Top tips for working with tax pros

The National Association of Enrolled Agents asked its tax experts the best practices clients should follow when working with a tax professional, and gave some helpful advice from an online survey whose results were released Monday.

Twenty percent of the enrolled agents surveyed by the NAEA strongly agreed with the notion that all clients should sort their documents using an organizer or organizing system provided by their tax professional, while 21 percent agreed with the statement that “it is impractical to expect new clients to organize their materials using the system with which I am most comfortable.”

However, 47 percent strongly agreed with the statement, “I work more effectively with clients who are willing to learn and adjust the way they organize their documents so that I can serve them better.” In addition, 51 percent strongly agree that taxpayers should schedule an appointment with tax professionals early in the filing season to avoid undesirable outcomes.

“Your willingness to adapt the way you organize your tax documents will help you get the best result from your work with a tax professional, often at a lower cost,” said NAEA President James Adelman in a statement. “Have a conversation with your tax professional at the outset to clarify expectations and preferences on all sides.”

Eighty-three percent of tax pros said clients should use separate bank accounts for business and personal funds, while 81 percent recommended clients should keep their receipts in case their tax returns are examined, and 75 percent said clients should use a mileage log or smartphone app to record the business miles they have driven.

Identifying preferred communication channels and technologies is crucial, along with respecting deadlines and sharing time-sensitive information promptly are also essential. Ninety-six percent of the enrolled agents polled said clients should notify tax pros as soon as they receive a letter or notice from the IRS, while 82 percent said they should tell tax pros about significant life changes such as a retirement or divorce. Eighty percent said clients should consult with tax pros before starting a side job, while 78 percent said clients shouldn’t respond to notices from the IRS without consulting a tax pro.

Enrolled agents prefer to maintain a professional relationship with clients. The survey found 83 percent of the enrolled agents polled agreeing with the statement that advice from tax pros may be quite different from the tips that clients get from friends. Seventy percent of tax pros said their clients should not expect to get the same refund that a neighbor or coworker told them they had received, while 69 percent said “same as last year” is not an acceptable answer to questions from tax pros. In addition, 60 percent said tax pros cannot tell clients how the new tax bill impact their 2018 taxes until they run the numbers, while 52 percent agreed that a “quick question” a client asks a tax pro rarely has a quick or simple answer. 

Source: accountingtoday.com,  Michael Cohn

Together or alone? Preparing returns in front of clients

A tax preparer advising a client.

Bloomberg News

Is it better or worse to prepare returns in front of clients? Tax pros differ over whether it’s better to have the client present so they can answer questions, or to prepare the return distraction and check their work before sharing it with the client.

“I prepare returns in front of clients most of the time and have for about 50 years,” said Marilyn Meredith, of Michigan-based Meredith Tax Service. “This is the most efficient and most thorough way of preparing returns.”

“We prepare as many tax returns with the client present as possible,” said Enrolled Agent Debra James at Genesis Accounting & Management Services, in Lorain, Ohio. “It enables us to do a higher volume of work, ask questions while we work and get to know our clients better not just on a business level but a personal level – which I believe helps retain clients.”

“My goal is to complete the return with the client during our scheduled appointment,” added Marilyn Heller Ayers, a CPA in Brick, N.J. “During our conversation, I usually learn important facts that affect the return or will affect it in the following year.”

“My preference is to prepare returns as part of a face-to-face interview,” said Jeff Gentner, an EA in Amherst, N.Y. “I feel most confident when I sit with the taxpayers and do a thorough interview while entering data. I also know that my clients want to leave with results, as well as knowing that it is complete.”

“Having my clients sitting at my desk from start to finish is my preferred method of preparation,” said Kathy Hallford, an EA at Kathy’s Tax Service in Gilbertown, Ala. “Time is saved when questions can be asked, answered and documented all at the same setting.”

LET'S REVIEW

Time to double-check work figures is top of mind for preparers who don’t prepare returns in front of clients. “I’ll give an estimate of refund or amount due in most circumstances, but as a rule I take the return and process it in a few days and get it back to the client,” said Joel Grandon, an EA in Marion, Iowa. “It gives me a chance to review the final product and I find I make fewer errors when I’m not trying to carry on a conversation and enter data at the same time.”

Said Nicole Green, an EA at NGG Tax Group in Easton, Mass., “I prepare less than 1 percent of my returns face to face. As a solo practitioner, I want to be able to prepare the return, put it down and then review at a later time for possible errors.”

CPA Brian Stoner, in Burbank, Calif., will sometimes prep in front of clients “if the client is rushed and needs to file that day or has a pressing issue, but I prefer to not handle the returns that way,” he said. “If I do prepare the returns that way, I’ll review the returns then and discuss with the client before we sign the e-file forms.”

A MATTER OF STYLE

A recent practitioners’ survey by the National Society of Accountants revealed that slightly fewer than half of respondents (45.7 percent) collect client data in person to prepare a return. The survey didn’t specify actually preparing the return in front of the client.

