Friday, August 18, 2017

New Guidelines On Passwords


You know all that advice about making hard passwords? They must include at least one number and/or specialcharacter? You know how we’re told to change the password frequently and to never use the same one for different things?

Well there are new guidelines that basically say forget what you’ve been told. So, thanks to the National Institute of Standards and Technology, managing your passwords is about to get easier!

Paul Grassi, senior standards and technology adviser at NIST told NPR, “The traditional guidance is actually producing passwords that are easy for bad guys and hard for legitimate users.”

Here are some highlights on the new guidelines:

  • Keep passwords simple, long, and memorable.
  • Use phrases, lowercase letters, and typical English words.
  • There’s no need for special characters or a mix of upper and lowercase letters.
  • There’s no need for your password to expire.

That’s it! Easy peasy! You can read the full report here: NIST Special Publication 800-63B

You can also hear (and read) the full interview with Paul Grassi on NPR’s All Things Considered.



IRS rehiring of fired employees troubles tax watchdog and House Ways & Means members

Tuesday, August 15, 2017

Shopping trends and taxes

I like to look at trends because they are interesting and many have tax implications.* Trends may indicate a need to update or modernize tax rules or systems. I'm a bit behind on blogging on this, but several weeks ago, there was an article in Fortune - Phil Wahba, "Major Wall Street Firm Expects 25% of U.S. Malls to Close by 2022," 5/31/17. Reasons included bankruptcies and continuing growth in retail e-commerce sales.

I remember when the US Census Bureau first started reporting retail sales for e-commerce in the 1990s and it was less than 1%.  They just updated data for 2015 and report that e-commerce retail sales represent 7.2% of total sales for 2015 (it was 6.4% in 2014).  That doesn't seem like a lot to me. In contrast, the US Census Bureau reports that for 2015, e-commerce sales of merchant wholesalers represented 30.2% of total sales (it was 28.1% in 2014).

Are retail e-commerce sales going to increase to the point were 25% of US malls will close in the next five years? Seems high to me.  I expect re-purposing where, perhaps, we might do more online shopping while at the mall looking at samples of what we can buy, and getting a latte and recharging our smartphones.  That would use less retail space. Malls might add more ways for people to hang out - activities, fairs, etc.

Tax implications?  A few:
  • More online shopping can mean more uncollected use tax although I suspect a lot of the e-commerce growth will be with Amazon that collects tax in all states (at least on their direct sales).
  • If malls turn into abandoned buildings or vacant lots, property taxes will go down. Is there another need for them?  With an aging population, perhaps the space gets turned into living spaces for older folks - single level, close to public transportation and medical facilities, etc.
What do you think? Will we see 25% of malls close? What will happen to the space?

*For some nostalgia, see this June 2008 blog post on some trends relevant to tax reform.


17 states now impose some fees on electric autos

Thursday, August 10, 2017

Chicago-area soda tax angers consumers, while Philly's similar levy may be driving those folks to drink beer

The Path to Enrolled Agent

If you’re looking for a career in the tax industry, set your sights high! While it doesn’t take much to become a tax preparer and start preparing taxes for the general public, earning a credential as an Enrolled Agent should be the ultimate goal.

Enrolled Agents are the only credentialed tax preparer and thus have instant credibility, they also have unlimited representation rights and the knowledge to prepare complicated tax returns (thus they earn more money).

Benefits of Becoming an Enrolled Agent 

While it may seem like a long road, becoming an Enrolled Agent is an attainable goal that can easily be tackled with the help of The Income Tax School. Our nationally recognized Chartered Tax Professional Certificate Program will not only provide you with the education you need to prepare taxes, you’ll learn everything you need to know to pass the IRS EA Exam. Here’s a guide to your path as an EA.

Step 1: Register for our Chartered Tax Professional Certificate Program Path to Enrolled Agent

Our Chartered Tax Professional Certificate program can be taken completely online. It includes a total of 60 lessons: 20 comprehensive lessons and 4 advanced courses (10 lessons each).

