Tax Cuts and Jobs Act (TCJA) Overview 1.5

“The new law increases the credit for qualifying children (i.e., children under 17) to $2000 from $1000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit …”

An overview of the Tax Cuts and Jobs Act

The recently enacted Tax Cuts and Jobs Act (TCJA) represents major changes our nation’s tax code.

Here’s a look at some of the more important elements of the new law that have an impact on individuals. Unless otherwise noted, the changes are effective for tax years beginning in 2018 through 2025. That’s right. The next seven (7) years.

 

  • Tax Rates.  The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%,  32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed. The ‘kiddie tax’ rules were simplified. The net unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income rates that apply to trusts and estates. Thus, the child’s tax is unaffected by the parent’s tax situation or the unearned income of any siblings.
  • Standard Deduction.  The new law increases the standard deduction to $24,000 for joint filers, $18,000 for head of household, and $12,000 for single and married taxpayers filing separately. Given these increases, many taxpayers will no longer be itemizing deductions. These figures will be indexed for inflation after 2018.
  • Exemptions.  The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be adjusted to reflect this change, but IRS was given the discretion to leave the withholding unchanged for 2018.
  • New deduction for “qualified business income.”  Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,” otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs and sole proprietorships. The income must be from a trade or business within the U.S. Investment income does not qualify, nor do amounts received from an S Corporation as reasonable compensation or from a partnerships a guaranteed payment for services provided to the trade or business. The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with taxable income above $ 157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and depreciable tangible property used in the business is phased in, and (2) income from the following trades or businesses is phased out of qualified business income: health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.
  • Child and family tax credit.  The new law increases the credit for qualifying children (i.e., children under 17) to $2000 from $1000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer’s dependents who are not qualifying children. The adjusted gross income level at which the credits begin to be phased out has been increased tp $200,000 ($400,000 for joint filers).
  • State and local taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000 starting in 2018.
  • Mortgage interest. Under the new tax law, mortgage interest on loans used to acquire a principal residence, and a second home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out in 2018. And there is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.
  • Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax preparation costs, investment expenses, union dues, and unreimbursed employee expenses. So, all of your auto expenses, for example, are no longer deductible.
  • Medical expenses. Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most taxpayers.
  • Casualty and theft losses. The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster. So, if you are renter, or a coop or condo or dwelling owner who lacks comprehensive coverage for your personal property, now is the time to purchase coverage.
  • Overall limitation. The new law suspends the overall limitation on itemized deductions that formerly applied to taxpayers whose adjusted gross income exceeded specified thresholds. The itemized deductions of such taxpayers were reduced by 3% of the amount by which AGI exceeded the applicable threshold, but the reduction could not exceed 80% of the total itemized deductions, and certain items were exempt from the limitation.
  • Moving expenses. The deduction for job-related moving expenses has been eliminated, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.
  • Alimony. There is some truth in the old song, “It’s Cheaper To Keep Her.” For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying spouse and will not be taxable to the receiving spouse.
  • Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage. (This will probably lead to fewer Americans purchasing health insurance, and more states reducing or eliminating Medicaid contributions for health care plans.)
  • Estate and gift tax exemption. Effective for decedents dying , and gifts made, in 2018, the estate and gift tax exemption has been increased to roughly $11.2 million ($22.4 million for married couples).
  • Alternative minimum tax (AMT) exemption. The AMT has been retained for individuals by the new law but the exemption has been increased to $109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1 million for joint filers, and over $500,000 for all others.

As you can see from this overview, the new law affects many areas of taxation. I plan to hold at least one (1) public seminars in Brooklyn, to ‘drill down’ into just how the new law will affect you. There will be a fee charged for attendance at these seminars to offset the cost of the venue, and painkillers.

Eustace L. Greaves, Jr., LUTCF is a frequent presenter in the areas of personal insurance, personal income taxation,  and budget and credit strategies for many organizations, including, Neighborhood Housing Services of NYC, Inc., HCCI, Impacct Brooklyn, and Bridge Street Development Corporation. He is a New York State licensed insurance agent and broker, and  NYS Defensive Driving Delivery Agent and Instructor.

