Is the Big Bang Coming?

Big Bang or Colossal Crash? It may be happening sooner than we think. The Physical Review letters published a paper in which a group of physicists developed a mechanism for “cosmological collapse.” They are saying the universe will stop expanding and collapse back into itself. Needless to say, we would all be annihilated.


We’ve heard people spouting “last days” forever but the numbers and models in the paper are suggesting that a collapse will happen sooner than later.


Antonio Padilla, from the University of Nottingham, one of the authors of the paper, says, “The fact that we are seeing dark energy now could be taken as an indication of impending doom, and we are trying to look at the data to put some figures on the end date. Early indications suggest the collapse will kick in in a few tens of billions of years but we have yet to properly verify this.” “Personally, this puts tax season in perspective for me” says Kevin Thompson, CPA. “I won’t really kill myself to get all of this stuff done now since I know the end is near. I mean it can wait, right?”


A Few tens of billions of years is not a cause for immediate alarm but the team of scientists feel they have found the cause of Earth’s impending doom.  Thompson goes on to say “since most of us don’t make it out alive anyway, I think we can stop worrying about this for this generation and a few to come. But, any of you who wish to continue to worry, please feel free.”

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8 Reasons You May Get Audited by the IRS

Because of the mix up with tax return related health care issues, you may not be audited by the IRS if you filed an inaccurate return. But beware, the IRS is still looking for other mistakes you may have made and request an audit.


Below are 8 reasons you may get audited by the IRS:


Your income is incorrect


Make sure the income you report from your 1099 and W-2 match up. Kevin Thompson, CPA says “this is by far the easiest to prevent and the most oft overlooked. When I review returns, one of the first things I do is add up the 1099’s and W-2’s and ensure we have accounted for all the income.”


Charitable deductions are too high


If your donations are not on par with your income level you are raising a red flag. Thompson says “American’s are very giving with their treasures to charity. Sometimes, in the process of looking to lessen our tax burden, we look to our charitable giving as one possible solution. Most of our clients maintain great records with their charitable giving. All should be careful when venturing down the path of charitable deductions.”


Your salary is low


If you have an S corporation, and your salary is low for a principal owner, the IRS will become suspicious. “The concept of Reasonable Compensation is vague and ambiguous” says Thompson. “I think and practice that if your W-2 represents what you would pay someone to do your job, then it is reasonable.” The IRS has identified S Corporations as one of the causes of the “Tax Gap.” Thompson says “I look for Congress to alter the tax treatment of S Corporation profits and make them subject to Social Security and Medicare like all other forms of compensation. That will eliminate this issue entirely.”


Wrong Social Security Number


If your Social Security number is hard to read or you made a typo when typing in the number your return may be rejected. “We are working with a client that had a $40,000 refund from 2013 held up because the W-2 contained a typographical error” says Thompson. “I was surprised that the previous preparer either did not have it corrected or prepare and file a paper return and attach the W-2 with a letter of explanation. I think the taxpayer would have received his refund last year instead of having to pay us to clean up the affair this year.” Thompson went on to say “in a digital society, precision with numbers, especially identification numbers, will be of utmost importance. And, when you introduce the incidence of fraud and identity theft, if there are any questions, the IRS will simply freeze everything.”


Hobby activities


Certain activities with high losses such as horse racing will raise eyebrows. Thompson chuckled and said “this is nothing new yet taxpayers continue to want to deduct these expenses. I have to admit, if there is truly a business sense and motive, I think they should take the deduction.”




If you claim a different amount for your alimony deduction or alimony income than your ex-spouse does for the corresponding item the IRS will notice. Also, make sure to report the Social Security number of your ex-spouse when reporting your alimony deduction.


Meals and Entertainment


If the type of your business and your meals and entertainment expenses are not in sync, it will trigger the IRS to look further. The IRS continues to beat up this deduction like a tropical storm beats the shore and would like to see this eliminated as a business expense. Entertaining it is an important part of business and an important part of our economy. Record-keeping remains the number one issue with this deduction during an examination. Document with WHOM you had dinner, WHY the meeting took place and WHAT business matters were discussed. Thompson says “in my examination experience, with good documentation, agents back off quickly. But like sharks in blood-infested waters, if they sense a weakness, they go in for the kill.”


