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September

TCJA Draws a Silver Lining Around the Individual AMT

 

The Tax Cuts and Jobs Act (TCJA) didn’t eliminate the individual alternative minimum tax (AMT). But the law did draw a silver lining around it. Revised rules now lessen the likelihood that many taxpayers will owe substantial taxes under the AMT for 2018 through 2025.

 

Parallel universe

Think of the AMT as a parallel universe to the regular federal income tax system. The difference: The AMT system taxes certain types of income that are tax-free under the regular tax system and disallows some regular tax deductions and credits.

 

The maximum AMT rate is 28%. By comparison, the maximum regular tax rate for individuals has been reduced to 37% for 2018 through 2025 thanks to the TCJA. For 2018, that 28% AMT rate starts when AMT income exceeds $191,100 for married joint-filing couples and $95,550 for others (as adjusted by Revenue Procedure 2018-18).

 

Exemption available

Under the AMT rules, you’re allowed a relatively large inflation-adjusted AMT exemption. This amount is deducted when calculating your AMT income. The TCJA significantly increases the exemption for 2018 through 2025. The exemption is phased out when your AMT income surpasses the applicable threshold, but the TCJA greatly increases those thresholds for 2018 through 2025.

 

If your AMT bill for the year exceeds your regular tax bill, you must pay the higher AMT amount. Originally, the AMT was enacted to ensure that very wealthy people didn’t avoid paying tax by taking advantage of “too many” tax breaks. Unfortunately, the AMT also hit some unintended targets. The new AMT rules are better aligned with Congress’s original intent.

Under both old and new law, the exemption is reduced by 25% of the excess of AMT income over the applicable exemption amount. But under the TCJA, only those with high incomes will see their exemptions phased out, while others — particularly middle-income taxpayers — will benefit from full exemptions.

 

Need to plan

For many taxpayers, the AMT rules are less worrisome than they used to be. Let our firm assess your liability and help you plan accordingly.

 

Sidebar: High-income earners back in the AMT spotlight

Before the Tax Cuts and Jobs Act (TCJA), many high-income taxpayers weren’t affected by the alternative minimum tax (AMT). That’s because, after multiple legislative changes, many of their tax breaks were already cut back or eliminated under the regular income tax rules. So, there was no need to address the AMT.

 

If one’s income exceeds certain levels, phaseout rules chip away or eliminate other tax breaks. As a result, higher-income taxpayers had little or nothing left to lose by the time they got to the AMT calculation, while many upper-middle-income folks still had plenty left to lose. Also, the highest earners were in the 39.6% regular federal income tax bracket under prior law, which made it less likely that the AMT — with its maximum 28% rate — would hit them.

 

In addition, the AMT exemption is phased out as income goes up. This amount is deducted in calculating AMT income. Under previous law, this exemption had little or no impact on individuals in the top bracket because the exemption was completely phased out. But the exemption phaseout rule made upper-middle-income taxpayers more likely to owe AMT under previous law. Suffice it to say that, under the TCJA, high-income earners are back in the AMT spotlight. So, proper planning is essential.

 

 

 

 

Study Up on the Tax Advantages of a 529 Savings Plan

With kids back in school, it’s a good time for parents (and grandparents) to think about college funding. One option, which can be especially beneficial if the children in question still have many years until heading off to college, is a Section 529 plan.

 

Tax-deferred compounding

529 plans are generally state-sponsored, and the savings-plan option offers the opportunity to potentially build up a significant college nest egg because of tax-deferred compounding. So, these plans can be particularly powerful if contributions begin when the child is young. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer applicable state tax incentives.

 

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer-related items and, generally, room and board) are income-tax-free for federal purposes and, in many cases, for state purposes as well. (The Tax Cuts and Jobs Act changes the definition of “qualifying expenses” to include not just postsecondary school costs, but also primary and secondary school expenses.)

 

Additional benefits

529 plans offer other benefits, too. They usually have high contribution limits and no income-based phaseouts to limit contributions. There’s generally no beneficiary age limit for contributions or distributions. And the owner can control the account — even after the child is a legal adult — as well as make tax-free rollovers to another qualifying family member.

 

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions, which means you can make up to a $75,000 contribution (or $150,000 if you split the gift with your spouse) in 2018. In the case of grandparents, this also can avoid generation-skipping transfer taxes.

 

Minimal minuses

One negative of a 529 plan is that your investment options are limited. Another is that you can make changes to your options only twice a year or if you change the beneficiary.

 

But whenever you make a new contribution, you can choose a different option for that contribution, no matter how many times you contribute during the year. Also, you can make a tax-free rollover to another 529 plan for the same child every 12 months.

 

More to learn

We’ve focused on 529 savings plans here; a prepaid tuition version of 529 plans is also available. If you’d like to learn more about either type of 529 plan, please contact us.

 

 

 

Six ways to prepare for disaster

By Daniel Hood

 

Stocking up on water, shuttering the windows and even evacuating when appropriate are among the priorities when it comes to preparing for a major storm or other potential disaster, but with Hurricane Florence on everyone's minds, the Internal Revenue Service reminded taxpayers and businesses of some of the other precautions they might want to take, particularly around making sure their documents and other records are secure. Here's their advice, along with some other expert tips.

 

Start with a plan

While the majority of any disaster preparedness plan will focus on things like communication with family members or employees, physical safety, escape routes and the like, the IRS notes that it should also include plans for key documents, data, and lists of belongings and property.

 

Make copies of key documents

The IRS recommends keeping original documents like bank statements, tax returns, deeds, titles and insurance policies in a safe place in waterproof containers -- and copies of them should be kept with a family member or trusted friend somewhere outside the area that may be affected by the disaster. Scanning paper documents can also make it easier to transfer and save them elsewhere -- and note that many financial institutions can provide statements and other documents electronically.

 

Document what you have

The IRS recommends taking pictures of videos of the contents of a house or business, with a particular focus on high-value items. Those visual records can help support insurance claims, or claims for tax benefits in the aftermath of a disaster.

The service has workbooks for individuals (Publication 584, "Casualty, Disaster, and Theft Loss Workbook") and businesses (Publication 584-B, "Business Casualty, Disaster, and Theft Loss Workbook") to help them compile lists of belongings and business equipment.

 

Check on payroll providers

If your firm -- or your clients' businesses -- use a payroll service provider, the IRS recommends checking if they have a fiduciary bond, to protect you in case the payroll service provider defaults.

