SaraEA

My understanding is that the $200 and $500 choices are ELECTIONS, made EACH year on the tax return (or not made). They do not involve a change of accounting method, so no 3115 required. (Unless the taxpayer chooses to make the election retroactively for 2012.) Accounting method changes involve things like replacing a roof on a building, when the original asset was simply the whole building, roof and all. Now you have to separate that roof from the structure and add the new one. This is definitely a change of accounting methods.

I should have said adjustment to "qualified education expenses." Say you pay $5k for tuition etc and take the credit based on that amount. Next year after you complete the courses your employer gives you $3k. You have to go back to the prior year and recalculate the credit for $2k tuition and recapture the difference. It really is the same as adjustments to prior year expenses that appear in the box on the 1098T (like when a scholarship is paid late or a student drops a course in Jan that was paid for in Dec).

If you claim an education credit one year and then get an adjustment to the tuition it was based on, you have to recapture the credit the year the adjustment was received. It's a pain--you have to go back to the original year and recalculate the credit based on the lower tuition amount, subtract that from the credit originally taken, and pay the difference back on the current return. In any case, do not amend the original. Isn't there some rule that online schools have to have a physical campus somewhere to be eligible institutions for the ed credits?

Only the custodial parent gets to claim the child care credit. This is true even if he or she does not claim the exemption for the child. This is one area where IRS rules actually make sense. The custodial parent needs child care so s/he can go to work. The noncustodial parent can come and go as s/he pleases and doesn't need someone to watch the child while working. And yes, the credit is based on a maximum of $3k for one child, $6k for two or more. AGI determines how much the credit is, ranging from 20-35% of the cost of care. So if the custodial parent makes over $43k, the most s/he will get is $600 credit no matter how much was spent. I know, where has Congress been? They increased the amount allowed for each child to $3k in 2001 (before that it was $2400). One cannot find good child care at those prices, or even horrible child care. "the exspouse paid his share of expenses from his business account." Gotta love it. Can't imagine what expense he charged it to. Be glad you aren't doing his taxes.

Our office is fairly paperless, but not when the return is in progress. We keep the client docs with the return until it is completed, then scan them and give them all back to the client when the return is picked up. This way you can mark right on the document that each number has been double checked, or put a sticky that this particular doc hasn't been entered yet because you need further info or to do more research. We track all returns with a cover sheet (yes, a physical piece of paper). Docs that are brought in with appointments, mailed or emailed in get attached the the sheet, which lists the client name, contact info, date received, and who is working on it. There are lines on the bottom for the preparer to list questions, missing info, etc. There are also places to put the fee, method of payment, whether 8879 has been signed, whether 8453 has to be mailed, that the return has been placed in our electronic file cabinet, that it has been efiled, whatever. When efile has been accepted, the sheet is scanned and shredded. The sheet is essentially our record of everything and serves as a tracking system. The sheet is filled out for every client. If it's an appt at your desk and you finish the return on the spot, it goes into the "efile" tray, then the "awaiting acceptance" box, then to the scanner and shredder. No way to forget any of these steps because that piece of paper is somewhere in the line. For drop-offs and mailed in returns, the sheet goes on top of the client docs. In my office the whole thing then goes into my in box. If I get to work on them and find I'm missing info, I contact the client and put everything into my "need info" box. When done, I give everything back to the client and put the sheet into the "efile" tray, or into the "wait" tray (need sigs or payment). I'm making it sound more complicated than it is. Basically, in my private office I have an in box and and "waiting for info" box. The office manager has a "ready to efile" box, a "hold" box because we need sigs or money (or just want the client to have a few days to think it over), and a third box for efiled returns awaiting ACKs. The routing sheet makes all these rounds. Once efile is accepted, the sheet goes to the "scan" box in the receptionist's office, then into the shredder. You can see everyone's workflow just by looking at the size of the in box or need info box. Both are always overflowing!

