Thursday, April 30, 2015

The good news is your Derby betting losses are (probably) tax deductible!

But the bad news is that your winnings are taxable. According to the IRS, gambling winnings are fully taxable and you must report them on your tax return.

Gambling income includes but is not limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes such as cars and trips.

A payer is required to issue you a Form W-2G (PDF), Certain Gambling Winnings, if you receive certain gambling winnings or if you have any gambling winnings subject to federal income tax withholding. You must report all gambling winnings on your Form 1040 (PDF) as "Other Income" (line 21), including winnings that are not subject to withholding.

In addition, you may be required to pay an estimated tax on your gambling winnings. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax. If you are considered a nonresident alien - like a Martian or something - of the United States for income tax purposes and you have to file a tax return, you must use Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return. Refer to Publication 519, U.S. Tax Guide for Aliens, and Publication 901, U.S. Tax Treaties, for more information.

You may deduct gambling losses only if you itemize deductions. However, the amount of losses you deduct may not be more than the amount of gambling income reported on your return. Claim your gambling losses on Form 1040, Schedule A (PDF) as an "Other Miscellaneous Deduction" (line 28) that is not subject to the 2% limit. A nonresident alien of the United States cannot deduct gambling losses.

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Refer to Publication 529, Miscellaneous Deductions, for more information.

Just a quick reminder from Neikirk, Mahoney & Smith on the horsiest weekend of the year!

Saturday, April 25, 2015

Treasury Exec Blasts Tax System

Mark Mazur is a heavyweight numbers guy and he didn't mince words about the current state of American business tax policies during a recent speech.

“The business tax system today is inefficient, overly complex, and too riddled with loopholes,” Mazur said, making it difficult for US business to function as a world-class system.

Mazur, assistant secretary for tax policy at the U.S. Department of Treasury, a position to which he was appointed in 2011 by President Barack Obama, made the comments while addressing the NYU/KPMG Tax Lecture Series, according to an article in Accounting Today.

Chances are, Mazur's patience is wearing thin from having to help his employer deal with the intense criticism aimed at the Treasury Department's red-headed stepchild - the Internal Revenue Service - over the past few years.

Worse news came today when, writing for Forbes Magazine, Robert W. Wood reported that the IRS doled out $3 billion in erroneous business tax credits to corporations that did not qualify and handed out $5.8 billion in erroneous tax refunds in 2013 alone.

The tax credits are for business taxpayers, Wood said, and covered such varied activities as providing childcare for their employees’ children. In 2013, corporations claimed more than $93 billion worth of tax credits, the report reveals. But it turns out many of those credits were wrong. Mistakes were found in over 3,000 electronically filed corporate tax returns.

Ironically, just last week, IRS Commissioner John Koskinen said that the agency is significantly under-funded, and those cuts mean there will be a decline in service for taxpayers, and pledged that service would improve if they got more money.

"Customer service -- both on the phone and in person -- has been far worse than anyone would want," Koskinen said. "It's simply a matter of not having enough people to answer the phones and provide service at our walk-in sites as a result of cuts to our budget."

But a congressional panel report found recently that the IRS had cut customer services while continuing to hand out bonuses to employees, allowing staff to conduct union activities, failing to collect debt owed by employees of the federal government and spending over $1.2 billion on implementing ObamaCare, according to Fox News.

The panel reported that even though the IRS’s budget for taxpayer assistance remained flat from fiscal year 2014 to 2015, the level of over-the-phone customer service significantly decreased, with the agency shifting staff in customer service to focus on written correspondence instead of telephone calls. Meanwhile, the number of calls doubled in that period.

The panel found that wait times increased from 18.7 minutes to 34.4 minutes, and answered calls decreased from 6.6 million to 5.3 million.

“In January 2015, the IRS commissioner estimated that taxpayer service would decline while delays in tax refunds would increase. While the IRS commissioner has blamed this solely on budget cuts, in reality the IRS deliberately diverted resources away from taxpayer services,” the report found.

Despite the drop in service, there was no significant decrease in bonuses for IRS employees. Notably, in November 2014, despite another round of budget cuts at the IRS, Koskinen announced that employees would receive bonuses at the same level as for the previous year, unless they had substantiated conduct issues, the report said.

So clearly, Mazur has reason to be concerned. The IRS is a complete mess. The question, though, remains...what will be done about it?

Tuesday, April 14, 2015

Eight Last Minute Tax Tips from Accounting Today

Our friends at Accounting Today offers up some great tax tips you may find to be of value. If you have any questions, contact Neikirk, Mahoney & Smith at 502-896-2999.

1. Fear Not the Extension
"Everyone is afraid of an extension," says Kyle Brownlee, CEO of Enid, Okla.-based Wymer Brownlee, part of the HD Vest network of tax-focused planning firms. "Everyone is just afraid of the IRS. They think: I am sending in my return late."

But an extension doesn't raise a red flag with the IRS, nor does it really mean clients are "late," he says -- although estimated taxes are still due April 15, even if the full return is not.

