Ten Reasons Why I Should Be Preparing Your Tax Return and Not Turbo-Tax

Tax season looms. Time to bump this list to the top of the blog. I wrote it almost two years ago; it's not perfect but I don't have anything to add. Interested? Look to the sidebar for my contact information. Let's talk.

1.) There are no free lunches. I've had a chance to look further into Turbo Tax's free edition of their software and it's not, you know, free if you have to file a state tax return or you call them with a question. Their other packages? Sure, somewhat cheaper than what I'll charge you but my price includes the state return and, of course, e-filing's free. So while TurboTax can beat my price, they can't beat it by too terribly much.

2.) Price isn't everything is it? Cost is. What will it cost you to use TurboTax to do your tax return rather than me? Let's see, there's the cost of the software, the computer to run the software, the time you spent learning the software and inputting the information, and the potential cost you'll have if the IRS has a question about your return. And make no mistake, the IRS is questioning more and more returns. You'll have to take time to respond to any IRS inquiries and should the IRS take a hard line - something they seem to be doing more and more nowadays - you'll have to take time to research and respond to that. That's all included with my fee. I call that a pretty low cost for a some peace of mind.

3.) Customer support. I'll grant TurboTax has pretty good customer support. Not as good as you'll get from me - I'm a phone call or e-mail away. And depending on the circumstances, I'll even come to you. I don't think anyone from TurboTax will do that, do you?

4.) Coffee. Drop your information off and stay for a chat, get coffee. It's Colombian. It's free.

5.) Change is the tax code throughout the year? Changes in your personal status? You won't call TurboTax will you? Didn't think so.

6.) Record keeping. I maintain files of all the tax returns I prepare for you. Think of all the attic space you'll save. And I'm ready to provide copies to whomever you authorize me.

7.) A reliable referral source. Anyone you send to me, I guarantee will get the same great service you got.

8.) Networking. I have an incredible span of clients. Chances are, if you have a professional need, I can refer you to someone I know who'll take care of it. We're all in this together, you know.

9.) Tax organizers. At the beginning of each year, you get an organizer from me to help you get your records in order for tax preparation. That and a client letter with the latest tax information that might affect you.

10.) If you have a business, I can do more than just your tax returns. I can do your accounting, payroll, consult about QuickBooks, your business, perform financial statement reviews and audits. Name it. I'll help you find a solution for your business.

Interested? I've added my contact information on the sidebar. Give me a shout. Let's see what I can do for you.

Oklahoma's Number 7!

In sales tax rankings, that is. Via
TaxProf Blog, I can't import the data table but here are the top 10 rankings:

1
Tennessee
9.44%

2
California
9.08%

3
Arizona
9.01%

4
Louisiana
8.69%

5
Washington
8.64%

6
New York
8.52%

7
Oklahoma
8.33%

8
Illinois
8.22%

9
Arkansas
8.10%

10
Alabama
8.03%

I'm sure if we tried harder we could beat New York. California, too. But it'll take some doing by the Legislature to overcome Tennessee. I don't doubt they'll try.

Why Liberals Want Higher Taxes

Via TaxProf Blog:

The Health Care Credit Explained!

This one may be a little too insider-baseball and funny only to tax return preparers.

Bob Jennings, whose seminars I attend for CPE, does a bit on the business credit authorized by Obamacare to help offset the cost of providing health insurance to employees. Simple, right? Not so fast:



Sadly, Jennings isn't exaggerating. I've tried to run this calculation for my business clients that might qualify and after the torturous calculation it turns out the credit either doesn't apply or is so minuscule as to be useless.

Well, that's tax policy for you. Nothing but the hidden land mines of unintended consequences.

Turbo Tax vs. Tax Professional - Revisited

Althouse thinks you should purchase TurboTax to do your taxes; I say otherwise. (Hmmm. Both of us seem to have a profit motive for our positions in the debate. Well, consider the merits of my argument while discounting my motive and do the same for Althouse. I still win.)

Price seems to be the biggest factor for those who favor TurboTax. (Which is a pretty good program, don't get me wrong. Just ask Tim Geithner, Treasury Secretary, who able to manipulate it into preparing a false return for him.) If that's the case for you, here's my number 2 reason in my Top 10 list of reasons to hire me:

Price isn't everything is it? Cost is. What will it cost you to use TurboTax to do your tax return rather than me? Let's see, there's the cost of the software, the computer to run the software, the time you spent learning the software and inputting the information, and the potential cost you'll have if the IRS has a question about your return. And make no mistake, the IRS is questioning more and more returns. You'll have to take time to respond to any IRS inquiries and should the IRS take a hard line - something they seem to be doing more and more nowadays - you'll have to take time to research and respond to that. That's all included with my fee. I call that a pretty low cost for a some peace of mind.