 

Know who to contact

Preparing a phone list of family members or critical business contacts is one of the first things to do in advance of a potential natural disaster, but the IRS also notes that there are other people you may want to contact.

For instance, in the case of a federally declared disaster, taxpayers can call (866) 562-5227 to talk to an IRS specialist trained to handle disaster-related issues, and they can get tax transcripts through the Get Transcript link on IRS.gov, by calling (800) 908-9946.

It will also be handy to have contact information for insurers, building managers or landlords, plumbers, electricians, and anyone else whose services or help you can imagine needing in the aftermath of a disaster.

 

Make sure backups are working

 

Business data and systems should be backed up on a daily basis to a location that's not just off-site, but in an entirely different part of the country. But just backing up isn't enough -- businesses should also test to make sure that their backups are actually working, by periodically restoring and checking the backed-up files.

More and more individuals are also taking advantage of cloud-based backup services to store family photos, records and other files outside their homes -- and they'll want to check that those are effective, too.

 

 

 

The art of the steal: Will reform fight tax cheats?

By Jeff Stimpson

 

One of the claims made by proponents of last year’s once-in-a-generation tax reform act was that it would limit the scope for taxpayers to cheat on their returns by lowering the complexity of the Tax Code — but so far, tax professionals seem pessimistic.

 

“Tax reform failed to properly fund the IRS. Pervasively inadequate enforcement budget allocations have caused and will continue to more robustly cause taxpayers to be less than fully forthright with their practitioners,” said John Dundon, an Enrolled Agent and president of Taxpayer Advocacy Services in Englewood, Colorado. “Circular 230 lacks the teeth to bridge the gap.”

 

“The potential exists for it to increase, perhaps exponentially, because I don’t think that the IRS will have enough security measures in place given all the code changes,” said EA Laurie Ziegler at Sass Accounting in Saukville, Wisconsin.

 

“The incidence of fraud, certainly on personal returns, will drop,” said Morris Armstrong, an EA and registered investment advisor with Armstrong Financial Strategies, in Cheshire, Connecticut. “If you think about it, you have eliminated a whole category where people may have had the opportunity to pad the return with imaginary expenses. The whole 2106, unreimbursed employee expenses has gone the way of civility. Imaginary advisor fees, investment seminar fees and tax return fees are gone."

 

 “There will be opportunities for people to cheat on the refundable credit side,” Armstrong said, “and of course by not reporting all income.”

 

News

“As a forensic accountant specializing in divorce litigation support, I see a great deal of tax avoidance because it coincides with less income reporting and correspondingly lower child support and alimony payments,” said Susan Carlisle, a CPA with Carlisle Dorafshani Wohl and Associates, in Los Angeles.

 

“Almost everyone doesn’t like to pay taxes,” she said. “Small businesspeople, along with professionals, are more often particularly adept at reducing their taxable income. The IRS knows this. [Some] are so willing to play the audit lottery that they brazenly eliminate reporting a substantial portion of their income while simultaneously burying much of their personal expenses among their actual business expenses. The new tax laws will do little or nothing to change their stripes.”


If anything, Carlisle added, the new qualified business income deduction will continue to lower the amount of taxes they pay “because potentially another 20 percent of their taxable income will be reduced. Those who commit fraud will continue to do so,” Carlisle said. “Those that do not will seek the advice of tax professionals to learn how to allocate payroll and net flow-through income so as to maximize the new qualified business income deduction.”

 

“Because it will take some time for many preparers and IRS personnel to get familiar with the tax reform rules and start setting up audit programs to deal with the new laws, there will probably be more people trying to game the deduction system, just in different ways,” said CPA Brian Stoner in Burbank, Calif.

 

“Since many of the itemized deductions will be gone, there will probably be less fraud in that area, but business meals are a whole different problem, with the requirements for a deduction being so nebulous that it may make it a potential area of concern,” he said. “Plus with the IRS budget issues, there may not be resources to deal with a lot of the changes until later, which may lead many to pad deductions now when they think they can take better advantage.”

 

 

 

Wayfair: A trigger for new global taxes on U.S. multinationals?

By Richard Asquith

 

Has the Supreme Court ruling in the South Dakota v. Wayfair case added impetus to the calls from the European Union, China, India and others to impose new taxes on U.S. multinationals? The e-commerce ruling in June – making out-of-state merchants liable to collect and remit sales tax – has given credibility to the global view that North American multinationals have exploited an outdated fiscal regime, ill-suited for a 21st century digital world.

 

In today’s global tax system, companies are subject to income tax where they are resident – which usually means where they are incorporated and physically located. This premise was adopted in the 1920s, at the post-WWI League of Nations where rules for businesses doing trade where developed. This starting point was adopted to ensure double taxation did not arise when selling across borders.

 

However, the near-breathless explosion of global trade, and complexity of modern supply chains, has seriously undermined this principle. For example, foreign companies have been able to ship, import and sell to local consumers, under the cover of free trade agreements, without having to form local income tax-liable subsidiaries. This has left domestic businesses, subject to full corporate income tax, at a serious competitive disadvantage.

 

But the problem in the eyes of the rest of the world, who view expansionary U.S. multinationals as benefiting all too much from this loophole, has been hugely compounded by the emergence of the digital economy. This has enabled many digital giants, such as Apple, Facebook, Netflix, Google and Amazon, to sell billions in digital services to foreign consumers while legitimately avoiding local taxes. They are viewed as highly adept at locating their foreign hubs and intellectual property rights in low-tax jurisdictions, and entering into complex income and dividend cross-border flows to significantly reduce or eliminate altogether their tax bills.

For example, the EU believes on average digitalized businesses face an effective tax rate of only 9.5 percent, compared to 23.2 percent for traditional business models.

 

Shift to taxing where sold

For the past five years, countries around the world have been formulating proposals to eliminate this lopsided fiscal imbalance. This has included the Organization for Economic Cooperation and Development’s BEPS (Base Erosion Profit Shifting) plans, adopted in November 2016 by over 100 countries. In addition, the EU earlier this year proposed a 3 percent turnover tax on the major digital giants with little or no taxable physical presence in their countries, but selling in the billions to their consumers. The EU was careful to stress this would be on companies from within the EU too, but the targets were obviously U.S. in origin.