Step 2: Complete the Comprehensive Section

Once you’ve completed the 4 module comprehensive section, you will have the knowledge you need to start preparing individual tax returns for most U.S. taxpayers.

Step 3: Obtain a Preparer Tax Identification Number (PTIN) from the IRS

In order to prepare taxes for compensation, the IRS requires that you register with them and obtain a PTIN.

PTIN Requirements for Tax Return Preparers

Step 4: Take the 6 Hour AFTR Course

The IRS Annual Filing Season Program (AFSP) is an annual voluntary IRS tax training program for return preparers. It aims to recognize the efforts of non-credentialed return preparers who aspire to a higher level of professionalism. Those who pass earn a Record of Completion, are given limited representation rights, and are listed on the IRS Federal Tax Return Preparers Directory. This list is being marketed to taxpayers through a public education campaign that encourages taxpayers to select return preparers carefully and seek those with professional credentials or other select qualifications.

IRS Annual Filing Season Program (AFSP)

Step 5: Begin Preparing Taxes for Individual U.S. Taxpayers

You’re officially capable of preparing taxes for the general public! Seek employment with a tax firm in town or go out on your own!

Step 6: Continue Your Education

Keep working your way through our CTP course. You’ll take the Advanced 1 and Advanced 2 sections to learn how to prepare more complicated tax returns. Next, you’ll tackle the Small Business 1 and Small Business 2 and learn to help small businesses with their taxes.

Step 7: You’re a Tax Pro!


Once all courses are completed, you will have the knowledge you need to prepare taxes for anyone – and to start preparing for the EA Exam (called the Special Enrollment Examination). The entire CTP program can be completed in 8-16 months. As you work through the program, you can gain experience as a tax preparer. Once you’ve completed the program, you will receive a certificate from The Income Tax School that can be framed and displayed on the wall in your office.


Step 8: Take Our EA Exam Review

The Income Tax School offers an EA Exam Review through a partnership with ExamMatrix. ExamMatrix’s groundbreaking EA Exam Review Software has completely changed the landscape of EA Exam Review preparation. They offer an “Adaptive Learning” technology where students experience a personalized study program that accommodates your busy schedule.

Here are some study tips: How to Study for the Enrolled Agents Exam

Step 9: Register for and Take the SEE

Register for the SEE at You will need to create an account and then schedule your exam.

There are three parts to this exam:

  • Part 1 – Individuals
  • Part 2 – Businesses
  • Part 3 – Representation, Practices and Procedures

Step 10: Apply for Enrollment at

Once you pass all three sections of the SEE, you will need to register as an Enrolled Agent. The application can be found at

Step 11: Pass a Tax Compliance Check with the IRS

The Tax Compliance Check is basically a background check that begins once you submit your application (see Step 10). It takes up to 90 days.

Step 12: Spread the Word! You’ve become an Enrolled Agent! 

Congrats! You’ve gained the highest credential in the tax industry! Tell your clients and add that designation to everything: your desk placard, business cards, email signature, and LinkedIn profile.



Friday, August 4, 2017

Senate Democrats Tax Reform Principles

Don't fall for tax ID theft phishing scam from crooks impersonating tax software companies

Online Directories: A Great Way to Boost Your SEO

When you type in “tax preparer in [enter your city]”, does your firm come up? Is it at the top of search Online-Directoriesresults? There are a lot of things that factor into being on the first page of Google. Are you employing SEO tactics? Do you have a lot of competition? Is your site optimized with keywords? Is your competition using SEO tactics? Without getting into the details of SEO, we want to share with you one tactic that will help: submitting your information to online directories.

Every directory you submit to is another chance to get found online – and there are a TON of directories you could submit your business to. Some of these are free and some you have to pay for. Here are some of the best directories to be in.

Google My Business

Have you claimed your business on Google yet? This is one of the most important listings. Claiming your business on Google allows you to customize your Google listing, add pictures, respond to reviews, and control what people see when they search your business on Google. Google even has an app that allows you to make changes from your phone. Once you’ve claimed your business you’ll need to go through their verification process via postcard or phone.

