The First Step To Reclaiming Control Over Your Taxes!

Our clients who filed with us this year already feel the peace-of-mind that you were able to claim every possible deduction which is legally allowed in the tax code for 2011. After all, we put each return through an extensive review process to ensure you keep as much of your hard-earned income as the IRS allows. 

Taxes (Photo credit: Tax Credits)

But what about our non clients? And what about your previous years?

Well, since the filing deadline is already past us, they (and you) might think that the proverbial “fat lady” has sung on 2011 returns (and 2010 and 2009). Not so.

Because according to the most recent report on the matter, issued by the General Accounting Office, taxpayers overpay the IRS almost $1 billion every year due to incorrect itemization and preparation.

What’s worse is that those who prepared their own taxes (with a software, or on their own) are the most vulnerable, according to the report. But did you also know that taxpayers who used one of the “big chain” preparers are almost as bad off?

An excerpt from an additional report from the GAO: In a Limited Study, Chain Preparers Made Serious Errors

In GAO (United States Government Accountability Office) visits to chain preparers, paid preparers often prepared returns that were incorrect, with tax consequences that were sometimes significant. Some of the most serious problems involved these preparers…

1.  Not reporting business income in 10 of 19 cases;
2.  Failing to take the most advantageous post-secondary education tax benefit in 3 out of the 9 applicable cases; and
3. Failing to itemize deductions at all or failing to claim all available deductions in 7 out of the 9 applicable cases.

So what can your friends do about this? And what could YOU do about it, if you didn’t have us handle your taxes in prior years? Simple: file an “Amended” Return.

Many tax businesses don’t provide this service, but even though we’ve completed our clients’ returns, we WILL review any of our non clients’ returns–at no charge.

Seven Audit Red Flags

One of the “hidden” benefits to using a good pro to file your taxes is that we have a hair trigger for avoiding things which might cause an audit.

And I thought that ALL of my clients and contacts would benefit from some (but not ALL) of our little internal list of what we look for, to make sure that clients are doing what they can to keep from getting socked with a notice.

Here’s what we (AND the IRS) look for …

Seven Audit Red Flags
1. Indefensible claims
There are so many old wives’ tales saying that certain items trigger an audit: home office deductions, passive losses, schedule C (sole proprietorship) activities, etc. But you really can’t predict the trigger (and you can drive yourself crazy trying), but you *can* adopt the “be reasonable” mantra about every item on your return (with our help, of course), including these. So if you don’t have a decent claim for a home office, we’ll help you not to claim it. If your money-losing sole proprietorship is really more a fun hobby, treat it as such.

Look–don’t be scared to take deductions and losses you’re entitled to, but don’t take tax positions you aren’t comfortable defending. If you take reasonable tax positions, you’ll likely find you won’t end up needing to defend them. And if you do face an audit, it will likely be far easier.

2. It doesn’t all add up.
This seems like it should go without saying, but make sure you add, subtract and multiply accurately. Check your numbers through each step and do some simple math checks when you finish. If you do make a math mistake, you are likely to get a math correction notice from the IRS. This isn’t an audit. But our goal is to minimize your interaction with the IRS bureaucracy, which, ah… isn’t known for the best mail handling practices.

3. Lost 1099
This can be confusing, because the Form 1099 comes in many varieties, including 1099-INT for interest, 1099-DIV for dividends, 1099-G for tax refunds, 1099-R for pensions and 1099-MISC for miscellaneous income. These forms are sent by payers of such funds to both you and the IRS.

So regardless of how many 1099s you receive, make sure they all are accounted for on your return. There are also Forms 1098 which lenders send (to you and the IRS) recording how much interest you paid. The IRS matches your return against the 1098s and 1099s. So one sure way to guarantee an IRS query is to fail to account for something! If a Form 1099 is wrong–say it reports more income than you had–you can explain or deduct it on the return, but you need to first report it.

4. Suspicious OVER-reporting
I’m not talking about under-reporting income, or holding necessary information back. But you’d be surprised how many professionals and amateurs alike try to submit too much *supporting* information. True, if your return is complex, you may need to add explanations or disclosures in footnotes. Be concise, truthful and accurate, but don’t provide copies of sales agreements, settlement agreements, bank statements, etc., unless you are later asked to by the IRS.

