Archive for the ‘Tax Preparation’ Category

Today *Is* the Partnership and S-Corp Filing Deadline

Monday, March 16th, 2020

During a news conference last week President Trump stated something to the effect that he was ordering Secretary of the Treasury Mnuchin to extend tax filing deadlines. That has not happened as of the moment I’m writing this.

Today is the deadline for filing S-Corporation and partnership returns (including LLCs that file as partnerships). If you have not filed your return you must file an extension today. Your tax professional can do this electronically. If you need to do it, download IRS Form 7004 (you can find the instructions here), complete it, and mail it using certified mail to the IRS. You now have a valid extension.

While the tax professional community expects the personal deadline to be extended, that has not happened yet. That means that personal returns are due on April 15th. It’s possible–indeed, highly probable–that deadline will be extended. But we all have to wait and see as to if or when that will occur.

We’re Number One!

Sunday, March 15th, 2020

I think we can all use a little levity right now, and in the email was a study from IPX1031 about where the biggest tax procrastinators are. Not surprisingly to me, it’s fabulous Las Vegas–my home.

A friend of mine is a tax professional in Orlando, and he tells me has few people who wait until September to file. Our rush in September – October is greater than the April tax deadline rush!

So where are the biggest procrastinators?

  1. Las Vegas
  2. Denver
  3. Seattle
  4. San Francisco
  5. Washington, DC
  6. Portland, OR
  7. Austin
  8. Baltimore
  9. Dallas
  10. Houston.

If we look at this based on states, Nevada is only number two:

  1. California
  2. Nevada
  3. Texas
  4. Colorado
  5. Oregon
  6. Washington
  7. Hawaii
  8. Georgia
  9. Arizona
  10. Maryland

Given that I expect an announcement in the coming days postponing the April 15th deadline (for those interested, as of today federal tax returns are still due on April 15th), I think statistics for the 2020 Tax Filing Season will be quite different.

California’s Franchise Tax Board Extends Deadlines

Saturday, March 14th, 2020

Yesterday, California’s Franchise Tax Board, the state’s income tax agency, extended the deadlines for taxpayers to both file and pay 2019 California income taxes (and 2020 California estimated taxes) by 60 days. Here is the announcement in full:

Sacramento — The Franchise Tax Board (FTB) today announced special tax relief for California taxpayers affected by the COVID-19 pandemic. Affected taxpayers are granted an extension to file 2019 California tax returns and make certain payments until June 15, 2020, in line with Governor Newsom’s March 12 Executive Order.

“During this public health emergency, every Californian should be free to focus on their health and wellbeing,” said State Controller Betty T. Yee, who serves as chair of FTB. “Having extra time to file their taxes helps allows people to do this, as the experts work to control the spread of coronavirus.”

This relief includes moving the various tax filing and payment deadlines that occur on March 15, 2020, through June 15, 2020, to June 15, 2020. This includes: 

·       Partnerships and LLCs who are taxed as partnerships whose tax returns are due on March 15 now have a 90-day extension to file and pay by June 15.

·       Individual filers whose tax returns are due on April 15 now have a 60-day extension to file and pay by June 15.

·       Quarterly estimated tax payments due on April 15 now have a 60-day extension to pay by June 15.

The FTB’s June 15 extended due date may be pushed back even further if the Internal Revenue Service grants a longer relief period.

Taxpayers claiming the special COVID-19 relief should write the name of the state of emergency (for example, COVID-19) in black ink at the top of the tax return to alert FTB of the special extension period. If taxpayers are e-filing, they should follow the software instructions to enter disaster information.

The FTB will also waive interest and any late filing or late payment penalties that would otherwise apply.  

I expect we will see a similar announcement from the IRS next week. It appears (at least for now) that the March 16th deadline for filing federal S-Corp and partnership returns will hold.

Kudos to the FTB for being proactive during this crisis.