 

The uptake has been slow, largely because of U.S. foot-dragging, as it has the most to lose from any tax redistribution. In this regard, the news of the acceptance of Wayfair’s economic nexus principle has been taken as a game-changer. It is being interpreted as the U.S. belatedly accepting a destination-based taxation precedent, whereby taxes are levied where the consumer is and the value created. This would entitle overseas governments to make a fresh push to introduce new taxes on U.S. multinationals.

 

Will this line of fiscal argument hold? The U.S. may contend that Wayfair was relating to sales taxes, whereas foreign treasuries are seeking to impose direct, corporate income taxes on multinationals. Generally, these two taxes have very different bases. However, the Europeans can highlight that the U.S. corporate income tax regime also uses their direct rules too – using formulas like payroll, property and sales in state to determine a tax nexus. So, the U.S. attempting to argue Wayfair’s economic presence principle doesn’t apply would be inconsistent.

The U.S. may be on thin ice in attempting to protect its digital goliaths from the tax arm of Europe and others. Following the EU proposals on a turnover tax, India and Singapore have also announced plans to forge ahead with a digital tax on foreign businesses. Australia is considering similar plans.

 

The U.S. will obviously seek to block these reforms, but in the current incendiary atmosphere of trade tariff escalations, the rest of the world is spoiling for a fiscal fight.

 

 

IRS to work more closely with states on tax compliance

By Michael Cohn

 

The Internal Revenue Service is hoping to expand the number of states who share data with the IRS as part of a joint federal and state program that’s trying to crack down on tax evasion.

A new report by the Treasury Inspector General for Tax Administration examines ways the IRS can more effectively address tax noncompliance by making better use of the Fed/State Program. The report noted that the IRS already collaborates with state and local government agencies to increase tax compliance, enforcement and taxpayer services. One way the IRS accomplishes this is through the Fed/State Program.

 

Under the program, the IRS Governmental Liaison function (which is part of the IRS’s Office of Privacy, Governmental Liaison, and Disclosure) facilitates and expands joint tax administration relationships between the IRS and state tax authorities. But TIGTA found the IRS can more effectively address noncompliance and underreporting by better using the State Audit Report Program. For the report, TIGTA analyzed information from the program on people who didn’t file tax returns for fiscal years 2013 through 2016 and found the IRS had dropped 39,142 records for taxpayers who were either repeat nonfilers, high-income nonfilers or both, with estimated tax liabilities not collected totaling approximately $285 million.

 

So far, only 12 states participate in the State Audit Report Program, and there’s a lack of coordination and knowledge regarding the IRS’s agreements with the state agencies who do participate. The report found that more coordination is needed between the IRS’s Office of Privacy, Governmental Liaison, and Disclosure and its Small Business/Self Employed Division for development and tracking of such agreements.

 

TIGTA recommended the IRS expand its State Audit Report Program to other state agencies, evaluate high-income and repeat nonfilers before dropping them from the State Audit Report Program nonfiler inventory, and document its analysis. In addition, the report said the IRS’s Office of Privacy, Governmental Liaison, and Disclosure should coordinate with the Small Business/Self-Employed Division to ensure that all federal and state agreements are accounted for in the IRS Agreement Database, and routinely review and validate the database for all federal and state agreements.

 

An IRS official said in response to the report that the agency has already been doing more outreach to other state tax authorities in an effort to expand the program. “Within the Fed/State Program, the State Audit Report Program (SARP) initiative identifies potential underreporters and nonfilers based on state audit information,” wrote Mary Beth Murphy, commissioner of the IRS’s Small Business/Self-Employed Division. “Earlier this year, we contacted all nonparticipating state agencies to request information about their willingness and ability to share information. State participation is voluntary and cannot be mandated by us. Collaboration among our agencies can also present challenges such as the format, quality and compatibility of the data to be exchanged. We are currently analyzing the information gathered and identifying those agencies with which it may be appropriate to begin data sharing.”

 

The IRS agreed with two of TIGTA’s recommendations and partly agreed with one. The IRS plans to do more outreach to state agencies about data transfer to expand the State Audit Report Program, and evaluate and make improvements, if necessary, to the ranking process of the State Audit Report Program nonfiler inventory and formalize a process to document all non-selected nonfiler cases. On top of that, the IRS Office of Privacy, Governmental Liaison, and Disclosure will make sure all Small Business/Self-Employed Division Fed/State agreements are accurately recorded in the IRS Agreement Database and will annually validate that the database is current for all active Small Business/Self-Employed Division Fed/State agreements. The IRS Office of Privacy, Governmental Liaison, and Disclosure will also develop written procedures for conducting this annual review.

 

 

 

IRS will allow contributions to state and local tax credit programs as deductible business expenses

By Michael Cohn

 

The Internal Revenue Service and the Treasury Department said Wednesday that payments under state or local tax credit programs may be deductible as business expenses, permitting a workaround for businesses to the $10,000 limit on state and local tax deductions in the Tax Cuts and Jobs Act.

 

However, the IRS and Treasury are still not giving individual taxpayers the ability to make charitable contributions to state-run funds as a way to circumvent the limits on the SALT deduction in the new tax law. Last month, they issued proposed regulations aimed at stopping blue states like New York, New Jersey and Connecticut that have authorized such funds, and other high-tax states that have been considering them (see IRS moves to block New York, New Jersey plans to bypass SALT deduction cap). But they left open the possibility of allowing business taxpayers to use them (see IRS short-circuits SALT deduction charitable workarounds to new tax law, but leaves others open for now). Connecticut started such a program earlier this year, and New York is considering one (see Some high-tax states aim to provide businesses workaround for SALT limits).

 

The IRS said Wednesday that business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses, but it has to qualify as an ordinary and necessary business expense. In response to inquiries from taxpayers, the IRS clarified that the general deductibility rule is unaffected by the recent notice of proposed rulemaking concerning the availability of a charitable contribution deduction for contributions pursuant to such programs.

 

“The business expense deduction is available to any business taxpayer, regardless of whether it is doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense,” said the IRS. “Therefore, businesses generally can still deduct business-related payments in full as a business expense on their federal income tax return.”

 

The Treasury issued similar reassurance on Wednesday.

 

“The IRS clarification makes clear that the longstanding rule allowing businesses to deduct payments to charities as business expenses remains unchanged under the Tax Cuts and Jobs Act,” said Treasury Secretary Steven T. Mnuchin in a statement. “The recent proposed rule concerning the cap on state and local tax deductions has no impact on federal tax benefits for business-related donations to school choice programs.”

