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.”

 

Original Article

 

Contact Kevin Thompson CPA

 

kevin@kevinthompsoncpa.com  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

 

kevin@kevinthompsoncpa.com  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.”

 

Original Article

 

Contact Kevin Thompson CPA

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625 x102.

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

The federal insurance marketplace healthcare.gov 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 Healthcare.gov. 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 healthcare.gov.

 

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.

 

Original Article

 

Contact Kevin Thompson CPA

 

kevin@kevinthompsoncpa.com  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) (http://www.irs.gov/Tax-Professionals/PTIN-Requirements-for-Tax-Return-Preparers)

 

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. (http://www.dca.ca.gov/cba/discipline/index.shtml#index) Of course, I was glad not to see my name included.

 

Original Article

 

Contact Kevin Thompson CPA

 

kevin@kevinthompsoncpa.com  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

 

kevin@kevinthompsoncpa.com  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

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625 x102.

 

 

 

Ridiculous Tax Deductions for 2015

When it comes to deductions on your tax return, Kevin Thompson, CPA says “here are a few no no’s you may not want to think twice about before you claim:”

 

  1. Your family dog or unborn child as dependents
    • Thompson says “I know my wife spends more on that dog than she does me. I feel like I need some tax relief. But for now, the IRS disagrees.”
  2. The full cost of your child’s wedding.
    • Thompson says “a case can be made for some portion of the wedding being a business expense. But this falls into the category of pigs get fat and hogs get slaughtered.”
  3. Your speeding tickets
    • “My recommendation here” says Thompson, “just slow down and smell the coffee.”
  4. The car the police impounded as a charitable deduction
    • “This is an interesting one,” says Thompson. “I think if the charity claims it from the impound lot that you could argue that there was charitable intent.”
  5. Your hobby expenses such as your prize horses, or vintage Legos.
    • Thompson says “Tax court is littered with these cases. Stop being a hog.”
  6. Haircuts, plastic surgery, massages and beauty salon expenses
    • “Of these 4” says Thompson, “Massages are the only one I can reasonably argue.”
  7. The loss on the sale of your house.
    • Thompson says “The loss on the sale of your primary residence is NEVER deductible. But the unfair side of this law is IF you gain more than $250,000 ($500,000 Married filing joint), it is taxable. I think that should go both ways. I think we should be able to have a carryover of losses on the sale of personal residences to offset future gains.”
  8. The cost of groceries, or mortgage payment as a home office expense.
    • “Again, I think this is all about how it was presented on the return. If I run my business from my home including entertaining my customers, I believe a case can be made for some share of the costs of entertaining, including the Prime Rib and Pinot, would be reasonably deductible.”
  9. Your yacht as your floating office.
    • Thompson says “I had to represent a client in this circumstance years ago. We prevailed but in a much more limited style than we argued.”
  10. Hunting trips where you talk about your boss.
    • “I think this depends on what you are hunting. If you were hunting for your boss, although illegal in most states except Texas, one might argue the case.”

 

In closing, Thompson says “Obviously, I poked a bit of fun at both the code and taxpayers here in this post. It’s better to discuss what you can and cannot deduct on your tax return with your tax accountant/preparer BEFORE you put it on the return.”

Original article

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625 x102.

Why Trying to Talk to a Human at the IRS May Drive You Mad

We all know that outstanding customer service at most government agencies is rare, and the IRS is no exception.  Attempting to talk to a human on the phone is almost laughable. Considering that our country has a huge deficit, you’d think the IRS would do everything possible to encourage people to pay what they owe.

 

Unfortunately, in most cases, tax payers are given the run around, end up on hold on the phone, or made to cut through thick bureaucratic red tape.  Most become dazed and confused looking at the plethora of forms and rules they have to abide by. All they want is to have someone tell them what to do in a way that they’ll understand. Kevin Thompson CPA says “I don’t believe for one moment that this is the way it is supposed to be. Unfortunately it’s a reality. And that reality is that the solution for taxpayers is a costly one. You have to engage people like me that do this for a living. It’s my profession.”

 

Some people have heard that it will not answer questions from taxpayers from April 16 through the following January on the phone.

 

You can walk into an IRS office, but they suggest that you make an appointment.  That means you have to get through on the phone. Some people never make it past the switchboard and there’s no option to leave a message. The IRS voice recording may give you a garbled email address if you’re lucky enough to figure out what it is.

 

If you use the email address, you may be asked to provide additional information and they may not get back to you in weeks.

 

That leaves the IRS website which is equally frustrating. One woman clicked a link for the IRS website “interactive tax assistant.” This allows you to chat with a supposed “human.”  The chat assistant suggested she phone the IRS.  As you can imagine, this led nowhere.

 

IRS spokesman, Raphael Tulino, suggests you simply walk into an IRS office and be prepared for a very long wait. (Probably about 3 hours)  “Bring a good book.”  He’s assuming that taxpayers don’t have anything better to do. Kevin Thompson, CPA says “sitting in the lobby at an IRS office is an interesting study in human interaction. I think someday I might just write a book on this very subject. But for now, I wouldn’t recommend this to anyone. Except an old partner of mine, but that’s a story for another day. This painful experience will result in you losing 3 hours that you will never get back.”

