SacBee Article

On Saturday, my tax franchise and I were featured in the business section of the Sacramento Bee. In case you missed it I have included a quote below. You can also check out the online version of the article.

“Sacramento-area tax attorney Roni Deutch has launched more than 170 Roni Deutch Tax Center franchises across the country, mushrooming beyond the 17 centers she debuted in a nationwide opening in January.

Long known as the ‘Tax Lady’ through her tax resolution legal practice and her many television appearances, Deutch stepped last year into a U.S. accounting and tax preparation market worth upward of $65 billion.”

Tax Season Do’s & Don’ts

Do - File Something
You must file a return with the IRS before April 15. If you do not then you will face penalties and fees that will eventually catch up with you. Even if for some reason you cannot file a return, at least file for an extension using IRS Form 4868. If you are likely to owe the IRS money, also consider sending in a payment to avoid additional fees.

To become eligible for benefits under the economic stimulus package, you need to file a return this tax season – even if you do not normally file a return. The IRS is going to determine the names and addresses of those eligible for a stimulus check based off this year’s tax returns. Therefore, if you do not file a return you will not get up to $600 in payments.

Don't – Omit Any Income
One of the biggest mistakes taxpayers make when preparing their returns is to omit part of their income. Remember that the IRS requires you to report all income including wages, business profits, interest, dividends, capital gains, pensions, tips, and even gambling winnings.

Do – Seek Help
If your taxes are too confusing or you simply have a question about your return, then do not be afraid to ask for help. There are accountants and tax preparation offices all over the country to prepare your return for you. Most will answer simple questions for you over the telephone.

Don’t – Get Audited
Technically you are always at risk for an audit since there is a random element in the IRS’ audit selection process. However, below are five red flags you can avoid to decrease you chances of getting an audit.

1. Drastic changes in income
2. Too many charitable contributions
3. Excessive amount of credits taken
4. Inconsistencies between previous returns
5. Reporting a suspiciously low income

Do – E-file
If you are going to file your return yourself then you should e-file. Studies show that people who e-file make fewer errors. You will also have confirmation from the IRS within a few days of receipt of the return. Additionally, if you chose to have your refund direct deposited, then you will receive it in as little as 10 days.

Don’t – Throw Away Documents
Just because you have sent your return to IRS does not mean it is ok to throw away your important forms, records, and receipts. If you are ever audited you will need all of these documents. Please make sure to store them in a safe place.

Do – Save Your Refund
Although most taxpayers look at a refund from the IRS as “free money,” the smartest thing you can do with your refund is use if to pay off high interest debts. The average household has nearly $10,000 in just credit card debt and most Americans either have a home mortgage or an automobile loan. Instead of wasting your refund on something useless why not pay extra on one of these lines of credit?

Happy St. Patricks Day

LA Times: How to Avoid a Tax Audit

Yesterday, I was quoted in an article for the Los Angeles Times on IRS tax audits. Below is a short quote from the article, to read the full version check out "How to avoid a tax audit, and how to prepare for one."

You can take some comfort in the fact that audits are remarkably rare, hitting about 1% of taxpayers each year. However, the rate is rising, and if you happen to pull a few audit triggers, your chance of getting that ominous letter or phone call from the Internal Revenue Service can soar tenfold or more, experts say.

"I am hearing about more audits than I ever have," said Roni Deutch, a tax attorney in Northern California who has been practicing for 17 years. "People will try to alleviate your fears and tell you that an audit is not a big deal. It is a big deal. It's like having a root canal without Novocain."

The number of returns audited by the IRS jumped 7% last year to 1.38 million, up from 1.29 million in 2006.

MLB Files Incorrect Return

According to TaxProf.org and Street & Smith's Sports Business Journal there are some potential problems with the Major League Baseball’s October 2006 Tax return.

"MLB did not include the compensation amounts for its other top officers in its most recent return. The names of MLB President Bob DuPuy and four executive vice presidents are listed but without pay totals. Those numbers appeared in prior MLB tax returns, with DuPuy pulling in a total of $4.875 million in the 2005 fiscal year.

Nonprofit tax experts said such omissions are not permissible under the current tax code. "The [tax return] instructions just couldn’t be clearer. The compensation of the officers, directors and key employees must be disclosed in the return," said Marcus Owens, former director of the IRS’s exempt organizations division and currently an attorney with Caplin & Drysdale in Washington, D.C., representing a variety of nonprofits.

Said DuPuy of that assessment, "We respectfully disagree."