You can reach Eustace at Eustace@insuremeeg.com, or 718-783-2722.

 

Income Tax Returns Aren’t Toilet Paper

“When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:”

Income tax returns are not toilet paper.

Today, while driving through my home city of Brooklyn, NY, I passed the office of a national income tax preparation franchise. They had a sign outside their office that read, “$50.00 off your income tax return today!!”

Get Your Toilet Paper Here!

When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:
  • How many CPE classes did you attend last year?
  • Which, if any, professional organizations do they belong to?
  • What percentage of the returns you prepare are audited each year?
  • Do they have a Federal PTIN?
  • Do they have a New York State Tax Preparer Certificate of Registration?
  • If they must relocate their office, how will they inform you of their new address?
  • For how many years have they prepared income taxes?
  • Are they aware of the EITC Due Diligence rules?
  • Will you sign my income tax return?
  • What is their Privacy Policy regarding the protection of your personal information?
  • Do they make up their own itemized deductions so you will receive a larger refund?
  • How many times have they been cited for filing fraudulent income tax returns?

Bottom line, stop worrying about today’s sale on income tax preparation. I’d be more concerned about the skills and professional manner of who is preparing my return.

In addition to providing his clients and seminar attendees (many of whom become his clients), with insurance and income tax strategies and solutions, Eustace L. Greaves Jr.,  also prepares income tax returns for over 150 of his clients annually. To contact Eustace L. Greaves Jr., about his insurance and income tax services, feel free to call him at 718-783-2722, or by email to Eustace@insuremeeg.com.

10 Top Reasons You Need A New Tax Preparer |

“Some of you though really don’t know whether or not you are in any danger of an audit which will make your hard-earned money leave your wallet. You aren’t aware of the many subtle ways you can find yourself in hot water with taxing authorities, but you have this nagging ache in the pit of your stomach every time you sign your return. And the thought of taking a group picture while doing 2-5 for tax fraud really doesn’t appeal to you.”

10 Top Reasons Why It’s Time For You To Get A New Income Tax Preparer

Well, soon another new and exciting (Another Federal government shutdown, anyone?) income tax filing season will begin. And as visions of income tax refunds dance in your heads, it is a good time to think about who you will hire to prepare your income tax return next year.

From some of you, it’s a no-brainer: Your last preparer’s actions placed you on the IRS watch list which is akin to being on the world’s worst financial no-fly list.

Some of you though really don’t know whether you are in any danger of an audit which will make your hard-earned money leave your wallet. You aren’t aware of the many subtle ways you can find yourself in hot water with the taxing authorities, but you have this nagging ache in the pit of your stomach every time you sign your return.  And the thought of taking a group picture in stir while doing 2-5 for tax fraud really doesn’t appeal to you.

So here at the Afternoon Show Before My Nap with your host, Eustace L. Greaves Jr., I thought this was a great time to check  the 10 Top Reasons Why It’s Time For You To Get A New Income Tax Preparer!

Reason number 10:

You own and live in a two-family home. Your tenant pays you $12,000.00 in rent, and you have use of 75% of the house. Your tax preparer, knowing you need a big refund, depreciated the house at 100% and shows only $6,000.00 in rental income on your return.

Reason number 9:

You haven’t been to church, any church, in the last 20 years. Yet each year, your preparer says you can claim $10,000. For going to a Church named Church.

Reason number 8:

You receive certified, return receipted correspondence from the IRS. When you show it to your preparer, she smiles and tells you don’t worry, they just want to make sure you receive your thank you note.

Reason number 7:

You’re a receptionist at a medical center. You earn $30,000 each year. Your preparer, preparing Schedule A, gives you itemized deductions of $9,000.00 for uniforms, $3,000.00 for educational seminars, and  $2,000.00 for business-related travel.

Reason number 6:

Lost your 1099 Int and 1099 Div forms? “No worries”, says your preparer. “The IRS doesn’t worry about interest or dividends under $75.”

Reason number 5:

Your return shows three (3) brand-new dependents you’ve never met.