 

The clarification won't affect corporations, which aren't subject to the $10,000 limit on state and local tax deductions in the new tax law, but it would apply to pass-through entities such as partnerships.

 

 

 

Small businesses need major tax help

By Roger Russell

 

Despite the widespread belief that small businesses are a target for IRS audits, nearly a third of small-business owners think they overpay their taxes, according to a survey by B2B research firm Clutch of over 300 small-business owners and managers.

 

“If they think they’re paying too much, they’re questioning the accuracy of their tax return,” said Roger Harris, president of Padgett Business Services. “They’re somehow missing a deduction, or there are parts of the code they just don’t know about. If a business owner did their own accounting and bought a piece of equipment in October 2017, what’s the chance they knew the rules for the new 100 percent bonus depreciation?”

 

The small businesses in the survey listed unforeseen expenses (35 percent) as their top financial challenge, followed by the mixing of business and personal finances (23 percent) and the inability to receive payments on time (21 percent). Clerical errors in financial records, and outdated financial records, were both listed by 11 percent of respondents.

 

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The majority of small businesses in the survey said they use the accrual method for tracking finances, although the smallest businesses, with fewer than 10 employees, were more likely to use the cash basis method.

 

“Actually, use of the cash method versus the accrual method has nothing to do with number of employees but with revenue,” said Harris. “In fact, the Tax Cuts and Jobs Act increased the ability to use the cash method for businesses with up to $25 million in annual revenue. Cash accounting is available to many businesses, and many small businesses prefer it because it’s simpler. They like taxable income to track as closely as possible to their checkbooks. In fact, most of our clients would be happy with a simple profit and loss financial statement: Money in minus money out equals money left, or what some of them call ‘my money.’”

 

“But the accrual method creates expenses that sometimes aren’t yet paid and sometimes defers costs that are already paid, and defers them into the future,” he continued. “In that case, taxable income can vary dramatically from using the cash method.”

 

“The cash method is easier for everyone to understand,” he said. “Money in is income, money out is expense, and what’s left is your money, which is what you pay taxes on.”

 

Most use a hybrid method — accrual for income because they have inventories, and cash for expenses, according to Harris.

 

“If I asked what method of accounting they use, most small-business owners would just stare at me,” Harris said. “But if I explained it to them and they made a pick, most would choose cash. I would be stunned if I asked a small-business owner without giving a choice, and anyone said ‘accrual.’ Most of them wouldn’t even know the term. If you go to the coffee shop in your building and ask the owner what method they use, they won’t know what you’re talking about.”

“In a classroom or to an accountant, the accrual method is favored,” said Harris. “But in the eyes of most owners, if they don’t have the money it’s not income, and if they haven’t paid money, it’s not an expense.”

 

Surprisingly, the survey found that more than a quarter — 27 percent — of small-business owners and managers said they do not have a separate bank account for their business. Naturally, established businesses are more likely to have separate bank accounts than start-ups. Nearly 80 percent of small-business owners of five years or more said they have separate accounts, compared to 68 percent of small-business owners of two years or less.

 

 

 

When will the dust from Wayfair clear?

By Roger Russell

 

For those waiting for the dust to settle in the aftermath of the Supreme Court’s Wayfairdecision, it hasn’t.

 

“We’ve been sending new alerts out almost on a daily basis as states provide guidance indicating how they’re going to proceed,” said Jeff Glickman, partner-in-charge of state and local tax services at Top 100 Firm Aprio. “About 20 states had enacted similar legislation to South Dakota’s leading up to the decisions. There has been a flurry of activity following the decision, as states begin the process of sorting out when and how they will enforce the new rules. Member states that signed the Streamlined Sales and Use Tax Agreement had a call in which they all agreed not to apply Wayfair on a retroactive basis.”

 

“Many states have already indicated that they’ll expect sellers to be set up and charging tax on sales as of Oct. 1, 2018, or Jan. 1, 2019,” said Val Dickerson, national multistate tax leader at Big Four firm Deloitte. “For some, this will present certain challenges, including registration, taxability decisions, sourcing, collection, remittance and the filing of returns, which is typically required to be done electronically. And there are some states that expect compliance to have begun by July 1, 2018, or even earlier.”

 

Interestingly, Glickman pointed out that three states said that although they have not passed legislation, they are going to apply and enforce what are effectively South Dakota-type laws against remote sellers selling into their states.

 

The threat of double taxation is not great, he noted: “The leakage you get is when consumers buy in an out-of-state store and bring an item back into their home state. They may owe an additional 1 percent if their home state has a higher rate.”

 

“States will not typically have the information or motivation to identify duplicate payments,” said Dickerson. “The responsibility really originates with the purchaser — to identify a duplicate payment in a timely fashion and file the appropriate refund claim.”

 

One area that isn’t entirely clear in the language of some state legislation is the way in which the threshold is calculated, according to Glickman: “The way the statutes are written, if you make sales into the state exceeding $100,000, does it matter if the sales are taxable or nontaxable in order to meet the threshold?”

 

For example, the Utah law, which passed last month, specifically applies to remote sellers who meet either of the following: “The seller receives gross revenue from the sale of tangible personal property, any product transferred electronically, or services for storage, use or consumption in the state of more than $100,000, or the seller sells tangible personal property, products transferred electronically, or services for storage, use or consumption in the state in 200 or more separate transactions.”

 

“These economic nexus thresholds can be met via sales of other than tangible personal property,” Glickman observed. “And the sales of tangible personal property, electronically transferred products, and services do not necessarily have to be taxable by the state. In other words, if I sell $100,000 of nontaxable services and then make one sale of taxable property for $50, do I have to collect sales tax on that first taxable sale? I think so.”


A damper on rate changes

The uncertainties of both the Wayfair decision and tax reform may be a reason for a decrease in state sales tax rate changes during the first half of 2018, according to Bernadette Pinamont, Vertex vice president of tax research. The “Vertex 2018 Mid-Year Sales Tax Rate Report” shows a decrease in rate changes compared to the same period in 2017.

 

“Between Wayfair and the Tax Cuts and Jobs Act, states may have been hitting the pause button to give themselves time to understand what they’re looking at,” said Pinamont. “Although tax rate changes decreased from previous years, it was still an extremely active and surprising six months as tax professionals began to watch and assess the implications of the decision,” she said.