"I would much, much rather file an extension and get my ducks in a row and file later," he says, adding that an extension can be for a month or up to six months. "An extension is just no big deal and nothing to be afraid of."

2. Let Entrepreneurs Wait on Funding SEP Plans
Small business owners and sole proprietors can wait until Oct. 15 to fully fund their simplified employee pension (or SEP) retirement plans -- which allow them to contribute up to 25% of the income on which they pay Social Security tax.

Many people pay their taxes on April 15 and fail to fund their SEP retirement plans because they don't have the money to pay taxes and fund their plan all at the same time, says Heather Locus, with Balasa Dinverno Foltz in Itasca, Ill.

For that very reason, the IRS allows clients to wait until Oct. 15 to fund their SEP plans if they file for an extension. "That is something people don't necessarily realize that one can actually do," Locus says.

3. Accelerate Deductions for 2014
Many deductions may expire in the 2015 tax year, including deductions for manufacturing and other business equipment -- a category that includes vehicles of 6,000 pounds in weight, allowing many Land Rovers, GMC Yukons and Toyota Highlanders, Brownlee says.

These deductions, from Section 179 in the Tax Code, remain in place for the 2014 tax year -- but no one knows if they will be extended or significantly reduced for 2015, Brownlee says. He recommends that high-net-worth business owners in particular accelerate all the deductions they can under this code for the 2014 tax year, rather than take them in increments of one-fifth per year over the next five years and risk the expiration, he says.

"You can elect up to $500,000 to expense on that equipment in 2014," he says.

The deduction pertains specifically to portable equipment; in addition to jumbo SUVs, the category includes tractors, heavy vehicles, computers, servers, desks and office equipment. Even heavy manufacturing equipment that may be bolted down, but can be shifted elsewhere in an assembly or manufacturing plan reorganization would qualify, he says.

"Think about it like this," Brownlee says. "It's for any type of non-permanent equipment. If I can pick it up and move it or if I can drive it or ride it or if it's not fixed."

4. Put Alimony in an IRA
Alimony is considered "earned income" -- which is taxable compensation and, as a result, qualifies for saving in an IRAs, Locus says. That could help some recipients who are retired or otherwise not working, Locus says.

"To make an IRA contribution, you have to have earned income, so even if you have a $5 million portfolio and you have $100,000 in dividends, that doesn't qualify," she explains. "But getting paid alimony qualifies."

"A lot of CPAs don't think about that," she adds. "A lot of people who've gotten divorced don't think about that."

5. Make Up for Lost Time
Remember that even seemingly well-off clients may need last-minute retirement help, cautions Paul Auslander, director of financial planning at ProVise Management Group in Clearwater, Fla.

"There are those heart-wrenching meetings when you have someone where you think they are doing fine and they are not," he says, citing one example.

"There was a well-known M.D. in town who for whatever reason had her world kind of blow up, and she had to pay most of her money to a spouse in a divorce," Auslander recalls. "He thought he was going to be a novelist, yet never wrote a book. Now she's 58 years old and she has to scramble.

"She's paid for all the kids' education because she was the breadwinner," he adds. "Now she's panicking and worried about her own security. I've seen [similar] cases, male and female."

Doctors and lawyers—especially trial lawyers, Auslander says -- can find themselves in this predicament as they near retirement. The answer is to get them to make catch-up contributions to their traditional or Roth retirement plans.

Some clients can also open up a SEP right before they file their tax return, he says.

"They can deposit 25% of their income -- up to $52,000 for 2014 -- and $53,000 for the 2015 tax year. It's an opportunity to make up lost ground," he says. "That's an old strategy, but ... it keeps coming back and is valuable."

6. Take State Deductions on Lease Income
Clients who receive lease income from oil and gas producing companies -- who lease the right to drill for oil on their land -- are profiting now, Brownlee says. Although oil producers are sitting on their heels, waiting for the price of oil to rebound, they are still paying pricey three-year leases to property owners for the right to drill eventually.

Lease holders must file a state tax return wherever they derive this income from, Brownlee says -- as long as that state has an income tax -- but some states also offer a deduction on that income.

Brownlee cites an example. "A client had a $400,000 lease bonus check" from Oklahoma this year, he says, and that state's 22% deduction gave her an $88,000 deduction against Oklahoma income, saving her roughly $4,400 on her state tax return. Out-of-state CPAs and planners might miss that, he notes.

7. Switch Deductions among Divorced Couples
This tactic might require ex-spouses to work together amicably, but there's a worthwhile payoff, Locus says.

Because the IRS is phasing out certain deductions for high earners who bring in $254,000 or more annually, she explains, formerly married couples may want to switch some deductions from the high-earning parent to the lower-earning one to reduce the total amount paid to the feds.