 

To make matters worse; Congress is bent on crippling the IRS with budget cuts.  That means less customer service than the already sorry customer service it now provides. “I have said it before in previous posts; the IRS is seriously outmanned in this battle. As frustrating as it is on the outside looking in, imagine the inside looking out. It cannot be anything that resembles fun.” However, is now the time for the IRS to begin looking at outsourcing some of what they do? I think there are multiple opportunities for the service to use the private sector including collections, conflict resolution and the ever-present offer in compromise (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Struggling-with-Paying-Your-Taxes-Let-IRS-Help-You-Get-a-Fresh-Start) program.

 

If more people complain, perhaps the IRS will make it easier for taxpayers to communicate, but it isn’t likely due to the situation in Congress. Most people want to pay their fair share. Thompson says “I want my clients and all taxpayers to pay their share … but not one penny more.”

 

To avoid suffering from a migraine while trying to talk to a human at the IRS, and not tear out all your hair, contact your friendly tax adviser for advice.

 

Kevin Thompson, CPA kevin@kevinthompsoncpa.com or call him @ (310) 450-4625 x102.

 

Get Ready for Delayed Refunds and Waits from the IRS

The IRS is predicting that taxpayers will see a reduction in services resulting from recent budget cuts. This will mean delayed refunds and reduced correspondence with IRS customer service. According to Commissioner Koskinen, the IRS has no choice but to do with less.

 

Kevin Thompson CPA says “Taxpayers will be impacted in several ways:”

 

There will be more opportunities for identity theft. Delays in protective actions will give scammers, posing as IRS representatives and other criminals a better chance of stealing identities. Scammers have become much bolder in recent years and change their methods of cheating taxpayers frequently. “The Service has an extraordinary effort in identifying and processing identity theft. And it becomes really difficult to represent taxpayers that have reported identity theft because the IRS is unsure of just how deep the theft goes. I have had to represent identity theft and had my Power of Attorney (http://www.irs.gov/pub/irs-pdf/f2848.pdf) rejected until the taxpayer got on the phone and cleared the path for the agent to discuss this with me.” Thompson says “we are only beginning to peel back the layers of the onion of identity theft. The depth, breadth and width of just how far criminals will go to obtain that information is frightening.”

 

Delays in refunds. Taxpayers who file their returns by mail will have to wait a week longer than normal to receive their refunds. The commissioner refused to say whether or not e-filers would be effected so delays for those who file electronically are unknown. “Hey America, get your Billions back, will just have to wait. Sorry H&R Block.”

 

Correspondence will be slowed down.  There will be fewer employees at the agency to answer mail sent in by taxpayers with questions or requests. “Now this is a HUGE problem” says Thompson. During a recent examination (in which we prevailed 100%, I might add!!), The IRS examiner informed me that correspondence is running 12-16 weeks for a reply. That’s 3-4 months yet collections is working on a 30 day notice. “We regularly have to help the IRS with its own internal communication too. It is daunting when a taxpayer receives continuing correspondence on a matter that we have already addressed. We regularly contact the IRS 2-3 times on the same matter just to stop the harassment of taxpayers.”

 

Less claims will be resolved. Taxpayers who are legitimately attempting to correct mistakes or claim hardships regarding their returns will have less of a chance of resolving their issues with the Taxpayer Advocate Service (TAS).

 

Calls will go unanswered. There will be even lower levels of telephone service than before which was not good to begin with. Callers will face extended wait times. Thompson says “we budget one hour for each inquiry just for waiting on the phone. This extra cost is borne by the taxpayer but with these constraints there is nothing else we can do.”

 

Agency shutdowns. Temporary shutdowns are on the horizon even though the Commissioner had wavered on saying yes to furloughs. He has said that the agency is planning at least one shutdown in the fiscal year although definite dates have not been announced. “The challenge with shutdowns” says Kevin Thompson CPA “is not only the days that the agency shuts down but it’s the starting and stopping on the cases in the system. We had a case last year that was referred to the TAS (http://www.irs.gov/Advocate) because it was halted during one of the multitude of shutdowns and each time reassigned to a new desk. I kept telling the taxpayer you don’t owe this money but after a while they question your direction just because they keep getting conflicting direction from the IRS.”

 

Fewer taxpayer audits will be closed. Due to a reduction in staffing, the IRS will be unable to close many pending audits in 2015. This will also affect collections case closures. Although this will be happy news to those who are under the audit gun, it will be bad news for the Treasury. Thompson says “depending on the circumstances, the delays might be a good thing. I have found when a case lingers that it can often result in improved results for the taxpayer. It definitely tests your patience but most often works out.”

 

Reductions that will undermine the ability of the IRS to do its job more efficiently are not disastrous but will certainly make it much more inconvenient and frustrating for both taxpayers and tax preparers. 2015 may be the worst tax season ever. Get ready for it. “Listen to me, the bottom line, the silver lining if you will, here is the IRS will have to examine less returns. That’s music to my ears.”

 

Do you want to avoid many of the headaches of dealing with IRS issues this tax season?

 

Contact Kevin Thompson CPA

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625 x102.