Kea

Oklahoma does not allow e-files from non-residents. I just filed a 2nd year for a client - so I've just looked it up myself. I hope one day they will allow it.

I am seeking help from anyone familiar with MA tax prep. My client lives in Texas but is a partner in an LLC in Massachusetts. From general rules and from my reading of the instructions for the MA Form 1 NR/PY, this should be MA source income. He did not live in MA during any of 2007 (or ever). The K-1 income ($14K) and $3 interest on a TX bank account are all he had for 2007. This sounded like it should be pretty straightforward. However the software (TRX) is indicating that he is "Filing as both nonresident and part-year resident" When I answered the check boxes, I indicated that he did not live there but that he did have MA source income. It noted that in this case I had to file a Schedule R/NR. The software is also subtracting the K-1 income on line 7 of the Schedule NTS-L-NR/PY. I'm not sure why, but I presume because he was a non-resident. Since I have never done a MA state return, I don't want to just automatically assume I know more than the software. Before I override the entries: Is he a "Nonresident" or "both nonresident and part-year resident"? Should the K-1 income be subtracted on the Schedule NTS-L-NR/PY? I am using Schedules B & E to report the interest (and then subtracting it back out) and the K-1 income. Do I need to show the proration on Schedule R/NR that all K-1 income is from MA (software brought up form but made no entries)? Do I adjust for the 1/2 SE tax reduction - or is that Federal only? Any help is greatly appreciated. Thanks.

That was my original instinct. But I diligently asked if she had personal use during that time and she said she did. I appreciate the honesty but it does complicate it. Thanks.

Client has been renting a room in her house for the last 3 years. In February of 2007 her tenant moved out and she decided to stop renting out the room. She began using the room as personal. Then in May of 2007, she decided she liked having the income and started renting the room. It is still rented today. It was used for personal service more than 14 days in 2007. I know the 14 day limit does not apply the year you begin rental or the year you end. What if they are the same year? Does she lose the extra deductions? Or, do I treat it as 2 assets? Take it out of service in February and then put a new asset in service in May with a basis equal to the ending basis in February? She has decided she likes renting it for the foreseeable future. Thanks!

My experience is with laptops because I like to work in the living room sometimes and to be able to have it on vacations. (I try not to use it on vacation, but if I hear from a client I like to respond within a day or 2.) I had nothing but problems with my Compaq. That company is now owned by HP and I don't know if that helped or hurt - I haven't used one since. I have had very good success (so far) with my Toshibas. To move your data - in each year's tax software, "backup" and "export" all your files. Also copy the ATX folders for each year - especially make sure you have the Database folders. On the new computer you will now have the option of "restore" (using the backed up files) or "import" (using the exported files). I don't remember now which method worked best for me. You may also run into a few issues if you are moving from XP to Vista. The more recent years transferred pretty well, but I had more problems with the early years. Good luck.

I don't know how Mom was able to get the money but she did. I do have a copy of Mom's Schedule D, but no the whole return. My client is currently on vacation so we'll wrap this up when she gets back. Thanks!

Thanks so much!

Client (age 35) got a CP2000 stating additional tax owed due to 1099B with $18,000 gross proceeds. This account was a custodial account her mom had set up for her years ago. Mom cashed out account in 2006 and received 1099-B at her address. She reported the sale, basis and profit on her account. 1099B had both names on it but showed daughter's SSN. Do I just amend return and show gross proceeds in and then nominee it out on next line? 2nd line just has "Nominee to Mom Name, xxx-xx-xxxx" and then negative $18K? Do I need to issue a 1099B from daughter to mom? Or, is there a better way to handle this? Thanks so much.

As for the tax software, I've treated it as a "supply" because it's useful life is basically one year. Yes, you can use it in future years if you need to, but it's possible (maybe not likely) that you won't have any amendments or late returns after that year. I believe this exception to the 3-year rule applies to tax software and anti-virus software and anything else that has to be renewed each year. I also count pens and highlighters as supplies, even though some of them have lasted several years. Gosh, I hope that's not wrong.

Thanks so much. I really appreciate everyone's advice.

