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Haven’t posted recently to this category because nothing new has happened except more grief from the IRS who is getting harder and harder to deal with on collection matters.  Had to file a CDP (Collection Due Process appeals) because the IRS sent a “Notice of Intent to Levy” to our client while we were engaging the taxpayer’s Revenue Officer in a payment agreement on behalf of that client.  Talk about sneaky collection tactics.

This client and his wife were doing real well earlier this year although they hadn’t filed for a few years.  Each of them, prior to a 2006 marriage, had several unfiled years which we filed for them in April this year.  To have both spouses delinquent on their filings is a rarity since most of the time one or the other would be the type to always file on time.  However, such was not the case here.  Both were in sales and leased new BMWs.  This is what bothered the IRS Revenue Officer.  He thought they were hiding money and doesn’t want to approve our request. 

We’ll keep you “posted” on what happens.  I’ll bet we get the payment agreement….what do you think?

Jerry 

2007 is fast drawing to a close.  (I’ll try to tell you something you don’t know.)  Only two more months to go.  (No…this wasn’t it) What you do between now and the end of the year can make a big difference on how your tax liability or tax refund looks when you file your return early next year.  Here are some things to think about from a tax point of view:

In every case, you need to check with your tax professional (js-hope that’s us) before implementing one of these suggestions.  If your tax professional charges for consultations, as do I, you will no doubt save much more in tax than it will cost you.

1)  Energy-saving home improvements:  Were you going to do something?  You can save up to $500 this year if you do it now, rather than wait to next year.  Next year will be too late.  Check with your tax advisor for details.

2)  Donate IRA money to charities:  If you are over 70 1/2 years old, you can make a direct donation to a qualified charity, from your IRA of up to $100,000.  This can be done without adding the amount to your income, thus, deductions that are limited by AGI will not be affected.  This is a good thing.  Check with your tax advisor for details.

3)  Tuition deduction for non-itemizers:  This deduction can be taken for for the cost of college education for you and your dependents even if you don’t itemize your deductions.  The deduction can be as large as $4,000 and is available to those with AFI up to $160,000 on a joint return or $80,000 if you are single.

4)  Mortgage Insurance on new loans in 2007:  Premiums that you pay or accrue for “qualified mortgage insurance” during 2007 in connection with home acquisition debt on your qualified home are deductible as an itemized deduction. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately). For the definitions of home acquisition debt and qualified home, see Publication 936, Home Mortgage Interest Deduction.

Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Mortgage insurance premiums you paid or accrued after December 31, 2007, or that are properly allocable to any period after December 31, 2007, are not deductible as an itemized deduction.

5)  Reduce you AGI:  The value of many deductions and credits, as well as other tax-saving breaks is typically reduced as AGI increases.  It is important to reduce your AGI, if possible.  These include medical deductions, casualty losses, Miscellaneous deductions,  and many other deductions that are phased out as AGI rises over various limits.  How?

Contributions to IRAs, 401(k)s (but not Roths), 403(b)s, other retirement plans, contributions to Healh Savings Accounts, expendures for moving expenses, alimony, student loan interest, college tuition and fees, educatior expenses and self-employed health insurance premiums.  Not all of these may help in your particular circumstances.    One other item relates to the possibility of deferring income from 2007 to 2008.  Check with your tax professional to make sure this works for you.

6)  Consider converting a Traditional IRA or 401(k) to a Roth IRA.  If you are going to wind up in a low tax bracket for 2007 you should seriously consider conversion.  Good prospects for this are those who had low income due to layoffs, sickness, etc. 

7)  Adjust your withholding now:  You need to do this if you think you are going to wind up owing taxes when you file or if you’re going to get a large refund.  Don’t give the IRS an interest free loan and try not to expose yourself to underpayment penalties of about 8% apr. 

8)  Are you going to be paying AMT for 2007 but not for 2008?  There may be a reason for postponing property tax payments or paying employee business expenses after the 1st of the year.

Keep tuned to this Blogpost to review things as the year comes to an end.  There will, no doubt, be changes coming and I’ll try to keep you up to date here.

Jerry W. Slade, EA

I filched the following information from a weekly e-mail I get as a result of my membership in the “National Association of Enrolled Agents.”  This is one of the ways we keep current on tax law changes which happen every day, what with US Tax Court decisions, IRS interpretations of the law and private rulings requested by businesses and individuals.  We keep up with this stuff so you don’t have to, but you need to come to this Blog frequently so you can keep up with what we think important to you.

I have inserted my comments, generally for clarification, in parenthesis (……-js), otherwise the material is totally attributed to this organization that represents Enrolled Agents and taxpayers at the national level in Washington, D.C.  Of course, cynic that I am when it comes to the government and particularly it’s leaders, I have also inserted my personal views.