Reason number 4:

Your preparer guarantees you everyone qualifies for the Earned Income Tax Credit. “You earned an income last year, didn’t you?”

Reason number 3:

You ask your preparer if they have a PTIN and they tell you they’ve never liked certain foreign sports cars.

Reason number 2:

Your preparer relocates each year. Luckily you find them. Again.

And now the number one reason Why It’s Time For You To Get A New Income Tax Preparer is:

Your preparer tells you, “Don’t worry, my system never fails. I know how to get you the best refund you’ve ever gotten.”

Thanks for reading. And just in case you don’t understand why these are bad things, you can watch this blog for more information,  give me a call at 718-783-2722 or send me an email at Eustace@insuremeeg.com.

Eustace L. Greaves Jr., is a business owner who provides integrated insurance and income tax strategies and solutions for his clients. He does, however, hate telling you your last tax preparer’s errors have you owing the IRS really big money.

Charitable Giving Rules | Eustace Greaves Jr.

The average tither or charitable donor making their gifts using checks or cash will find themselves facing massive tax penalties at audit if the charity receiving the gift fails to comply with one of the simplest charitable giving rules.

Why You Should Know The Charitable Giving Rules 

The average tither or charitable donor making their gifts using checks or cash will find themselves facing massive tax penalties at audit if the charity receiving the gift fails to comply with one of the simplest charitable giving rules.

Know The Substantiation Rules Or Suffer The Loss.

Whether you tithe for church, or make charitable donations to other local charities, you must know be aware of the need to substantiate your charitable donations, especially for those gifts in excess of $250.00. While most taxpayers keep copies of their cancelled checks used for their gifts, it is not always enough. Again, for gifts in excess of $250.00, the taxpayer should request and receive a letter acknowledging their charitable contribution (s)  from their church or other charitable organization. This letter, like many I’ve seen from clients while preparing their income tax returns this year, must be on the charity’s letterhead. The date on the letter must precede the date the taxpayer files their return (more on this later). The letter must clearly state the amount donated whether the gift was given in one lump sum, or over the course of the year. Several churches provided a weekly accounting of their member’s giving in their charitable giving letters. Most even included an enlightening Bible verse.

While all of these are great, and required, most of the acknowledgement letters I’ve seen this year fail to include a key requirement of the charitable giving rules.

One Of The Charitable Giving Rules Should Wake You Up At 3 AM

Out of the 32 clients with itemizable charitable gifts this year, only three had the most important line on their receipts or letters of thanks. What’s the line?

The simple statement which reads, “No goods or services were provided by the organization in return for the contribution.”

What’s that you say? I must be kidding, you say?

I am not kidding.

No matter what shape or form your letter of acknowledgement may take, when it lacks a statement clearly stating the gift was given for no reason other than the desire to give, you are actually unable to legally take the deduction for the cash or checks you donated. Your letter is in violation of IRS regulations.

How Would The IRS Find Out?

Several new clients were referred to me this year. One such client had the temerity to tell me it was no big deal, there was no way the IRS could ever check everyone’s charitable giving letters. So I told this client the story about the Durden case (Durden, T. C. Memo 2012-140).

In this case, the taxpayers entered charitable deductions on their Schedule A totaling $25,171. Most of these deductions were made by check to their church. Included in their records were their cancelled checks and an acknowledgement letter from the church.

At audit, the IRS disallowed their deduction because their letter lacked, that’s right,  you guessed it, a statement verifying neither goods nor services were given in exchange for their donations.

So, they went back to their church and got a second letter containing the required statement. They thought just getting another letter, in the proper format, would solve all of their problems.

Wrong.

The IRS rejected the second letter. Why? It did not meet the contemporaneous requirement. In order to meet this requirement, the letter had to have been received by the taxpayer by the earlier of the date their return was filed, or the return’s due date, including any legal extensions. The Tax Court agreed with the IRS. The deduction was disallowed. The taxpayers were slapped with additional taxes, penalties, and interest.


So, of course my new client says “Man, that’s no big deal. One family? That’s nothing.”