Leaving out officer compensation in Part 5-A of the nonprofit return could be considered an incomplete return and could subject MLB to fines up to $50,000 per year from the IRS, Owens said."

“Hi, I’m Roni Deutch!”

While, it is nice to get noticed, the "flickering bale light of hell" is a bit much.

IRS New CADE System Processes 15 Million Tax Returns

According to the IRS, one quarter of all individual tax returns so far this tax season are being processed by the IRS’ new, modernized computer system. It is called the Customer Account Data Engine, or CADE. It has already successfully processed over 15 million individual tax returns, or 25 percent of all those processed so far this year.

"This system is the centerpiece of our modernization efforts at the IRS," notes Richard Spires, IRS Deputy Commissioner for Operations Support. "CADE is handling significantly more tax returns each year. The long-term investment in this program is paying off with meaningful results for the American taxpayer."

CADE, which is at the core of the effort to replace many of the agency’s aging systems, dramatically speeds up internal IRS processing, permitting taxpayer accounts to update on a daily basis. The older system updates only on a weekly basis.

"This supports better customer service for the taxpayers, processes refunds quicker and helps the IRS better administer the nation’s tax system," continued Spires.

Today’s Tax Reads

World Central banks unite to help ease current credit strain.

Are State gasoline taxes the best source of highway revenue?

IRS announces 2008 low-income taxpayer clinic grant recipients.

U. S. Senate holds hearing today on federal estate tax alternatives.

The Wall Street Journal examines Obama’s plan for fixing social security.

IRS using every trick in the book to track down those eligible for an economic stimulus check.

12 Days Of Taxes

I am excited to announce the launch of 12DaysOfTaxes.com, a new site that will showcase some of my employees celebrating the 12 days that lead up to tax day. Although the full site will not be up until April 4, they posted the following short teaser video.



For more information check out 12DaysOfTaxes.com and signup for the newsletter.

Tuesday Linkage

Wealthy Americans using inflated art appraisals to gain millions from excessive deductions.

A few things to consider when deciding weather to e-file or not.

Tax court rules against deductions for getting a Harvard MBA as an educational expense.

Reasons why everyone should file a tax return this year, even if you normally do not.

Medical expense deductions for embryo and cord blood storage.

Interest rates drop for the second quarter of 2008.

15 Tax Blogs Worth Reading

IRS Claims E-Filing off to a Strong Start

The IRS announced that e-filing is off to a great start this tax season. So far, over 38 million returns have been electronically filed. This represents a 5 percent increase from the same period last year, with double-digit growth coming from taxpayers filing from their home computers. More than 12.3 million returns were filed from home computers, which is an increase of almost 14 percent from the same time last year.

“E-filing continues to be the preferred way to file your tax return. It is the fast, easy, safe and more accurate way to file your tax return,” claimed IRS Acting Commissioner Linda E. Stiff.

As for the total amount of all refunds, $106.7 billion has been issued so far in 2008 with the average refund amount of $2,708, up two percent from the same time last year. So far this year, the IRS has directly deposited 33 million refunds out of the total of 39 million refunds. The direct deposit refunds were valued at just over $96 billion with the average amount of a direct deposit refund of $2,900.

10 Ways to Avoid Back Taxes this Tax Season

Follow these 10 simple steps to make sure you do not owe IRS back taxes after you file your tax returns this tax season.

1. Claim the right filing status

Make sure that you claim the correct filing status. Do not claim something different in order to get a bigger refund such as claiming "Head of Household" when you really should file as "Single". Alternatively, if you are married you should consider filing jointly to lower your total liability.

2. Make sure your math is correct

Always triple check the math in your income tax returns, even if you have them professionally prepared. For the most part the IRS will fix all simple math errors, but problems can arise if you have the wrong numbers listed for income or deductions that lead to an artificially inflated refund.

3. Include income from ALL sources

Make sure that you include income from all sources on your tax return. This includes regular wages, self-employment earnings, tips, independent contract work, child support, alimony, etc. Trying to hide income from the IRS is a big mistake as they have access to mass amounts of information and can determine your exact earnings for each year.

4. Remember winnings from gambling

All the money you win from gambling must be treated as income. However, you can deduct any money you lost at gambling from your total. For more information on taxes and gambling, check out “How to Accurately Reporting Gambling Profits & Losses To The IRS” on the RDTC Tax Help Blog.

5. Do not over exaggerate charitable contributions

In recent years, the IRS has been cracking down on taxpayers that abuse the charitable contribution deductions. Make sure that you only claim contributions that you can document with some type of proof. Also, do not over inflate the donation amount as excessive donations send a huge red flag to the IRS’s audit department.