(Here it is-js) 

26 October 2007  LEGISLATIVE NEWS

The Umpteenth AMT Update
For tax-minded folks in Washington these days, it’s all AMT, (Alternative Minimum Tax-js) all the time. While congressional leaders have given assurances that they will act to preserve the AMT exemptions passed in recent years, the House and Senate are charting paths that do not lead to the same place. In fact, were E@lert in charge, E@lert might suggest that the two chambers get together to discuss their strategies. They are, after all, located in the same building. Treasury Secretary Hank Paulson even weighed in this week, warning that the IRS needs 12–13 weeks to update their computer systems in response to any AMT changes. (There aren’t that many weeks left in 2007-js).

There is virtually universal agreement that the AMT exemptions should be extended. (I certainly agree there-js) The debate centers on the federal budget deficit. A one-year extension of the current AMT patch adds about $50 billion to the deficit. (How about cutting $50B from pork barrel legislation?-js)Under current congressional procedural rules, equal revenues or spending cuts must accompany the legislation. The Senate is looking for a three-fifths majority needed to waive the rules, so as to avoid the political pain of finding $50 billion worth of offsets. Complicating that effort is a demand by some Republican senators that the bill include extensions of certain 2001 and 2003 tax cuts. Most Democratic senators oppose those provisions, and some Democrats oppose waiving the budget rules at all.  (They ought to take each other out for lunch instead of the lobbyists-js)

Over in the House, it is difficult to imagine the Democratic leadership securing the two-thirds majority it needs to waive the budget rules for such high-profile legislation. The House will likely send the Senate a one-year AMT patch that includes offsets. E@lert suspects the real debate will take place in the Senate, where Democratic leaders will have to figure out how to convince a small number of Republican Senators to vote “yea.”

Rangel’s “Mother of All Tax Reforms”
Speaking of the AMT, House Ways and Means Chairman Charlie Rangel (D-NY) this week released a tax reform plan he calls the “mother of all tax reforms,” the centerpiece of which is repealing the AMT. The resulting revenue loss would be offset by a four percent surtax on MFJ incomes over $200,000 (4.6 percent for incomes over $500,000). (I’m actually ok with this, Charlie-js)  The bill includes a one-year AMT patch and one-year extensions of several expiring provisions, such as the deduction for state and local sales taxes, the deduction for mortgage insurance, the deduction for qualified tuition and expenses, and the deduction for teacher classroom expenses. Rangel says that the AMT patch and the extenders will be split off the larger bill and brought to the House floor soon (E@lert suspects next week, but E@lert wouldn’t bet the ranch!).

The bill has a few other interesting changes. It would lower the top corporate tax rate from 35 to 30.5 (Is Charlie really a Democrat?)percent and make permanent the current §179 small business expensing limits. It would increase the standard deduction by $850, increase from 7.65% to 15.3% the earned income credit percentage allowed for individuals with no qualifying children, and make the child tax credit available for earned income in excess of $8,500. And brokers would be required to report on Forms 1099 the bases of stock sold (for stock acquired beginning in 2009). (I really like this one-js)

Rangel has been given the green light by House Democratic leaders, who have agreed to give his bill floor time early next year. Republicans, unsurprisingly, are already lining up in opposition. (Why?  This is the best bill us weary individual taxpayers will ever get-js)  Some think Rangel plans to use this bill as a test balloon for a more serious tax reform effort beginning in 2009 (when Democrats hope to have a more sympathetic president in the White House)(Charlie has always been head over heels in love with Hilary-js). Even if it makes it through the House, the bill is likely to die in the Senate, before President Bush has a chance to veto it. (Senators are kind of like your rich and theiving uncle/aunt.  Love me always but don’t try to come up with any ideas before me-js).

Stay tuned to this Blog.  It will be fun to follow this through and see how it really comes out.  Your comments, as always, are invited.

Jerry 
 

If it sounds too good to be true, it almost always is. 

We have had a couple of prospective clients call us recently about their tax situation.  They had previously talked with national Tax Resolution Firms who tried to “sell” them on handling Offers In Compromise for them.  These nation firms need to feed a large number of “tax experts” and often oversell what they can actually do for their prospects. 

In each case, we determined the taxpayers would never be granted an Offer in Compromise yet we advised they could get one after sending the firm a large retainer and signing a Power of Attorney.  Many of these firms are still operating in the “kinder and gentler” era of the IRS, but things have changed drastically.  We are finding that only about one in ten are eligible for this program and would be throwing away thousands of dollars to these firms for the attempt. 

This is not to say they are all bad, however, I have to recommend that taxpayers who are in trouble talk directly to the person who is going to help them, make sure he or she  is an Enrolled Agent or CPA and has plenty of “taxpayer representation” experience.  Check them out thoroughly.  We are finding our fees to be very reasonable by comparison and we have many, many years of experience.  BE CAREFUL.

