SaraEA

Ms TabbyKats, parents are supposed to support their kids. So get it out of your head that support means a parent can claim a child. Look over the definition of qualifying child and you'll find that support isn't even in the equation (except that the child can't provide more than half his or her own support). The critical issue in who can claim a child is physical custody. If the child lives with Mom the majority of the time, Mom has custody. Only Mom can claim that child unless she chooses to sign the 8332. If a court orders her to and she doesn't, it's a civil matter. The IRS isn't persuaded by civil courts. We had clients last year who divorced in the fall and their decree ordered them to file jointly! Now which rule do we follow...the IRS one about marital status on the last day of the year or a civil judge who obviously doesn't know a thing about Title 26 (the Internal Revenue Code)?

The IRS has finally figured out how to stop so many fraudulent returns by requiring that prior year AGI be reported as part of the efile signature. They used to require this info but stopped when they were trying to encourage efiling and thought this was a deterrent. They just made it too easy for the crooks. Once they got your name and SS number, they could easily find your birthdate and file away. Now they have to have your last year's tax return. I hope fraud will be stopped in its tracks with this requirement. What to do with a first-time filer? I looked through the IRS manual and it says that first timers are not eligible for a self-select PIN. They can call and get one, but it also says they aren't eligible for that route either. I don't know what to do. We had one already that we don't think we can efile (entered 0 for prior AGI but it didn't eliminate the diagnostic). Today I did a newly married couple and entered both of their prior year AGIs; there was also a newly separated client filing as HOH so I entered their 2012 MFJ AGI. Don't know if this will work or not. Anyone have the word on what to do when there is no prior year AGI or there has been a change in filing status? Since it's mandatory that we efile, I think the IRS should have issued some clear guidance in this area now that they've changed the rules.

Let this be a lesson. Rather than waste five sheets of costly labels, print on a plain sheet of paper first. Hold it and the label sheet up to the light and see if they align. I copy my addresses first so in case I have to do it again I don't have to type anything over again. I can't imagine working without Excel. Take a course at a local community college or buy "Excel for Dummies." I have one client with over a dozen brokerages, and the only way I can check if I've entered all the qualifying/nonqualifying divs, basis reported or not, cap gains, state taxable or not, etc.in the right places is by entering it all in an Excel worksheet. This year the IRS is giving us a break with these Sch Ds. If basis is reported, we only have to enter the totals directly on Sch D, no F 8949 required. No F8453 either. Just think, in 50 years when people have given up the stocks they hold now all brokerage statements will have basis reported and we won't get dizzy trying to enter everything in the right place with the right code.

The Kidd, I don't understand why you asked for advice and then refuse to listen to it. Many experienced pros on this board tried to help you out by explaining the rules and even citing the Code, but you are arguing with them. Omit the extraneous facts about last year, etc. and get to the meat of the issue: To file as HOH, you must have a qualifying child. A qualifying child must be a blood relative. Pub 501 states only the following relationships qualify: Your son, daughter, stepchild, foster child [legally placed by an agency], or a descendant (for example, your grandchild) of any of them, or Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them. These children are not related by blood and do not qualify the taxpayer for HOH. What don't you understand? I don't know how long you have been in the business, but those of us with years under our belts know the IRS looks unkindly at male HOHs. A few years back they audited ALL of them. Since you already filed the return, re-enter the data using Single in a practice return, then call the client and tell him how much of his refund he will have to pay back so he doesn't spend it before the IRS letter comes.