Sign-up here


Yelp is a crowd-sourced review site that helps consumers make better decisions based on reviews by the community. You should make sure that you have your Yelp profile claimed and customized. Just like Google, you can add photos, respond to reviews, and customize your business listing. You can also run ads and submit events.

Sign-up here


Bing is an alternative search engine to Google and has its own business listing service. To get your business on Bing you’ll need to claim you profile, customize your listing, and then go through their verification process.

Sign-up here

Better Business Bureau

The Better Business Bureau is a nonprofit organization focused on advancing marketplace trust. They collect and provide free business reviews and serves as an intermediary between consumers and businesses. There is a local BBB chapter in every city.

Learn more here

Angie’s List

Much like Yelp, Angie’s list is an online directory that allows users to read and publish crowd-sourced reviews of local businesses and contractors. As a business, it’s free to claim your profile.

Claim your profile here

Social Media

Social media channels like Facebook and LinkedIn are just as much a directory as they are a social platform. Make sure you have a presence on the relevant and popular sites so that you are searchable. Facebook, LinkedIn, Nextdoor, Twitter, and Alignable are all important.

Other Directories

While this is not an exhaustive list, here are some other directories to spend time adding your business to.

  1. Merchant Circle
  3. Whitepages
  5. Yellowbook
  6. CitySearch
  7. MapQuest/Yext
  9. Manta

For any of these directories, make sure you go beyond adding your name and contact information. Fill out your profile completely, add categories, add images, add your business hours, etc.



Sunday, July 30, 2017

‘Trump Effect’ appears to have cost states tax money


Every taxpayer is well aware of the length of the federal tax tentacles. What Congress does to the Internal Revenue Code affects state taxes, too.

And it’s not just the residents who live in the states who are affected. It’s the states themselves.

Even before any tax code changes have been made, many are already feeling the Trump Effect on their treasuries.

“April income tax returns brought bad news for state budgets,” according to the Rockefeller Institute of Government. “Payments with tax returns usually arrive in April and early May, and often they are surprising. By mid-to-late May, states know whether those payments were surprisingly good or surprisingly bad. The news often comes as states are finalizing the budget for the new fiscal year, complicating this already challenging task.”

This year, the news was not good.

Tax take lower in most states this year: The Rockefeller Institute collected data from 41 states with broad-based income taxes. This April, total state income tax revenue was down 4 percent compared to the previous year, driven by declines of 7.3 percent in final returns and 4.3 percent in estimated payments.

Those reduced tax collections more than offset the 5.3 percent growth in withholding tax collections.

Overall, April income tax revenue fell in 24 of the 41 states for which the public policy think tank obtained data.

“Although many states had forecasted declines in April and May, they were worse than expected,” noted Donald J. Boyd and Lucy Dadayan, who examined the data for the research arm of the State University of New York (SUNY) and compiled the report, released July 17.

The tax receipt declines were largest in the New England and Mid-Atlantic states, followed by Southern states. The only good treasury news came from the Great Lakes and Rocky Mountain states, where April tax revenue was up from last year.

What does all this spring’s state tax collection have to do with Washington, D.C., and specifically the 45th president?

Although the date is data isn’t complete, Boyd and Dadayan say “strong indications point to a Trump Effect.” It looks like individuals shifted income out of 2016 in the hope of benefiting from promised cuts in federal tax rates that Donald J. Trump proposed during the campaign.

Tax prep, tax effects: Such economic shifts in anticipation of major federal policy changes are nothing new.

When Congress raised the top tax rate as part of the fiscal cliff negotiations in 2012, wealthy taxpayers moved some income into that year so that it would be taxed at the then-lower rates. That income shifting produced a windfall for states in April 2013 when taxes were filed on all that added money.

The following year, however, resulted in a revenue slump as taxpayers had less income subject to the higher federal rates. That carried over to state receipts, too.

Now, higher-income taxpayers must wait to see if Trump and the GOP can deliver on the lower promises made during last year’s campaign.

Tax wait could have more effects: How much lower is still up for debate. Candidate Trump promised to lower the top personal income tax rate from 39.6 percent to 35 percent. He also wants to lower the top tax rate for businesses to 15 percent, giving those corporations a reason to delay taking income.

