Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Phony IRS Scammers Busted

Posted by taxguru on November 2, 2018

With all of the scam phone calls from phony IRS agents, threatening arrest over bogus tax debts unless money is sent to them via gift cards and other crazy methods, it’s great to see that some of them have been caught and will be residing in the Gray Bar Hotel for a while. 

IRS Impersonator Scam Leader Sentenced to 135 Months in Prison After Stealing Millions of Dollars; Co-Conspirators Also Imprisoned

While they are also supposed to pay back the $10.7 million dollars they stole from their 6,282 gullible victims, that’s not very likely to happen.

Posted in scams | Comments Off on Phony IRS Scammers Busted

IRS Cutting It Close For Hurricane Michael Filing Delay

Posted by taxguru on October 12, 2018

With Hurricane Michael barreling down on us, I was wondering when IRS would announce their official special delayed filing due date for 2017 income tax returns, as had been their customary policy during other large destructive weather events.  I was checking their news page every few hours for the past week.

The hurricane was declared a Federal Disaster by Trump, one of IRS’s main criteria for allowing more time for those affected by a humongous natural catastrophe to get their tax returns in.  I knew they would eventually get around to issuing an official news release regarding this event.  However, considering that the extended 2017 1040s are due in the mail in three days from now, by Monday, October 15, today’s news release was just in time for those of us who were affected by Michael. Now, people can focus on the clean-up tasks rather than stressing to meet the Oct 15 filing deadline.

IRS’s news release from today:
IRS extends Oct. 15 and other upcoming deadlines, provides expanded tax relief for victims of Hurricane Michael

The money quote from this news release:

“individuals who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018, will now have until Feb. 28, 2019, to file.”

Posted in Due Dates, hurricane, IRS | Comments Off on IRS Cutting It Close For Hurricane Michael Filing Delay

IRS QBI Proposed Regs

Posted by taxguru on August 8, 2018

As most people know, the most complicated aspect of the TCJA was the brand new Section 199A deduction for 20% of Qualified Business Income (QBI).  In a perfect example of hasty, sloppy, vague, poorly explained legislation, how this new tax break will work in the real world is a big mystery.  In my 43 years in the tax biz, I can’t recall a more poorly defined bit of tax legislation.

Since the TCJA was signed into law in December, there has been an unending stream of articles, books, webinars and seminars on how we tax pros are supposed to calculate and handle this new QBI deduction.  To say that there are huge discrepancies between how people have been interpreting this new IRC Section 199A is a massive understatement.  Many tax analysts have made the correct assumption that the actual real life application of this new deduction won’t be firmed up for several years, after disputes with IRS over real life tax returns have been adjudicated in court.

The IRS has also been studying this issue and has just today published their first draft of proposed regulations on the QBI deduction.  Contrary to popular belief, what IRS thinks about a certain tax matter doesn’t automatically make it indisputable gospel.  It is just their opinion and taxpayers and their advisors are free to exercise their own differing opinions if there is some valid logic behind them.  With a law as vaguely written as TCJA, there are gigantic opportunities for a slew of different interpretations that will make just as much logical sense as what the IRS has come up with and will in the future.   

IRS Press Release: IRS issues proposed regulations on new 20 percent deduction for passthrough businesses

The proposed regulations184 page PDF

IRS FAQ Page on Section 199A

Tony Nitti’s review of the proposed regs in Forbes

Kiplinger’s 3-Page FAQs from 7/12/2018 (before the release of IRS proposed regs)

Review of proposed regs from TaxSpeaker (nee Jennings Seminars)

Posted in IRS, NewTaxLaws, QBI | Comments Off on IRS QBI Proposed Regs

Modifying the 1040 For TCJA

Posted by taxguru on June 30, 2018

This time of year is when IRS routinely starts working on updating the tax forms for next Tax Season.  The draft versions of the forms are posted on the IRS website for people to comment on.  I like to check it every few days for the new releases of forms that I use a lot.

I rarely say this, but this year, with the sloppily written TCJA taking effect, I actually feel sorry for the IRS form designers, as well as the State tax agencies that base their taxes on Federal numbers.  As any tax pro will tell you, our GOP rulers in DC passed a tax law that in many respects resembles a big pile of elephant poop and IRS has the thankless task of trying to bring it to life by modifying existing tax forms and designing new ones. With such aspects of the TCJA as the brand new and extremely convoluted 20% QBI deduction, who knows what the form or schedule for that will look like? 

The first stabs at the 2018 1040 form have hit the IRS’s Draft Forms webpage, along with the following press release.

IRS Working on a New Form 1040 for 2019 Tax Season

Accounting Today posted the following article on the newly revised forms:

IRS and Treasury preview postcard-size Form 1040

Whether this qualifies as actual tax simplification or not is open for interpretation.  As they mention in the news release, they are eliminating the 1040A and 1040EZ forms and forcing everyone to start with the same newly revised basic 1040.  Not having prepared a 1040A or EZ in well over 35 years because they didn’t have a place for paid preparers to sign, I personally have no problems with those forms biting the dust. 