AL has 7-lane highways? I don't think I've driven on a 7-lane road in my life. (The bridges into NY are only 6, right?) How do you maneuver to your right hand exit? People in New England also go nuts, leave work early, hit the grocery stores, etc. every time it snows. I think, though, that those in the South don't have the cars for it. I knew someone from New Mexico who moved here and had a Jeep that didn't have 4-wheel drive. I didn't think Jeep made such a thing, but I guess they do for people who don't do off-road driving and live in flat New Mexico. Up north, we always check our tires around October. If it looks like they have just a few months wear left, we replace them before the snows come. I'll bet in the south they don't even think of it and run those tires until they're absolutely worn. I avoid grocery stores when snow is forecasted. I know there will be no where to park and everything will be gone anyway. I've seen the meat counter picked so clean all that was left was liver. I'll pick up milk and bread at the convenience store in my small town--never a line there or a run on perishables. There's always meat in our freezer, but if we're really snowed in I'd prefer to skip the meat and make a pot of soup. The one place you'll catch me in line is the gas station. A full tank adds weight to the car and thus aids traction, plus you never know when you'll get stuck behind a jam and need to run the heater for a long time. I too always wondered about the run on snow shovels. Like Michaelmars, we've had the same ones forever. We did add a couple of the lighter-weight plastic ones, and those do wear but they're good for at least a few seasons. What we're seeing a run on right now is windshield washer solvent. We've been having light (1-6 inches) snows every few days and all the salt on the roads gets kicked up by every passing car. Do people in the south even have washer solvents that are good below freezing temps?

Display Fusion works with up to TEN monitors? How could anyone pay attention? Between the constant phone calls, returns piling in, and clients sitting at the desk, I have more than enough stimulation. I don't think I could get out of bed in the morning if I knew I had to face all the usual commotion and ten monitors. This must be some kind of trick computers are playing to make the human brain frazzle so they can finally take over the world.

At what point do we get information overload with too many monitors? I use two and could see a use for a third for the clients to see (but then they'd see me correcting typos or get the idea that I'm just inputting numbers and might decide to try it themselves). It's quick to switch one monitor to another process like email or browser--just click the open program on the taskbar. I think I'd prefer to do that than have six monitors staring at me. After awhile you'd think you were working on Wall Street with tickers flashing all around you. I believe the scientists who are now finding that multitasking makes people less efficient and less accurate. A client-facing monitor could be a disaster for preparers who finish a return in 15 minutes but don't want the client to think that's all the time it took, so they continue to chat for another 15 minutes while banging away on the keyboard (answering emails, checking the weather--the clients have no idea). I love my two, but I think that's my personal limit.

Clay, you say you print out and work with a hard copy of a prior year return, but that you also keep PDF copies on your computer. Why don't you just go with dual monitors so you can keep the PDF on one screen while you use the other to prepare the current year? I have used dual monitors for a number of years and after about a day of getting used to it I couldn't live without them. Think of it: when you print out a copy you then have to file it, retrieve it the next year, and put it back in the file again (and then file the file). With the dual monitors you eliminate all those steps. I also use them for putting up the instructions to esoteric forms on one side while I attempt to complete them on the other. Find you're missing property taxes? Pull up your browser on screen two, go the tax collector data base, and find the number you need to pluck into screen one. Did the client piecemeal his data through multiple emails? Put your email on one screen and pluck the numbers into the other. You not only save paper but time.

jklcpa, I'm glad you found the very easy fix to Firefox pages showing up too small to read. I've been using Firefox for years, from way back when IE was having all sorts of security issues. (I never trusted Microsoft itself to begin with and was glad to be free of them even without their security disasters.) Firefox can do a lot, way more than I'm sure I use. I installed FlashBlock in Firefox, which prevents animated content including ads . A button appears there instead of the ad, slideshow, whatever. If it's content I want to see I just click the button. Otherwise I'm not distracted by bouncing ads when I'm trying to read something serious. I used to get dizzy trying to read anything on an IE page with all the motion all over the place.

Catherine, I'm impressed with your spreadsheet idea that works for you. You must be very disciplined to remember to go into the file every time a client comes up with missing info, signature, or whatever is needed. I would start off the season faithfully updating the sheet and then as things got busier put it off until days end, weeks end, and eventually never touch it again. Even though our office is fairly paperless, we track the progress of each return with an old-fashioned routing sheet. When a client comes in or their info is received electronically or by mail, a cover sheet is prepared with their name, phone, date received, and preparer. There's a place on the bottom for missing info, where I'll write things like "need car taxes" and the date I contacted the client. Once the return is done, there's a line for when the client was notified and we can check whether it will be picked up, mailed, or emailed. There are also areas to check off that the 8879 was signed, am 8453 needs to be mailed, payment was received, return was efiled, ACK received. Returns follow the tried and proven "basket" system." Those that haven't been touched are in one basket. Those in progress or missing info go into another basket. There's a basket for those that are done but awaiting sigs or payment. Ready to efile has its own box, from where they get transferred to the "awaiting ACKs" box, from where they go to the "to scan" box. The routing sheet accompanies each return on this journey and it too is scanned before heading to the shred bin. Your spreadsheet would make it much easier to see at a glance where each return is. The problem is remembering to use it. With our system at least everything is there, and nothing advances to the next step until it's physically moved there. Sure, we might have to dig around to locate a specific return if need be. I do keep a paper list on top of the untouched returns, adding to it when a new one arrives. I keep another paper list on top of the "need info" pile, to minimize digging. The routing sheet serves its purpose because it is clipped right on top of the client's file and you sort of have to use it.