Sure. Unless you were also a member of their church who itemized their charitable donations on their Schedule A. See, the IRS knew just where to look.

Look, I don’t go fishing to show off my newest lures. I want to eat fish. I’m going to the lake, stream, or part of the shore where those babies are biting.

It only takes one return for the taxing authorities to discover new reasons to open further investigation.

The $100 Bomb.

If you think you only have to worry if you give small amounts, well, you should know me better by now. You know I’ve got another true story for you.

Several tax seasons ago, a good client of mine asked me include a donation she’d made to a friend’s church. She’d gone to hear the friend sing at a special church service, and her spirit was so moved by her melodious tones, she dropped $100.00, in cash, into the Special Offering plate.

And believe me. I know this lady. When she says she gave $100.00, well, it’s gospel.

Now, she gave me the church’s name, but lacked written proof she’d donated the $100.  At my suggestion, she went back to the church in an attempt to secure an acknowledgement letter from the church for her generous gift prior to our filing her return. She decided to include the $100.00 in her return. Meanwhile, her continued attempts to receive the acknowledgement letter met with futility.

Several months later, (nowadays, with electronic filing, it doesn’t take long for those letters to arrive at your door), she received a letter from the IRS requesting proof of the gift. This was the only item in her entire return the IRS wanted verification for. Unable to comply with their request, the deduction was disallowed, and she had to pay additional tax, penalties and interest.

On a $100.00 cash donation.

The moral of the story? Making donations by check or money order isn’t sinful. Doing so will save you additional taxes at audit. Take a few minutes to review your charitable giving letters to make sure they are in compliance with the law. If they aren’t, request a corrected letter, again bearing a date prior to the date you file your income tax return. I would also suggest the church or charitable organization provide corrected letters to each and every donor. It’s the decent thing to do.

Charitable giving rules, like many IRS rules, aren’t always as easy as they may appear. Take a few minutes to learn more about the charitable giving rules for cash and checks, and clothing, boats, stocks and the like, by reading IRS Publication 526 and Publication 1771.

Happy Filing.

Eustace Greaves, Jr. creates order out of client’s financial chaos using insurance, income tax planning and preparation, and sometimes, just good old divine guidance. Send him your questions, and quote requests to eustace@insuremeeg.com. And whatever you do, don’t let his clients know he wrote this post when he’s supposed to be working on their returns and insurance quotes. That’s a check even his body can’t cash.

 

 

Heightened Awareness | Brooklyn Covered

“Increased inflation during their working years left their hard-earned pensions inadequate for the new financial reality of increased rents, and having to purchase Medicare Supplement coverage to fill the gaps in their health insurance. And, even if they own their own home, increased real estate taxes and utility bills will become an increasing burden at a time in their lives when, for the most part, their income will not increase each year.

“Many of these good folk are facing retirement and still have mortgages. Why? They fell prey to the siren song of refinancing during the years of mortgage madness. They used their hard-earned equity for new cars, vacations, window treatments and college educations for their children. They thought the gravy train would still be rolling down the tracks.

Recently, I had the pleasure of sharing ideas about money, savings, mortgages and the like with Mr. John Dallas, Program Coordinator for the East Flatbush office of Neighborhood Housing Services of New York City.

During the conversation, John asked me a question I’d never been asked in all my years of self-employment. “Eustace, as a self-employed person, are you ever afraid?”

Wow. Talk about being leaning into a Joe Frazier left hook.

I told John in all my years, no one had ever asked me such a question. After some thought, the best answer I could give him was, “While I don’t give in to fear, I do enjoy a ‘heightened awareness’ in all aspects of my life.”

“John, several years ago, I sat in my office with some friends, just shooting the breeze, you know, talking about the economy, business, what we were doing to increase the amount of business we had while keeping our current clients happy.  Everyone in the group was an entrepreneur, responsible for their own financial success.

“As I think back on our conversation that day, one thing stands out: Not one of us was boo-hooing about the economy. Instead, we focused on giving each other good business-growing ideas. In some cases, we exchanged leads, and promised to make introductions to other professionals who could be a source of help.”

