Bozo Tax Tip #1: Use a Bozo Tax Professional!

April 12th, 2024

The IRS recently highlighted that taxpayers should choose tax professionals wisely; I agree.  I’ve had this as a Bozo Tax Tip in the past, but a new client highlighted this issue for me.  In the previous iteration of this “tip,” I noted:

Here’s another Bozo Tax Tip that keeps coming around. The problem is, the Bozos don’t change their stripes. In any case, here are some signs your accountant might be a Bozo:

– He’s never met a deduction that doesn’t fit everyone. There’s no reason why a renter can’t take a mortgage interest deduction, right? And everyone’s entitled to $20,000 of employee business expenses…even if their salary is just $40,000 a year. Ask the proprietors of Western Tax Service about that.

– He believes that the income tax is voluntary. After all, we live in a democracy, so we don’t have to pay taxes, right?

– Besides preparing tax returns, he sells courses on why the Income Tax is Unconstitutional or how by filing the magical $2,295 papers he sells you will be able to avoid the income tax.

– He wants you to sign over that tax refund to him. After all, he’ll make sure you get your share of it after he takes out his 50% of the refund.

– He believes every return needs at least three dependents, no matter whether you have any children or not.

If your tax professional exhibits any of these behaviors, it’s time to get a new tax professional.

Well, it’s apparent there are some new strategies in this area (well, at least new to me).  Julie (not her name) came to me this year because something struck her wrong about her former tax professional.  She was in the waiting room and overheard the following:

“Yes, we guarantee that every client will get a refund of at least $2,000.”

Bluntly, that’s impossible.  Our job as tax professionals is to make sure your return is complete and accurate, and that your tax is the least that’s legally possible.  For most, a refund means your withholding and/or estimated payments exceeded your tax.  (Various tax credits–the Earned Income Credit and certain energy efficiency credits among them–can also cause tax refunds.)  A refund might not be a great thing; most of the time, it means you’ve given an interest-free loan to the government.  But Julie’s former tax professional wasn’t done.

“My clients never get audited–it’s a near guarantee.”

Julie knew that was wrong because her parents were randomly selected for an IRS research examination (audit).  The IRS conducts 5,000 to 10,000 of these each year; everyone has a chance of being selected.  (Over my 25-year career as a tax professional, I’ve had four clients selected for these kinds of audits.)  The IRS also conducts research audits into various professions; for example, they recently looked at employees in Las Vegas who worked at the clubs located in the major casinos.  (And given that tax professional’s guarantees, I suspect many of his clients will be audited in the future not on a random basis.)

Julie had enough and left–but there was one other thing she didn’t know (until I showed her this on her return from last year): She had used a “ghost” tax professional.  At the bottom of page two of Form 1040 is a place for a tax professional’s information (his or her firm name, address, phone number, Employer Identification Number (EIN), and the tax professional’s PTIN–the Preparer Tax Identification Number); on her return, that information was blank.

Don’t be a bozo.  If you use a tax professional, use an ethical preparer.  You may pay more and get a lesser refund, but you will rest a lot easier.

That’s it for the Bozo Tax Tips for the 2024 Tax Season.  We’ll be back with normal posting soon.

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Bozo Tax Tip #2: Withhold, but Don’t Remit, Your Employment Taxes!

April 11th, 2024

This Bozo Tax Tip—and do remember, these are things you really, really, really shouldn’t try—is aimed at the business owner who is having troubles. Business owners, unlike the federal government, can’t just print money. So let’s assume our hypothetical business owner has payroll tomorrow but doesn’t have the money for everything. What should he do?

Well, one strategy is to not remit the payroll taxes. Sure, they’re “trust fund” taxes but the government can print money and I can’t, so they’ll just let it slip by. And my state government won’t care either, right?

The above strategy is likely one of two quick and easy ways to get on the road to ClubFed. The IRS doesn’t like it when trust fund taxes don’t make it to the government. The penalties are substantial. The liability goes to the owners (and check signers) of the business. IRS Criminal Investigation will investigate this. Don’t do this!