“As a result of Wayfair, tax professionals are putting a greater focus on reviewing their end-to-end sales and use tax compliance processes, specifically registrations and exemption certificate management,” she said. “Wayfair is not only impacting their economic nexus, but is also prompting companies to discuss processes, staffing and technology resources needed for tax.”

 

From a professional liability standpoint, Wayfair presents two risks, according to Deb Rood, risk control consulting director for CNA, the carrier for the American Institute of CPAs’ professional liability insurance program: “One is the failure to advise. Right now, there are a bunch of uncertainties related to the issue. We know that physical presence is no longer the standard [for sales tax nexus], but we don’t know exactly what is the standard. CPAs are in an awkward situation where they don’t have anything definitive to tell their clients. When something definitive is determined, it’s going to take a while to catch up. You can foresee a client asserting that their CPA failed to tell them this was coming down the pike.”

 

“Once taxability is determined, I’m concerned that CPAs won’t understand that it applies to certain clients,” continued Rood. “The client will say, ‘You didn’t tell me I had to collect and remit in this state.’ I fully expect these types of claims. The penalties for failure to file are typically damages. It’s not unusual to have interest added, but in these cases the CPA could be liable for the tax itself, because if the CPA had told the client, the tax would have been borne by the client’s customer.”

 

There are certain things CPAs should do to mitigate the risk, according to Rood.

 

“Read Accounting Today and the AICPA literature on the issue, and determine how the ruling will affect the CPA firm’s clients,” she said. “Then look at your engagement letters, and make sure that they have a detailed scope of service. If the letter has the phrase ‘limited tax consulting,’ eliminate it, because a client could assert that by having that phrase in the letter, you had the responsibility to address the Wayfair decision and how it applies to them.”

“Keep in mind that ‘failure to advise’ is where a lot of claims will arise,” she explained. “If you’re just doing Form 1040 returns, you might not realize that the client is making sales over the internet, so send out a newsletter to all your clients. Inform them that they should contact you and set up an appointment to discuss how Wayfair might apply to them. And contact the client directly if you know they are affected.”

 

If the client is affected, they might look to the CPA firm to give software vendor recommendations, Rood observed. “If the vendor doesn’t work out, CPA firms have been sued. Refer more than one vendor, and tell the client, ‘They are all qualified but we don’t endorse any of them.’ And advise the client in writing as to their own due diligence to ensure the third party meets their needs.”

AT-073118-Wayfair compliance challenge

From sales to income

Meanwhile, Wayfair might have a far-reaching impact on state income tax obligations in addition to its sales tax impact, according to Marvin Kirsner, a shareholder at law firm Greenberg Traurig.

 

“The potential state income tax exposure is likely greater than sales tax, because so many states have had income tax nexus rules on the books for many years,” he said.

 

“If a physical presence is not required to come under a state’s sales tax jurisdiction, a physical presence likewise is not required to come within a state’s income tax jurisdiction,” he said. “This potentially has wider ramifications to businesses around the U.S. because it applies to any company doing business in a state, even if the company does not sell goods or services which are subject to sales tax — as is the case with financial institutions.”

 

Many states have enacted state income tax nexus rules that say that a company must file a return if it reaches a minimum sales threshold to customers in the state, even if the company does not have a physical presence there. Some companies that met these thresholds may not have filed income tax returns on the basis that they did not have a physical presence, Kirsner indicated.

 

“Some of these states might say that companies that met these sales thresholds should have filed returns going back to the date their income tax nexus laws were enacted — in some cases more than a decade ago,” he said. “As a result, depending on the state, the potential exposure could be material.”

 

“Companies with state income tax exposure as a result of the Wayfair case should consider a [voluntary disclosure agreement] with these states,” Kirsner added. “A company considering a VDA with a state should act quickly, because if the state tax agency contacts the company about why it has not filed a tax return before the company can make its initial VDA offer, it is usually too late to negotiate an agreement.”

 

 

 

Hold everything: What clients need to know about new withholding rules

By Jeff Stimpson

 

Some clients, it now seems certain, will feel one of the Tax Cuts and Jobs Act’s most significant changes for 2018 in the spring of 2019: sticker shock on their tax bill or refund. And it also seems certain that preparers can do only so much warning.

 

“Taxpayers have not looked at their withholding for 2018. I’ve promoted them doing a tax check-up [but] many are going to be upset at the end of the year when they don't get a bigger refund or actually owe,” said Marilyn Meredith at Michigan-based Meredith Tax Service.

 

“I won’t tell them ‘I told you so,’ even though I should,” said Morris Armstrong, an Enrolled Agent and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut. “Through normal communications, it’s been suggested that they do a tax checkup on their pay stubs and no one really wants to do it, even for free. They don’t want to take the time. I’m hoping that April showers are avoided when they see their results.”

 

“We’ve been telling clients to check their withholdings but I seriously doubt people will,” said Patrick O’Hara, an EA in Poughkeepsie, N.Y. “It’s human nature to want more in your check but there will be more disappointment when they end up owing.”

 

The office of Kerry Freeman, an EA at Freeman Income Tax Service in Anthem, Arizona, called every client for a mid-year review of withholdings; only about 15 percent took advantage of this service. “I’ve found that many clients really don’t understand how withholding affects the tax return and are shocked with either the balance due or the refund,” Freeman said.

 

“We feel that most of our clients have not checked their withholdings for 2018 … We sense that many of our clients have been lead to believe the new tax law would be favorable to their overall tax situation but in reality may face a quite different situation,” said Gail Rosen, a CPA and shareholder with Wilkin & Guttenplan in Martinsville, N.J. “This, coupled with the withholding tables reducing tax withheld, should have them concerned. We’ve made a concerted effort to contact clients whose reduced withholding we project will not meet their actual tax liability for 2018.”


Many under-withhold

More than one in five taxpayers will under-withhold their taxes in 2018 under changes mandated by the TCJA , according to a recent report from the federal Government Accountability Office -- though the number of under-withheld taxpayers under the new law is only three percentage points higher than the GAO estimate of what it would have been under previous law (18 percent).

 

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Some clientele seem more susceptible to problems with withholding. “I work in a high Earned Income Tax Credit neighborhood, and I believe most of my clients are expecting a bigger refund this year with no changes to their withholding,” said Rick Reynolds, an EA in Utica, N.Y. “I’m worried about my middle-class clients who have no children. Many of them are used to filing a Schedule A. With the new tax laws they may not have enough deductions. Couple that with them losing their exemptions and their refund will go down or amount due up. In that case,” he said, “I’d definitely tell them to adjust their W-4s at work – assuming they can figure out the new and complicated W-4.”