However, the claim that tax returns will now be “postcard sized” is not exactly the entire story.  While it may be true that the basic 1040 form will be half the size physically (8.5” X 5”) as the normal 1040 has always been (8.5” X 11”), it will still be necessary to attach a lot of supplementary forms and schedules to support the numbers being entered onto the 1040 summary pages.  It is no secret that I have never used e-filing with IRS or any State tax agency due to the complexity of the returns I prepare which require a lot of supporting pages.  With double sided copies, we often send out tax returns for clients to file that are one or two inches thick.  With this new tax law, I don’t think we will have any reason to retire the heavy duty staplers we use.

On the IRS’s draft form web-page, they have just released their first public look at the new 1040 for 2018, along with the first six new backup schedules, creatively named Schedules 1 through 6.  These backup Schedules basically consist of the lines that were removed from the 2017 1040 in order to make it half-page size.  Whether that works out well or not remains to be seen.  With all of the other forms and schedules full sized, I think it will be a bit awkward to mix them with half pages.  It doesn’t look like the IRS Service Centers will be having much fun processing paper returns with mixtures of different size pages.

I have downloaded all of them and taken quick looks at them.  You can download them yourselves from the IRS website or from the following direct links. 

Form 1040 – U.S. Individual Income Tax Return

Form 1040 (Schedule 1) – Additional Income and Adjustments to Income

Form 1040 (Schedule 2) – Tax

Form 1040 (Schedule 3) – Non-refundable Credits

Form 1040 (Schedule 4) – Other Taxes

Form 1040 (Schedule 5) – Other Payments and Refundable Credits

Form 1040 (Schedule 6) – Foreign Address and Third Party Designee

Quick Observations:
Totals from Schedules C, E & F will go onto the new Schedule 1

Schedule 5 includes a lot of lines called “Reserved” showing how confused IRS is with the new tax law, as we all are.

 

I also feel sorry for the tax preparation software engineers, who will be up to their eyeballs with all of the form changes.  The 2019 Tax Season will be messy, to say the least.

Update 7-11-2018:
IRS has just posted its first draft of the 2018 Schedule A on its website.

Posted in Tax Forms, TCJA | Comments Off on Modifying the 1040 For TCJA

Tax Season Down Under

Posted by taxguru on June 30, 2018

Most people know that, being on the other end of the planet, Australia’s weather seasons are backwards from ours here in the USA.  When we are in the Summer heat, they are in Winter’s cold, and vice versa. 

What I didn’t know until recently is that their Tax Season is also opposite ours.  While we report our personal income tax data on a January 1 – December 31 calendar year basis, the Aussies are required to keep their books on a tax year from July 1, 2017 through June 30, 2018.  They even have a special name for June 30, EOFY (End Of Financial Year). Their tax return “lodging” time for that tax year is from July 1, 2018 through October 31, 2018.

Their equivalent to our IRS is the ATO, the Australian Taxation Office.

I actually learned about this from this bit from this week’s episode of “Weekly With Charlie Pickering,” which I have recently become a big fan of.

 

Click here for a lengthy discussion by the Gruen panelists on how many products are advertised for June 30 EOFY sales, including the fact that last minute purchases of business items are tax deductible. It’s very similar to our December 31 year-end sales here in the US.

Posted in Australia, tax season | Comments Off on Tax Season Down Under

Estate Planning Mistakes

Posted by taxguru on June 10, 2018

It’s not just income tax laws that are constantly changing and requiring strategic modifications.  Estate planning is also a moving target that requires constant course corrections, especially with the recent big tax law changes.  

Just as I have always considered it extremely dangerous for people to attempt to prepare their own tax returns, it is at least ten times riskier to try to handle estate planning without the assistance of an experienced estate attorney.  The books and software that are available at places such as Nolo Press are great for learning about the estate planning process and preparing for your meeting with the attorney who will be doing the actual paperwork, but trying to do everything on your own is insane.

I came across this excellent Kiplinger article by New Jersey CFP Eric Reich, on the Jewish World Review website

10 Surprising (or Surprisingly Common) Estate Planning Mistakes

I have seen examples of many of the scenarios mentioned in this very informative article.  I could even add some to this list, which I will do when I have more time.

Posted in Estates | Comments Off on Estate Planning Mistakes

Toying With IRS Phone Scammers…

Posted by taxguru on June 2, 2018

Funny and educational story arc in this week’s Sally Forth comics, illustrating how widespread these scam calls have become. 

Click on pic to get full size version.

SallyForth-IRSScamCall(5-28-18)

SallyForth-IRSScamCall(5-29-18)

SallyForth-IRSScamCall(5-30-18)

SallyForth-IRSScamCall(5-31-18)

SallyForth-IRSScamCall(6-1-18)

SallyForth-IRSScamCall(6-2-18)

Hopefully, this will help prevent more people from falling victim to the scumbags. Not everyone has gotten the message from conventional sources, such as these recent IRS news releases.