The speaker at a seminar I went to last week said virtually all policies sold in the US are now compliant with the ACA requirements. Remember all the flack about the President saying "If you like your policy, you can keep it," and then so many policies being cancelled? Those policies were not compliant, which is why they couldn't be renewed. Speaker said this is one area of the ACA we don't have to worry about--if they have medical insurance, it's compliant (or grandfathered). We just have to be sure it's health care insurance, not something like dental insurance or AD&D.

It's already started folks. In our office, and I'm sure in yours, all summer long you and/or clients have gotten IRS letters stating "Thanks for responding to our CP2000. We need another 45 days to review the materials you sent and will get back to you then." Then before 45 days have passed the client gets another notice about another 45 days. By law the IRS has to respond within 30(?) days, so their response is a letter saying they need more time. Real people have to review the materials showing they rolled over that IRA distribution, or the kid really went to college, or whatever. There aren't as many real people to do that anymore, so they are keeping the USPS in business. Not to mention confusing and scaring our clients. People are understandably upset when a letter from the IRS shows up in their mailbox, so they call us. We read the letter to them: "All it says is the IRS needs more time." "Oh, I read that, thank you so much." Wastes our time, freaks the clients out, and how about the poor IRS agents who now have caseloads stretching months away but have to meet legal deadlines? Is Congress nuts???

Got a call from a client today who got a postcard reminding her that she will be getting a 1095A which she will need to file her 2014 return. As I talked with her I realized the problem wasn't with her confusion over the form. She was divorced last year and got subsidized insurance for the rest of the year through the exchange. This year she called the navigator to sign up again and mentioned the alimony she will be receiving in addition to her wages. The navigator told her alimony doesn't count and signed her up with the same income and same subsidy. I've been to a lot of classes on this and just figured I probably missed some of the finer points so I read the regs. Guess what? Alimony sure does count. MAGI for this purpose doesn't subtract anything but adds back tax-exempt interest, any foreign income excluded, and the nontaxable portion of Social Security. Did the navigator confuse alimony with child support? I have no idea, but these folks are obviously not as well trained as we hoped. Another fine point is that "household income" includes SS that children collect (not SSI though). We are so used to reviewing that form and just telling the client the child doesn't have to file. Well, that income counts when calculating the amount of subsidy the family can get (or will have to pay back). This tax season ain't gonna be pretty.

I checked the IRS website and found nothing about withholding the AOC credit so I did a Google search. Best I could find is that no one could determine that this really came from the IRS. There was a blog that stated the agency was angry with Iowa State for leaking this but it was definitely not first person. None of the professional associations and CPA groups have reported this, so I imagine they can't verify it either. Seems like a rumor to me.

I got a little clarity on this at a seminar this weekend. (Note I said a little.) The rules in effect when you expensed/capitalized an item are still applicable, so no need to change accounting methods. The new regs are effective Jan 2014 but can be elected for 2013 and 2012. If you choose to do that a 3115 will be needed. The $500/$5000 election to write off acquisitions as current expenses is an ELECTION, made on the tax return each year. No 3115 needed (unless you choose to apply these rules to 2012 and/or 2013). And you don't have to take the election if, for example, the client had a bad year in business and doesn't need it. I believe but am not as sure that the same thing goes for building systems and spare parts. You must use the new regs for 2014 forward but don't have to change anything for prior years. There is still a lot of controversy over this, with some lawyers talking about suing already and the accounting associations are not all in agreement. We must wait for clarification from the IRS to be sure. My reading of the regs is that anything that is an election does not require a 3115. Now we just have to figure out which are elections and which are mandatory.

Quickfinder has better cartoons than Tax Book! Anyone notice that in the past couple of years QF doesn't give you the full scoop anymore but refers you to other QF books (Depreciation, Tax Planner, etc)? We always get Individual and Business volumes for the office, but lately that isn't enough.

24. But the realtor told me I can deduct all my closing costs. (I'd love to lock all those realtors in a room and not let them out until they get it.)