6. Mail to the correct address, or e-file

Before popping your tax return in the mailbox, make sure that you are sending it to the correct address. If you mail your return to the wrong address it can get lost and result in unnecessary IRS fees or penalties. Fortunately you can avoid this potential problem completely by e-filing your return.

7. File on time, or request an extension

It is essential that you file your tax return on time or at least request an extension from the IRS. If you just ignore tax day then you will be unhappy when you realize what it will cost you. If you cannot file on time, visit “Need More Time to File?” on IRS.gov.

8. Forgetting to pay taxes on time

If you do owe money to the IRS then you must pay it before the April 15 deadline. Not paying does not mean your debt will magically go away. Instead it will begin accruing fees and penalties. To pay your taxes enclose a check with your tax return and write your Social Security number, tax form number and tax year on it.

9. If you notice any errors, re-file immediately!

If you notice an error on your tax return, you should file an amended return as soon as possible. If you wait for the IRS to catch your error then you will likely be faced with fees and penalties in addition to the owed back taxes.

10. Make immediate adjustments to withholding or estimated tax payments

Okay, okay, I will admit, this has more to do with 2008 than this year. However, after preparing, filing, and paying your 2007 federal income taxes, you need to take the information from the return and put it to immediate use. If you ended-up owing taxes, you need to adjust your withholdings and/or start making larger estimated tax payments. If you end-up with a very large refund, again, you may need to adjust your withholdings or estimated tax payments. That way you will receive that refund immediately in your regular paychecks. You could then take that money and put it to good use in wise investments or replenish your savings.

Also, if you do owe for 2007 and will need to work with the IRS at resolving your IRS tax debt (instead of paying in one lump sum), you will be required to make adjustments to your withholding and/or estimated tax payments. That is because the IRS is unwilling to work with taxpayers until they have taken steps to ensure that they will not owe again in the future. Higher withholding taxes and/or estimated tax payments are also allowable expenses, which is important in qualifying for some forms of IRS tax debt resolution (i.e. Offer in Compromise, Installment Agreements, Currently Not Collectible status, etc.).

Other Countries Have Simpler Tax Systems

The Tax Foundation Tax Policy Blog has an interesting article on how other countries around the world are taking steps to simplify their tax systems. Additionally, some of these countries are greatly lowering their corporate tax rates, while the United States corporate rates remain the second highest in the industrialized world at 39.3%. According to the entry, the following countries are taking the actions listed:

• Poland may adopt a flat tax
• Iceland and Taiwan to cut corporate tax rates
• People leaving Ireland due to high personal income taxes
• Hungarian government considers a flat tax
• Kuwait cuts corporate tax rate
• Swiss canton adopts flat tax

For the full entry check out More Countries Move to Simpler, Lower Taxes.

IRS Reminds Farmers & Fishermen They May Have Until March to E-File

The IRS published a release reminding agricultural taxpayers, including farmers and fishermen that they may need to wait until March 3rd to e-file their tax return. According to the IRS, any taxpayer who files Form 1040 returns with Form 4136, Credit for Federal Tax Paid on Fuels, will have to wait.

"Normally, 1040 filers who are farmers or fishermen are not required to make an estimated tax payment if they file their return and pay all taxes due by March 1," claims the IRS. "But this year, because March 1 falls on a Saturday, the date extends to Monday, March 3. For eligible farmers and fishermen who attach Form 4136 to their Form 1040, the return will be considered timely filed with all tax paid if the return is e-filed and accepted on or before March 10 and all tax due is paid on or before March 10."

The IRS expects this delay to affect about 77,000 farmers and fishermen who electronically file Form 1040 with Form 4136 in the early weeks of the filing season. For more information, please visit www.IRS.gov.

Clinton, Obama, & McCain: The Good, Bad, & Ugly Candidate Tax Views

As the primary elections continue across the United States, I am keeping to my commitment to getting the candidate’s tax views more attention. So much attention is being placed on superficial topics that taxes are taking a back seat. Taxes and the economy will probably become a popular topic in the general election, but I strongly encourage every one to think taxes now! Read up on the candidate’s respective websites, and check out neutral information sources like SmartVoter.org.

At this point in the game there are only three major candidates left in the race. Each have quite different tax views. Below are the good, bad, and ugly tax views of each major remaining candidate.