No Face to Face Appointments

Thursday, March 12th, 2020

Taxes are a personal business, and providing service to our clients is what we’re about. That means face-to-face interactions. But I’m also an employer, and I must look at the health of my employees. Thus, beginning tomorrow we are no longer having any face-to-face meetings. We are happy to use Skype, phone, or any other interaction for any scheduled appointments. We encourage all clients to use our Web Portal (we will email any of you who need that information), fax, or mail.

Will the April 15th Deadline be Extended?

Wednesday, March 11th, 2020

The Wall Street Journal has a story (pay link) this morning speculating that the Department of the Treasury will push back the April 15th deadline.  There are no specifics given in the story, but given that politicians on both sides of the aisle are talking about this, there’s a reasonable chance this will happen.

The reason, of course, is the current coronavirus (Covid-19) outbreak.  As the outbreak worsens (which, it appears, it will), there will be disruptions.  Consider tax professionals in Seattle, where a large number of individuals have fallen ill.  Do you want to meet with someone right now, especially given asymptomatic individuals can spread the disease?  And for those who are ill (or are treating family members, or who have to deal witch their children who are now home on an extended ‘break’) they have more important things to deal with.

It’s something I, as a business owner, have to deal with.  We wash our hands after seeing someone, but let’s face reality: we operate in close quarters.  If one of us gets this, it’s likely that all of us in the office would get this.  As for working at home, that’s near impossible for our office given the technology infrastructure we use.

I had initially thought we would see a larger number of extensions (and it’s something I think still could happen).  I now suspect we will see this extension–probably something similar to the automatic two-month extension given to individuals outside the United States on April 15th.  Whether it will include a waiving of interest is to be determined.

I’ll close with something that’s obvious.  This week long-time clients called me and said they had colds, and wished to postpone their appointment.  We fit them in in two weeks.  If you’re sick, use some common sense (be it a cold, the flu, or anything else): Don’t take actions that will infect others!  We have a rule in our office that if you have a fever, you go home, and you cannot come into work until 24 hours after the fever has broke.  If all of us use some common sense and good hygiene, we will likely whether this storm with minimal damage.

The Case of the Missing K-1

Wednesday, February 19th, 2020

John and Mary Smith came by my office yesterday. “We normally get to you in June,” Mrs. Smith told me, “but this year we have everything so we’d like to file today.” Well, they had almost everything.

Unfortunately, there was one K-1 from a partnership that they didn’t have. They own about 2% of a rental property; their share of income has been around $100 every year. Mrs. Smith pulled out her cellphone and called her uncle (who is responsible for the K-1) and asked when it’s coming. I could only hear her end of the conversation, but the response of “August” wasn’t what she wanted to hear…especially since the Smiths are getting a $2,000 (or so) refund from the IRS.

“Can’t you just file the return using an approximation for the K-1? After all, we know the income will be about $100 because it always is.” I told them no.

I can’t knowingly sign an incorrect tax return. We don’t have the K-1, and while it has been $100 of income for the last several years (and her uncle estimates $100 for this year) there’s no guarantee it will be. The estimated income is fine for determining what to pay with an extension; however, it’s not acceptable for filing a tax return. This is one of the drawbacks when you participate in a partnership: You must wait for all of your K-1s before filing your taxes. If one of your investments that generates a K-1 takes an extension, you are forced to extend your personal returns.

Tax returns need to report your exact income, not your estimated income. Yes, the Smiths’ estimated and exact incomes should be similar, but “should be” isn’t good enough here.

I did give the Smiths one piece of good news after we filed their extension: When you file a return after April 15th and are getting a refund, the IRS pays you interest. Interest works both ways in tax…but that interest the Smiths will receive is taxable.

It’s Time to Panic!

Monday, September 23rd, 2019

If you use a tax professional and have not yet provided your paperwork to him or her, it’s time to panic and work on this. In past years, I’ve made this post in early October. But this tax year is different than others, and if you turn your paperwork in after the end of September, it’s quite possible your return will end up being filed after the October 15th extension deadline.