One of my clients recently was interviewed about such a case. He was paid, but apparently the IRS wasn’t. It’s not hard for the IRS to find out about this: After all, every employee is going to file a tax return claiming withholding but the IRS won’t find it. That’s exactly what happened in this case. I suspect that very soon two nice looking individuals (accountants with badges and guns; now that’s a scary thought) will be knocking on a door and saying, “You have the right to remain silent….”

Business troubles aren’t fun. However, if you don’t pay the IRS your employment taxes you will find your troubles multiplying.

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Bozo Tax Tip #3: Publicize Your Tax Crimes on Social Media!

April 10th, 2024

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

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Bozo Tax Tip #4: The $0.68 Solution

April 9th, 2024

With Tax Day fast approaching it’s time to examine yet another Bozo method of courting disaster. And it doesn’t, on the surface, seem to be a Bozo method. After all, this organization has the motto, Neither rain nor snow nor gloom of night can stay these messengers about their duty.

Well, that’s not really the Postal Service’s motto. It’s just the inscription on the General Post Office in New York (at 8th Avenue and 33rd Street).

So assume you have a lengthy, difficult return. You’ve paid a professional good money to get it done. You go to the Post Office, put proper postage on it, dump it in the slot (on or before April 15th), and you’ve just committed a Bozo act.

If you use the Postal Service to mail your tax returns, spend the extra money for certified mail. For $4.40 you can purchase certified mail. Yes, you will have to stand in a line (or you can use the automated machines in many post offices), but you now have a receipt that verifies that you have mailed your return.

About fourteen years ago one of my clients saved $2.42 (I think that was the cost of a certified mail piece then) and sent his return in with a $0.37 stamp. It never made it. He ended up paying nearly $1,000 in penalties and interest…but he did save $2.42.

Don’t be a Bozo. E-File (and you don’t have to worry at all about the Post Office), or spend the $4.40! And you can go all out and spend $3.65 and get a return receipt, too (though you can now track certified mail online). For another $2.32 you can get the postal service to e-mail the confirmation that the IRS got the return (for the OCD in the crowd). There’s a reason every client letter notes, “using certified mail, return receipt requested.”

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Bozo Tax Tip #5: Procrastinate!

April 8th, 2024

Today is April 8th. The tax deadline is just seven days away.

What happens if you wake up and it’s April 15, 2024, and you can’t file your tax? File an extension. Download Form 4868, make an estimate of what you owe, pay that, and mail the voucher and check to the address noted for your state. Use certified mail, return receipt, of course. And don’t forget your state income tax. Some states have automatic extensions (California does), some don’t, while others have deadlines that don’t match the federal tax deadline (Hawaii state taxes are due on April 20th, for example). Automatic extensions are of time to file, not pay, so download the extension form and mail off a payment to your state, too. If you mail your extension, make sure you mail it certified mail, return receipt requested. (You can do that from most Automated Postal Centers, too.)

By the way, I strongly suggest you electronically file the extension. The IRS will happily take your extension electronically; many (but not all) states will, too.

But what do you do if you wait until May 18th? Well, get your paperwork together so you can file as quickly as possible and avoid even more penalties. Penalties escalate, so unless you want 25% penalties, get everything ready and see your tax professional next week. He’ll have time for you, and you can leisurely complete your return and only pay one week of interest, one month of the Failure to Pay penalty (0.5% of the tax due), and one month of the Failure to File Penalty (5% of the tax due).

There is a silver lining in all of this. If you are owed a refund and haven’t filed, you will likely receive interest from the IRS. Yes, interest works both ways: The IRS must pay interest on late-filed returns owed refunds. Just one note about that: The interest is taxable.

NOTE: If you reside in a federally declared disaster zone, you have an automatic extension of time to file and pay. If you reside in Maine or Massachusetts, your tax deadline is Wednesday, April 17th.