Hilary Clinton

The Good

Let Bush’s Tax Cuts Expire

Ms. Clinton adamantly claims that the middle class has been ignored by the current administration and seeks to strengthen and grow the middle class and restore the basic bargain: "if you work hard and do your part, you can build a better life for yourself and your family." One method of doing so would be to let the Bush tax cuts expire. This may be a controversial view, but most liberals will agree that it’s essential for the improvement of the American economy. These tax cuts only go to the extremely wealthy individuals in the country and do nothing for the hard working American class. Although some argue that cutting taxes for the rich stimulates the economy, since these tax cuts were enacted the national debt has only increased. Most Americans are quick to judge any tax increase because no one likes paying more in taxes. However, I doubt any one reading this blog would be affected, as letting Bush’s tax cuts expire would only raise taxes on the super rich.

The Bad

Maintain Current Social Security Cap

Clinton supports retaining the current income cap on the Social Security tax, which is a good idea. Currently income over $102,000 is not subject to taxation from the social security tax. Therefore the top income earners do not pay the social security tax on their full income. Increasing the limit on the social security cap, or removing it all together, would create millions of dollars in additional federal revenue.

The Ugly

Mandatory Health Insurance

With heath care issues on the top of every one’s mind Clinton recently proposed the "American Health Choice Plan" which revolves around an individual mandate requiring everyone to have health insurance. Her plan would give more choices to taxpayers seeking health insurance without quite making it universally available through he federal government. Clinton claims her program would cost about $110 billion per year, but has not yet given any specific information on how the plan would be funded. The concept is not so bad on it’s own, but the lack of funding information makes this an ugly tax view.

Barack Obama

The Good

Tax Wealth More Than Regular Wages

One of the tax cuts enacted by President Bush was to drop the tax rate on capital gains from 20% to 15%. This was another tax break that specifically targets the wealthiest in this country who do not earn wages, but rather live off of investments and accumulated wealth. There’s no reason that capital gains should be taxed so much less then regular wages, and Obama agrees. By raising the tax back to 20% some studies estimate that an additional $100 billion in revenue could be generated for the federal government.

The Bad

New Tax Credits

Obama's tax plan features a prominent "Making Work Pay" credit that would offset federal taxes on the first $8,100 of a taxpayers earnings. It would essentially generate a credit of up to $500 for single persons or $1,000 per family. According to Obama this credit would eliminate income taxes for at least 10 million low-income Americans. The idea of lowering taxes for low paid working Americans is considered great by many liberals, but there isn’t really a need for a new credit to accomplish this. Instead, why not expand the Earned Income Tax Credit or the standard deduction amount rather than trying to get a new credit passed by codgers.

The Ugly

No Taxes For Senior Citizens

One of Obama’s tax proposals is to eliminate all federal taxes imposed on senior citizens making under $50,000 per years and not requiring them to file tax returns. This may be a good way to get the senior vote, but it’s much more complicated than it seems. First of all, senior citizens often have income from multiple sources including capital gains, dividends, Social Security, retirement plans, etc. Determining their exact income would still require the same effort as filing a tax return. Additionally, this plan gives special tax treatment to a group if individuals based solely on their age, which seems like borderline age discrimination. Why should a struggling single mother have to pay taxes on her $49,999.00 income when a retired grandmother would pay noting on the same income amount?

John McCain

The Good

Investment Tax Cuts

McCain is a strong supporter of lowering taxes to encourage economic growth, which is the dominant economic stance of the Republican party. Not only does he support renewing the Bush tax cuts, but he also favors numerous tax cuts. McCain hopes to reduce taxes on Capital Gains, Interest, Dividend, Investment income, and even corporate tax rates. And as if his tax cuts weren’t enough, McCain also supports a new rule that would require a 3/5-majority vote to raise taxes. In summary, McCain is a strong supporter of permanent tax cuts, and the Republicans love him for it.

The Bad

Continued War Funding

McCain is a strong supporter of the American military and the "War on Terror," with promises of a continued military presence in Iraq. According to his website, he believes that the answer to our current national security problems is to not "roll back our overseas commitments," but to increase the size of our Army and Marine Corps and continue the current War on Terror. McCain has recognize there is a problem with current military spending but has not provided any information on how to continue the military efforts while lowering the current $12 billion-per-month budget.

The Ugly

No Pledge Against Taxes

Although liberals typically support raising taxes to stimulate the economy, this view is very unpopular among republicans. McCain is one of the only republicans who ran for president this year who declined to sign the pledge put forth by Americans for Tax Freedom not to impose any new taxes or increase existing taxes. The conservative wing of the Republican Party are almost always against increasing taxes and this lack of a commitment could hurt his chances of winning the presidency.

