 23, 2018 by Jan Roberg

Claiming Exemptions—the W-4 for Dummies

NOTE FOR 2018: The Tax Cuts and Jobs Act that was recently passed by Congress is going to change the IRS withholding tables and how we fill out W4s. Right now, we are still waiting for the IRS to supply the new withholding tables and create the new W4s. This post is about the old W4. I will be updating this as soon as I have new information. But right now, the information below is for 2017 and earlier. I do not expect the new information to be available until mid February.

-Jan

I’ve been getting a lot of questions about how many exemptions to claim on the W-4 (Employee’s Withholding Allowance Certificate) form that you give to your employer. People look at the whole 2 page form and get intimidated. For most people—you should just ignore the rest and concentrate on the little part at the bottom of page one. That’s the part in this screen shot up above. It will make your life a whole lot easier.

First, some questions:

I claimed the wrong number of exemptions on my W-4 and now its tax time and I’m going to claim a different number of exemptions. Will I get in trouble for this?

No you won’t. Your employer doesn’t report you to the IRS for not claiming the right amount of allowances. The worst that will happen is that you owe a lot at tax time or get a big refund. (Actually I don’t think of getting a big refund as being a bad thing. Probably shouldn’t call it a “worst case scenario.”) Neither of those things are crimes. It’s possible that the IRS could inform your employer to increase your withholding if the withholding on your W2 is not enough to cover your tax liability. I have never seen that happen to anyone—but the IRS is allowed to do that if they think it’s necessary.

I don’t want any tax taken out of my paycheck. Can I just claim EXEMPT?

No you can’t. Exempt is only for people who will have no tax liability at all. You might have gotten a refund last year, but it doesn’t mean you have no tax liability. Generally, someone with no tax liability makes less than $5,950 for the entire year. For most people, claiming EXEMPT is a really bad idea.

Okay, so what should I claim? Good question. Here’s my suggestion list. See what category fits your best.

You are a student, either in high school or in college. You’re not married and you don’t have kids. Your parents are allowed to claim you on their tax return (you’re under 24 years old.) SINGLE, ZERO ALLOWANCES

You’ve got a job, only one job, you’re living on your own, and you’re single. SINGLE, ONE ALLOWANCE

Now if you have a child, add another allowance for each child. For example, let’s say you’re single with 2 kids, you’d claim single 3 allowances; one allowance for you and one for each of the children.

Single like above but you’re working two different jobs, SINGLE, ZERO ALLOWANCES – because the two jobs kick you into a higher tax bracket than the withholding would show.

You’re married and only one person works: MARRIED, TWO ALLOWANCES

You’re married and you both work—you’ll each have your own W-4 and they will be different

Spouse #1 with higher paying job—claim MARRIED and all the allowances for the family

Spouse #2 with the lower paying job—claim MARRIED BUT WITHHOLD AT HIGHER SINGLE RATE, ZERO ALLOWANCES

Now this is a pretty simplified guide, but it’s much easier to understand than what is on the form. I also find that people are less likely to get into tax trouble with my rules than when you follow the allowances worksheet.

If you want a really good, accurate calculator to figure your proper withholding, the IRS has one on their website. The problem is, as I’m posting this—the calculator is down. You can use this guide for now and you can always tweak your withholding later when it’s back up. Here’s the link: http://www.irs.gov/Individuals/IRS-Withholding-Calculator