Disclosures can be made on regular paper or special IRS forms. A Form 8275 “Disclosure Statement” on plain paper can be used any time you need to disclose something that can’t be adequately disclosed on the forms. Form 8275-R “Regulation Disclosure Statement,” is for disclosing positions that are contrary to IRS Regulations or other authority. You shouldn’t be filing a Form 8275-R–or taking a tax return position that would require it–without professional help.

Frankly, though, any disclosure statement should be checked with someone who can take you by the hand and ensure it’s done properly (ahem).

5. Fighting unnecessary fights.
Here’s where some of our clients have gotten in trouble in the past, despite our admonitions: If you take reasonable tax positions, and complete your return accurately, checking your math, why should you pay a bill if the IRS sends you one? Frankly, it’s a matter of practicality (and wisdom) rather than principle. It just doesn’t pay to fight with the IRS on small matters. So don’t get into the bureaucratic system and risk bigger problems for a few dollars. Just pay it and move on.

6. Ticky-Tack Prior Year Amending
Here’s the reverse situation of my previous point: amended returns are reviewed much more regularly than initial returns. So if you forgot a deduction or otherwise think you can get a small amount back by amending, think twice before amending your return (i.e.–consult with a pro). Consider whether you might have bigger problems if other matters on your return, unrelated to the amendment, are reviewed. Yes, you can win a battle…and lose a larger one.

7. Trying to go it alone.
Yes, this is a bit self-serving — but I’ll also make a “damaging admission” here: some tax professionals argue that a return prepared by a professional is less likely to be audited.  However the facts are that there’s little reliable data to support it. That being said, having a professional prepare your return will give you the added firepower of years of experience in handling such matters in your corner.

So to absolutely ensure that whatever happens, you’ll have such a someone at your side — and that your back will be guarded on the front end, give us a call: 847-243-3600.

And a last word: No matter how careful you are, there’s no way to guarantee you’ll never have a tax controversy. Sometimes your number just comes up. But when your number is called … make sure you aren’t alone.

You did not get your W-2!

If you haven’t gotten your W-2 by now, here are some basic steps for you (you might want to print out or save this link, by the way):

1) Contact your payroll department/boss. Be nice about it — after all, they’re just as burdened by the paperwork junk as you are!

2) If, however, the days roll by and the form is indeed lost or your employer is inordinately slow in issuing a replacement, or you worked for a company that went out of business and there’s no one to bug about getting a W-2 … what then?

“Make” your own! Well, actually, you contact the IRS at this number: (800) 829-1040 with the following info from your last paystub handy:

• Year’s wages.
• Payroll taxes withheld.
• Federal and state income taxes withheld.
• Contributions to your company retirement/401(k) plan.
• Employer’s tax identification number.

Wait on hold, and ask for Form 4852. Basically, this will inform your employer “officially” that they’re delinquent, and you can even use this form in a pinch, if your employer never gets their act together.

If you need further help, please feel free to email us at Howard@savemoretaxes.com or call us at 847-243-3600.

Related articles

• Happy Tax Season Series: Where’s my W-2? (ataxingaffair.com)

IRS changes the Standard Mileage Rate

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.

The real question is whether this rate is realistic for the increasing costs we face while using our vehicles for business.  The only way to know for sure is to keep track of your expenses and see which method works best.

If you need help in setting up a daily system to keep track of your expenses, let us know, we can help.

What to do if you have not received your tax refund!

It has been several weeks since you filed your return and you have not received your refund. What should you do? Here are some  steps you can take.

Your Refund Status: Make sure you have a copy of your tax return on hand or know your “filing status“, SSN and the exact dollar amount of the anticipated refund.
* Online: Go to IRS.gov and click on “Where’s My Refund”. (http://www.irs.gov/individuals/article/0,,id=96596,00.html?portlet=4)
* Automated Phone: Call 24 hours a day, 7 days a week for automated refund information.
* In-Person Phone: Call during the hours shown in your IRS form instructions.

“Do I need to keep a copy of my return?”
Yes, for a *minimum* of three years. There’s all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home. (I’ll soon have a Note about Amended Returns, and you will need a copy for that process, as well.)

As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

We will have more ideas for you to consider so that this year you will save more taxes.  Watch our blog for upcoming postings. Any questions, send us a note.

When The Tax Return is Wrong

Do you have a tax accountant who guarantees their work…in writing?

Sure, some guys might say: “We’ll make it

right if we screw up”, but then the stuff hits the fan and they fight you every step of the way.

I’ve heard too many horror stories about taxpayers getting a letter from the IRS, then they take it to their accountant, and then the letter sits on a desk gathering dust.