 

“Don’t know what I will tell them next time, especially if the new W-4 remains as it is in the last draft,” added Paul Knapp of Exact Income Tax Service, in Santa Fe, Texas.

 

“Many people always complain about the tax breaks that the wealthy have,” Armstrong said, “but I find that the higher-income people simply pay more attention to their tax situation – better records and compliance.”


‘Only one client’

The IRS has launched an awareness campaign urging all taxpayers to check withholding to head off a higher tax bill or penalty in 2019, reminding taxpayers that reform increased the standard deduction, removed personal exemptions, limited or cut other deductions, and changed rates and brackets.

 

Preparers have also tried awareness programs. “Our office discussed withholding with every client during this past tax season,” said Marilyn Heller Ayers, a CPA in Brick, N.J. “We used our software to take a look at how the new laws would affect their bottom line. In addition, we asked every client to contact us over the summer with updated paystubs so we can review their withholding and make sure they’re not caught off guard when we file their 2018 return. I think we are in good shape.”

 

“When I did clients’ 2017 return, I discussed the new withholding guidelines. In July, I sent letters to all of my clients … re-explaining that the withholdings for 2018 are significantly less and offered to do a withholding check free of charge,” said Kathy Hawboldt of Hawboldt’s Tax Service, in Louisville Kentucky. “Only one client has taken me up on the offer. When I do taxes for 2018, I’ll explain to clients that any surprises were expected and that’s why I sent the letter. I’ll also re-explain what I already told them.”

 

Laurie Ziegler, an EA at Sass Accounting in Saukville, Wisc., reviewed the withholding for any interested clients as part of completing 2017 taxes. “Through both our website and electronic newsletter we continue to encourage clients to have us do a projection,” she said.

 

“As part of my 2017 tax presentation, I printed a projected federal tax worksheet for 2018 showing the differences for them under the new tax laws,” said preparer Eric Hansen in Omaha, Neb. “Tried to be proactive.”

 

“Clients depending on me for payroll services have had their withholdings systematically adjusted. Those that do not have been accordingly advised,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colorado. “Most follow through and have made adjustments, many have not. Those [finding] themselves surprised will be advised to engage my payroll services going forward.”

 

“A few clients have called and asked about their withholdings and how it will affect their 2018 tax returns. I asked them if they want me to do an estimate based on the projected income, withholding and deductions, and come up with a refund or balance due,” said preparer Andrew Piernock at Piernock Accounting and Tax Services, in Philadelphia. “Most of them, their refunds are much lower than 2017. I explain to them to change their W-4 and take out additional withholding. I definitely,” he added, “charge for this service.”

 

 

 

Aretha Franklin left no estate plan or will

By Michael Cohn

 

When Aretha Franklin died last week after a long battle with pancreatic cancer, the 76-year-old Queen of Soul reportedly left behind no will or estate plan, potentially exposing her heirs to estate taxes.

 

Franklin’s four surviving sons have filed a document listing themselves as interested parties for her estate, according to CNN, and her niece has applied to the court requesting to be appointed as executor of her estate, which is estimated to be worth $80 million. Her longtime attorney, Don Wilson, told the Detroit Free Press that he had often asked her to set up a trust, but she never did. “I was after her for a number of years to do a trust,” he said. “It would have expedited things and kept them out of probate, and kept things private.”

 

Other legendary performers like Prince have also died without leaving behind a will. Another singer, James Brown, known as the Godfather of Soul, did write a will, but his estate is still unsettled 11 years after his death.

 

Estate planning experts have encountered similar issues with other celebrities. Jeffrey Eisen, a trusts and estates attorney with the law firm Mitchell Silberberg & Knupp in Los Angeles, focuses on estate planning, probate and trust administration. He has represented beneficiaries in a number of contested or disputed estates. Many of his clients are prominent individuals and estates in the entertainment industry, including Muhammad Ali and Farrah Fawcett.

 

He foresees problems ahead with Franklin’s estate. “It means that the State of Michigan is going to write her will for her because she didn’t have one,” he told Accounting Today. “It means that she didn’t get to choose who would be in charge of her estate, including being in control of her music catalog. That’s going to be determined by the heirs, assuming they can agree. And it means that everything is going to be played out in public view, including the valuation of her assets, her music catalog -- everything. It’s completely and totally public and all avoidable.”

 

Stuart Kohn, a trusts and estates attorney with Levenfeld Pearlstein in Chicago, focuses on estate, gift and income tax planning and business succession planning. “She’s a Michigan resident, so Michigan laws of heirship would dictate where everything would flow, meaning who would inherit her assets,” he said. “Because she had no spouse, her children would inherit her assets, and because she had made no estate plan for them, they would inherit those assets outright rather than in trust. But in terms of the tax implications, because she didn’t do any tax planning, the estate tax applies. The federal estate tax exemption is $11.18 million per person, so assuming she didn’t use any of her exemption during her lifetime by making taxable gifts, then if her estate is valued in excess of $11.18 million, there’s going to be estate tax and that estate tax is taxed at a flat 40 percent rate. There is no estate tax in Michigan, so everything over the $11.18 million is subject to estate tax at 40 percent, and the tax is due nine months after she passed away. So without planning the estate is going to have to come up with that money and pay that tax.”

 

High-profile clients sometimes ignore advice from tax experts and attorneys to fill out a will for their heirs. “I assume that she was getting that advice and she just didn’t take it,” said Eisen. “She just didn’t want to deal with it. I’d be very surprised she wasn’t at least getting the advice. Maybe she was superstitious about it and thought that it was a bad sign. Some people think it’s like signing their own death warrant.”

 

Franklin might have been able to do some charitable planning for her estate. “By not doing any lifetime planning to reduce the size of her estate and not having a will that could have maybe left some money to charity, the taxes are probably the same,” said Eisen. “In other words, if she had a properly done estate plan and left everything to her children, the estate tax wouldn’t have changed, but still she could have done some lifetime planning maybe to reduce her estate.”

 

Kohn believes that proper estate planning could have reduced the taxes for Franklin’s heirs. “If there was planning done to try to create liquidity within the estate to pay the tax through whatever it might be — life insurance, through gifting to reduce the tax, transactions with trusts that would create liquidity within the estate, to put the illiquid assets outside of the estate — there are transactions that estate planners could implement to try to mitigate that potential impact,” he said. “In addition, anything that goes to the children then is includible in their estates for estate tax purposes and would be available to their spouses in the event of divorce and would be available to their creditors if they ever had issues. With an estate plan, she could have left assets to them in trust. That would protect against all of those situations to the greatest extent possible and kept assets to the greatest extent possible out of their estates for estate tax purposes.”