Bottom line: forget about the cost of my time; what's the cost of yours? What's your time worth? I'd say your time is worth far more to you than mine.

The 19% Solution

Obama came to fractious agreement on taxes with Republicans yesterday but it's important to remember that, no matter what anyone agrees to or what's passed into law, the government can only raise about 19% of GDP in total taxes.

Don't believe me? Here's a scientific looking graph to prove it:




And here's source of the graph.

So, tax the rich, tax the middle class, pass the Fair Tax, it doesn't matter: the economy can only sustain the 19% of GDP level for any length of time. If politicians want more dollars to spend, they should choose whatever method of taxation boosts the economy most. Cutting taxes across the board seems to do just that.

Oh, but what about the deficit, you ask? I'm not entirely sure deficits matter but could fiscal responsibility demands we do keep an eye on it. Here's how to balance the budget without really trying:

The CBO, the non-partisan agency charged with estimating the effects of legislation on government costs, has produced a long-term budget outlook in which Bush-era tax rates remain unchanged. Their conclusion is that over the next decade, "government revenues would remain at about 19 percent of GDP, near their historical averages." That's actually a bit higher than the historical average, but is within the bounds of reason.

A balanced budget in 2020 based on 19 percent of GDP would mean $1.3 trillion in cuts over the next decade, or about $129 billion annually out of ever-increasing budgets averaging around $4.1 trillion. Note that these are not even absolute cuts, but trims from expected increases in spending.

Short version: you can still have a mighty big Federal government with spending at 19% of GDP.

Somewhat related and entirely prescient. This idea isn't new. From October 8, 2008:

(L)ower taxes = higher GDP. Higher GDP = better for everybody.

IRS Aims at Non-Filing Businesses

Finally, the IRS gets off its collective duff and go after non-filers:

The IRS plans to take a closer look at businesses that fail to file tax returns, and identify more of themhe agency cannot develop a comprehensive estimate of the number of businesses that do not file returns because it lacks data about the population of all businesses, but it could use the inventory of business non-filers it already has on hand to determine noncompliance, according to a new report by the Government Accountability Office, which noted that the IRS identifies several million potential business non-filers each year, more than it can thoroughly investigate.

Why is this news? Because the IRS would rather spend its budget on terrorizing the compliant - the fish in this barrel over here who are easy to shoot - than going after the non-compliant - the fish in that other barrel way over there, who are too hard to shoot and aren't much fun to shoot at anyway.

The IRS thinks it spends too much time and effort hunting down the non-compliant and the potential payback is negligble, dollar-wise - most non-compliant taxpayers are non-compliant for a reason: they're off the grid because they don't earn that much money anyway; you won't see a company like GM not filing a tax return but the handy-person down the street who works for cash has more incentive to underreport his income or not file at all. After the chase, these kinds of cases rarely give up a lot of tax dollars and when they do, the taxpayer is rarely in a position to pay. That kind of budget expenditure requires the IRS to do a lot of 'splainin' to Congress and there's one thing the IRS doesn't like to do and that's 'splain itself.

No, rounding up non-filers won't make a significant dent in the deficit but the sense of fairness - you're filing your returns and paying your taxes, why isn't the IRS going after that guy who isnt? - will go a lot farther in promoting voluntary compliance with the tax laws than disallowing reasonable deductions. Taxpayers may grumble about paying taxes but what they grumble about most, and tempts them to cheat even more, is perceived unfairness in the system. It's not fair you should try to play by the rules of the game when others don't even show up to play.

So if you haven't been filing, the IRS will be looking for you. Finally. Get caught up. I happen to know a pretty good CPA who can help you out.

Inside the Rolling Stones Inc.

TaxProf Blog links to an old article - internal clues point to 2006 - about how tax-savvy the Rolling Stones are:

Like the protagonist in one of his most devilish songs, Mick has been around for many a long year. He had plenty of smarts to begin with, and now he has 40 years of music industry experience under his belt. Jagger may be getting a trifle old to rock & roll--he'll turn 60 next July--but from a business perspective he's at the top of his game. Which makes sense in a way. After all, that's a typical age for a CEO of a large, multinational organization. (Okay, so most of the CEOs we follow don't have to swivel-hip their way through "Midnight Rambler," but you get the point.)