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Bozo Tax Tip #6: My Business Is Online So I Don’t Have to File State Taxes!

April 5th, 2024

Ralph (not his real name) formed a virtual business–a quite common activity these days.  Perhaps he sells products (using Amazon or another large fulfillment company to do the actual movement of goods), or maybe he has a consulting practice or other service without a “real” office.  Ralph resides in Denver, Colorado.   His business is a Limited Liability Company formed in Colorado.

Ralph was not pleased to find that his LLC needed to file Colorado returns.  He has employees–one in New York, one in Fresno–so he has to file New York and California tax returns, too, for the LLC; many states have a rule that if you have one employee you’re doing business in that state.  Ralph’s doing a lot of business, too; he may have sales tax filing requirements in many states.  You ignore state taxes at your own peril.

Now, it is possible to not have a state tax filing requirement for a business.  My business (which is an LLC) is 100% in Nevada, a state with no state income tax.  We do file payroll tax returns with the Nevada Department of Taxation, and we also are required to file a Use Tax return, but Nevada has chosen not to have many taxes that other states do have.  That’s a legal way around state taxation at the business level.

Ralph didn’t like what I told him, and he’s not a client.  He will find out sooner or later that ignoring state tax filing requirements is definitely a Bozo choice.

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Bozo Tax Tip #7: Anger Your Tax Professional!

April 4th, 2024

If you are a tax professional living in Las Vegas, and you’re interested in working for me for the 2025 Tax Season (2024 tax returns filed in 2025)–or you are in Las Vegas and you’re interested in becoming a tax professional–we may have an opening for you.  So why am I starting a post in regards to Bozo Tax Tips with my possibly expanding my staff for 2025?

The reason is the “Great Resignation.”  The tax professional community skews older in age: I saw a statistic that the average age of a tax professional is 57 1/2.  Finding good tax professionals is not easy (indeed, hiring in any profession isn’t easy), and I’m blessed to have the staff that I do.

From February 1st through the date this post is being written (March 10th), I have been averaging over an inquiry a day into using our services.  Indeed, my next available appointments are in May!  From talks with my friends in the business, they’re seeing the same things: not enough staff, and demand through the roof.

This equates to a seller’s market.  Our rates have increased over the last few years (and will likely increase for next year).  The law of supply and demand holds in every industry: if supply decreases and demand increases, prices go up.  Yes, you’re going to pay more.

So let’s get back to the title of this post: angering your tax professional.  Those who have met me know my salt and pepper hair is now mostly salt.  I enjoy what I do, but I do not enjoy (and have never enjoyed) dealing with misanthropes.  Given the high demand, your tax professional almost certainly feels the same way.  Every year, tax professionals send letters to clients who are about to become former clients because they’re either no longer a fit for them or the tax professional cannot make a profit from them (because they require too much time or will not pay what the tax professional believes to be a fair price).  I’ve sent these in the past, but I never enjoy doing that.  I’m vowing to send some at year-end unless conditions radically change.

The average tax professional is very stressed out.  Dealing with the IRS has been a disaster for the last few years.  The pandemic hasn’t helped in any way.  Congress (and the IRS) have added new regulations and forms (e.g. Schedules K-2/K-3) that add tremendous busy work with little gain.  My Office Manager recently saw me blow up (and I rarely do that).  I have marked a client that he is getting a “Dear Former Valued Client” at year-end because of what he put me through.  (I’d like to send one to Congress, too, but I can’t do that.)

So do not anger your tax professional…unless you want to find a new one.

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Bozo Tax Tip #8: No Tax Form, No Income!

April 3rd, 2024

Two years ago I was speaking with a new client:

“Russ, I just found out that I don’t get a tax form for the income I earn. That means I don’t have to report it, right?”

