Tax Prep by Deb

Is she a full time student? How much did she earn?

A little background first. A new client came to my office mid February. When preparing his return I noticed that the person who prepared his 2015 tax return did not give him credit for federal income tax that was withheld from his social security. For 2015 he had only a small pension and his social security and none of his social security was taxable and even with his pension he had not taxable income so we amended his 2015 return and requested credit for the federal income tax withheld that was a little over 1400.00. Expecting a refund he received a letter stating that as requested they have corrected his 2015 and return and it now has resulted in additional taxes owed of over 10,000.00. Client came to office last week and we attempted a call to IRS only to be on hold for a long period of time and in the course of holding I accidently hung up on them. Client and I laughed when I said did I just do that? Decided we would order in transcripts of his account ect.... to find out what happened. We received those and everything looks the same as original return, so decided to attempt a second call. Was told wait time was long due to call volume, but then the next message estimated 2-4 minutes, cool! First person came on line couldn't help because she was not a balance specialist, but she would transfer us. Again prepared for a long wait, was told to expect 2-4 minutes (each time 2-4 was said I expected hours, not minutes). Nice IRS lady comes on line and we establish who we are and explain the problem to her, not having the amended available she asked me to fax it to her of which I did. When she received it she started trying to find what they had done wrong and sure enough in under 5 minutes she figured out that in addition to the change I requested someone added a 5 in the wrong place changing is taxable income from 8,000 and changed to over 85,000 and some change thus resulting in the increase tax. She took of it and requested an apology letter be sent (her words, not mine) that would go something like this: Sorry we screwed up your account...... Must say it was one of my more pleasant interaction with IRS. Wait was minimal, we were entertained by her humor, and everything is fixed, client leaves office happy, I'm happy, and you could tell this IRS Agent was happy! Just had to share!

I've had a couple of these this year and asked the client to call the broker and was given the info. One went back many years, and the other was very recent, but each case the broker had the cost basis. Sometimes it's in the portfolio but you have to dig deep. I have found it several pages after the 1099B

I agree. I had a client two years ago in the same situation only they had to pay back the full amount of the subsidy, to the tune of about 7,000.00. No way around it, the lump sum worksheet is used and the tax is calculated based on what it would have been for each year that the lump sum is allocated to.

This year is one of my strangest every. Many of my April filers came in February, quite a few of my February came in March, but dollar wise I am still about 10% ahead of last year at this time. So I'm still sitting pretty good. I'm pretty sure that I lost a few clients that normally come in early February probably to the do it yourself software available, but I bet in a year or two they will be back. It seems that they always come back.

No food this year, but a very nicely drawn picture of Mickey Mouse and a 6 year old written note of thanks! (Priceless). I also received a beautiful bouquet of roses from one of my older clients because I didn't charge her anything (Her husband recently passed away unexpectedly and she is having some financial issues). The price on the vase was more than I would have charged her. It's the simple act of kindness that makes our day!

I like to sleep at night, and I love what I do!

Couldn't agree more, in fact in our initial discussion it was agreed (so I thought) to amend and correct the error's but when they saw the significant difference in refund, well, you all get the picture. This particular client is the reason we are being slapped with this due diligence paperwork that is doing nothing but slowing us down and putting the fear of god into us that even if we are doing it right IRS will somehow say we are not.

I agree. It just really makes me mad when they try to make me think I don't know what I am talking about, when I no for sure that had it been the other way and they owed taxes, that they would have a hissing fit that I included personal money invested in the business as income. I had a funny feeling about this as soon as she sat down, and today just confirmed my suspicion. I would have had a very difficult time answering truthfully the questions we have to this year for due diligence and would have even a greater time trying to document the additional questions I asked and the answers I was given. I didn't bother telling you that the same preparer did another schedule c and included income and donations as income which was suppose to have been done for a non-profit and shouldn't have even been on this guys personal tax return, so I am really glad that they are gone, and now I can move on.!

OK, I need some reassuring although I believe 100% that I am right. I had a new client (she just came and picked up her stuff) who has 2 schedule C businesses of which both are showing a loss. The client presents me with a summary of the information of which first of all I notice is almost a carbon copy of last year (red flag #1). Told her I would need the receipts for donated goods (exceeded 3500.00). Looked over the previous years return and noticed the previous guy included in one of the businesses as income the amount that my client borrowed and has since repaid from a family relative, thus boosting the income (which I believe is to manipulate the EIC). Looked at the year before that and saw on the same schedule C under other income an amount of $21,000 of which he did specify on one of his worksheets as money that the client personally put into the business, again boosting the income and manipulating the EIC. Correct me if I'm wrong, but loans, or money personally invested in a business is not considered income to the business, correct? They are stating that they contacted a couple of CPA's and were told that it was income, (I seriously doubt this) and that they contacted IRS and they also stated it had to be included as income. (I seriously doubt this as well because I haven't even been able to contact IRS in behalf of one of my clients). I honestly feel that because I did the return right by not adding the other things in as income, it brought their AGI down to 5,000 and thus very little EIC compared to the previous guy who's return netted them exactly the peak amount of EIC. What do you guys and gals feel about this? Am I wrong? The one and only audit I was involved with was with one of my business clients and the thing the auditor started with was adding up all of the deposits from every bank account they owned, then subtracted out any that was simply moved from one account to the other, considering any draws from the business account as personal draw and any money redeposited into the business account from the personal account as personal investment. When all was said and done there was a discrepancy of about 3,000 for which he stated if we could explain it then he would be happy to close the audit and for which we were able to satisfy him. So I'm sure I'm right, but then again what if I'm wrong? Any opinions would be greatly appreciated!