Our policy at TaxMasters is to assist our clients in filing their returns in accordance with the tax laws and provide the best advice when clients get upside down with the tax man.  We have found that the best thing we can do for clients who haven’t filed for a while is to work with the IRS and State in minimizing the pain associated with filing and figuring out the best way of handling each clients situation. 

The IRS is now on the war path and is chasing down and making life miserable for those who haven’t filed or haven’t paid their taxes.  I talked to an IRS collector yesterday, at length and was told to tell our client to toe the line or she would have to close down their business.  She said they have been told to get aggressive and mean (my words, not hers)and not cut anyone any slack.  While there are limits to their power, and we know what they are, they can still make your life miserable by either aggressively pursue collection or not following procedures and “accidentally” levy wages, bank accounts, etc.  Fortunately, most of them follow their own rules but some eagerly follow their new guidelines. 

One of our clients has been threatened with seizure of his residence because he owes over $100,000 and can’t immediately pay due to a severe reduction of business income.  While the IRs cannot seize his house, since it is now worth less that his mortgage, they are still threatening and scaring his family to death.  We are appealing their refusal to grant an Installment Payment Agreement and expect a hearing in the next few days.

This was kind of an interesting week at TaxMasters with it being the first full week of the ‘off-season.” One of our clients was threatened with being turned over to the Department of Justice by an IRS collector who had summonsed them to appear on the 25th of October or face prosecution for tax evasion.  We determined they just needed to file four years of returns and pay any outstanding tax liabilities.  Forturnately, upon completing these returns, they showed refunds and they were done, although they did lose several thousand dollars in refunds from their four year old return that was file too late to get the refund.

Another late filing client (3 years) with very high income and low paid in tax is pretty nervous since his employer doesn’t like the fact that a person like him, in a very responsible position, is behind on filing his taxes for no good reason except for neglect.  We’ll have him done by the first of the week and work out a payment agreement with the IRS and Franchise Tax Board.  Our goal is to do it fast enough to prevent a lien which will upset his employer as well as his credit rating.

Bev and I are in the process of scheduling a trip to Brazil to visit a long time client who  is retired there with his family.  Looks like an early December trip for about 10 days from beginning to end.  We haven’t been gone that long for many, many years but are confident that Cheryle and Dotti can handle any client emergencies while we’re gone.  We’re also going to Seattle for Thanksgiving and Bev will visit her family in Dallas early next month also.

Picked up an interesting new client who is an up and coming screen writer.  Dotti and I battled over who would get to handle his filing needs.  Dotti won but we’re all looking forward to working with this young man who has a lot of promise.  We’ll see who wins out in the long run…..

We finished off several years of tax returns for a young entreprenuer in Virginia this week and also for a very nice teacher in Arizona who needed nine years of tax returns prepared. Fortunately, neither the IRS nor the State was chasing either one so we were able to handle the cases with little stress.  Clients are always stressed when they initially contact us but generally feel immediate relief when we get started on their case and assure them we can keep bad things from happening to them (we almost always can).

Check out our postings in “Dealing with the IRS.”  There are a couple of interesting things in there, too, particularly concerning our competition.

Rep. Charles Rangel, from New York, is chairman of the House Appropriations Committee.  He is getting ready to introduce a “huge” tax bill that he says will be passed in 2008.  He says it will be the biggest tax bill since the Ronal Reagan years.  It will be interesting to see how well he is able to pull the disparate factions in congress together.  If anyone can do it, I think he can.  We’ll report on it as it happens.  We do know that he intends to cut taxes for some at the expense of the so-called rich.  The real issue becomes who is rich and who gets the tax cuts. 

You need to file as soon as possible and arrange to resolve your non-filing problem and tax debt, if any.  It is important to find a reputable Tax Resolution firm to help you.  Sure, it costs money but it’s worth it to get your situation under control and start to sleep at night. 

To get started, you will need to give the firm you choose your Power of Attorney to represent you.  They can find out which years you should file and keep the IRS from levying your wages.  Don’t waste any time; just do it.

Jerry W. Slade, EA

The IRS likes to send notices at such a time that you will receive them on Friday, stew about them over the weekend, and do something about it on Mondays. 

What do you do when you get a notice?  Just find a fax machine, write the name of your preparer somewhere on the notice and fax it to 408-236-2484.  No cover sheet is necessary and you don’t need to call first.

We know that receiving a notice is traumatic and stresses you out.  That is why we act on them right away when we get one.  We’re even getting better at letting you know we’ve seen it and will get to it as soon as possible.

What kind of notices are we talking about?