“Not my style,” said Morris Armstrong, an EA and registered investment advisor with Armstrong Financial Strategies in Cheshire, Conn. “I interview a client, collect documentation and an organizer, review it and make notes and then do the return in private.”

Said Chris Hardy, an EA in Suwanee, Ga., “Most times clients don’t have all the necessary items ready to complete a return even if they complete the organizer.”

“I used to do it all the time. I was doing a quick and dirty calculation before they left anyway, to give them an idea of what they would owe or get back,” recalled EA Terri Ryman, of Southwest Tax & Accounting in Elkhart, Kan., whose husband asked why she didn’t just finish the return in front of the client and probably get paid faster. “Very seldom would it be incorrect when I reviewed it later that day before transmitting,” Ryman said.

VALUE SERVICE

EA William Keats of Keats Tax & Financial Service in North Merrick, N.Y., prepares about three-quarters of personal returns in front of clients. “Estate returns and corporation returns, as well as payroll and sales tax returns, are usually dropped off or mailed in to me,” he said.

With complex returns such as those corporations or partnerships, EA Laura Strombom at All About Numbers in Stockton, Calif., gets the information for the entity or complex portion of the return on a 1040 either through her bookkeeper or from the client, “and then we review their books and ask questions before going with the books on a return,” she said. “I then prepare the return outside of the client appointment … and then present the return to them in the appointment.”

Those trained in some chains were used to the face-to-face. “Ninety-five percent of the returns I prepare are done in front of my clients,” said Frederick Reynolds, an EA in Utica, N.Y. “I work for H&R Block, and that’s just the nature of the beast.”

“The first year that I did taxes was at H&R Block, in 2000,” Armstrong recalled. “We did do most returns with the client sitting there – and they’d interrupt all the time and ask, ‘What are you doing?’ One person wanted to watch everything and have everything explained to him so that he could do the returns for his friends … .”

“A key motivation is that by reviewing a return as a whole, without the pressure of the client, there’s a better chance of spotting something else in the big picture that would be beneficial, said EA Richard Ogg at The Master’s Tax & Financial Services in Santa Rosa, Calif. “Another downside is if you are too quick, some clients may wonder why they’re paying the fee that we charge.”

“Preparing returns in front of clients could have a downward pressure effect on fees for preparers,” added Stephen Mead, an EA in Bradenton, Fla. “Time trumps knowledge in [clients’] value equation.”

“I do 80 percent of my clients’ returns in my office while they wait,” said Patrick O’Hara, an EA in Poughkeepsie, N.Y. “These are clients that we can prepare, print and review returns within an hour or less. Many of my peers disapprove of this model,” he added, “but I believe it’s a more efficient use of my time and I’m able to get paid on the spot. It’s also a good opportunity to reinforce relationships and ask for referrals or a review of our service.”

“I do prepare returns in front of clients, generally speaking. But I do give them an option to … send it via mail, fax it, scan and e-mail it or we can even do a Skype meeting,” said Theodore Prioleau, an EA at Hunt Valley, Md.-based Teddy The Tax Man and Hunt Valley Retirements. “I find that the more flexible I am, the more options they have, the more they love it.”

Source: Accounting Today

Plan Now to Get Full Benefit of Saver’s Credit

As the tax filing season approaches, the Internal Revenue Service reminds low- and moderate-income workers that they can take steps now to save for retirement and earn a special tax credit in 2016 and years ahead.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2016 tax returns. People have until the due date for filing their 2016 return (April 18, 2017), to set up a new individual retirement arrangement or add money to an existing IRA for 2016. This includes the Treasury Department’s myRA. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, or the Thrift Savings Plan for federal employees.

Employees who are unable to set aside money for this year may want to schedule their 2017 contributions soon so their employer can begin withholding them in January.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Now is a good time to plan for your 2016 taxes.

You may be tempted to forget about your taxes once you’ve filed but some tax planning done now may benefit you later. Now is a good time to set up a system so you can keep your tax records safe and easy to find.  Here are some IRS tips to give you a leg up on next year’s taxes:

Take action when life changes occur.
Report changes in circumstances to the Health Insurance Marketplace.
Keep records safe.
Stay organized.
Shop for a tax preparer.
Think about itemizing.
Stay informed.

Let us help you stay on track for next year. Contact Neikirk, Mahoney & Smith at 502-896-2999 for more information.

Taypayer Bill of Rights

If you've never seen this before, it's certainly worth reviewing again as we plow our way toward 4th Quarter. Brought to you by the tax professionals at Neikirk, Mahoney & Smith.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. Know your rights and understand the nation's obligations to protect them.

The Right to Be Informed
Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

The Right to Quality Service
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

The Right to Pay No More than the Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

The Right to Challenge the IRS’s Position and Be Heard
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

The Right to Appeal an IRS Decision in an Independent Forum
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

The Right to Finality
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

The Right to Confidentiality
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

The Right to Retain Representation
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

If you have questions, don't hesitate to contact Neikirk, Mahoney & Smith at 502-896-2999.