Even aging rockers want to avoid the tax man.

(OKC rockers: wanna be like the Rolling Stones? Tax-wise, I mean? Gimme a shout. I'd be glad to talk with you.)

The IRS and the Latest Licensing Outrage

Most people care not one farthing about the IRS' new licensing procedures, and rightly so, but in the tax preparation industry, it's a big thing. Dan Alban does some heavy olifting in making the point for those few of us who are opposed to what amounts to be a tax increase aimed solely at tax preparers:

Who would you rather prepare your taxes? A professional tax return preparer with over a dozen years experience in preparing tax returns for taxpayers without incident. Or me, an attorney who has never so much as taken a law school class or continuing legal education course in tax law, and gave up on doing his own taxes last year once he started needing to itemize his deductions. You probably think you’d prefer the first option, but the IRS says you’re wrong.

The IRS already has procedures in place to pursue those incompetent or dishonest tax preparers - get called in for a questionable deduction or credit and you'll roll over pretty quick on your tax preparer, won't you? - so there's no need for more licensing. And it already maintains a database of registered attorney, CPAs, and Enrolled Agents that nothing for those preparers required to be registered. No, the new rules not only take in these professionals but others, like those Alban refers to, as well as every single staff member in a firm who decides which information is entered onto a return. Oh, and at $65 a licensing pop. And they'll have to take a test, too. And Continuing Education to maintain their registration.

Now, will my staff be responsible for any errors on a return they prepare for my signature? Heck, no! And well they shouldn't. I'm the one who signs off on the return so I'm responsible for making sure the information is accurate and takes reasonable advantage of the tax laws.

The IRS needs this, it says, because it's receiving a lot of fraudulent tax returns prepared by unscrupulous preparers. How does the IRS know this? Because they already track this information! They already know who these preparers are! They don't need additional licensing to nab these no-gooders. This is a naked power grab, pure and simple, signed off by major firms like H&R Block to keep the mom-and-pop tax return preparation shops - places where many taxpayers go to have their returns prepared for a cheaper fee than I can prepare them. And let's not talk about the ethics of giving an agency the power to decide who can represent taxpayers in their convoluted administrative processes.

And it's clear the IRS hasn't thought all of this through. The IRS has disclosed its current staff of 19 which processes licensing requests under the old laws is already overwhelmed. The $65 licensing fee is necessary to pay for additional staff and resources to process of what has been estimated to be millions of requests for licensing under the new rules, as well as the renewal requests and administration of tests and continuing education each year.

Wait a minute. Maybe the IRS has thought all of this through. It's a whole new bureaucratic nightmare it can preside over, full of managers and district and regional managers who must be supervised by even higher management and, well, you get the idea. Oh, and managing the new Health Care law is on the way, too. So it looks like things are looking up for the IRS.

And, as usual, it's the taxpayer who'll come up short.

Me on TV

Amy Welch, the Communications Director of the OSCPA had tweeted about a local television news story of a tax preparer who'd disappeared and left his clients caught short with the looming October 15th deadline. I'd had clients come my way when their preparer had fallen ill or died and working for the IRS I'd seen this happen, too, so I felt for these people and asked Amy how I could help. She said she'd send my contact information to the reporter and we could take it from there. The reporter contacted me, I helped her run down a lead or two, and then offered some advice - the clients shouldn't panic, the IRS could waive penalties in situations like this, and they should start trying to recreate their records the best they can. Would I say this on camera?

Gulp.

Well, I've turned Amy down enough times in the past that it was about time I said yes and so I did and the next thing you know, well, here it is. I'm at around the 1:05 mark:



Hey, at least I didn't stammer and stutter and sweat too much so I'll call this a success.

Thanks to Amy for setting this up. She was right. It wasn't so bad.

Hold On To Your Paycheck!

Or the IRS might, if they follow the lead of the tax collection agency for the UK:

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

Impossible, you say? Withholding tax from your paycheck was probably considered impossible at one time, too, until it was implemented in WWII (Scroll down for the relevant section.) and now it's an innocuous part of working life. Taking your entire paycheck and doling out what the government considers yours may not be far behind. The United Kingdom could lead the way.