Economic Stimulus FAQs

There has been a lot of confusion lately about the recently passed economic stimulus package. To help sort out the bewilderment about these rebate checks, the tax professionals at the Roni Deutch Tax Help Blog have composed answers to the following rebate related FAQs.

1. How are the rebate amounts determined?
2. How will the "reduced rebate" work?
3. Who will qualify to receive a "reduced rebate"?
4. Who will NOT qualify to receive a rebate?
5. Do I need to apply for the rebate?
6. What if I only have Social Security income and no tax liability?
7. When will I get my check?
8. What if I filed as Head of Household or Married Filing Separately?
9. Will the rebate delay or impact my 2007 tax refund?
10. Will I be taxed on my rebate check?
11. Will this rebate cut into my 2008 refund?

You can check out the full entry, including answers, by check out Economic Stimulus Package: Clearing Up Any Confusion on the Tax Help Blog.

IRS Now Processing AMT Affected Returns

Yesterday afternoon, the IRS announced that they have begun officially processing the five tax forms that were affected by the last minute AMT legislation. On Monday, IRS systems began to unofficially accept and process returns that include the five affected forms. After several days of processing, the IRS has confirmed that their systems are in fact working properly.

Back in December, the IRS announced that they would have to delay the processing of several AMT affected tax forms. However, for most people the filing season this year began on time. Only taxpayers whose return included the five affected forms were forced to wait.

The affected forms include:

• Form 8863, Education Credits
• Form 5695, Residential Energy Credits
• Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers
• Form 8396, Mortgage Interest Credit
• Form 8859, District of Columbia First-Time Homebuyer Credit

World’s Dumbest Taxpayer

An Oregon man trying to pay his taxes in cash led to the state’s largest marijuana bust in over 10 years after a tax clerk smelt marijuana on the money.

According to the Associated Press, in Oregon, the Benton County sheriff's department arrested a man for trying to pay a tax clerk his tax liabilities with $600 in cash. Paying your taxes in cash is not usually considered illegal – however, the bills this gentlemen used apparently smelled like marijuana.

The concerned tax worker reported Eric Brian Michaelis to the Benton County sheriff’s department who then discovered over 230 marijuana plants inside Michaelis’ home. Deputies found plants in almost every room in his house, some reportedly over four feet tall. They also discovered a back-up generator that could be used to power "grow lamps" in the case of an electrical power outage.

"It's safe to say that it's at least the biggest indoor marijuana bust in the last 10 years," claimed the Chief Deputy District Attorney Chris Stringer.

Mr. Michaelis was arrested and forced to turn over $65,000 in cash that was seized in his house. He was also sentenced to 16 months in prison. However, there was no mention as to whether his original $600 payment was accepted or not.

As we get closer and closer to tax day stories that mention taxes are gaining popularity. Usually these articles talk about humorous tax deductions or advice on filing your taxes, but this article really stood out and made me laugh aloud. I guess the lesson learned is that federal taxes and illegal drugs do not mix.

Tax Policy Podcast with Taxpayer Advocate Nina Olson

The Tax Foundation Blog recently conducted an interview with interview with Ms. Nina Olson, the nation's Taxpayer Advocate at the IRS. The podcast interview can be downloaded at the Tax Policy Podcast page.

In the interview Ms Olson discusses the role of the Taxpayer Advocate in protecting taxpayer rights, the independence of the office, and the annual report she submits to Congress identifying problems facing taxpayers. She also talks about the problems that both the IRS and taxpayers face when they make last minute changes to the tax code. The interview is slightly over 20 minutes, but presents tons of great information for any one interested in tax policy.

IRS Warns Taxpayers of Correct Locations

With tax season in full swing, taxpayers across the nation are beginning to file their returns with the IRS. As such the IRS distributed a press release reminding taxpayers that they may have to send their return to a different location than prior years.

If you received a booklet from the IRS then the correct mailing list will be included on the labels you receive. Additionally, taxpayers that e-file their returns will not need to worry. According to the IRS the mailing changes affect returns from seven states: Iowa, Kansas, Kentucky, Oklahoma, Pennsylvania, West Virginia, and Wisconsin.

Taxpayers should send:

• Returns from Iowa, Kansas, Oklahoma and Wisconsin to the IRS center in Fresno, California.
• Returns from Kentucky to the IRS center in Austin, Texas.
• Returns from Pennsylvania and West Virginia to the IRS center in Kansas City, Missouri.

For more information on the correct mailing addresses for the IRS centers, please visit IRS.gov.