Line 28 The excess APTC you must repay may be limited to the amounts in Table 5, next. Enter the appropriate amount from Table 5 on line 28. If you were married at the end of 2016 but are filing separately from your spouse, the repayment limitations shown in Table 5 apply to you and your spouse separately based on the household income reported on each return. So according to what I am reading there could be limitations of the repayment based on each individuals tax return. And this is exactly what I am running into. Also I came across this: https://apps.irs.gov/app/vita/content/globalmedia/teacher/premium_tax_credit_form_8962_4012.pdf There is a section that discusses paying back a large repayment and suggested MFS as a strategy for perhaps lowering it, the same way as putting money into an IRA could lower the repayment.

I'm not questioning them having to pay it back. It's just that if a figure it jointly there is 100% yet if I figure it separately the amount they have to pay back is limited to 2500 each verses 7000 jointly. It seems that the only difference is the poverty threshhold. Jointly 100 % filling separate is either 100% or 2500 whichever is less. Again I know that even filing separate they don't qualify for the credit, but the program is calculating the amount totally different under the changeneral in filing status.

Then why is it calculating a lesser payment? I agree it shouldn't bUT I haven't read anything contrary. I believe they can choose at any time to file separate regardless of the reason why?

Ok, I have a married couple who received the APTC. She went to work and her income put them as a 2 member family over the 400% threshold triggering 100% pay back of the APTC. I decided just for fun, to look at what would happen if the filed married filing separate, and this is what I found: In California we are a community property state, that being said when I split their income down the middle and put the allocated APTC where it belongs, it generates the payback because of the married filing separate status, but now they each are below the poverty line of 400% and the program is calculating a repayment minimum which reduces the amount they each would have to pay back resulting in overall a lower repayment. Am I missing something here? Can this really be done to lower the amount they would have to pay back?

Yes but your confirmation helps me. You and I are in total agreement and I did includen the dependent son's income in to figure the credit and it is causing them to have to pay back. But they are cool with this and are in the process of taking him off their insurance.

Actually they both were OK with my way of doing it. Especially when I explain the rules. Both want It done right and the first one that had asked me about it has been coming back for years. I just thought that maybe I had missed something and wanted a second opinion

I have a couple of registered nurses who work at hospitals that require them to stay on site thru meal breaks. Both of these have stated that other nurses have told them they can deduct their meal expenses. I have looked but have not been able to come up with anything to substantiate that claim. Do any of you know anything about this?

Not if they all live together under the same roof. I do have situations where client's are divorced or separated and the legal papers give the exemption claim to the father, but the mother is considered the custodial parent. In that case the father can take the exemption and child tax credit, and the mother is able to claim head of household and claim the EIC. But the situation described above sounds like they all live together so the credits are all or none.

Hey Tom, Mine actually came with a full blown appraisal. I was really shocked, but the escrow company required it before they would issue any title, so my client paid for the appraisal.

Ok, I will try to make this as clear as I can. I have a family that I prepared their taxes. Husband and Wife has two children, one is a dependent on parents return, however the second is not. The son that is not was suppose to go away to college so mom and dad included him when they enrolled for Covered California. He was and still is working for a company that provides health insurance. The idea behind enrolling him under them was that he planned on quitting his job to go to school and they wanted him insured. That never happened. The second son (who is a dependent) had a part time job and can still be claimed as a dependent on their return but he was enrolled for Medi-Cal and is not listed on their 1095-A. It appears to me that because the other son had health insurance thru his job he is not eligibile for any premium assistance, yet he was factored on the premium assistance given to the parents. How do I unravel this mess? I thought about doing a policy allocation and allocating 100% to the parents and 0% to the son. This is just for the 1095-A reconciliation, however how do I show the amount they should be paying back because he was not eligible? Does anyone know of a way thru Covered California to get the SLCSP amount? I feel this should be adjusted, but I haven't been able to find the info. Any thoughts would be greatly appreciated.

Thanks so much for this reference. I am doing my first trust return this year that is the situation mentioned above. This will definitely get me started on the right track!

I Guess I should have included the fact that she did receive a 1099 with the amount listed as rent. She is clearly trying to make money at this, not just a casual thing. Throughout the year between the company that sent her the 1099 and another that did not, she received about 6,000. I also just found out it is not a motor home but a travel trailer if this makes any difference.

She is actually using a service that books all of her reservations and collects the money then in turn gives her the net proceeds, so I would assume they are collecting any state fee's ect....

It's definitely for profit. She did very well in one year.

Did this several times during the year. I have records that indicate it was rented out at least once every month for about 9 months. It is a Motor Home and I was thinking of 5 year class life as well. It's looking more and more like this will be schedule C income subject to self employment taxes?