“At one point several of us jokingly questioned our lack of intelligence for not having gotten one of those “safe” jobs decades ago, especially those of us who would be near the once-normal retirement age.” As we laughed about that, I stated that for many current and soon-to-be-retirees, the future was actually quite bleak.

Retirement Realities

“Increased inflation during their working years left their hard-earned pensions inadequate for the new financial reality of increased rents, and having to purchase Medicare Supplement coverage to fill the gaps in their health insurance. And, even if they own their own home, increased real estate taxes and utility bills will become an increasing burden at a time in their lives when, for the most part, their income will not increase each year.

“Many of these good folk are facing retirement and still have mortgages. Why? They fell prey to the siren song of refinancing during the years of mortgage madness. They used their hard-earned equity for new cars, vacations, window treatments and college educations for their children. They thought the gravy train would still be rolling down the tracks.

“They never thought it would dry up. And just imagine the financial calamity should the IRS send everyone who refinanced their mortgage a letter asking them to provide, in detail, how they actually used the money they got from refinancing. If they can’t prove they used these funds for the purchase of a property or the improvement of an existing property, and deducted the interest on Schedule A, Schedule E, or a combination of both, they violated income tax law.

“And John, everyone deducted the interest. In many cases, it was the only way the new mortgage was affordable.

“They forgot the story of the three-legged stool we all sit on in retirement. One leg is  income from Social Security, the second is pension income, and the forgotten third leg is personal savings. Just try to balance on a two-legged stool and chances are you’ll fall on your rear end every time.

“You see John, everyone forgot about the third leg. We were too busy cruising, travelling, eating out instead of in, purchasing big-screen tv’s to watch cable and dish programs which added no value to our lives, the newest ‘smartphones’, cellphone packages costing megabucks, and buying clothes which were too expensive and in many cases, never saw the light of day.  And shoes, don’t talk about the shoes.

“John, too many people purchased things to make themselves happy. Instead of cash-value life insurance, annuities, mutual funds, or even a simple bank account, they instead put their money in the street in the form of new cars they really couldn’t afford to insure or maintain, and on their backs for all to see.

“As a result, we don’t own the amount of savings we should. And the stool is real shaky.

John, a really good listener, was taking this all in. ” So what,” John asked, “do people like you do differently than others who work for someone?”

I told John that, while in the meeting, one of my friends used a term so profound, it’s stuck with me to this day. “Heightened awareness”, John, “heightened awareness.”

“My friend deemed those who worked for someone “The Normals.” Most of the time, they don’t even know how much is in their checking accounts because they know in a week or two, more money will magically appear to help them pay the bills. They don’t worry about health or dental care costs because they have benefit plans. Their employer provides them with a pension which may or may not keep up with inflationary pressures.

“What many of them lack is the entrepreneur’s sense of heightened awareness. We know how much a toner or ink cartridge costs. How many miles a gallon our car gets. We turn off lights when we’re not in the room, and are loath to use the air-conditioning until a pool of sweat forms at our feet.

“Most importantly, we spend for fun only after we meet our monthly obligations, not before.”

Now John is one of those folk who while employed by someone else, really has the soul of the entrepreneur. And, as many of my clients deal with the realities of debt, before and after retirement, they too are developing the heightened awareness so necessary to financial success.

So I looked at John and said, “My friend, I’ve yet to give you an answer. While I am never afraid, let’s just say I know when to waste time watching a football game, and when to sit down at the desk and send out an email, or prepare for a presentation. I love coupons in the supermarket, and DSW for the shoes my Little Princess needs.

“I know where just about every dollar goes.

“About a year after my fiancée died, our daughter and I were buying the office supplies I needed for the upcoming income tax preparation season. The total came to just shy of $800.00. When the cashier announced the total, my daughter held up her hand and said “Hold up there Daddy. Are you telling me we just spent almost $800.00 and we didn’t have any fun?”

“I looked at her and said, “No, I’m about to spend almost $800.00. And, should the plan reach fruition, this expenditure will enable me to generate the money necessary for the fun we’ll have in the spring and the fall.”