 

Charitable planning could have helped with estate taxes. “Whether she had charitable planning or not, providing that any of her memorabilia would go to museums or anything like that, there would have been potential tax benefit to doing that to the estate,” said Kohn. “Now the heirs inherit all of that. They might want to make a contribution and they might get some income tax benefits potentially. I don’t know what her assets are, but a musician like that is going to have significant illiquid assets, like music copyrights and royalty payments, so long-term income streams could have and should have been planned for.”

 

 

 

IRS allows student loan repayments to be linked to 401(k)

By Michael Cohn

 

The Internal Revenue Service has issued a private letter ruling allowing an unnamed employer to make 401(k) contributions on behalf of employees who are repaying their student loans.

 

The private letter ruling, which the IRS issued this month, does not set a precedent for other employers. However, it may open the door to allowing other employers to offering similar benefits to employees who are paying off their student loans, according to Bloomberg Law.

 

Tying the student loan repayments to 401(k) matches could provide an inducement for young employees to join a company or firm. PricewaterhouseCoopers is among a number of organizations offering student loan repayment benefits to employees (see PwC to reimburse up to $1200 a year for employees' student loan debt). Only about 4 percent of employers provide assistance in repaying student loan debt, according to a survey by the Society for Human Resource Management. However, a separate survey last year by the nonprofit American Student Assistance found that 86 percent of young employees said they would commit to stay with their employer for five years if it helped pay off their student loans.

 

Under the program described in the IRS private letter ruling on August 17, if an employee makes a student loan repayment during a pay period equal to at least 2 percent of the employee’s eligible compensation for the pay period, then the employer will make an student loan repayment nonelective contribution as soon as practicable after the end of the year equal to 5 percent of the employee’s eligible compensation for that pay period. The contribution is made without regard to whether the employee makes any elective contribution throughout the year. If the employee doesn’t make a student loan repayment for a pay period equal to at least 2 percent of their eligible compensation, but does make an elective contribution during that pay period equal to at least 2 percent of the employee’s eligible compensation for that pay period, then the employer will make a matching contribution as soon as practicable after the end of the plan year equal to 5 percent of the employee’s eligible compensation for that pay period (known as a “true-up matching contribution”). In order to receive either the student loan repayment nonelective contribution or the true-up matching contribution, the employee would need to be employed with the employer on the last day of the plan year (except in the case of termination of employment due to death or disability). Both the student loan repayment nonelective contributions and the true-up matching contributions would be subject to the same vesting schedule as regular matching contributions.

 

The IRS approved the program in the case of that employer. “In the present case, SLR nonelective contributions under the program are conditioned on whether an employee makes a student loan repayment during a pay period and are not conditioned (directly or indirectly) on the employee making elective contributions under a cash or deferred arrangement,” said the IRS. “Furthermore, because an employee who makes student loan repayments and thereby receives SLR nonelective contributions is still permitted to make elective contributions, the SLR nonelective contribution is not conditioned (directly or indirectly) on the employee electing to have the employer make or not make contributions under the arrangement in lieu of receiving cash. Therefore, with respect to your ruling request, we conclude that your proposal to amend the Plan to provide SLR nonelective contributions under the program will not violate the ‘contingent benefit’ prohibition of section 401(k)(4)(A) and section 1.401(k)-1(e)(6). This ruling is based on the assumption that Taxpayer will not extend any student loans to employees that will be eligible for the program.”

 

 

 

5 top tax reform opportunities for individuals

By Shaun Hunley

 

There are no fewer than 130 new tax provisions in the Tax Cuts and Jobs Act, according to Shaun Hunley, a technical editor of PPC products for Thomson Reuters Checkpoint in the Tax & Accounting business of Thomson Reuters, but with tax practitioners starting to focus on helping clients address the act’s impact, he has singled out five major planning opportunities for individuals.
 

No. 5: Itemized deductions versus the standard deduction

The TCJA roughly doubles the standard deduction, but it also suspending personal exemption deductions and eliminates or limits many of the itemized deductions. At the same time, the law temporarily eliminates miscellaneous itemized deductions subject to the 2 percent floor and limits the home mortgage interest deduction to home acquisition debt of up to $750,000.

For your clients, while personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, may result in less tax. Also, you may find that clients who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You will need to run the numbers to assess the impact for each client. Depending on the results, you may need to adjust your clients’ estimated quarterly tax payments or encourage them to turn in a new Form W-4 to their employers.

 

No. 4: Revisit qualified tuition plans

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Thanks to the Tax Cuts and Jobs Act, earnings in a 529 college savings plan can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. If your clients are paying tuition for their children or grandchildren to attend elementary or secondary schools, encourage them to either set up or revisit their 529 plans. They’ll thank you for it later.

 

No. 3: Watch out for home equity debt interest

Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible -- or so you thought. According to the IRS, interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan. In other words, it’s treated as home acquisition debt subject to the new $750,000/$375,000 limit. 

This is good news for homeowners, but it forces you to trace how the proceeds were used. If your client used the cash to pay off credit card or other personal debts, the interest isn’t deductible, even if the payoff occurred prior to 2018.

 

No. 2: Bunch charitable contributions

The new law temporarily increases the limit on cash contributions to public charities and certain private foundations from 50 to 60 percent of adjusted gross income. However, the doubling of the standard deduction and changes to key itemized deductions will prevent some clients from itemizing in 2018 and therefore benefiting from this increased limit. 

One way to combat this is to bunch or increase charitable contributions in alternating years. Suggest that clients set up donor-advised funds. This will allow them to claim a charitable tax deduction in the funding year and schedule grants over the next two years or other multiyear periods.

 

No. 1: Maximize the qualified business income deduction

Individuals who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20 percent of their qualified business income. However, the deduction is subject to various rules and limitations.

Although the official guidance is still being finalized, there are some planning strategies that can be considered now. For example, clients can adjust their business’ W-2 wages to maximize the deduction. Also, it may be beneficial for clients to convert their independent contractors to employees where possible. Other planning strategies include investing in short-lived depreciable assets, restructuring the business, leasing and selling property between businesses, and, yes, even getting married.