Health Care's Hidden Burden

Whatever you think of the Patient Protection and Affordable Care Act (PPACA), it's likely you're unaware of the provision expanding the 1099 reporting requirements:

The new information reporting requirement is an expansion of a law already in place. Businesses currently have to report to the IRS all payments of $600 or more to individuals for the performance of services on 1099 forms. This makes it harder for individuals to avoid paying taxes on income they earned from businesses that did not employ them full-time. The PPACA expanded this requirement to include all transactions with other businesses of more than $600, including those involving tangible goods.

This provision takes effect in 2012, and Congress estimates it will raise $17 billion over 10 years. It was one of 18 separate tax hikes that are part of the law that, combined, will increase taxes more than $500 billion over 10 years.

Few observers recognized the trouble the 1099 reporting requirement would cause businesses at the time Congress passed the PPACA. Other taxes hikes in the PPACA—such as the new excise tax on high cost “Cadillac” health insurance plans, higher payroll taxes, and a new tax on investment—garnered more attention in the debate leading up to congressional passage because they will raise considerably more revenue.[1] But the bureaucratic burden the 1099 reporting requirement will put on businesses will be immense.

This part of the legislation was up for repeal earlier this week - heck, now that President Obama is aware of it, he's against it, too - but it the move to do so was voted down in the Senate because neither the Democrats nor the Republicans liked the other side's proposal.

So it's still in place. A ticking time bomb of government over-reach. Think it won't affect you? Think again when your employer weighs the cost of complying with this provision, as well as upgrading your health care, against giving you a raise or even keeping you on as a loyal, productive employee.

007's 1040 Problem: 'Goldfinger' Raid Implicates Sean Connery in Tax Fraud

"Do you expect me to talk, Goldfinger?"

"No, Mr. Bond. I expect you to. . . pay your taxes!"

Oh, my:

Legendary James Bond actor Sean Connery is being investigated for alleged tax fraud involving the sale of two large tracts of land in Spain.

Investigators say a property firm linked to the 79-year-old actor failed to pay taxes after he and his second wife sold land they owned on the outskirts of Malaga, Spain a UK paper reported Thursday.

The Daily Mail reported that the company, which also assisted in the sale of Connery's beachside mansion, Casa Malibu, in Marbella, Spain, failed to pay upwards of $2 million in taxes stemming from the sale of development rights to the land outside of Malaga.

Bond has defeated all kinds of super-villains but he's no match against the tax man.

IRS May Tax Payments to Gulf Coast Victims

Well, yes they might:

Out-of-work Gulf Coast shrimper Todd Pellegal spent his first $2,500 check from BP quickly, paying off bills and buying groceries for his family.

He never even considered putting some of it away for taxes.

Now he's among the people up and down the Gulf Coast reeling from the oil spill disaster who are surprised — and frustrated — to find out the Internal Revenue Service may take a chunk of the payments BP PLC is providing to help them stay afloat.

Congress will likely step in to remedy this but for now the payments are intended to make up for lost income. If the spill hadn't occurred and the residents were able to earn their living as normal, they'd be taxed; reimbursement for that lost income would be taxable as well.

According to the article though, in previous disasters, Congress has acted to exempt such payments from tax. I see no reason why that won't happen this time.

Ralph Lauren: Canary in the Coal Mine

From TaxProf Blog, designer Ralph Lauren makes his tax move:

Reuters, the Wall Street Journal, and the New York Post all have coverage of Ralph Lauren's plan to sell a quarter of his stake in his publicly traded Polo Ralph Lauren apparel/fashion/retail empire, with proceeds estimated at between $900 million and $1 billion. The press accounts that give a reason chalk it up to asset diversification. But, as one FutureOfCapitalism.com reader-participant-watchdog e-mailed, what the press is missing is the tax angle.

On January 1, 2011, the tax rate on long-term capital gains is scheduled to increase to 20% from 15%. By selling now rather than waiting until later when the taxes are scheduled to increase, Mr. Lauren potentially saves some significant money in taxes. It's hard to say how much money without knowing what his basis is, but the savings certainly may have something to do with Mr. Lauren's decision to diversify his assets now, rather than, say, three years ago, or a year from now. ...

Lauren is among the first of what may be a massive sell off by the end of the year to avoid a 33% tax increase.

Obama supporters, the change you hoped for is coming soon.

5 Things You Can Do Now to Get Ready for Huge Tax Hikes in 2011

I can't say I disagree with this list from Kelly Phillipps Erb. About the only thing you don't have any control over is dying.

Click through and read the whole thing.