Tax returns are taking longer to prepare this year than last. We’re seeing the average return taking 10% longer than last year. Let’s assume that an average tax professional could prepare ten returns in a day; this year, he or she might only get nine done. That doesn’t sound like much, but most tax returns on extension are difficult ones, with complications.

If you file late, realize it’s as if your extension never happened. Of course, if you’re getting a refund filing late is not the end of the world: The penalties for late filing are based on the tax you owe, so if you don’t owe any tax there are no penalties.

Our official deadline for receiving paperwork was September 17th. Most tax professionals I know had similar deadlines. That means if you haven’t turned in your paperwork you’re on borrowed time. It’s time for the procrastinators out there to stop procrastinating if you don’t want to pay an extra 25% of your tax for late filing.

IRS To New York, New Jersey, and California: We Weren’t Kidding

Tuesday, June 11th, 2019

Today the IRS issued rules and guidance on charitable contributions as a workaround to the new limits on state and local taxes. Unsurprisingly, the IRS said exactly what I thought they would: both substance over form and quid pro quo apply.

There’s a fundamental rule in tax: The substance of a transaction determines how it’s taxed, not what it’s labeled. Suppose I pay you to perform services for me, but I send you a Form 1099-INT (for interest income). What I pay you is service income, not interest income, no matter how it’s labeled. Consider state taxes. Suppose a state (say, New York) offers you the ability to contribute to the “Support New York Fund” instead of state taxes. Well, the substance is that you’re paying state taxes by contributing to that fund.

Another issue is “quid pro quo;” that’s Latin for ‘something for something.’ And if you get something for a charitable contribution, that portion isn’t charity. Consider a donation to some foundation for $50 and you receive a blanket worth $10; your charitable contribution (that you can take) is $40. This rule has been around for some time. It applies to these workarounds, too.

Put bluntly, the IRS isn’t amused with the workarounds. The Tax Code is law; until Congress changes it, federal deductions for state and local taxes are limited.

Can I Disclose a Candidate’s Tax Returns?

Sunday, May 12th, 2019

Let’s say that back in 2010 I prepared the federal and California tax returns for John and Mary Smith of Irvine, California. Ten years later, Mr. Smith decides to run for statewide office. Let’s further assume I abhor Mr. Smith’s politics. Can I leak his tax returns to the Los Angeles Times? Can the Times publish the Smiths’ returns?

I, like all tax professionals, fall under the rules of Circular 230. Circular 230 basically states that I can only disclose a client’s returns with his or her permission, and that these rules protect current clients, future clients, and former clients. Federal law has more to state about this: Under 26 U.S.C. § 7213(a)(1) it is illegal for me to disclose to anyone any information about a tax return. Additionally, 26 U.S.C. § 7213(a)(3) states: “It shall be unlawful for any person to whom any return or return information (as defined in section 6103(b)) is disclosed in a manner unauthorized by this title thereafter willfully to print or publish in any manner not provided by law any such return or return information.”

So the answer to the first question I asked is easy: It is very illegal for me to disclose Mr. & Mrs. Smiths’ returns to anyone for any reason whatsoever without the permission of the Smiths.

The answer to the second question is far more difficult. While federal law makes it illegal for anyone receiving illegally disclosed tax return information to publish it, the First Amendment to the Constitution (“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”) likely overrides federal law. I have to use “likely” instead of “certainly” because there hasn’t been a case about this issue that has reached the Supreme Court.

I wrote this brief piece because of the release of information regarding President Trump’s tax returns from 1984-1995. The New York Times published this information and stated they received the information from someone who had legal access to them. It is a certainty that particular individual violated federal law and could be prosecuted. If he’s a licensed CPA or Enrolled Agent, he could lose his license; if he’s a licensed attorney, he could be disbarred. If the Department of Justice discovers the individual responsible for the leak, he or she is very likely to be prosecuted (it’s a slam-dunk case). As for the Department of Justice going after the New York Times, I highly doubt that will happen. The case is anything but a certain winner. I strongly suspect the First Amendment overrides 26 U.S.C § 7213(a)(3).

