JohnH

A slight variation, but the same basic thought: “Experience - that most brutal of teachers. But you learn, my God do you learn.” - Anthony Hopkins as CS Lewis in “Shadowlands”

It could be that the number is correct, but it is not passing the eVerify because of a small anomaly in the formatting of the name. Some variations don’t matter, but others won’t pass the “Name Control” requirements. For example, C.J. Smith Company becomes CJ Smith Company because it looks better on the letterhead. (or Smith and Jones Company becomes Smith & Jones Company over time). The possibilities for a problem with the Name Control are numerous. Some don’t matter while other seemingly innocuous ones will produce a reject.

I did see that happen one time (over 20 years ago). I hadn’t prepared the extension or the return, but was asked to look over an audit report. The original extension request showed zeros on all lines. The actual tax liability was significant - $15 k or so. The taxpayer was self-employed and clearly should have know there would be tax due. The audit only turned up a nominal amount of additional tax - maybe $1k or so. But the auditor added full FTF penalties, stating that a reasonable estimate of the tax liability was absent from the 4868 and thus it was invalid. That’s the only time I’ve ever seen that happen, so I conclude there’s no attention paid to the numbers in the 4868 unless there’s an audit. But then they have a slam-dunk case for invalidating the extension retroactively if the extension shows all zeros. That’s why I agree with the approach to estimate the projected tax liability high, even if there’s only a token payment (or no payment) submitted with the 4868. It’s perfectly fine to lowball the payment (or even not submit a payment), but don’t lowball the expected liability.

So many transactions on brokerage statements are clearly motivated by the commissions or bonuses the financial advisor receives. The transactions are relatively small in comparison to the size of the portfolio, so even large gains on a few trades would not move the needle significantly on the whole portfolio. Plus, a disproportionate number of the trades either lose money or eke out tiny gains at best, especially after transaction costs. I’ve always suspected that numerous transactions in a managed account when the client isn’t an active investor are often simply to confuse the client regarding actual performance. It’s pitched as maintaining a “diversified portfolio”, but in fact the best method of diversification is buying and holding the broadest index available with low transaction costs. Rather than looking for needles in a haystack, just buy the haystack.

I don’t have a definite answer for your question, but I’ve usually followed the “when doubt, file” rule, even if there’s no tax due. At least that starts the SOL clock running.

This type of client doesn’t bother me. It’s those who was to bring it in an expect to have it completed bly Apr 15! who would irritate me. That’s why I set a cutoff date (usually somewhere around March 15-20). Anything coming in after that date automatically get an extension. Some of those returns still get finished, but there are no guarantees. Strict adherence to that type of policy turns April 15 into just another ordinary day.

I always liked the ones who said they’re too busy to keep a log and “if I’m audited I’ll just give the auditor my box full of gas & repair receipts and let them figure it out.” I’d always tell them “The auditor will just hand the box right back to you and inform you that you don’t have a deduction.”

Actually winning anything at gambling would also be fictitious if JohnH is involved. Don’t ask me how I know…

It's a quote I've used many times when discussing total market indexing with financial advisors.

It's very difficult for a person to understand something when they recognize that understanding it is going to cost them money.

Thanks for the reply, Tom. I've always understood that even with a cash-basis taxpayer, a security deposit is not treated as income at the time received provided it is intended to be returned to the renter (minus any damages) at the end of the term, but is treated as advance rental income if the contract calls for it to be applied to the last rent payment. But I'll be interested to hear what others might say about this as well. I suppose part of the answer depends upon the language in the rental agreement.