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Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.

Obama Wants Mandatory Voting – Really?

President Obama tested the waters while speaking to a civic group in Cleveland. When he was asked about the corrosive influence of money in U.S. elections, Obama sidestepped to talk about voting rights and said the U.S should make voting easier than it is now.


He said that in Australia, people don’t have a choice. They have to vote. “If everybody voted, then it would completely change the political map in this country. Not only that, but universal voting would counteract money more than anything.” Kevin Thompson, CPA says “there aren’t many things that the sitting President and I agree upon with any kind of regularity. This is one area where we do see eye to eye.”


Younger, lower-income Americans who are minorities or immigrants tend to skip voting. Obama commented, “There’s a reason why some folks try to keep them away from the polls.” This was a thinly veiled reference to the fact that a number of Republican-led states make it hard for them to vote. “Although a veiled attempt to blame the other party” says Thompson, “the reality is they cannot vote because it is just too damned difficult. We need online voting and we can’t get it soon enough.”


Less than 37% of eligible voters went to the polls in the 2014 midterms, according to the United States Election Project.


Two dozen countries or more have compulsory voting include Belgium, Brazil and Argentina. In some countries, those who do not vote must provide an excuse or face a fine. A few countries actually impose prison sentences.


The problem, Obama says, is that those with money have more influence. A low turnout is an advantage for the party who appeals to the base of people who show up.  Obama opposes Citizens United and other court rulings that allow super PACs and unlimited spending on campaigns. However, he embraced those groups in his 2012 re-election for fear that his opponent would out spend him.


Obama thinks it may be worth it for people in the U.S. to consider compulsory voting to control excessive campaign spending but isn’t really taking it seriously. The requirements of the process alone to change the law would be a Herculean undertaking at best. “Compulsory voting is inherently unconstitutional. By not voting, aren’t I shouting loud and clear? I am not in favor of forcing people to vote, I am in favor of making it easier to vote.” Thompson goes on to say “of course, we’ll need all of the safeguards to protect the sanctity of the process. I am sure our friends in ISIS or North Korea will try hard to corrupt the system through hacking or identity theft. “


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Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.

High Marks for Accountants as Small Business Leaders

A new survey revealed that leaders in small business consider their accountants to be the most important professional for their organization. 393 small business leaders took part in the survey that was conducted by Wasp Barcode Technologies. They make asset, inventory, time and attendance hardware and software. 99% of the business leaders surveyed were based in North America.


Accountants led the pack and were ranked higher than attorneys, bankers, insurance agents, technology firms and staffing services. 67% were very satisfied with their accountants’ services with 21% somewhat satisfied. 37% complained that they pay too much in taxes and only 14% believed their accountants could reduce their taxes more. Kevin Thompson, CPA says “I take that as a challenge. It is seldom that we cannot find something that lessens the tax burden for business.” Thompson went on to say “personally, I believe business should pay its fair share of the tax burden in this country. But, not one penny more.”


71% of the business leaders surveyed outsource their tax preparation and ½ outsource their employee payroll. “It is almost impossible for small business to handle tax preparation” says Thompson. “And payroll is such a penalty ridden process that it is expensive for businesses to make a mistake. Even the smallest of errors can cost thousands in penalties.”


Top accounting challenges include:

  • Accounts receivable/collections
  • Cash flow
  • Managing paperwork
  • Closing the books each month
  • Managing payroll


The survey noted that accountants could improve services and 4 in 10 respondents found their accountants to be more reactive than proactive. “So much of our business model is compliance oriented and deadline driven and therefore we are reactive. These other services require us to help our clients with the planning aspects of the business. And that is not always easy for most accountant’s to find the time” says Thompson. “The most valuable service I can provide is in these other areas that my clients need the help.”


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Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.

Americans Not Spending Even With More Jobs Available

There is good news for America. More jobs are being produced and the unemployment rate is down. But even still, many companies report that it’s hard to find workers because wages are too low. Workers paychecks are low and they aren’t reaping the benefits that an improved economy should bring.  Wages are rising at 2% rather than at the annual pace of 3% to 4 %.


Economists are saying that increases in wages will come when the jobless rate drops to 5% but it still hasn’t happened yet.