The 2019 Tax Season (Part 1): A Miserable Year

Tuesday, April 30th, 2019

This is my 19th year as a tax professional. By far, this past Tax Season was the worst of the nineteen I’ve experienced. Why? Well, there were a multitude of reasons.

First, I had a personal issue that impacted my family. For me, that was a top priority, and it caused me to miss about ten days of work since the new year began. I don’t regret that in the least–my family is important to me. Still, the timing was poor (to say the least).

Second, tax reform. My clientele is primarily self-employed individuals. Almost all of them were impacted directly or indirectly by reform. While there are no state tax issues for Nevadans, we specialize in industries rather than a geographic location, so we had to deal with lots of differences for state taxes.

Third, tax software this year was far ‘buggier’ than in prior years. Tax reform was the culprit. Many new forms were not released until 2019, so software companies had no idea how to write their code. And when Tax Season began on the normal date, that meant there was less time to test the software so we (tax professionals) were basically working with beta software.

This was especially true regarding the Section 199A deduction (the Deduction for Qualified Business Income). For simple cases, the deduction is the lesser of 20% of business income or taxable income. For most (but not all) of our clients, we knew what the deduction should be (and the software got the answer correct). However, when taxable income exceeded the income threshold ($315,000 married filing jointly, $157,500 for others), the calculation becomes far more complex. Almost all of these clients are on extension, but we did have a few clients where I had to double-check the software as I felt it was not calculating the deduction correctly. That definitely added time to our workload.

Fourth, tax reform increased the number of clients who qualified for the Child Tax Credit (or the Credit for Other Dependents). These require an interview–and an interview taxes time. It’s only (on average) three minutes a client, but if you add 100 more clients needing this interview, that’s 300 minutes or five hours lost.

Fifth, tax reform implemented due diligence interviews for clients filing as “Head of Household.” That’s a minimal number of our clients; still, that’s probably another hour lost to interviews.

Sixth, explaining returns to clients took far, far longer. The new postcard-sized forms are a joke. With the old Form 1040, arithmetic worked. If line 39 was the sum of lines 37 and 38, you could just see the result. That’s not the case any more. In various places, you have to know that a + b will not equal c, because you have to add in (say) the result of Schedule 3, too.

Seventh, withholding tables were adjusted in 2018. Many taxpayers were expecting their normal refunds got smaller than expected refunds. This was not much of an issue for our client base (again, we deal primarily with self-employed individuals) but it did have some impact. We will check the withholding for any of our clients who wish this done, and we did notify our clients last year of this issue.

Overall, we estimate each return took, on average, ten percent longer than during the 2018 Tax Season. That doesn’t seem like much, but a few minutes here and a few minutes there, and sooner or later you’re talking lots of minutes gone. In speaking with other tax professionals I heard much of the same thing (returns took longer this year than last). I like what I do (yes, there are people who like being tax professionals) and have no plans to change, but this was the first April 15th where I wondered about when I’ll retire. I feel less of that today (fifteen days after April 15th).

There were some light moments this Tax Season. First, it snowed in Las Vegas! Yes, it really did.

Then there was the unnamed individual (not a client) who told me that I was wrong, and professional gamblers can no longer deduct business expenses. He had read our new book and just knew that the tax reform bill changed the law about deducting business expenses. (By the way, a professional gambler can still deduct his business expenses. What changed is that he can no longer take an overall loss based on his business expenses.) When I told him he was wrong, he started arguing with me. I asked him if he was a licensed tax professional, or had some other background in tax. When he said no, I suggested he read the new law or speak to a tax professional. He said that two of his friends knew more about tax than any tax professional. If you’re wondering how bad information spreads, wonder no more.


We have a lot of clients on extension. If you’re one of our clients on extension, do not wait to the last minute this year. Returns are taking longer, and those deadlines are meaningful. We don’t mind you sending your work to us piecemeal; that will mean less has to be done later. I strongly suspect that there will be individuals sending us their returns to start in October whose returns we cannot complete in time.