Michaelmars, you may have had an IRS agent request a 1099MISC once in 31 years, but state Labor Department officials are requesting them 31 times in 31 audits. Most states are in the hole to the federal government for overages in unemployment insurance and are desperate to classify independent contractors as employees to add a little more to their SUTA account. We must have at least two labor dept audits of clients per month. This week a labor dept auditor of one of our clients questioned a $1000 payment to an office cleaning service. We admitted that we were at fault for not issuing a 1099, but geez it was a company that cleans lots of offices at night and clearly a subcontractor. The auditor insisted on an invoice from the service, even after we pointed out that even with the maximum 6.8% SUTA tax rate the most the state would collect would be $6.80! With this experience, this year we are being very diligent about issuing 1099s to ourselves for tax and accounting services.

How can Free File be up and running when the IRS said it isn't accepting returns (paper or electronic) until Jan 31? We too have had employees of clients clamoring for their W2s. I spent the past few days preparing 1099-MISC forms. Not a single person has clamored for one of those. The new budget bill that passed yesterday cuts IRS funding by $500m. This after both the Taxpayer Advocate and the consumer advisory group issued recent reports that railed against the lack of agency funding. Both said point blank that the IRS can't do what it's supposed to do without the money to do it. What business on earth cuts their accounts receivable department? Our politicos just had to punish them for targeting conservative nonprofits. I was at a liaison meeting a short time ago and saw some of the damage. Our regional liaison no longer has a cell phone, a number he always shared. Criminal Investigation has way reduced staffing. Hey, these are the folks that catch the big-time cheats and recoup zillions of dollars. I just heard from the local chapter of NAEA that the Practitioner Priority Line will only accept calls regarding account issues. No more faxing the POA while you're on the phone and getting a transcript. It's e-services or nothing. And of course, to access e-services we have to fax the POA and wait until it's entered in the system. That used to take a couple of days but with less people it might just be a couple of weeks. The reduced funding comes at a time when the IRS is mandated to implement its piece of the ACA and has no choice but to devote much of its resources to identity theft and refund fraud. Perhaps the only way they can get the money to do their job is through preparer penalties. Whereas most of us never worried too much about that because we really do try to follow the rules and might only have a client or two who duped us or for whom we didn't have time to do our due diligence, I think we should start to worry now.

I actually had a client who received a CP2000 because the IRA contributions reported on the return didn't match the Form 5498. It looks like the IRS matching program is getting more savvy all the time. The 5498 isn't due to the IRS until June 1 each year because people are allowed to contribute until April 15 and the custodians need time to process the deposits and prepare the form.

I think all attorneys, and real estate agents for that matter, should be locked in a room and not let out until they get it. Every year home buyers come running in with their closing statements and insist that all those closing costs are deductible because their attorney/RE agent told them so. And the new stove and roof they had to put in are deductible too (maybe their barber told them that). Sad part is that if they bought the house in August or Sept, they probably don't have enough interest to itemize. All those fantasies about how much you can save by buying a house come crashing down. Maybe the bad news about SSA disability or closing costs can get soothed somewhat if it gets delivered with a free wash and dry.

Look at the at-risk limits. If you have nothing invested you have nothing to lose and can't deduct anything. If the first shareholder already deducted 80% of his investment with pass-through losses, he only has 20% left to deduct. Thus if he put $1000 into the business and deducted $800 in losses, he's only at risk to lose $200 and that his maximum deduction. The other shareholder has no risk because he didn't contribute anything so can't deduct anything. It's like if you just give me half of your tax practice and then sustain a loss. I didn't lose a thing. If there is recourse debt the amount at risk will increase.