The housing market is still weak from the downturn and is recovering slowly but steadily. “In addition“ says Kevin Thompson, CPA, “the pursuit of the American dream is not as much a driver for this generation as in the past. Millennials saw firsthand the impact the housing crash of 2008 had on their families. They are much more cautious as a result of that experience.” Thompson goes on to say “in addition, the postponement of marriage and children results in fewer houses being in demand.” 


Exporters are finding it harder to do business abroad because of the rising dollar and slow growth. “This has to be a concern in Washington. We have to find a way to export more products” says Thompson. There is a movement afoot to bring manufacturing back to the U.S. Rising labor costs in China, delays in production together with the rise in transportation costs are making it more reasonable to manufacture and sell domestically.


The economy is moving along in a positive direction but not as quickly as many have hoped.


The reason is that there is nearly invisible inflation. The plunge in gas prices between July 2014 and January 2015 has brought inflation to its lowest level in many years. This is giving Americans more buying power and spending rose at its fastest pace since 2010.


Americans are more hopeful in years partly due to the fact that gas is cheaper and there is a surge in hiring. However, the question is; will consumers begin spending more consistently?


U.S. retail sales have been soft. They account for 1/3 of all consumer spending. Instead of spending the money they saved from lower gas prices, consumers are pocketing it instead to save for a rainy day.


In February, economists are looking the result of gas prices rising in the last couple months. Only a 0.3% gain is expected after auto sales dropped to its slowest rate in 10 months.


Conclusion: Consumer spending at the rate it is going is not going to spark the economy any time soon.


Original Article


Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.

Individual Audit Rate is Lower

There’s less chance the IRS will audit you. The 2014 IRS audit rate was at the lowest level in at least 10 years and may drop even further according to the agency.


The percentage that an individual’s tax return was examined in person or through the mail fell to 0.86% last year. It’s the lowest percentage since 2005. The audit rate rose between 2005-2010 and then dropped steadily by more than 20% during the next 5 years.  Approximately 1.2 million taxpayers were audited in 2014 down 162,000 from 2013.


1.2 million Taxpayers with an income of $200,000 and 34,000 Taxpayers with annual incomes of $1 million or more were audited in 2014. Kevin Thompson, CPA says “as a 40 year veteran of this business, I say this is great news for American taxpayers. The vast majority of examinations in which I have participated have been unnecessary.”


The reason that there are less audits is because of drops in IRS funding and less revenue agents. The IRS is also seeking Congressional approval for a 2016 fiscal budget hike after being lambasted for less taxpayer services and allegations it was targeting conservative tax-exempt organizations.


IRS Commissioner John Koskinen warned that the rate in audits may “corrode” even more American’s faith in the federal tax system.  He is also concerned that taxpayers may not comply with making voluntary payments. Thompson says “I disagree. I think the Service should be thinking about value for the American Taxpayers and finding more efficient ways to verify the accuracy of returns.”


He says that right now most people are paying their fair share, but if people start finding out their neighbors are not paying, they may not either. Thompson says “my experience is not this prediction at all. Every client of this office is directed to pay their share of the tax burden – But, NOT ONE PENNY MORE!”


Koskinen believes that if the number of IRS agents is restored and trained, it would produce $1.3 billion in government enforcement revenue by 2018.  Audits require rigorous training so they can’t simply shift other IRS workers into those jobs. Jobs throughout the IRS have been reduced and they are short-staffed as it is. “This is true and I can tell you that from experience” says Thompson. “Although the examination puts us at odds against the Service, I feel they are out-manned at every turn. Unless the taxpayer made a mistake, these examinations almost always result in a no-change.”


Sen Orrin Hatch, R-Utah believes that the operations of the agency and their request for more funding will be looked at with scrutiny and the IRS is not up to withstanding this scrutiny. Thompson says “I once spoke with a high-up official in the Memphis office and she asked me how the IRS was doing.” I said “as a practitioner, you scare me. You have so much power that results in the taxpayers and many of their representatives being afraid of the IRS. It should not be like that at all.” Thompson closed by saying “I strongly concur with Senator Hatch.”


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Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.

Did You Receive the Wrong Tax Info From the Health Insurance Marketplace?