I too am greatly disappointed that Pub 17 will not be available in print this year. I always keep a copy on my desk. When a client seems uncomfortable when I say he can or can't do something, I pull out the pub and read the rules. This is the one place where they seem to be in plain English so the clients can understand the veracity of what I told them. Also very well indexed so it's easy to find what you want, and you can put stickies on the pages you use a lot. I will not print out 300 pages. Just like I won't print out my bank statements. Why spend my dime and time when I'm the customer? My taxes help pay the IRS budget; they should jump when I ask.

Terry, I am impressed that you recognized and gave credit to the accuracy of the prior CPA's work. It seems that in this business when we get a new client, our approach is to look for what the prior jerk did wrong and then post all over the place about how many returns we've had to correct that were done by CPAs, EAs, chains, everybody but us. You gave credit where due, which attests to your professionalism. We had a client who left a year or so ago and came back because he was disgruntled with his new CPA. From what I could tell, their work was impeccable. I was really impressed that their notes and computations made it possible for me to determine where they had come up with different numbers. The guy has an amazingly complex return--big Sch C business, several rentals in an LLC, etc., yet I could follow their workpapers with ease. They even corrected something we had done wrong in a prior year (guess we didn't ask if one was a commercial or residential rental), and they knew some odd things that I first thought were mistakes but looked up the code and found they were right. They never did compare his QB with bank deposits, though, giving him a couple hundred grand more income than he really had. Also missed the domestic production credit, but I'm not sure they were done when he defected. So yes, we were able to add some value. We are always reluctant to take on a new client who is disgruntled with their old preparer. Like you, I don't automatically jump the gun and conclude the prior was incompetent. One of the first things I look for in their books and records is to see if the old person got paid. Some jump ship just because they have an outstanding bill they don't want to pay. Like the other posters, I say DO NOT take on this client. He doesn't listen to good advice and is determined to cheat his employees. Who's to say his accountant won't be next?

I answered "completely paperless" but actually keep a few paper files. Most are estates that are on fiscal years but the income docs are calendar years so I have lines drawn all over the place. I wouldn't know which year to file them electronically anyway. Some paper files contain brokerage statements that predate the modern world. I keep them in case a client does sell I might be able to come up with some basis (the brokerage sure won't). Too many pages to scan plus I may never need them. One folder has nothing but my research notes for a client who keeps coming up with the weirdest things I never heard of. I also have a huge file of correspondence, brokerage statements, foreign currency translations, etc. for the client who had the OVDP issues. I did scan all of it, but I wouldn't feel comfortable shredding the originals just yet. Is it just me? Normally I feel very secure with my electronic files.

The problem with firing clients who owe you is that you may never get paid. Why should they pay up if they won't be needing you anymore? I think it's best to demand payment before more work is done. Every year we start the season vowing we will NOT efile any return before payment is received, and every year we end up doing it anyway. Sticking to that practice would eliminate most of these receivables.

We have a client itching to buy a $120k piece of equipment. He calls every day to learn about the extenders. Just hoping he can take delivery and put it in service before Dec 31 (he really needs the deduction). WHY does congress do this to taxpayers?

Medicare definitely counts as qualified coverage. Large-company provided insurance should too. With smaller companies, who knows? My hunch is their insurance providers wrote them new plans if the old ones weren't qualified. It won't matter for filing season 2015 (tax year 2014) because the employers and insurance companies were given an extension to report these things until 2015, and the IRS has no way of checking (their admission) if 2014 plans were qualified. People who got insurance through the exchanges or don't have insurance will be the complex ones. The exchanges will provide a form showing how much advance premium credit they got, it any. I went to a seminar this week and everyone breathed a collective sigh of relief when the speaker said all you need to know is household size, household income, and the numbers on the exchange form. The software does it all! (He uses Ultratax, not sure about ATX.) Household income can be tricky though. For example, nontaxable Social Security income counts for all household members, including kids who might be getting SS from a deceased parent's account. Hopefully this was all included in the exchange enrollment questions, so there should be no surprises. For those with no insurance, the software will do it all. Unless of course the taxpayer qualified for an exception. Best to read up on those. That said, we still have to be able to explain it to the client, and that will take education. (Kind of like explaining why part of a client's SS is taxed--you can't unless you understand the math.) And there will be kinks galore. I just researched what happens if someone who gets an advance credit gets married. One would think income for the unmarried months would be used to calculate the credit. Nope. Total household income on the joint return is divided in half, as if each spouse earned half the income during the year. The credit is calculated on that amount. So if a guy who earned $25k and got a premium credit marries in December to someone who earned $75k, he would be treated as if he had earned $50k and have to pay the whole advance back. These unusual situations should be rare, but if we typically help our clients with tax planning we really need to get educated.