Tough Talk

Just in time to answer his critics for not being passionate enough about the BP oil spill in the Gulf of Mexico, Obama talks tough:

President Barack Obama says his talks with Gulf fishermen and oil spill experts are not an academic exercise. They're "so I know whose ass to kick."

Goodness me. Tony Hayward, CEO of BP, must be quakin' in his boots.

But not so fast. If Obama really does crack down on BP - whatever that means - he might be putting his chief of staff out on the street:

In case you were tempted to buy the faux Washington outrage at BP and its gulf oil spill in recent days, here's a story that reveals a little-known corporate political connection and the quiet way the inner political circles intersect, protect and care for one another in the nation's capital. And Chicago.

We already knew that BP and its folks were significant contributors to the record $750-million war chest of Barack Obama's 2007-08 campaign.

Now, we learn the details of a connection of Rahm Emanuel, the Chicago mayoral wannabe, current Obama chief of staff, ex-representative, ex-Clinton money man and ex-Windy City political machine go-fer.

President Obama and Vice President Biden’s Tax Returns

You can see President Obama's tax return here; Vice-President Biden's tax return is here. (I don't know how to make the embed thingies work so that PDF files are displayed so you'll have to click through the links.)

Like every good accountant, I checked to see who prepared the returns and if I know the firm. I don't. Not that I would. Still. . . Hmmm. I wonder what the firms charged for their services. It's not clear on the returns by Obama claims a $15,722 deduction for legal and profesional fees on his book royalty income so their fee is likely buried in there somewhere. Looks like I'll be raising fees next year!

Obama did very well for himself thanks to his book royalties so good for him. And good for Biden. He did well, too. Obama donated his Nobel Prize to charity and made some other large charitable contributions but for a guy who earned $5 million and whose living expenses are picked up by the American people, you'd think he could afford to give away a little more. Same thing for Biden - he earned far less than Obama but still, why so stingy when it comes to charitable giving? Oh, right. They believe it's the government's role to help the less fortunate, not private individuals. Carry on, then.

Charitable giving, like prayer, ought to be done in private and not draw attention to itself and it's only because they're required to do so does Obama and Biden's charitable giving become public. But you'd think for that very reason, if no other, they'd be a little more generous than they appear to be. Sure, we could all do better - goodness knows I've got clients who give huge chunks of their income to worthy causes yet they still manage maintain a decent standard of living - but Obama and Biden are in leadership positions that set the tone for the rest of the country.

Look, I'm not trying to start a charitable giving contest here or imply a person's moral worth is tied to what they give. You do what you can do and what you're moved to do. But, come on, guys. You want to raise taxes on us. Biden even calls it our patriotic duty. So Stick a crowbar in your wallets and show us how it's done.

Tax Season . . . Finished!

We crossed the finish line at around 3:00 yesterday afternoon and called it a season. The day had actually ended in the morning - we had our extensions ready to go and one last tax return to prepare but that client called and said he'd be too busy to deal with it and that we could stand down. So we did.

Oh, sure, there were some last minute things to take care of: clients with questions as they picked up their returns, a last minute tweak here and there, even a brand new client calling at the last minute, but for the most part we were through and we had another successful filing season behind us. If we'd had champagne in the refrigerator we would've broken it out but we don't so we didn't. (Hmmm. Maybe next year?)

I've given my fantastic staff the day off but anyone whose name is on the door has to show up. Which means, um, me. And that's fine. I've got much debris to sift through and no time like the present to get started on it. All sorts of projects lined up, too, and they need to get started. And those extensions? Those returns still have to be done. October 15th is only six months away. What are we waiting for?

Anyway, I'm quite pleased with how things went. Could we do better? No firm is perfect so we've got much to do. But, overall, I'd say we're among the best in town. And you know it ain't braggin' if it's true.

Happy Tax Day!

What, you're not celebrating? Well, that's probably because you're not a CPA. We won't exactly be celebrating either, really - we've accomplished quite a bit this filing season, even managed to pull off a minor miracle or three - have I told you lately about the crack staff I have cranking out the excellent work? - but the stack of extensions we've filed and the tasks we've had to put on the back burner mean we'll still be quite busy in the months ahead. Not that we won't be enjoying our victory over the government's deadline. It's just that we'll be keeping it pretty low key. We're accountants, after all.

And, hey, look who's number one when it comes to Googling articles about the epic battle between using turbo tax versus a tax professional. Yep.