Collection notices:  Most of the time the notice is to demand money from you.  Sound familiar.  Don’t mess around with it.  Let us check to see if it’s true.  Don’t just pay it!  They’re not your kids…….. The IRS is getting a lot better at bookkeeping, but they still send out notices that are incorrect about 1/3 of the time.  If your notice comes by registered mail, they are really serious and you can expect a wage levy withing 30-40 days if it isn’t handled timely.

Correspondence audits:  These notices are kind of scary because all of these types of notices are alleging you owe big bucks to them because of some income item you allegedly left off your return.  Don’t believe them yet.  About 1/2 of the time, the income was on the return but their computer couldn’t easily find it so they are trying to scare you into telling them where it is.  They are getting better, but, at the same time, they are adding more and more items to check on all the time which means incorrect notices will multiply.  For example, they will start matching up cost basis on stock transactions on your 2008 tax returns.

The good news is that these “correspondence audits” are largely replacing the “office audits” which compelled you to go down to the IRS office and be intimidated by a relatively low level auditor who probably knows no more about tax issues than you but just wants to check your receipts and nitpik your deductions.   I grew to really hate these audits because they took a lot of time and produced very little in additional payments or refunds.  They were sort of like “wanding” the little old ladies in wheelchairs at the airport just in case they were terrorists.

The dreaded field audit:  The IRS has gotten pretty good at picking likely candidates for field audits.  These are almost always businesses and are almost always conducted in our office (the field) where we represent you and you don’t even show up except to help us help you.

So…..don’t delay and don’t get stressed out.  Just fax us the notice at 408-236-2484 and give us a day or two to figure it out and give you a call.  We promise to take good care of you.

 Jerry W. Slade, EA

At last! After the longest tax season in TaxMasters’ history…it always seems the longerst…. we finally turned off the lights, locked the doors and ended the tax season that began February 1st.  Why so long? This is the first year the extension deadline ended on October 15th without the August 15th deadline to encourage filing along the way.

My last client, I’ll call him Willie since he’s from San Francisco, showed up about 7:00 pm and left at about 8:00pm not totally satisfied with his decisions about taking the “Gozone” deduction on properties bought in the Katrina Zone.  He “only” owed about $20,000 and was a bit in shock.  I personally handled 19 tax returns on the 15th while Dotti handled almost that many and Cheryle was working on the most complicated tax return of the year in her bookkeeping department down the hall.

We had a full complement on hand, of willing helpers, until almost the bitter end, including Bev, Anthony and Sandra helping Dotti and me and Sabra pumping out returns from Seattle almost all day and late into the evening as well.  Cheryle pitched is mightily as well and was there ’til the happy end.

Now….it’s on to planning for next year; taking a little time off; taking our continuing education courses; travelling to Brazil, Seattle and Palm Springs and hopefully a little golf in between times.  Dotti will, no doubt, be spending some of her time living life vicariously through daughter Danielle attending USC.  Dotti, Bev and I will visit Danielle and attend the USC vs Oregon State football game as a getaway in early November.

Bev and I will do our best to minimize our time in the office between now and February 1st.  We have a great team to hold down the fort and we will be in for appointments, consultations and crises as the need arises.

Much of this period will be spent in front of the computer checking emails from clients, reviewing IRS notices and preparing for next tax season.  So…..we expect to be busy but with a whole lot less stress for the next four months.

We continue to look forward to seeing our clients and friends throughout the year.

Jerry W. Slade, EA 

October 9, 2007. 

This is the last full week of tax season #2.  One week from yesterday is the final deadline.  We have had a full post season and summer and are looking forward to relaxing a bit, taking a few days off, here and there, taking some tax classes and recharging our batteries before the next tax season hits next February.

In the last two days, I have had three new clients come in who had never used a “paid” preparer before.  They had different reasons for seeking out “professional” help but it really added up to the desire to make sure they weren’t missing out on deductions and they just didn’t have the time to figure out how to do something difficult on their tax returns.

I am constantly amazed that folks would try to plow through their taxes themselves when I spend 15-20 minutes every day reading updates to tax laws, court cases, IRS rulings, etc. plus 25-30 hours per year in formal continuing education, and 1-2 hours every weekend reading tax updates.  I still have to look stuff up when I do a complicated tax return. 

I realize it costs a few hundred dollars to do a complicated return and a couple of hundred to do a relatively simple one, however, compared to your annual income, it’s a very small number to pay for peace of mind.  Let it go…….

Our bookkeeping department, headed by Cheryle, moved next door into the new space we added to give them some much needed room.  Cheryle is now lonesome with no one but Michelle to bug her unless we venture into the adjacent conference room.

Don’t forget…..if you haven’t picked up your return or signed the authorization to electronically file, you have to do so by October 15th or incur 25%+ penalties on the tax you owe. 

Jerry