This year will certainly be difficult for all of us, but after we digest the new forms and rules and taxpayers realize their responsibilities things should go much smoother. I do some returns for residents of Massachusetts, which has had mandatory health insurance for years. The insurer gives them a statement with a very long number that shows how many months they had creditable insurance. You pop the number in and that's the end of it. It's more complicated if they didn't have insurance all year, but the software handles it well. The federal forms will be harder because of the exceptions to the penalty, advance credits, etc. It's up to the clients to gather this info, so we just have to wait for them to produce it. Those people who have affordable insurance are the ones wishing the death of the ACA. Those whose employers don't offer insurance or who have pre-existing conditions, diabetes, mental health issues, weight problems, hypertension, and a host of common problems think the act is a Godsend. My own child had surgery to realign a bone a few months before going off my Cobra. Nothing like cancer or knee replacement, just an alignment. Everything went well but insurers don't want to touch anyone who had surgery within the past couple of years. Ended up with very expensive insurance that didn't cover anything (not even a flu shot!). Thanks to the ACA he now pays half as much for decent insurance with a reasonable deductible.

Of course people aren't aware of the connection between medical insurance and taxes because there logically shouldn't be a connection. The IRS was charged with administering a chunk of the ACA not because it makes sense (their employees are accountants and numbers people, not medical professionals) but because the agency has a remarkable track record in translating law into practice and collecting money. Don't know how long that record will last now that they've endured budget cuts in real dollars and lost so many employees because they don't have the funds to pay them. I wonder how many people are aware that the IRS is responsible for determining that hospitals are conducting local needs assessments. What, you say? Yup, not hospital administrators or AMA boards, but the IRS. They will probably have to let go dozens of auditors for every medical professional they have to hire to enforce this part of the ACA. There are dozens of federal agencies with the word "health" in their names. Why all this was dumped on the IRS is that the agency has met every challenge congress throws at it (last minute tax law changes anyone?)

I never heard of start-up costs for a rental. Expenses incurred before the unit is available to rent are capitalized.

I'll assume this will be in a taxable account (not retirement acct). Losses from a specific MLP cannot be used to offset gains from other investments (including other MLPs). They will carryover and can only be used against eventual gains in that specific MLP. In my experience these investments typically show losses. The partners get distributions of course, but in the absence of income these are treated as a reduction in basis (something like a return of capital). The gains come when they eventually sell, which I have found to be a nightmare to calculate. Taxxcpa is right to be wary of investing in MLPs in retirement accounts. MLP income is considered "unrelated" and if over $1k total the IRA will have to file and pay tax. This won't affect you the preparer because the IRA custodian will have to do it (at great cost to the client).

Note that no 1310 is needed. That's only used when there is no court appointed administrator (and the personal rep agrees to pay out the refund according to state law--usually happens when the person dies intestate). See the form instructions.

If the house was located in the US, he is not in the 0 bracket. He has $1m gain and $10k interest income. Even without the $150k wages, cap gains rate at that level is 20%. Interest income will be in the 35+ percent tax bracket (too lazy to look it up). (Don't forget the state taxes where the house is located.) I don't know if he's a US citizen or not, but most treaties tax property sales based on where the property is located. Best to keep his $150k job. Or go into real estate--he should be congratulated on that $1m gain. Wow.

Do look into the Streamlined Offshore Voluntary Disclosure Program. Seems like Husb is eligible (omission not willful, he thought the money was gone for good). Penalty is only 5%.