Then there’s the matter of the 3.8 percent net investment income tax that helps pay for the still (for now) on the books Affordable Care Act. Will Congress make another attempt to repeal and replace Obamacare and its associated taxes? If so, will the Republicans succeed this time and will some ACA taxes remain anyway, as was the case in some GOP proposals?

Also still up in the air is exactly when any lower rates might take effect.

Past tax law changes have taken effect either on the date the bill was signed, a specific date cited in the legislation or made retroactive to a past date, generally the start of the tax year in which the measure became law.

If tax reform (or at least simply lower tax rates, as is looking more likely) takes a while (which also is looking more likely), any changes could take effect next year.

If that’s the case, look for a repeat of what happened in 2016, with wealthy filers pushing money out of the 2017 tax year and into 2018.

And sorry state governments. That would likely produce the same type of revenue hits that you took this April.

You also might find these items of interest:




Thursday, July 27, 2017

What Does the Use of AI in Tax Preparation Mean for Tax Preparers?

AI is the hot technology term these days. It seems to be “disrupting” just about every industry you can think of – including the tax industry. This past tax season, H&R Block partnered with IBM Watson to use its powerful AI capabilities in 10,000 of its U.S. offices. The initial focus of the technology was to help H&R Block preparers recommend deductions and credits to clients.

It begs the question: how far will AI go? Who’s to say companies like Turbo Tax won’t leverage the technology completely eradicate the need for a tax preparer? According to a report by PwC, AI tools could potentially replace the basic capabilities on first and second year tax associates.

The report also predicts that AI will be able to optimize the best outcome and course of action for large companies with lots of data. It can help by taking large sets of data like supply chain data, SKU level sales data, tax data, and external environment data and use it to optimize effective tax rates (ETR) and tax efficient profitabilities.

Does this mean it will replace human tax preparers? We don’t think so. AI can do a lot but here are some things it can’t do:

  • Represent taxpayers in front of the IRS.
  • Reassure taxpayers when they think all hope is lost.
  • Answer the one million questions a taxpayer may have.
  • Provide personalized customer service.

What you should be excited about

While Block seems to have the advantage right now, it doesn’t mean all hope is lost for smaller tax preparation firms. There’s actually a lot to be excited about.

First, think of the data and historical patterns that could be uncovered if the IRS was to adapt the technology? There’s a lot that could improve in terms of customer service and industry data.

PwC principal and tax technology and process leader Michael Shehab, “What has been missing in this industry for a long time, and what we’re really focused on, is not just delivering a tax return but delivering the analytics associated with the tax return. We’re trying to make the tax return preparation process more efficient, but we’re also trying to make it higher value added rather than simply delivering a tax return.”

Second, there’s a lot of time that could be saved with AI as your tax assistant. Categorizing and processing information that has different formats, statistical modeling, tax research, generating K-1 schedules, etc. Using AI to automate repetitive tasks could help tax preparers elevate themselves to do more reviewing rather than being bogged down with data and paperwork each season. This could have huge impacts at the corporate level when there’s a lot more data to deal with.

How to avoid being replaced by a robot

Tax preparers should really be looking to arm themselves with as much tax knowledge as possible. Competition is already steep when it comes to preparing taxes for the general public. You’re competing with tax software, national firms, and everyone else who “hangs a shingle”. But there will always be a need for Enrolled Agents, who have the highest designation in the industry and are the only industry professionals who have unlimited representation rights in front of the IRS. The more tax education you can get the better. When tax trouble comes knocking, taxpayers will always opt to do business with a person over a computer.

So how do you attain that knowledge? Our Chartered Tax Certificate Program is a clear path to Enrolled Agent. You’ll learn everything you need to know to prepare yourself for the SEE (Special Enrollment Exam). Here’s how it works:

Path to Enrolled Agent



Ryan Foresees Tax Reform Legislation This Year

Today, House Speaker Paul Ryan released a joint statement on tax reform  (from the six folks working behind the scenes on tax reform - Ryan, Brady, McConnell, Hatch, Mnuchin and Cohn). Here is the portion about tax changes:

"We have always been in agreement that tax relief for American families should be at the heart of our plan. We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones. The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas. And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base. While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform."