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.

Yes, Virginia, it IS taking longer to do your taxes this year:-)

Tax season is supposed to be over on April 15. But among certain groups—especially the wealthy—filing for an extension until Oct. 15 is now routine, according to Bloomberg Business and Neikirk, Mahoney & Smith CPAs.

In 2011, 11 million taxpayers filed for an extension; two years later, 13 million did, an increase of almost 20 percent. At the end of September 2014, more than 25 percent of those who had filed for an extension were still working on their filings. We're not just procrastinators. It has gotten harder to file on time. Here’s why:

1. You don't have the forms you need.

The more complicated your investments, the more likely it is that you won't have everything you need to file your taxes by April 15. Often, private equity, venture capital, and hedge funds are structured as partnerships, which means their earnings generate so-called “Schedule K-1” forms, which sometimes take until late summer to arrive.

Christine Freeland, a certified public accountant in Chandler, Ariz., says brokers are putting more of her clients in energy or real estate partnerships instead of (or in addition to) mutual funds, which means more K-1s. Some clients don't even know how many K-1s they'll be getting, she says, and they think their return is ready until they receive an additional K-1 in the mail. Sometimes the partnerships—which have to finish their own returns before they can issue K-1 forms—get extensions, although they must file by Sept. 15.

Simpler investments that generate 1099 forms can slow down the process, too. Brokerage statements have to be out by Feb. 15, but many note that the information may not be final. One of Freeland's clients once handed her a corrected brokerage statement that hadn't arrived until April 15.

2. You're waiting on other people.

The more middlemen standing between you and your tax forms, the greater the chances of delay. According to Bill Zatorski of accounting firm PwC, a common sticking point for wealthy taxpayers is data from funds of funds, hedge funds that invest in hedge funds. A fund of funds can’t send you a K-1 until it receives K-1s, or other needed forms, from all the various funds it holds.

Adding to the delay, says Kevin Meehan of Wealth Enhancement Group, is that investors rarely hold funds or other investments directly. Everything gets funneled through brokerages. You wait for your brokerage, which is waiting for your fund-of-funds, which is awaiting forms for all the funds it holds. An extension until Oct. 15 is only a partial solution for taxpayers with late tax forms: They still must pay an estimate of what they owe by April 15, even if the full return comes later.

3. The tax code is more complicated.

If all else fails, blame Congress. Taxpayers already must follow different rules for wages, capital gains, and two types of dividends—those that get taxed at a lower tax rate and those that don’t meet the “qualified” criteria. In 2013, yet another tax category was added, a 3.8 percent net investment income tax on married couples earning more than $250,000 per year.

Under a 2010 law, taxpayers also now must report all their overseas holdings—a process that sometimes requires the close reading of K-1 footnotes, Zatorski says. Finally, there’s the alternative minimum tax, or AMT, a parallel tax system designed to limit the deductions that wealthier Americans can take. Plenty of those affected aren’t particularly wealthy. About 4.2 million people were ensnared by the AMT in 2014, the Tax Policy Center estimates, up 8 percent from the year before. The AMT alone can almost double how long it takes to fill out a tax return, the National Taxpayer Advocate says.

News of Note - Supreme Court Decision On Obamacare

Supreme Court Decision – the New York Times Opinion
The Times called the decision confusing in an OpEd contributed by Richard Epstein, who said “It is not good for the court or the country that the chief justice’s position in such an important case is confused at its core.” Read more

Supreme Court Decision – the Wall Street Journal Opinion
“It's also hard not to notice that people now extolling Justice Roberts for rescuing the court's integrity are largely the same ones who have been impugning it,” the Journal said. Read more

Supreme Court Decision – the Journal of Accountancy
“Roberts concluded that the individual mandate must be construed as imposing a tax on those who do not have health insurance, if such a construction is reasonable, because "every reasonable construction must be resorted to, in order to save a statute from unconstitutionality," Hooper v. California, 155 U.S. 648 (1895).” Read more

So You Think You Have Problems?

The Tax 'Miseducation' of Lauryn Hill
Singer and actress Lauryn Hill, who captured five Grammy awards for her critically acclaimed 1998 album The Miseducation of Lauryn Hill, has been charged with failing to pay taxes on income totaling $1.8 million. Read more

IRS Prescribes Rules for Health Care FSAs
A new IRS ruling (Notice 2012-40) provides guidance on a pending limit for flexible spending accounts (FSAs). Read more

Is Your Business Headed in the Right Direction? Are You Sure?

If you're like most business owners, your days are filled by efforts to make your company successful. Those tasks might be focused on making a great product, generating sales, or building customer relationships. And you might be great at those things. But how great are you at making money? And how well are you managing your resources? Click here to read more.

Questions? Contact us at Neikirk, Mahoney & Smith CPAs.