Thanks Tom, That's basically how I always handled these situations in the past. But now with the new preparer penalties, I want to do this in a clear / straightforward method that won't get me in trouble. In this case, I really don't think he's claiming anything fraudulently. He really just didn't know. Most clients that take on a new small business never seem to know what's involved before they start. I think he'll have better records next year. Thanks!

While I've only just met this client, I have worked with his brother a couple of years. I really don't feel like he's trying to pull a fast one. In the previous years, he wasn't really considering a business - just more of a hobby. He wasn't making much money, and had lots of expenses. I honestly don't think he really ever realized it was something to report. He's young, and like most people (old and young) really doesn't understand the tax system. They only ever seem to know to keep the documents that get mailed to them. (How many stock sellers know they were supposed to keep their basis info?) His biggest concern last night seemed to be on how complicated this was getting. He never seemed to be avoiding any of my questions. I explained clearly that not having documentation could not get you out of reporting income, but it could keep you from claiming expenses. He was OK with that. I'm not letting him take mileage and when I asked about other categories of expenses, he said there were none. So he's not trying to maximize his deductions. But since I know he has some significant expenses, I'm trying to give him the deductions I can. But I also know he can't document them. He does have the assets and because of the cost and nature of them, I am sure he bought them and that he did not receive them as gifts ($0 basis). I wouldn't consider the items he purchased as listed items. From his descriptions, these are pretty specialized for professionals. But yes, I did ask about the personal use, and there is none. I did drill into him the need for documentation of all income and expenses. He agreed that he would start keeping track of everything. He had a friend with him who also promised she would make sure he kept the documents. He seemed to think it was getting too complicated and maybe it wasn't worth having this business. But he's got most of the big expenses paid for now, and should start making money now. I discouraged him from giving up on the business just because he had to track the $. Since he was divorced by the end of 2007 and the complications of it, I will probably treat his income / expenses as though he were divorced all year. I really don't see being able to separate the W-2 or DJ info and have him have the ex report that. I also doubt he would be able to get the ex to share her pre-divorce info. As for the pre-2007 assets, I will just count 1/2 the basis -- if I count it at all. Thanks for the help.

New client has regular W-2 job (primary job). When I was going through the interview, he mentioned having a mobile DJ business. I told him he was required to report all income, but he could offset it with his business expenses. It seems he's done this since about 2005, but it didn't really take off until 2007. He's not previously reported this at all in 2005 or 2006. He stated that it was a purely cash business. He didn't deposit the money or track it in any way. He estimates it probably around $5000 in 2007. No problem here - I just report the $5000. Even though there is no documentation, it has to be reported. He also has lots of equipment that he has bought over the years, but most of it was purchased in 2007 (as the business grew). He has lighting, speakers, amps, CD players, mixers, speaker cables, etc. He also said he buys about 4-5 CD per month. However, all of this was purchased with cash. The equipment is probably worth $7-8K (he's getting me better estimates). He probably kept most of the receipts at the time, but he got divorced last year and "just left." He didn't even think about making sure he had his receipts and didn't know he would need them later. I can't do anything about the 2005 - 2006 returns. I can't make him amend; he doesn't have any documentation; he would have to work with his ex. Not gonna happen. If he could recreate everything, he would probably have losses. Even without the documentation, I can't let him not report the estimated income. I have no reason to believe that he didn't buy the equipment. But can I actually claim any of it if I know he doesn't have the receipts? For the items he had pre-2007, I could move them in at FMV from "personal" use to business use. Is it reasonable to deduct the other assets, using low-end reasonable estimates? If he sells equipment in the future, he has to show depreciation "allowed or allowable," so he might as well depreciate the equipment. I would never allow a client to claim more for assets than reasonable. But now with the new preparer penalties, am I in trouble if I let him claim ANYTHING? Thanks.

Congrats JB. I'll add a slightly different version of Gail's wishes. "May you live as long as you want, and never want as long as you live."

I'm not sure why he doesn't fit the labor union model. Labor unions represent a lot of skilled jobs - construction, plumbing, mechanics, police, fire fighters and many others. In the case you are discussing, I'll take your word that the jobs are unskilled, although I hesitate to make judgments of other peoples' jobs. I do agree with you the tragedy of people making a fair sum of money and not saving any of it. But I've seen that with people in all types of jobs - not just union jobs. I've also seen people who have modest incomes and now have large savings accounts. There can be many reasons for this. Some are in their control (how many cars did they buy?) and some are not (large medical bills).