“That day, my daughter received her first lesson in “heightened awareness”, a lesson I’m proud to say she’s never forgotten.”

As our meeting came to an end, John and I agreed we should all work on heightening our financial awareness.

Otherwise, we may crack a hip falling off a two-legged stool.

Ten Reasons For A New Tax Preparer Review | Brooklyn Covered

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect the information in your file. Find out who else has access to the information in your files and if so, for what purpose.

Make A Promise, Keep A Promise…

Let’s review why reasons one, two and three from last’s week’s post should make you really consider finding a new and competent Income Tax Preparer this year.

Reason Number One:

Back in 1991, I met an AT & T field technician referred to me by one of his co-workers for income tax preparation services. When the young man came to the office, he asked me to review a letter he’d received from the Audit Division of the New York State Department of Taxation and Finance.

First, let me tell you, it’s never good to get a letter from either them or the Internal Revenue Service.

The letter explained his tax preparer, a well-known Enrolled Agent, had pleaded guilty to charges of preparing fraudulent income tax returns. So she would avoid incarceration, she agreed to cooperate fully with the state taxing authorities during their investigation. She also agreed to relinquish her status as an Enrolled Agent, and gave up her ability to ever prepare income taxes again.

How did she cooperate? “Here are the keys to the office. These are the keys to the file cabinets. Here are the worksheets  I developed using fraudulent entries to generate the largest (though fraudulent) tax refunds possible for my clients.”

How simple was that?

Just to give you an idea of the scope of her transgressions, the Audit Department audited his New York State income taxes going back ten (10) years for this particular taxpayer. ( Yes I know, they say you only have to keep seven (7) years of income tax returns. There is, however, no statute of limitations for fraud.)

The amount he owed all by himself? Over $7,800.00.

And this was only what he owed New York State. He hadn’t been audited by the Internal Revenue Service yet.

And yes, each state and the IRS do share information about taxpayers.

And he wasn’t alone in his financial pain. She alone prepared the income tax returns for over 300 folks just like him.

Why Did She Do It?

She felt great pressure.

  1. The pressure of having to constantly justify her fees.
  2. The pressure of competition posed by other fraudulent income tax preparers trying to horn into her business with their own promises of large refunds.

 What were the lies she told? Taking large deductions on Schedule A for ‘work clothing’ purchases and maintenance costs.

Here’s a tax tip: If the clothing you wear to work can be worn anywhere else besides your job, you can deduct neither the cost of the clothing, nor its maintenance costs.

Who Qualifies?

So who can usually deduct uniform expenses? Police Officers, Firefighters, Sanitation workers and certain, specifically uniformed Transit Authority workers. Also, any article of clothing worn at work emblazoned with the name of the firm, and perhaps their name also.

Nothing you wear to church or your backyard barbecue.

What Else Did She Do?

She counseled married clients with children, to show different addresses so they’d qualify to file as Heads of Households, instead of Married Filing Jointly.*

Let’s Get to Reason Number 2

Your income tax preparer should be of stable character in all ways, including their business office.

Now, I am myself in the process of relocating my office (Gubernatorial candidate Jimmy McMillan was right when he said “The rent is too damn high.”) I have, however, occupied the same storefront since January, 1999.

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect  the information in your file.  Find out who else has access to the information in your files and if so, for what purpose.

Make sure your preparer provides you with four (4) critical documents to review and sign. 

First, the Consent to Use Information and the Consent to Disclose Information forms. These forms are required by Section 7216 of the Internal Revenue Service code when the preparer of the income tax return offers other services to their clients. Without these documents, the preparer is legally enjoined from sharing the clients’ information with any other business entity.

Next, your preparer must give you a copy their firms’, Privacy Policy Statement, outlining what methods they will use to protect your information.

Lastly, your preparer, if they have a lick of good sense, will require you to review and sign a Tax Preparation Engagement Agreement.

