Tax Guru – Ker$tetter Letter

For the past few months I have been working on a rather lengthy piece on the upcoming new rules mandating electronic filing of 1040s by almost all professional tax preparers.  As a long-time opponent of e-filing, I was always planning on not going along with this mandate and continuing to prepare paper returns with a ton of additional info attached, such as QuickBooks financial statements. 
I have been monitoring the run-up to the implementation of this new requirement with a keen interest in the acceptable procedures for opting out.  There had been mention of some different IRS forms to allow us to submit paper 1040s; but copies of those actual forms were nowhere to be found –  until now. 
I like to browse the IRS’s Draft Tax Forms page at least once a week to see what new changes are in the works.  As I reviewed that page today, I came across Form 8948: Preparer Explanation for Not Filing Electronically and downloaded a copy of that.   

From Tax Info

I am assuming that once this form has been formally placed into service by IRS, Lacerte and other software services will add it to the 2010 program because I will be using it for all of the tax returns I prepare.
Update: I was checking TheTaxLibrary to see if they had the 8948 posted in their forms section.  They didn’t; most likely because it is still only a draft.  However, they did have Form 8944: Preparer e-file Hardship Waiver Request. I’ll look it over and possibly submit it to IRS to obtain a blanket waiver from their new e-file requirement.

From Tax Info

Update 2:  I just downloaded and installed the second 2010 CD for Lacerte and I found that it now has Form 8948 with the following input section.

From Tax Info

 Update 3: IRS Notice 2010-85 has a lot of inf on this issue.

Click for mini-animation:

Happy New Year 2011

New Study: Estate Tax Compromise Impacts 65,000 Small Businesses and Farms –  Interesting look at the effect of the evil immoral Marxist estate (aka Death) tax on small businesses.  The full 13 page pdf report can be downloaded here.

From FoxBusiness: Free Tax Help for the Self-Employed –  And worth every penny you pay for it.

From a client:

Subject: Stocks’ GAINS 2010

Hi Kerry (&Sherry):

 

It’s that time of the year where our Stock Broker calls and says SELL and save on taxes. 

 

Per Broker, Net gains (all Long Term) in 2010 was +/-  $45K (with 15% tax). 

Losses +/-  $15K.

 

I typically pay this matter no mind.  Plus I do not feel right when someone suggests “you better sell”.

WHATCHATHINK???

My Reply:

I’m feeling a bit of deja vu here, because I think we have had this exact scenario pop up in previous years, possibly with the same stockbroker who clearly appears to be more interested in making his personal sales quotas and commissions than in doing what is best for you.

My advice is still the same as it has been for all of the previous years.  Selling just for tax losses is not a wise move.  Sales and purchases should be based on the probable investment potential for the stocks.  If they appear to be heading down, by all means dump them ASAP.  However, if they are doing well and have good upside potential, hold onto them.

If he advises selling off stocks at a loss that you want in your portfolio, you need to be aware of the IRS’s Wash Sale Rule.  If you repurchase those shares or similar ones within 30 days of the sale that showed a loss, IRS will not allow you to actually deduct that loss on your tax return.  You will have to add the loss from the first sale to the cost basis of the replacement shares.  Stockbrokers eager for their commissions will conveniently forget to tell you about that twist to the plan and it will be up to me to break the news to you when I prepare your tax return.

As you know, long term capital gains are taxed at the lowest rate available in the tax system; so having a net positive LTCG isn’t necessarily a bad spot to be in.  For 2010, we actually have those gains taxed at zero and 15% by IRS; so it’s not going to cost you a ton to show a net LTCG on your 2010 Schedule D; definitely not enough to warrant selling off stocks that you would prefer to hold onto.

That’s my two cents worth.  I hope it helps.

Kerry

From Tax Info

New tax law packed with obscure business tax cuts – From AP

TheTaxBook Summary (11 page pdf)

QuickFinder’s Summary (8 page pdf)

2010 TAX RELIEF/JOB CREATION ACT (11 page pdf) –  From CCH 

HR 4853 (30 page pdf) –  From GPO

What the Tax Deal Means to Your Wallet –  From Fox Business

Tax bill finally passes –  From Spidell

What will the big new tax law mean for you?  –  From AP.

Brokerages Will Have to Tell IRS What U.S. Investors Paid for Their Stock –  This will actually be very helpful when preparing tax returns because getting those cost basis figures is often a pain in the butt.  Of course, the stockbroker figures will most likely be wrong for inherited shares, which will need to have a basis adjustment as of the date of death of the previous owner.