"Usually the person [in a divorced couple] who has the higher income takes the kids as a deduction exemption," she says, to get the biggest bang for the buck. However, "in 2013, a phase-out for itemized deductions and personal exemptions for high earners began again -- and now people who have an adjusted gross income of $376,000 for a single person or $402,125 for a head of a household don't get any benefit from it. So, it may make sense that the person in the higher tax bracket lets the other spouse take the deduction and the [co-parents] either split the tax benefit or put that money in a 529 college account for a kid."

Failing to swap these deductions means that, she says, "the IRS is just getting more money."

8. Remind Clients to Max Out 401(k)s
Occasionally, Auslander takes on new clients whose former advisors convinced them that they would do better by not investing as much in their 401(k)s. However, those advisors' aims in giving that advice was entirely self-serving: to keep more assets to manage for themselves, he says.

In reality, clients are always better off putting the maximum amounts into their company's retirement plans, he says.

"The math is so compelling that you'd have to be an absolute fool not to," Auslander says.

Friday, April 10, 2015

Last Minute Input from IRS

Your friends at the Internal Revenue Service today want to threaten remind taxpayers that quick and easy solutions are available if you can’t file your returns or pay your taxes on time, and you can even ask for an extension, make a payment or request payment options online at

Most taxpayers have already filed their 2014 returns. Figures released today show that as of April 3, the IRS had already received just over 99 million returns and issued more than 77 million refunds averaging over $2,800.

For those who have yet to file, the IRS says don’t panic. Tax-filing extensions are available to taxpayers who need more time to finish their returns. Remember, this is an extension of time to file; not an extension of time to pay. However, taxpayers who are having trouble paying what they owe may qualify for payment plans and other relief.

- WARNING - this is tedious reading. If you'd like to discuss tax issues with a real person and a tax professional, contact Neikirk, Mahoney & Smith PLLC at (502) 896-2999. Or if you have nothing better to do, then continue -

Either way, taxpayers will avoid stiff penalties if they file either a regular income tax return or a request for a tax-filing extension by this year’s April 15 deadline. While taxpayers should pay as much as they can to minimize any penalties and interest, they should always file even if they can’t pay the full amount due. Here are further details on the options available.

More Time to File
People who haven’t finished filling out their return can get an automatic six-month extension. The fastest and easiest way to get the extra time is through the Free File link on In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868.

Filing this form gives taxpayers until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15. The interest rate is currently three percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.

Besides Free File, taxpayers can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on Of the nearly13 million extension forms received by the IRS last year, almost 8 million were filed electronically.

Those who owe taxes and need a tax-filing extension can get a two-for-one deal. Use IRS Direct Pay or one of the other electronic payment options to pay by April 15 the estimated amount of tax owed, designate the payment as an extension payment, and the IRS will count that as a validly-requested extension – no need to separately file a Form 4868.

Some taxpayers get more time to file without having to ask for it. These include:

Taxpayers abroad. U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due April 15.
Members of the military and others serving in Afghanistan or other combat zone localities. Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3, Armed Forces’ Tax Guide.

People affected by certain recent natural disasters.

Easy Ways to E-Pay
Taxpayers who owe taxes can now choose among several quick and easy e-pay options, including the newest and easiest, IRS Direct Pay. Again, making a payment through one of these electronic options and designating it as an extension payment counts as filing for an extension. Available options include:

  • Direct Pay. Available at, this free online tool allows individuals to securely pay their income tax directly from checking or savings accounts without any fees or pre-registration. No need to write a check, buy a stamp or find a mailbox. Payments can even be scheduled up to 30 days in advance, and the tool is available round the clock. Any taxpayer who uses the tool receives instant confirmation that their payment was submitted. More than 3.5 million tax payments totaling more than $7.2 billion have been received from individual taxpayers since Direct Pay debuted during last year’s tax-filing season.
  • Electronic Federal Tax Payment System. This free service gives taxpayers a safe and convenient way to pay individual and business taxes online or by phone. Pre-registration is required. To enroll or for more information, visit or call 800-316-6541.
  • Electronic funds withdrawal. E-file and e-pay from a checking or savings account in a single step.
  • Credit or debit card. Both paper and electronic filers can pay their taxes online or by phone through any of several authorized credit and debit card processors. Though the IRS does not charge a fee for this service, the card processors do. For taxpayers who itemize their deductions, these convenience fees can be claimed on Schedule A Line 23.

Taxpayers who choose to pay by check or money order should make the payment out to the “United States Treasury.” Write “2014 Form 1040,” name, address, daytime phone number and Social Security number on the front of the check or money order. To help ensure that the payment is credited promptly, also enclose a Form 1040-V payment voucher.

More Time to Pay
Taxpayers who have finished their returns should file by the regular April 15 deadline, even if they can’t pay the full amount due. In many cases, those struggling with unpaid taxes qualify for one of several relief programs, including the following:

Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed. Alternatively, taxpayers can request a payment agreement by filing Form 9465. This form can be downloaded from and mailed along with a tax return, bill or notice.
Some struggling taxpayers may qualify for anOffer in Compromise. This is an agreement with the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, individuals can use theOffer in Compromise Pre-Qualifier, a free online tool available on
Details on all filing and payment options are on