No, it doesn’t mean you’re getting engaged. It outlines both the responsibilities of the taxpayer to provide all information the preparer enters into their income tax return. This means no fraudulent entries. It also covers areas relating to audits, privacy policy, fees, your copy of your return, preparation method and other services your preparer may offer you. (An example of this form is available on my website at www.insuremeeg.com/2011_Engagement_Agreement.html)

Are We There Yet?

We finally come to Reason Number 3. PTIN  and  NYPTRIN are not fancy acronyms for foreign cars. The first is the IRS’s Preparer Tax Identification Number. The second refers to New York State’s New York Tax Preparer Identification Number.

Who Must Have These Numbers?

Basically, any tax return preparer who prepares a substantial part of any return for compensation.  Ask your preparer what their numbers are. If they don’t know what you’re talking about, ask the preparer to give you your file, collect your paperwork, and leave the office as quickly as possible.

While PTINS have been around since 1999, New York State first required preparers to register in 2009 (and pay an annual  fee of $100.00 for the privilege. The IRS charges a fee of $64.95).

Why Did New York State and The IRS Do This? 

At last count, the United States Treasury determined there was a 315 billion dollar tax collection shortfall in 1985, 265 billion of which was directly attributable to taxpayers’ failure to file, and filing fraudulent returns. This new system will enable them to better identify and prosecute those abusing the system by flooding it with fraudulent returns. On the other, to catch those who prepare returns and fail or refuse to sign them. Why do they refuse? So they don’t have to declare the income. In fact, they often fail to  file their own income tax returns.

On several occasion last filing season, clients, thinking they’d save money, went to other preparers, only to be told the preparer had a “…problem with their New York State software. So tell you what, I’ll prepare and charge you for preparing your Federal return and you can go anywhere to get the NYS return done.”

Not with me. Sorry. I don’t do sloppy seconds.

Never have, never will.

No matter what, the federal return must always be done first. Many federal calculations then flow to the state return.

You come to my office and you’ll pay for both, because I must prepare both.  I wound up telling those clients to return to the other preparers and get their money back. And their files, too.

And You Thought This Was Going To Be Easy?

Next week we’ll review reasons numbers 4, 5 and 6. Until next time, wait for those w-2’s with bated breath.

Questions? Feel free to email me at eustace@brooklyncovered.com

* We’ll cover the subject of filing status in a future post.

Ten Reasons For A New Tax Preparer Review | Brooklyn Covered

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect the information in your file. Find out who else has access to the information in your files and if so, for what purpose.

Make A Promise, Keep A Promise…

Let’s review why reasons one, two and three from last’s week’s post should make you really consider finding a new and competent Income Tax Preparer this year.

Reason Number One:

Back in 1991, I met an AT & T field technician referred to me by one of his co-workers for income tax preparation services. When the young man came to the office, he asked me to review a letter he’d received from the Audit Division of the New York State Department of Taxation and Finance.

First, let me tell you, it’s never good to get a letter from either them or the Internal Revenue Service.

The letter explained his tax preparer, a well-known Enrolled Agent, had pleaded guilty to charges of preparing fraudulent income tax returns. So she would avoid incarceration, she agreed to cooperate fully with the state taxing authorities during their investigation. She also agreed to relinquish her status as an Enrolled Agent, and gave up her ability to ever prepare income taxes again.

How did she cooperate? “Here are the keys to the office. These are the keys to the file cabinets. Here are the worksheets  I developed using fraudulent entries to generate the largest (though fraudulent) tax refunds possible for my clients.”

How simple was that?

Just to give you an idea of the scope of her transgressions, the Audit Department audited his New York State income taxes going back ten (10) years for this particular taxpayer. ( Yes I know, they say you only have to keep seven (7) years of income tax returns. There is, however, no statute of limitations for fraud.)

The amount he owed all by himself? Over $7,800.00.

And this was only what he owed New York State. He hadn’t been audited by the Internal Revenue Service yet.

And yes, each state and the IRS do share information about taxpayers.

And he wasn’t alone in his financial pain. She alone prepared the income tax returns for over 300 folks just like him.

Why Did She Do It?

She felt great pressure.

  1. The pressure of having to constantly justify her fees.
  2. The pressure of competition posed by other fraudulent income tax preparers trying to horn into her business with their own promises of large refunds.