Or stories about the CPA who makes some calls on your behalf, but then you get charged an arm and a leg in the process.  Or sadly, a taxpayer doesn’t get any help from the person who prepared their taxes for them so they “go it alone”, call the IRS themselves and have to try to figure out what to do and not to do during this normally ugly IRS correspondence … THIS can be a nightmare!

Don’t let that happen to you. You need to have a written understanding with your tax professional that you won’t be left in the lurch. Oh, and also-does this guarantee actually do something you want it to?

I’ve seen some accountants guarantee they will file your taxes for you by April 15th or they will file an extension for you.  Well…great!  That sure makes you feel good in the morning, doesn’t it?   Other weak guarantees I’ve seen in the tax industry are, “We guarantee we will begin preparing your tax return the same day we meet with you.”

That means nothing to me.  I don’t care when you start preparing my taxes.  I want to know how long it is going to take you to finish it and do so without leaving out silly errors you know you should have caught.

So remember:  the guarantees should be in areas you care about, like:

Tax Return Accuracy … Speed of Service … Most Money Legally Yours … Ongoing IRS Protection For Years After Filing …

These are the things YOU care about!  Make sure the tax professional you choose stands behind these critical areas of tax filing so you get the most out of your tax filing experience.

We stand behind our work and have done so for the last thirty years.  See what others have to say about our work.  Check out our web page.

PS–If you would like to receive weekly emails on various topics, you may go HERE to subscribe: http://howardkaufman.mylocaltaxpro.com

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Is There Really Any Difference?

There’s a news story floating around the other week about politicians having to prepare their own taxes. (Here’s what I’m referring to, btw: http://www.nytimes.com/2011/02/13/business/yourtaxes/13essay.html) Apparently, the proposal gets a few laughs from those who hear about it, because, really — it’s becoming mind-numbingly complex, even for many professionals.

You think I’m kidding on that one? Well, you should see some of the

returns we review for people who have had them prepared elsewhere … yikes.

So, just as the choice to file taxes via robotic software fails the test, selecting the wrong professional to file your returns can be a big, big mistake.

Here’s what I mean.

Is There Really Any Difference?

Unfortunately, with the way that most tax professionals and CPA‘s present themselves to the world, it seems like we’re all the same. We all seem to offer the same services, for pretty similar fees. If I weren’t working every day in this industry, I’m pretty sure I would think that all accountants and CPA’s were the same. Nothing could be further from the truth.

You see, each tax professional does have certain qualifications. Some might be experts at this sort of tax law, or in working with farmers or with getting money back through IRS representation, or a whole variety of different things…but are they really providing what you, the consumer, wants?

What do you want from a tax preparer?

When I sit down and talk with regular consumers, here’s what I discover:

You want to be able to work with a caring professional…NOT one of those “cattle call” shops, where you’re squeezed in with a bunch of other people, and seen by harried, poorly-trained employees that just took a basic tax course.

You want an accurately filed tax return.  You want the whole thing broken down in terms that you understand, and in a way that you don’t need a translator to communicate. You want there to be processes in place to ensure that the most money is kept out of the grasping hands of Uncle Sam, and in your wallet (legally).

You want a “heads up” about future ways you can legally add deductions and make sure that you can get even more money back in the future. You want assurances everything your tax preparer is doing for you is valid and correct, so a guarantee(s) is essential to the process.

And of course, you want do it fast.  Look, I know this is a big deal for consumers…you don’t want your accountant pushing back at you all the time, saying “give me more time”, when you know it’s not because they’re working hard on your behalf, but that they’re so poorly organized that they’re not getting ANYBODY’S work done on time!

Oh, and if you ARE getting a refund, you want a tax firm who can get you the most money back the fastest … with the most electronic filing options available.

Here’s the bottom line:  You want professionalism … accuracy … you want clarity … you want to be aware of beneficial tax options … you want peace of mind … you want an efficient use of your time …. you want your refund money back in your hands fast …. And at the end of the day, you want to KNOW you got the most money back from Uncle Sam AND know that the IRS will stay off your back so you can sleep like a baby at night!

If the accountant or tax professional you are talking to can’t do these things, you need to call one that can.
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The Tax Paper Chase List-Check out our discount

This has ALREADY been one of our most intense years, in preparing the groundwork for “tax season”, simply because the tax code is getting even MORE complex. And, truly–it seems as if I write that *every* year, which isn’t a great sign for families who are wanting to do their own taxes!

