April 8, 2009 // 0 Comments

Reasons to file The end of the 2009 tax filing season is coming up quickly. The majority of all tax returns are completed and either mailed in or e-filed. However, there are still several million, perhaps up to 20 million, taxpayers who are going to file an extension. There are actually some very legitimate reasons for filing an extension. One of the most common reasons is a retirement-planning reason. Taxpayers with an SEP retirement plan are allowed to make contributions until they file their return. By filing an extension, it effectively extends the time the taxpayer has to accumulate the money to fund the SEP. That is a huge difference between an SEP and a traditional or Roth IRA. The traditional or Roth IRA must be funded by April 15, whether the return is extended or not. If the money is not in the account on April 15, it’s a contribution that counts for the next year. A second reason to file an extension is the paperwork is just not available to complete the return. Many taxpayers today are invested in limited partnerships. Some of those limited partnerships invest exclusively in other limited partnerships. It’s their special form of diversifying. However, if just one of those other limited partnerships is late in getting their information out, it’s the domino effect, with the net effect that whoever is invested in the original limited partnership has to file an extension. A third reason to file an extension is some particular piece of information is not available for the cost basis of property that was sold such as a stock, mutual fund, or land. In today’s investing environment, many taxpayers have liquidated investments. The brokerage company involved always reports the gross sales price to the Internal Revenue Service. The IRS has one side of the story: the selling price. The part that is left to the taxpayer is to determine and report the cost of the item that was sold. If the taxpayers have purchased everything that was sold through the same brokerage company, usually they are provided with a cost basis statement. However, switching brokerage companies is a fine art today. Every time there is a switch, the new company usually has no idea of the cost […]

Bear Cub Scouts visit Cannon Township Offices

April 8, 2009 // 0 Comments

Paying taxes isn’t fun for adults, but did prove to be entertaining to the third grade Bear Cub Scouts from Crestwood Elementary on a recent visit to the Cannon Township offices. As part of their rank achievements, the boys received a tour of both the township government offices and the fire department. Township treasurer, Jim LaPeer, gave the boys a brief overview of each of the divisions of the township government. The boys asked several questions on taxes and how they are used to benefit their school. After reviewing how a tax statement is broken down and what the money is used for, they helped Melissa Soderstrom post an actual tax payment into the township system. Conservation of the township resources was another area of concern for theboys. Chris James, zoning administrator, provided the Scouts with maps of the local wetland areas and the new recreational trail that connects the township to nearby Townsend Park. The new trail allows township residents and visitors the ability to enjoy the beauty of the township in a non-invasive way to the natural wildlife. The maps were presented to the boys’ teachers to help all the students in the school learn more about the township where they live. Following their government tour, the boys toured the local fire department.  Captain Jerry Herrington reviewed safety procedures with the boys and they were able to explore each of the fire trucks, rescue vehicles and equipment used by the firemen.

The Tax Attic

April 1, 2009 // 0 Comments

Answers to two more frequently asked questions I had some good comments on last week’s article concerning the most common questions that tax professionals ask of the research company I deal with the National Association of Tax Professionals (NATP). It doesn’t matter how experienced the tax professional is, how long he or she has been preparing tax returns, or how many tax returns he or she completes. Our tax system is just too darned complicated for any one person to know all of the answers. NATP has several retired and currently practicing tax professionals manning the telephones when guys like me call with questions. The reasons I call come from two different types of scenarios. In the first situation, I am pretty sure I have the correct answer but want an independent third party, such as NATP, to back me up. They can provide me with that warm fuzzy feeling that my thought process was correct. In the second type of situation, I need help with a scenario that has me stumped. I usually have a potential answer, but am unwilling to prepare a return based on a potential answer. In these second situations, I am just slightly disappointed when I call and the researcher knows the answer without having to look anything up. That usually means I called with a question that the answer was right in front of me in one of my reference books and I just didn’t recognize the answer or look hard enough. Of course, sometimes the researcher shares with me that a recent caller had asked that same question and that is the reason the answer flowed so smoothly. The comments I received on last week’s article encouraged me to bring up another common situation that tax professionals are asked about. I will also add a Michigan situation that I am commonly asked to explain. Since we are closing in on April 15, a common question that is asked concerns extensions or the lack thereof. An extension is granted automatically by filing Form 4868 and simply asking for the extension. That delays the filing of the return until October 15 with no questions asked. The catch 22 in the system is that there are still penalties and interest that […]