Rich CPA man is right. I don't have my reference materials with me, but I seem to remember that transfers incident to divorce can go on for five years or so. (There used to be a lot of hanky panky in this area with spouses trying to make certain transfers look like alimony or not alimony.) You might consult a tax pro who specializes in divorce issues. There really are such people--they even have their own dedicated software which calculates some of these things. And Yardley CPA, don't worry about tax articles being dated unless the Code in that area has changed dramatically. When you look at recent Tax Court decisions you'll find them citing as precedent cases that were decided in the 1950s and '60s. Unless there have been major changes in the Code or Regs, case law rules. Did you know that if an issue is brought up before the court and there is no relevant case law, the judges use Common Law of England for precedent? That dates back to before we declared our independence.

"I think before clicking post, we should re-read our comments and be gentle with other people." Spot on, Pacun. I once took a graduate course that began with live classes, where you sat side by side with your classmates, and then went to on-line for the last few weeks. In that portion we had to submit analyses of tax issues and respond to one another's work. The professor chose which analyses to post (anonymously) but all of the responses were available for all to see. Before this part started he lectured us about being constructive in our criticisms and kind to the people sitting in the same room with us that day. I guess he'd had enough experience with this format to foresee that some people used the opportunity to attack and deflate others. What is it about the anonymity of the internet that turns some people into monsters? People who don't swear in their daily lives do so online. People who normally avoid confrontation embrace it online. Shy, introspective people become vocal antagonists. What worries me is the young people today who spend so much of their time on social media and so little in face-to-face human interactions. These kids many never understand what it is to be polite. Years from now a moderator won't hijack a post to scold people about their behavior because no one will deem that behavior unacceptable.

We have more clients than we can handle. Fortunately, a large bunch of them habitually bring their stuff in the first or second week of April. We do quick calcs and tell them how much to send in with their extensions. That gives us 150-200 clients to work on during the summer. Every year a couple of pretty big accounts don't come back, for no reason we can discern. Some existing clients get bigger though, so the workload doesn't diminish. We also lose a few of the more standard clients (1040, Sch A, B, maybe D or E). And a few die. Still, we rarely accept new clients and then only by referral from an existing good client. A number of local attorneys refer trusts and estates to us, and we accept all of them because the attorneys are our clients too. Many of these returns have their own due dates, so it doesn't usually interfere with crunch time. We also get people who need representation, and it's hard to turn them down. Are you really asking why people don't come back? Many clients we picked up over the years changed because of price or lack of responsiveness from their former preparer. If you don't answer their calls or emails promptly they'll go elsewhere. Some people just think they can do better (my friend always deducts his commuting miles/business suits/gym membership/cell phone). If you find that a lot of clients are leaving, it's time to take a hard look at your business practices. If not enough are leaving, it's time to take a hard look at your pricing.

We got a new Husqvarna snow blower this year (to replace the 30 year old one that still worked but no longer got remotely close to the ground or threw the snow past the driveway). Honest, it has heated handles! The only problem is we were convinced that by buying the new machine, we would be assured of a mild winter with almost no snow to have to blow (kind of like washing your car assures it will rain the next day). Should we ask for our money back?

You have to think back to the basics of AMT to get your head around this. Every tax return is calculated two ways, according to regular tax and again using AMT rules. The taxpayer pays the higher of the two. (If regular tax is $20k and AMT is $25k, the tax liability on the return shows as $20k on line 44 plus $5k AMT on line 45.) For 2013 tax rates have increased, certain taxpayers are subject to phasing out dependency exemptions and itemized deductions, medical deductions now match AMT rules, and then there are the new Medicare and investment income tax surcharges. Thus regular tax rates are going up, so the difference between regular and AMT is no longer as great. In the above example, regular tax is now $23k so AMT is only $2k. Bottom line is still the same.