Client received a 1099-K from their rental management company because tenants paid by credit card. The 1099-K amounts include two security deposits received in the same year (because a prospective tenant backed out and the owner refunded the deposit in full within a few days, plus it also includes the actual security deposit received from the replacement tenant). So the 1099-K shows roughly $4K more in receipts that was collected in rent. Any suggestions on the best way to handle this? Reducing the total gross rental income by the $4K produces a mis-match to the 1099-K (if there is any cross-checking with rental income). Options for Schedule E seem to be: 1) Reduce the gross rental income on Schedule E to actual; 2) Report the full amount in gross rental income and then deduct the deposits under other deductions, perhaps as "Security Deposits reported on 1099-K in error"; 3) Report the 1099-K on a separate worksheet, subtracting the deposits with the same notation as in #2, and thus reporting the correct reportable gross rental income on Schedule E. Most any of these approaches could result in an inquiry a year or two from now, but I'm leaning toward #3 as being preferable because it includes full disclosure and actually reports the correct gross rental income as the starting number on Schedule E. Would appreciate any comments/opinions on this, as well as suggestions on any other ways to handle it.

So do I. It was an enjoyable meeting. It’s closed now, although there are 3 or 4 in the area that are just as good.

Sorry, I lost you at “JohnH has a tax-preparation and consulting business in North Carolina, which makes $100,000 per year.”

Just write a letter that’s woeful enough to make them cry.

I'd be concerned that the whiskey is watered down and that all the top-shelf bottles had been refilled with rotgut. Next morning, while I'm still sick from the adulterated product and examining the overcharges & inflated tips on my tab, I'd come to realize that neither the bartender nor the owner will be around as I discover the fraud and have no means of restitution.

I hear it’s really easy to make a small fortune trading crypto by using a simple 3-step plan 1) Stat with a large fortune. 2) Begin trading crypto. 3) When you notice you’re down to a small fortune, stop trading. Sounds foolproof when you do it that way.

Tom: I've never dealt with a Self Directed IRA directly. However several clients have come to me with schemes to use one for a rental property, or even to invest in a franchise business. It seemed really popular among some franchising companies a decade or so ago - the franchising company would ally with a S/D IRA administrator to promote this as a way to buy into the franchise. (Maybe they still do). After reading a little about the rules, and studying a few stories about how these schemes failed, primarily over "prohibited transactions" as you mentioned, I decided to never touch one. I learned just enough about them to avoid them like the plague. I'd just tell the client that if they moved ahead with the plan they would need to find another accountant. Furthermore, I knew someone who was scammed by a financial advisor who set up a promissory note in a S/D IRA that even their family didn't know anything about until it blew up in their face. So I have a strong bias against these contrivances. Not saying they never work or there isn't a place for them, but there's too much room to get tripped up by seemingly minor mistakes as well as lots of room for outright abuse.

I’m beginning to wonder whether the client knows more than they are telling you, but they’re already aware that the whole story is going to cost them money and they’re hoping to somehow slide by. is it possible this is rental property (or some other business asset) held in a self directed IRA and they titled it back to themselves because it couldn’t self-fund maintenance or repairs?

This MIGHT be a self-directed IRA, and I’ve seen a couple of those who had some very weird transactions reported. Especially since they were actually self-directed in name only.

Parents earnings do phase out everything in terms of credits. But they live a relatively modest middle-class lifestyle, nice home but not a McMansion, drive used vehicles until the wheels fall off, don’t buy boats, motorcycles, RVs, or other frills. Son doesn’t save much, if any, at this point in his life. I’m going to do a support calculation just to be sure, but I’m pretty sure he’s ok claiming himself.

I think we will do a workup on support just to be sure. But given what I already know of their family size & lifestyle (not extravagant), think the $32k is going easily add up to more than half his support. I appreciate all the replies.

Client's 22-year-old single son living at home earned $32K and is a full-time student with $8K of tuition expense. Mom & dad's earnings cause dependent exemption and education credits to completely phase out so no reason to claim him as a qualifying child, especially given his income. Seems logical for son to file single and claim the AOC credit. I don't run into this very often since my client base is generally much older, so I'd like to ask for input. Anyone care to comment?

Yes, the performance of the post office is less than stellar. But when it must be mailed, Certified Mail is still the gold standard for proof of mailing. Just be sure to keep the receipt. And online tracking is a good backup for those times when the green card never makes it back.

When mailing, I assume you're going to use Certified Mail with Return Receipt. That way you'll have proof of mailing and the tracking system allows you to verify when the envelope is received by IRS. Of course, there's no way to know how long they will take to actually process it.