 

 

 

IRS to propose rules about new $500 non-child dependent tax credit

By Michael Cohn

 

The Internal Revenue Service and the Treasury Department published a notice Tuesday saying they intend to issue proposed regulations clarifying who is a qualifying relative for the new $500 credit for dependents and head of household filing status for years in which the exemption amount is zero for tax years 2018 through 2025.

 

Notice 2018-70 explains that proposed regulations will provide that the reduction of the personal exemption amount to zero won’t be taken into account for purposes of the $500 credit and head of household filing status. Instead, the exemption amount for the application of these provisions will be treated as $4,150, as adjusted for inflation, for years in which the exemption amount is zero.

 

Taxpayers can rely on the rules spelled out in the notice until the proposed regulations are issued.

The Tax Cuts and Jobs Act got rid of personal exemptions that have traditionally been used to claim dependents. Instead, it includes a $500 credit for non-child dependents, such as elderly disabled parents or children over the age of 17. For children, the child tax credit doubled from $1,000 to $2,000 per qualifying child. The tax cuts on the individual side expire in 2025, which is why the guidance only applies for tax years 2018 through 2025.

 

 

 

Don’t go away mad – just go away

By Jeff Stimpson

Hopefully you do not recognize yourself here!

 

Every tax preparer has that one client (if they’re lucky) who they pray doesn’t come back next April. Here are some of less-than-favorites from preparers’ experience of clients who need the heave-ho. 


The crypto-jerk

Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut, found himself with a new client (“from hell”) who dealt in cryptocurrency, whose voicemail box was always full and who never answered email promptly. 

“I told him that I cannot pull his info out of the air and it must come from him,” Armstrong said. “He had a spreadsheet from the coin exchange and I was able to convert and upload it. (There were more than 200 transactions and the results were dismal.) He also objected to a slightly higher fee to cover the input of those transactions – a very modest fee. When I gave back the return I made sure to point out all of the schedules that they should give whoever does their return in 2019.”

 

Mr. Left-It-Out

“Where do I begin?” asked Marilyn Heller Ayers, a CPA in Brick, N.J. “Honestly, it’d be the client who always leaves out some important document or important information and then blames you for the IRS or state notice that says they owe more money.”

 

The zero prospect

“Easy: The sole proprietor (Schedule C) who presents me with even number income and expenses,” said Frederick “Rick” Reynolds, an Enrolled Agent in Utica, N.Y. “The odds of them keeping correct books is almost zero. I hate to lose the business but I can’t put my signature on such a return.”

 

The expansive expenser

“My cousin Vinnie, the cement contractor,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colorado. “Pinocchio has a smaller nose and I do not push the limits of IRC 162 for anyone.”

 

The pit maker

“The one who didn’t follow the advice we gave them year after year – and then got upset,” said Gail Rosen, a CPA and shareholder with Wilkin & Guttenplan, in Martinsville, N.J. “You can’t help a client who doesn’t put in the effort to help themselves. I’ve always told my staff that if a client puts a pit in your stomach, look at ending the relationship.”

 

The small thinker

Marilyn Meredith at Michigan-based Meredith Tax Service hopes to never again see the client “who has lots of things to sort and enter and then complains about the time and the price,” she said. “This is a small-businessperson who thinks because they don’t make much money they should not have to pay much – but their work [takes] longer than a big company that has good records.”

 

The tipster

EA Patrick O’Hara of Tax Alternative Group in Poughkeepsie, N.Y., has grown tired of the client who “reads the tax tip teasers in many articles and I have to spend more time explaining why they don’t qualify for the tax break than I do in filing their return.”

“A couple years ago,” he added, “I had a client taking the standard deduction demand that I include her union dues and disability tax from her W-2 as a deduction when it made absolutely zero difference!”

 

The dearly departed

 

“I’ve already fired any clients who were not worth my time,” said Kathy Hawboldt of Hawboldt’s Tax Service, Louisville, Kentucky. “The ones I fired were the ones that drag their feet getting information to me and then want me to jump when they finally get around to giving me what I asked for.”

 

Mr. I Need An OIC

“He keeps adding to his balance, gives me part of what I need for the OIC and then eight months later gives me a little more and so forth,” said EA Kathryn Morgan at Puzzled by Taxes in Haughton, Louisian. “Got his passports pulled … I told him right flat-out this season after I finished the return – with a large balance due again – that the OIC was off the board until he decided he wanted to … get his stuff together. Also that he has to fix his withholding so he doesn’t keep building up more debt because he’ll get bounced out of the OIC plan. He and his family are going to miss out on a big cruise because of the passport thing. I’m just tired of dealing with them.”

 

Another dearly departed

“I’ve already sent a letter to this client explaining that I will no longer prepare returns on his behalf due to trouble obtaining the materials and payment of invoices,” said preparer Andrew Piernock, of Piernock Accounting and Tax Services in Philadelphia.

 

The Sec. King

“The one who thinks they know more than I do about the tax law,” said EA Laurie Ziegler at Sass Accounting in Saukville, Wisconsin. “The one who’s ‘heard’ or ‘seen’ or had ‘a friend that said.’ I take more than 100 hours of CPE every year to make sure I have a good working knowledge of the tax laws and associated changes.”

 

The bargain shopper

“The taxpayer who sees preparation as a commodity, like oil changes and tire repair,” said Kerry Freeman, an EA at Freeman Income Tax Service, in Anthem, Arizona. “They’re only looking for the cheapest price, often comparing EAs’ and CPAs’ knowledge and expertise to DIY box or online programs. They don’t recognize the complexity of the tax system – or even the complexity of their own return.”

 

The testy

“Some prefer to play the blame game instead of being proactive,” said Gail Kinsella, a CPA with The Bonadio Group, in Syracuse, N.Y. “A successful income story bears a tax burden. Common wisdom, yes, but apparently difficult to put into practical application by some. One of the most challenging relationships a CPA can have is with the individual who’s unwilling to provide timely, accurate information regarding income from transactions, is unresponsive and ultimately a bit testy when the time to remit taxes arrives.”

 

The truly helpless

“I’m hoping to see them all [again] and then some,” said Paul Knapp of Exact Income Tax Service, in Santa Fe, Texas. “I have a few high-maintenance clients that I would not be upset about losing, but these folks need me more than others. Any preparer can handle the easy clients. I’m glad I have the people skills to help these, too.”

 

 

 

 

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

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