Unions have their good points and bad. I'll leave that argument to others. However I am bothered by the opinion that union workers are "non-skilled." Many of these jobs may not require a college education, but they do require skill. My husband is a very hard working body shop mechanic. He has belonged to the union off and on - because sometimes they are good and sometimes not. But I know that I (even with my college education) do not have the skills to do his job. When your car is damaged, do you take it to a repair shop or take it to the kid down the street? I bet that kid's not in a union and you could get a much better price. And, even for those with the skill to do the work, how many are willing to work in an un-air-conditioned building in Texas in the summer without being paid a reasonable amount? In my observation, many union workers work much harder than those of us working in offices -- it's just a different kind of work. I don't want my husband's job, and he doesn't want mine.

FYI: I finally got the SSN from the client today. I called the Practitioner Hotline to see if I could make the change by phone. They said that even filing an amendment would not get the stimulus payment this year. It will have to wait until next year's filing. Just wanted to let y'all know. Thanks for all your input.

I wondered about that. I wasn't sure if that might be eligible for a phone change. I'll do that first. Right now, I'm waiting for my client to give me the new SSN. Thanks!

Thanks KC. I agree completely. I only have a handful of clients with ITINs. I have no idea if any of the others are even trying to get SSNs (or if any others already have one). But this is the kind of situation that helps us improve our interview techniques.

Client sent e-mail today that said we used his wife's ITIN on the 2007 return instead of her SSN. She just got the SSN last October (and I didn't even pay attention that she had ITIN not SSN and didn't think to ask if she now had SSN). Since she is filed with ITIN, then they don't get any of the stimulus payment. If I file an amendment now with the SSN, will that generate the stimulus payment? Or, will they not get it until they file the 2008 return? I thought I saw on the IRS site (back at the beginning of all this) that they didn't change the stimulus payments with amendments. Now that the IRS has about 3 sections of FAQs, I can't find that anymore. I'm thinking I made it up. Thanks.

When I was considering TRX last summer, they sent me 2004 - 2006 CD to demo. I ended up buying it, but managed to lose the demo disk. When I renewed this year, I asked if there was anyway I could get another copy of that demo CD and they sent another FREE!

There are mailing lists out there that get started from all sorts of places. I'm on one list under the name "Kathier" - which isn't even a name (as far as I know) much less my name. But I get lots of various tax ads with that name - including one from ATX yesterday. When I was a customer, they used to spell my name correctly. They didn't even compare the address to see I was already in their database.

I did express all these ideas with my friend and she did like the idea of moving the files to me. We discussed writing a joint letter to connect her mother to me. I used to work with this friend in a past life and her mother got some of her clients through her daughter. So there is a good possibility that I may already know some of the clients. My friend is planning to discuss this scenario with the estate lawyer to make sure it fulfills her legal obligations. I should hear back in a few days. It's kinda embarrassing that I didn't think of this myself.

I just renewed yesterday. A couple of other "cons" that I found: - They have a very limited space for text entries. For example on the Sch D, I really had to abbreviate the stock names. The 1040X section for explanation also did not allow for as much text on each line. Occupation line and some of the address lines were also limited. - Since it stores all the files by SSN, if you amend a return, you can't keep the original. (You can change the name in your backup). Also you can't duplicated a file if you want to run "what-if" scenarios. But for the price and my small business I can live with these cons as well as the other ones mentioned.

A friend of mine called me tonight. Her mother passed away in 2006 and she had a small tax prep business. My friend is about to move out of that house and is trying to determine what to do with her mother's tax files. She doesn't want to keep them and was thinking about shredding them all. I suggested she might want to contact the former clients and see if they want their old files. She doesn't want to move the files and doesn't have time to call everyone this week before she moves. She does still have the computer that has a handful of 2005 and 2006 files. Is it OK if she shreds the 2004 and earlier files? I'm not familiar with the file retention requirements after the tax preparer death. Thanks so much.