The federal insurance marketplace recently announced that approximately 800,000 taxpayers were sent incorrect information on their form 1095-A and they are urged to wait to file their taxes until the first week of March.


The 800,000 people who used the tax credit to lower their premium cost will be receiving an updated 1095-A shortly. Based on estimates, approximately 90-95 % have not yet filed their taxes. For those who have already filed their taxes, the Treasury Department will be providing additional information soon.


Form 1095-A contains important information that taxpayers need to complete their returns. This includes the premium amount for the “second lowest cost Silver plan” in the taxpayer’s area. This particular premium is said to be a benchmark used to determine the amount of premium tax credit taxpayers are eligible to receive. That information was incorrectly calculated.


This issue only affects 20% of taxpayers who signed up in the Marketplace and only those who signed up through Most taxpayers will be able to check a box on their tax return to indicate they had health coverage in 2014 either through their employer, Medicare, Medicaid, veteran’s care or other qualified health coverage programs. Kevin Thompson, CPA says “we have seen only two 1095-A forms. One was correct and one, as stated here, was incorrect. It’s unfortunate that the administration has elected to make an already difficult and daunting experience for most taxpayers and make it worse.”


Taxpayers who are affected will be receiving a call from the Marketplace to alert them of the problem in early March and will also be sent letters and emails. Those who are concerned about their status can login to their account at


If a taxpayer needs to file their taxes sooner, a tool will be available to determine the correct amount. They can call the Marketplace at 1-800-318-2596 or alert their tax preparer. Thompson says “we had already decided to increase our fees by $150 for each tax return to comply with the requirements of the Affordable Care Act. I am not sure we can absorb the amended returns necessary to get this right.”


CMS also announced that it will provide a special enrollment period for people who learn of the tax penalty for not having health care at the time they file their taxes.


It’s recommended that you contact your tax preparer as soon as possible if you believe you have received incorrect information from the Marketplace. They will be able to insure you that the correct adjustments have been made.


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Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.



Suspended Tax Preparers Can Prepare Your Taxes According to the IRS

In a recent decision, that prevents the IRS from regulating unenrolled tax preparer, the agency has decided that even though a tax preparer has been suspended or disbarred, it cannot ban them from preparing taxes or block their PTIN. (Preparer Tax Identification Number) (


The ruling in Loving, No 13-5061 (D.C. Cir 2/11/14) in which the District Court appeals court upheld a D.C. court’s decision and injunction which forbade the IRS “from administering regulations requiring return preparers to pass a competency test and complete annual continuing education, before obtaining or renewing PTINs.”  Both courts decided that the preparation of taxes does not, by itself, require the sanction of the IRS. Kevin Thompson CPA says “I agree with the sentiment directed by both courts. I do not like the idea that the IRS enforces the laws and also chooses who can assist taxpayers with compliance.”


In response, the OPR (IRS Office of Professional Responsibility) determined that even though an enrolled preparer had been disciplined and either suspended or disbarred, they still couldn’t hamper them from participating in tax preparation or disallow their PTINs which are required to provide tax returns. “On the other hand “says Thompson “it is professionally disconcerting to know that the OPR can discipline, suspend or disbar one and yet that person can continue preparing taxes. Taxpayers need do more due diligence on preparers. Maybe we need a site similar to Megan’s law where taxpayer’s can easily verify whether their tax preparer has any actions against them.”


Notices were sent out to those affected, but if they weren’t received, individuals can call 202-317-6897 to speak to the OPR office.  Practitioners banned by court order are not allowed to practice under the law. Certified Public Accountants that have actions against them in California can be identified here. ( Of course, I was glad not to see my name included.


Original Article


Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.

Turbo Tax Filings Stopped in Minnesota

Due to potentially fraudulent activity that was found on tax returns filed with Turbo Tax in Minnesota, the Minnesota Department of Revenue has stopped accepting tax returns submitted using Turbo Tax software. Intuit, the company that produces Turbo Tax, had temporarily suspended transmission of taxes in all states but has recently resumed doing so, except in Minnesota. Kevin Thompson, CPA says “in the current environment, anything that looks like fraud will be treated like fraud. In this case, it appears that there is some software glitch that Intuit will need to fix.”