This individual is filing his first tax returns. He just graduated college, and is self-employed. He (thankfully) did keep good books and records, but no one sent him a 1099-NEC (several businesses should have) so his uncle told him he didn’t have to report anything.

Yes, the US has a ‘voluntary’ tax reporting system, but here voluntary doesn’t mean you can skip income without paperwork. A better word than voluntary is “self-reporting.” We self-report our income, and the fact that tax paperwork isn’t sent for everything is one of the causes of the tax gap. As I explained to my client, all income is taxable unless Congress exempts it. Congress didn’t exempt his self-employment income (indeed, it’s over $100,000). I asked him if he might want to buy a home in the next two years (which I already knew he did want to do). I asked him how he was going to qualify for a mortgage without tax returns filed showing income.

I explained to him that his uncle was correct in that many individuals do receive income ‘under the table’ and don’t report it. I also explained to him that not filing a tax return when you have income is a crime, and you can go to ClubFed for it. It’s a lot easier to file and pay your taxes and sleep peacefully at night then to do the opposite. My client agreed, and his return was filed.

Of course, for those who want to live on the edge you can: Ignore income that doesn’t come with tax paperwork. You may want to remember that if you’re ever audited the IRS might just do a bank account analysis and wonder where those deposits are coming from.

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Bozo Tax Tip #9: Ignore California!

April 2nd, 2024

As we continue with our Bozo Tax Tips–things you absolutely, positively shouldn’t do but somewhere someone will try anyway–it’s time for an old favorite. Given the business and regulatory climate in California, lots of businesses are trying to escape taxes by becoming a Nevada business entity. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation (or LLC) operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation (or LLC) is a California corporation/LLC, a Delaware corporation/LLC, or a Nevada corporation/LLC.

Now, if you’re planning on moving to Nevada forming a business entity in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada entity is, well, bozo.

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Bozo Tax Tip #10: Email Your Social Security Number or EIN!

April 1st, 2024

It’s time for our annual rundown of Bozo Tax Tips, strategies that you really, really, really shouldn’t try. But somewhere, somehow, someone will try these. Don’t say I didn’t warn you!

This is a repeat for the eleventh year in a row, but it’s one that bears repeating. Unfortunately, the problem of identity theft has burgeoned, and while the IRS’s response has improved, that’s just an improvement from awful to mediocre.

I have some clients who are incredibly smart. They make me look stupid (and I’m not). Yet a few of these otherwise intelligent individuals persist in Bozo behavior: They consistently send me their tax documents by email.

Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number.

We use a web portal for secure loading and unloading of documents and secure communications to our clients. As I tell my clients, email is fast but it’s not secure. It’s fine to email your tax professional things that are not confidential. That said, social security numbers and most income information is quite confidential. Don’t send those through email unless you want to be an identity theft victim or want others to know how much money you make!

If I send an email to my brother, it might go in a straight line to him. It also might go via Anaheim, Azusa, and Cucamonga. At any one of these stops it could be intercepted and looked at by someone else. Would you post your social security number on a billboard in your community? If you wouldn’t, and I assume none of you would, why would you ever email anything with your social security number?

A friend told me, “Well, I’m not emailing my social, I’m just attaching my W-2 to the email.” An attachment is just as likely to be read as an email. Just say no to emailing your social security number.

The same issue holds for a business’s Employer Identification Number (EIN).  These should be treated like your individual social security number: send them using only a secure method.

If you’re not Internet savvy, hand the documents to your tax professional or use the postal service, FedEx, or UPS to deliver the documents, or fax the documents. (If you fax, make sure your tax professional has a secure fax machine.) If you like using the Internet to submit your tax documents, make sure your tax professional offers you a secure means to do so. It might be called a web portal, a file transfer service, or perhaps something else. The name isn’t as important as the concept.

Unfortunately, the IRS’s ability to handle identity theft is, according to the National Taxpayer Advocate, poor. So don’t add to the problem—communicate in a secure fashion to your tax professional.

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