And, of course, Congress’ last-minute tax agreement didn’t make things any easier.

Don’t cry for us — this is our full-time occupation, after all! But I truly do pity those who attempt to wade through all of the different codes and forms on their own, and not devote a week’s labor to the transaction. It really doesn’t pay to “go it alone” for certain tasks.

So, for those of you who want our help, I’ve got a special incentive for you at the end of this blog post l … AND, I’ve got a handy little list of what you’ll need to bring in or will need to complete your tax organizer we send to you. It’s mostly complete, but there may be certain situations where we’ll need other documentation to get you even more deductions. But, of course, we’ll let you know about that, should the situation arise!

Let me know your thoughts … and, of course, if you’d like to talk this over with us we DO have a couple slots left! Call or email soon, though.

The Tax Paper Chase List
Yes, this is a long list — but it’s the unfortunate reality of our tax code that it’s not even comprehensive! But these items will cover 95% of our clients.  Really, this is for ensuring that we’re able to help you keep everything you deserve to keep under our tax code.

Even if for some strange reason you won’t be using our cost-effective services this year, feel free to use this list as a handy guide…

Personal Data
Social Security Numbers (including spouse and children)
Child care provider tax I.D. or Social Security Number

Employment & Income Data
W-2 forms for this year
Tax refunds and unemployment compensation: Form 1099-G
Miscellaneous income including rent: Form 1099-MISC
Partnership and trust income
Pensions and annuities
Alimony received
Jury duty pay
Gambling and lottery winnings
Prizes and awards
Scholarships and fellowships
State and local income tax refunds
Unemployment compensation

Homeowner/Renter Data
Residential address(es) for this year
Mortgage interest: Form 1098
Sale of your home or other real estate: Form 1099-S
Second mortgage interest paid
Real estate taxes paid
Rent paid during tax year
Moving expenses

Financial Assets
Interest income statements: Form 1099-INT & 1099-OID
Dividend income statements: Form 1099-DIV
Proceeds from broker transactions: Form 1099-B
Retirement plan distribution: Form 1099-R
Capital gains or losses

Financial Liabilities
Auto loans and leases  (account numbers and car value) if vehicle used for business
Student loan interest paid
Early withdrawal penalties on CDs and other fixed time deposits

Automobiles
Personal property tax information
Department of Motor Vehicles fees

Expenses
Gifts to charity (receipts for any single donations of $250 or more)
Unreimbursed expenses related to volunteer work
Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions)
Investment expenses
Job-hunting expenses
Education expenses (tuition and fees)
Child care expenses
Medical Savings Accounts
Adoption expenses
Alimony paid
Tax return preparation expenses and fees

Self-Employment Data
Estimated tax vouchers for the current year
Self-employment tax
Self-employment SEP plans
Self-employed health insurance
K-1s on all partnerships
Receipts or documentation for business-related expenses
Farm income

Deduction Documents
State and local income taxes
IRA, Keogh and other retirement plan contributions
Medical expenses
Casualty or theft losses
Other miscellaneous deductions

We hope this helps, and we look forward to seeing you this year!

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Warmly,

Howard

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Special Early 2011 Blog Offer
$29.00 Off Any Tax Service
Special Gift Certificate
Print This blog post and bring it to our office–and receive an instant $29 credit towards any tax or financial service for 2011

Expires February 11th, 2011
Not valid with any other offer
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Last minute year end tax ideas

Now that we near the end of the year, here are some last minute tax tips.

Gifting

1. If you are giving securities away, endorse them over to the donee.  On year-end gifts, companies may not be able to retitle the certificates in the donee’s name by December 31st.

2. If you’re making a gift by check, be sure the donee deposits it in 2010 if you want the money to be included as a 2010 gift for gift tax purposes.

Otherwise, give a certified check to the recipient this year.  That will count as a 2010 gift, even if the donee does not deposit the check into his or her account until next year.

General

1.  Mail checks for deductible items before year-end to make sure of a 2010 write-off. You get to claim the deduction this year even if the checks don’t clear until January.

2.  If you are charging deductible items, make sure you know these rules:

Charges that you make with a retail store credit-card are only allowed as a deduction in the year you pay the bill.

Charges that you make with a bank credit card are allowed as a deduction in the year you charge the items, even if you pay the bill next year.

Here are some links to some more articles

Related articles

• Year-end giving moves, December 2010 (dontmesswithtaxes.typepad.com)
• Sometimes it’s better to give right now (iowabiz.com)