IRS continues warning on impersonation scams; Reminds people to remain alert to other scams, schemes this summer

Taxpayers should stay alert because scammers don’t take a summer vacation

Posted in scams | Comments Off on Toying With IRS Phone Scammers…

Parent Payback Scheme

Posted by taxguru on May 26, 2018

I recently discovered Gruen, a very interesting TV show from Australia about advertising and marketing topics.  A feature of each week’s show is to have two ad agencies each create a commercial for an off the wall topic.  This week’s Pitch had to do with teaching kids the value of the money their parents have to shell out for them

Posted in Gruen, parody, video | Comments Off on Parent Payback Scheme

Home Office is not an audit Red Flag

Posted by taxguru on May 5, 2018

One of the most common myths I have been hearing and reading for decades is that claiming a deduction for an office in the home is going to cause IRS to audit your tax returns.  Kiplinger even made this idiotic claim in a January 2018 article on IRS audit red flags

Nothing could be further from the truth and it’s a shame that so many people have essentially forfeited the tax savings this deduction would produce based on such erroneous info. 

This kind of ignorance might be expected from non tax pros; but it turns my stomach when I hear someone say that their tax advisor told them to not claim a home office deduction in order to avoid IRS problems.  That borders on malpractice.  Any tax pro with that opinion needs to be avoided.

Having prepared countless amended returns to pick up missed home office deductions for new clients over the years, there has almost always been a larger related benefit; much larger deductions for business vehicle mileage.  When it is established that your business day begins at your home office, additional trips to any outside business locations, such as another office several miles away, are considered to be deductible business miles instead of nondeductible commuting miles.  On several amended returns, the tax savings from the home office deduction was in the hundreds of dollars, while the tax savings from the increased business mileage was in the thousands.

My motivation for this update is a recent IRS news release, where they are actually encouraging small business owners to claim the home office deduction. 

For Small Business Week, IRS offers tips to small business owners about the overlooked home office deduction

Unless you believe that this is some kind of dastardly entrapment scheme to lure in unsuspecting future audit victims, I would say that this should lay to rest the fallacy that claiming a home office deduction is an Audit Red Flag.

Posted in home office | Comments Off on Home Office is not an audit Red Flag

New Rules For Deducting Meals & Entertainment

Posted by taxguru on April 25, 2018

As I mentioned earlier, the big “Tax Reform” law, aka the Tax Cuts and Jobs Act (TCJA), that was passed and signed into law in late December 2017, was so hastily and sloppily written that it contains several areas that are so vague and contradictory that they have everyone puzzled as to how they should be applied in real life.  One of these is the matter of deducting the costs of business meals and entertainment.  While it will most likely take several years to arrive at a firm and definitive interpretation of the law, we who do reside in the real world don’t have the luxury of waiting that long.  We need to know right now how to advise our clients. 

To that end, the fine folks at TaxCoach have assembled a handy chart comparing the rules for deducting various types of meals and entertainment expenses under the old 2017 tax law versus the new 2018 law.  They shared it with us during today’s weekly online strategy meeting.  Theirs was a PowerPoint file, which I have converted to its basic graphic and text components for this blog post.  The following chart and explanation are the creations of TaxCoach

Click on the chart below for a more legible full size version.

TC-M E(17v18)

Here are some changes you probably won’t like. Like a kitchen food processor, the new law slices, dices, and purees some of the most popular deductions for meal & entertainment expenses. The chart summarizes deductions under the old and new law.

For starters, there’s real speculation that the law may have unintentionally eliminated deductions for the classic “three martini” lunch entirely. Under the old rules, meals with prospects, clients, and referral sources were deductible under the same rules governing entertainment expenses. The new law repeals the umbrella deduction for entertainment expenses , which would appear to include business meals. However, the Senate explanation to their version of the bill, which ultimately made it into law, states that “Taxpayers may still generally deduct 50% of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel).”

So, which is it? Are traditional business meals still deductible or not? Well, we just don’t know. So until we get some guidance, prudence suggests you should continue to document those expenses, including the business purpose of the meal, to protect your deductions if we get clarification on the question. Better to have your ducks in a row and not need them than to need them and not have them!

Transportation expenses to and from business meals are still deductible, as they’re governed by a different section of the code that remains good today.

Unfortunately, there’s no doubt at all that the old “entertainment” deduction is gone. Under the old rules, you could deduct 50% of the cost of any entertainment expenses that took place directly before or after a a substantial, bona fide discussion directly related to the active conduct of your business. Deductions included the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes, and tips. The new law repeals that deduction, regardless of how much business you discuss at the event or what business entity you operate. Now, none of those expenses are deductible – not even transportation to and from the venue.

The new law also tightens rules for deducting the cost of providing food and beverages to your employees under the “convenience of the employer” or “de minimis” fringe benefit rules. The new law cuts those deductions to just 50%, and eliminates them entirely after 2025.

Posted in meals, NewTaxLaws | Comments Off on New Rules For Deducting Meals & Entertainment