So, it appears that the plan will:

  • Not be a consumption tax as proposed last June by the House Republicans. Thus, sounds like the plan will allow a deduction for imports and tax export revenue, and allow a deduction for interest expense of businesses. And, expensing of business assets is not a given, but there may be non-consumption tax reasons for allowing such expensing.  Also, with asset expensing, it's likely not all business interest expense will be deductible (assuming asset expensing is in the final plan).
  • Looks like both businesses and individuals will get a rate cut. How much of a tax reduction that translates to depends on what changes are made to deductions and credits, the AMT, and for higher income individuals, what happens to capital gain rates and the net investment income tax. 
  • And likely a shift to a territorial system as Senator Hatch noted recently that this has bipartisan support and was part of both the House plan and President Trump's 1-page plan.
But, still lots of questions including what revenue neutral reform means in terms of how much base broadening will be need and how the effect of changes are measured. The President's budget proposal (page 115) "assumes deficit neutral tax reform." What is the best change approach for economic growth? Will the drafters wait for Senate Finance Committee to review the ideas they received in July?

#trih - tax reform is hard

But with continued hearings, discussion, and work likely already underway on drafting legislative language, perhaps we will see a proposal this year.  And, rate reduction, base broadening and a shift from worldwide to territorial all mean major changes and rethinking for tax compliance and planning. And we'll also need to see what the states do in response to any federal changes.

What do you think?


Tax holidays are popular, but bad tax policy

Thursday, July 20, 2017

Colorado has collected more than half a billion in pot taxes

ACA tax hits the court

This is the first case I've seen dealing with application of the Affordable Care Act (ACA). Yes, we had cases in the U.S. Supreme Court dealing with legality of some of the taxes and mandates, but this July 12, 2017 decision from the U.S. Tax Court gets at application of the advance Premium Tax Credit (APTC). When an eligible person purchases health insurance on the exchange (such as Covered California), and their household income is 400% or less of the federal poverty line, they get a credit that can be applied to the monthly premiums (by having the government send the money directly to the insurance provider) or claimed when filing that year's income tax return.

If you get the credit in advance and it turns out your income exceeds 400% of the federal poverty line, you have to pay the entire advance credit back!  That can be a hefty bill, as the Walkers discovered.

In Walker, TC Summary Opinion 2017-50, the court agreed with the IRS that the couple owed $12,924 for 2014 because their modified AGI exceeded 400% of the federal poverty line making them ineligible for the PTC that Covered California provided to them in advance. The IRS had originally also assessed a §6662 penalty of $2,584, but dropped that,

The couple’s monthly premium before the APTC was $1,378 but only $301 with the APTC. On their 2014 return, they reported AGI of $63,417 which included wages, retirement earnings and taxable Social Security income. After the return was filed, the couple separately filed Form 8962 for the PTC reconciliation. That form showed modified AGI of $75,199 (included the non-taxable Social Security income). As this exceeded 400% of the FPL, they were ineligible for the PTC. For 2014, the FPL for a family of two in California was $15,510; 400% of this amount is $62,040.

The couple told the court that if they had known they did not qualify for the PTC, they would not have purchased the insurance. While the court noted that Covered California may have erred in its information provided to the couple, the statute is clear that a taxpayer with income above 400% of the FPL may not claim a PTC.

That's a harsh result, but what the law provides. The exchange is supposed to use past tax return information along with information from the individual to determine eligibility. It sounds like the Walkers are retired (but not on Medicare which would make them ineligible for the exchange and PTC). A good question that should been asked of this couple was whether they might continue to have some earned income despite being retired. That is what may have put them over the 400% of the FPL (wages or perhaps a larger than planned withdrawal from their retirement plan).  They should have been counseled to take a much smaller APTC and to check their income monthly to see if they should be getting an APTC at all.