Six frequently asked questions answered

March 26, 2009 // 0 Comments

The Community Expo, one of my favorite events of the year, occurred last Saturday at Rockford’s senior high school. This was the fifth annual expo as sponsored by the Chamber of Commerce. We have Carl Shook, past executive director of the Chamber, to thank for our expo. Six or seven years ago, he first proposed holding a community expo. In light of the Chamber’s mission to promote area businesses, it seemed like a perfect fit. Carl traveled to other expos being held around the area and initiated the plans to create our own community expo. As so many times happens in Rockford, when we do something, it’s bigger and better. We don’t just duplicate; we improve. The upcoming Relay for Life event is another prime example. Brenda Davis, the current executive director, has kept the ball rolling and keeps adding improvements. I also thank Dr. Shibler for hosting the expo at the high school. I don’t know how many other superintendents around the state would have been on the floor during the event like Dr. Shibler, helping to make sure all is running smoothly, but I bet it’s a small number. It’s hard to come up with a nicer way to promote business than the Community Expo. It is an excellent venue for citizens of the Rockford area to see the varied services and products available to them. During the expo, I was asked many questions. I knew the answer to most of them, but there was one question that really stumped me. Fortunately, I belong to an organization, the National Association of Tax Professionals (NATP), that has 14 full-time research specialists on staff just waiting for tax professionals like me to call them. I have never been disappointed in the past by NATP’s research staff and I won’t be disappointed this time either. Recently, NATP published a list of their top 25 most frequently asked research questions. Six of those happen to be questions that I have asked NATP to provide me with an answer and the documentation to back up that answer. First, can a distribution from a 401(k) be used to pay tuition or other educational expenses for a dependent and avoid the 10 percent premature distribution penalty? The answer is no. […]

Schemes Promise Bigger Refunds

March 19, 2009 // 0 Comments

The old adage stating that if something is too good to be true, it probably is too good to be true really applies today. We have seen the headlines about the losses incurred by the people who invested with Bernie Madoff. Many of those people were millionaires, with “were” being the operative word of the day. It was too good to be true. However, there are other schemes out there promising bigger refunds on tax returns that regular taxpayers, like you and me, are filing. These larger refunds are the result of converting certain personal expenses into business expenses. Personal expenses, with few exceptions, are not deductible on a tax return, while business expenses are normally deductible. What schemes are promoters using to get people to believe they can deduct personal items as business deductions? Much of it seems to start with the Internet. Promoters are promising big earnings and big deductions to individuals who start online retail businesses, offer online services, or run online auctions. The big earnings may or may not materialize to the taxpayer. More often than not, the promoter makes money on the setting up of the operation, and you can bet he is getting paid up front. Some of the promise of big deductions comes from operating the “business” out of the taxpayer’s house. It is true that if a taxpayer is operating a bona fide business out of his/her home, the deduction for office-in-home is very legitimate. The legitimate taxpayer has an office set aside that is used regularly and exclusively for business. He may or may not see clients in the office, but the office is where the taxpayer makes his business connections. It is usually a separate room or rooms in the house. It’s the real thing. But the promoters of schemes tell their victims that by putting a file cabinet or computer or desk in each room, the taxpayer can deduct darned near all of the expenses of running the entire house. Nothing could be farther from the truth. A normal office-in-home deduction is determined by measuring the square footage of the office and measuring the square footage of the entire house and calculating the percentage of the office. This percentage is then applied to the […]

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