The Department of Revenue says there is not a security breach and that taxpayer data is safe. There is technology in place to safeguard private info submitted by taxpayers.  The issue lies with the Turbo Tax software itself. When a user logs into the software it appears as if their tax return has already been filed. Thompson says “one of the greatest breaches of identity theft with the IRS is people filing tax returns early using information (usually fraudulent) for taxpayers other than themselves. These returns always result in refunds and the filer takes the money and runs. Since that practice is so prevalent, it is necessary for the taxing authorities to implement procedures to identify fraudulent returns. Personally, I laud the State of Minnesota for this action and hope that both they and Intuit can get it right.”


The Department is working with Intuit and will be providing updates. Any taxpayer affected can call 1-800-944-8596 for personal assistance.


This is the second time that Minnesota, in particular, has experienced issues with Intuit software. A similar warning was issued in 2012.  The Department of Revenue, at that time, issued a warning that the accuracy of returns filed with Turbo Tax may be inaccurate or delay refund checks and suggested that taxpayers use other software programs instead. “The challenge in 2012 was a different one,“ says Thompson. “In that instance, Minnesota just found too many errors with returns processed using Turbo Tax.” Tax compliance is complicated and should not be taken lightly. Most taxpayers want to comply and want to be efficient with their resources. “I think American taxpayers should give a second thought to compliance using over the counter software solutions,” says Thompson.


Turbo Tax has received negative press ever since it made changes to its software in January by removing interview pieces from Schedule C, Schedule D and Schedule E.  It announced it would provide updates and reverse those changes.


Original Article


Don’t experience tax software glitches and inaccuracies.  Contact your tax preparer instead.


Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.


One-Per-Year Limit on IRA Rollover Rules Made Clearer to Taxpayers by the IRS

The IRS is making an effort to clarify the one-per-year limit on IRA’s imposed in 2014 for taxpayers. In 2014 the U.S. Tax Court put a limit on making more than one tax-free rollover for individuals in a one year period even if a person has different IRA’s.  Starting in 2015, individual IRA’s may be considered to be combined and treated as if they were one


As of Jan 1, 2015, a distribution from an IRA received during 2014 that was rolled over to another IRA, will have no impact on distributions and rollovers that happen in 2015 that involve any other IRAs owned by the same person. The IRA will have a fresh start and can be applied to the one-per-year rollover limit to multiple IRAs. Kevin Thompson, CPA says “it must be noted that these regulations only impact the non-trusteed rollovers.”


IRA distribution rules have a clause that allows for a distribution to be returned or rolled over within 60 days. These are the rollovers that are being regulated. The challenge for the host financial institution is they do not know what you did with the money so they most always report it as a distribution. Then, you go to your preparer and say  No, I rolled this over.” And, then, in the CP 2000 process of electronically matching information, the service receives conflicting information and assumes that the taxpayer is incorrect. Especially if the taxpayer will owe additional money.


And this creates yet another nightmare for the taxpayer. As we raised in an earlier blog post, the IRS is 3-4 months behind in responding to correspondence. The CP 2000 correspondence indicates that the taxpayer reported the rollover incorrectly and calculates a tax due. The IRS writes that they have 30 days to agree or provide evidence to the contrary. We provide the evidence BUT the IRS takes 3-4 months to process and reply. Meanwhile, the collections arm starts looking for the payment in 30 days. And anyone who has been caught in this knows what a nightmare that can be. “It is so frustrating” says Thompson, “to know that you are right, to know that you have provided the evidence to the IRS and yet, collections is pinging you for the money. This requires more patience than most people have, including me.”


IRA distributions that are eligible and received on or after Jan 1, 2015 and properly rolled over to another IRA will be tax free. However, any other distributions that are received within a year after the first distribution will not be tax free.


Not subject to one-per year limits are Roth conversions, rollovers between qualified plans and IRAs and trustee-to-trustee transfers.


IRA owners who are requesting a distribution for rollover are encouraged to take the option of a trustee-to-trustee transfer from one IRA to another IRA. This can be done by transferring amounts directly from one IRA to another and by providing the IRA owner with a check made payable to the trustee receiving the IRA.


Original Article


Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102.