Face it folks, it's hard not to charge people who make lots of money more than those who make little. Maybe those who charge strictly by time (and somehow are able to keep accurate track of their time) can do it. I know an electrician who charges the very wealthy owner of our office building a fortune to add something like an electrical plug that takes a half hour to install. This same guy has done electrical work at our home and his prices are reasonable. When someone's income is in the 7 digits or high 6 digits, it's human nature to want to charge them more than $250 for their return. You almost think that if you charged them that little, they'd think they weren't getting a top-notch job.

jklcpa is absolutely correct that no SE health insurance deduction is allowed if the individual is eligible for group coverage under someone else's plan. Also, the odds are about 100% that the spouse's insurance premiums come out of her pay pre-tax. You can't deduct something from taxable income that was never included in taxable income in the first place.

The way the tax code is getting more convoluted every day, I think we'll all have to end up picking a specialty sooner or later. I made this conclusion after recently reading that for cash basis taxpayers, a personal/business expense charged on a major credit card (Visa, MasterCard) on Dec 31 counts as paid for that year, but if charged to a store credit card (Staples, Sears etc.) on Dec 31 it doesn't count until the bill is paid (usually January of the following year). In all the years I've been doing taxes, with all my studies to earn an EA and Master's Degree in Taxation, I never knew that. Methinks there's a lot more I don't know, so I'd better stick with what I'm really familiar with. I really like doing trusts and estates, and because of that I think I know what I'm doing in that arena. Sounds like a reasonable focus to me. On the other hand, although I do very few EITC returns, I dislike having to cross-examine the clients and feel the pressure of Karen Hawkins threatening my livelihood. (Whatever happened to the IRS being in partnership with preparers because we help them so much by applying the code for them?) Except for those couple of divorcees who are just learning to make a living and those business owners whose books we do (and who don't live in houses and drive cars 12 levels up from mine), I'm referring EITC clients to HR Block. Their preparers are very well-trained in the required due diligence, and they have a company with deep pockets to bail them out. I also voted to nail down certain forms. There are new forms for health insurance (the numbers escape me right now) I better figure out. The AMT credit on Form 8801 is a mystery. Many credits I've seen awarded shouldn't have been because the taxpayer claimed only tax exclusion rather than deferral items. Seems to me that when the credit came into existence software didn't handle it correctly. Many preparers just put the AMT amount in the box instead of reading WHICH amount should go into it. When I see these I put them in my "summer projects" pile so the error doesn't carry forward. I want to get my head around understanding it better. Finally, I do almost all of the debt forgiveness/short sales in my office. Every single time I have to go through the rules for recourse/nonrecourse, is it the amount of the forgiven debt or FMV that goes into the formula, etc. I am going to study this until it makes sense to me and I'm not just following lines on a worksheet! These sound like New Year's resolutions. Hope I can report back next year that I actually kept them!

Pub 17 is written in such plain language that I like to keep a copy on my desk for the clients' sake. Sometimes you can tell that they're uncomfortable when you inform them that they can or can't do something (claim a dependent, deduct whatever). The pub is so well indexed it's easy to grab it and read the rules aloud in terms they can understand. They think you're reading the Tax Code to them or some other authority and it does put them at ease. And it's still free!

I think some people are confusing Medicare and Medicaid. Medicare is for those who are at least 65 years old or younger if disabled. It is paid for through payroll taxes and retirees' premiums for all parts except A. MEDICAID is free medical insurance for the recipient, paid for by taxpayers in the state (supplemented by a federal contribution, paid for by all taxpayers). This is no different than when taxpayers fund the cost of an indigent elderly person's nursing home stay. If that person gets a windfall or wins the lottery, the taxpayers should rightfully be paid back, no? It is right in a just society for people to pay for the care of someone who has nothing. It is not right for the recipient of this benevolence to hide their assets or balk at the thought of paying back what was given to them when they were in need. This is no different than people who connive to give away their homes, bank accounts, etc. so they will qualify for Medicaid ("free" nursing home care). Their kids get all their assets and we sucker taxpayers pay for their care while those kids live in luxury. In prior generations people saved for their old age and cringed at the thought of public assistance. Now it is thought of as a right. I have no problem paying extra taxes so that people who can't afford medical care can get it. I have a big problem when those people think they have no obligation to pay me back when they are able.