 What were the lies she told? Taking large deductions on Schedule A for ‘work clothing’ purchases and maintenance costs.

Here’s a tax tip: If the clothing you wear to work can be worn anywhere else besides your job, you can deduct neither the cost of the clothing, nor its maintenance costs.

Who Qualifies?

So who can usually deduct uniform expenses? Police Officers, Firefighters, Sanitation workers and certain, specifically uniformed Transit Authority workers. Also, any article of clothing worn at work emblazoned with the name of the firm, and perhaps their name also.

Nothing you wear to church or your backyard barbecue.

What Else Did She Do?

She counseled married clients with children, to show different addresses so they’d qualify to file as Heads of Households, instead of Married Filing Jointly.*

Let’s Get to Reason Number 2

Your income tax preparer should be of stable character in all ways, including their business office.

Now, I am myself in the process of relocating my office (Gubernatorial candidate Jimmy McMillan was right when he said “The rent is too damn high.”) I have, however, occupied the same storefront since January, 1999.

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect  the information in your file.  Find out who else has access to the information in your files and if so, for what purpose.

Make sure your preparer provides you with four (4) critical documents to review and sign. 

First, the Consent to Use Information and the Consent to Disclose Information forms. These forms are required by Section 7216 of the Internal Revenue Service code when the preparer of the income tax return offers other services to their clients. Without these documents, the preparer is legally enjoined from sharing the clients’ information with any other business entity.

Next, your preparer must give you a copy their firms’, Privacy Policy Statement, outlining what methods they will use to protect your information.

Lastly, your preparer, if they have a lick of good sense, will require you to review and sign a Tax Preparation Engagement Agreement.

No, it doesn’t mean you’re getting engaged. It outlines both the responsibilities of the taxpayer to provide all information the preparer enters into their income tax return. This means no fraudulent entries. It also covers areas relating to audits, privacy policy, fees, your copy of your return, preparation method and other services your preparer may offer you. (An example of this form is available on my website at www.insuremeeg.com/2011_Engagement_Agreement.html)

Are We There Yet?

We finally come to Reason Number 3. PTIN  and  NYPTRIN are not fancy acronyms for foreign cars. The first is the IRS’s Preparer Tax Identification Number. The second refers to New York State’s New York Tax Preparer Identification Number.

Who Must Have These Numbers?

Basically, any tax return preparer who prepares a substantial part of any return for compensation.  Ask your preparer what their numbers are. If they don’t know what you’re talking about, ask the preparer to give you your file, collect your paperwork, and leave the office as quickly as possible.

While PTINS have been around since 1999, New York State first required preparers to register in 2009 (and pay an annual  fee of $100.00 for the privilege. The IRS charges a fee of $64.95).

Why Did New York State and The IRS Do This? 

At last count, the United States Treasury determined there was a 315 billion dollar tax collection shortfall in 1985, 265 billion of which was directly attributable to taxpayers’ failure to file, and filing fraudulent returns. This new system will enable them to better identify and prosecute those abusing the system by flooding it with fraudulent returns. On the other, to catch those who prepare returns and fail or refuse to sign them. Why do they refuse? So they don’t have to declare the income. In fact, they often fail to  file their own income tax returns.

On several occasion last filing season, clients, thinking they’d save money, went to other preparers, only to be told the preparer had a “…problem with their New York State software. So tell you what, I’ll prepare and charge you for preparing your Federal return and you can go anywhere to get the NYS return done.”

Not with me. Sorry. I don’t do sloppy seconds.

Never have, never will.

No matter what, the federal return must always be done first. Many federal calculations then flow to the state return.

You come to my office and you’ll pay for both, because I must prepare both.  I wound up telling those clients to return to the other preparers and get their money back. And their files, too.

And You Thought This Was Going To Be Easy?

Next week we’ll review reasons numbers 4, 5 and 6. Until next time, wait for those w-2’s with bated breath.

Questions? Feel free to email me at eustace@brooklyncovered.com

* We’ll cover the subject of filing status in a future post.