And note that the Walker's PTC is high because insurance costs more for older couples. However, affordability is still tied to 400% of the FPL even though when insurance costs more, you need much more income to pay for it. The law expects that the Walkers can use 22% of their income here to pay for health insurance! This is one of a few fixable flaws in the PTC.

One small potential consolation that I think is only explained in the  IRS Publication 502 on medical expenses is that the PTC paid back by the Walkers is treated as a health insurance payment rather than a tax. They can deduct it if they have enough to itemized and to the extent their medical expenses exceed 10% of AGI. This might not yield any deduction for them though and doesn't make up for the fact that they would have skipped the insurance if they had know they were not going to get a subsidy to help pay for it.

There are likely many other taxpayers in this situation.  If such individuals filed their return correctly, the payback of excess APTC will show up. If they fail to do the reconciliation, the IRS has enough information from the 1040 and Form 1095-A to determine how much, if any, needs to be paid back.

What do you think? Is there a better way to help a couple like the Walkers? 


Expand Your Social Media Arsenal This Summer

Facebook, Twitter, LinkedIn… these are the three standard channels we all think of when it comes to social media marketing. But they aren’t the only ones. There’s also Instagram, Snapchat, YouTube and Pinterest (to name a few). Social media has a major force in marketing and communications – one that tax preparers should not be ignoring.

Beyond the most popular three, there are some channels growing in popularity that could be effective marketing tools for tax preparers. What better time to learn and test these tools than during the summer months when business is slower? No, we’re not going to try to sell you on Snapchat. We’re talking about Alignable and Nextdoor. Here’s what you need to know about them.


Alignable is a networking platform for small businesses that focuses on building relationships locally. The platform goes beyond asking people for recommendations and connecting to other businesses. On Alignable you can:

  • Ask questions
  • Show off your expertise by answering questions
  • Get and give recommendations
  • Tell your story and explain your services
  • Connect your Facebook page
  • Rate the services you use
  • Research other services like Mailchimp and Yelp by looking at their ratings
  • Highlight upcoming events and promotions

The platform uses geolocation features to recommend other businesses in your neighborhood to connect with. Use these to find and recommend people you already do business with, and find new people to meet and network with online. It’s a great way to get to know the businesses around you and a great tool to help share your expertise or ask others for theirs.


Nextdoor is a social network designed to connect you with your neighbors and community in order to build stronger, safer neighborhoods. It’s hyperlocal, and a great resource for communicating what’s happening (i.e. alerting people to a lost dog, a garage sale, a plant exchange, etc.).

Local businesses are just as important to the neighborhood as residents are so, in addition to having a personal account, you can claim your business. Once claimed, businesses can get recommendations, include information about their location and hours, and reply to comments and messages. Nextdoor doesn’t require as much attention as other platforms but is a passive way of getting referrals and recommendations from locals who love you.

Unlike other social media platforms, these two don’t require a constant need for writing posts. Claim your business on these channels and give them a whirl! If you’re already using them we’d love to hear what you think.



Wednesday, July 19, 2017

House Budget Plan and Tax Reform

Adoption tax breaks help cover costs of adding to your family


If you've been paying attention to Donald Trump Jr.'s meeting with some Russians last summer, you know the White House has given two reasons for the get-together. The explanation that caught my tax eye was that the group talked about adoptions.

The president's oldest son said that one of the Russian nationals came to Trump Tower to lobby for reversal of the Magnitsky Act. The law gets its name from attorney Sergei Magnitsky, who died in 2009 while being held in a Moscow prison.

Foreign fight, domestic family effects: In 2012, the U.S. law bearing Magnitsky's name was enacted. It froze the assets and banned entry of 18 Russian officials believed involved in corruption that Magnitsky helped expose. Russia retaliated by banning U.S. citizens from adopting Russian children.

Mention of Magnitsky immediately reminded me of his conviction on tax evasion charges by a Russian Court — two years after he died.

The talk of adoption also got me thinking about the tax breaks available to U.S. citizens who use this legal process add to their families. And Uncle Sam's help is definitely welcome, so it's this week's Weekly Tax Tip.

Tax help for costly family additions: Data compiled by the Child Welfare Information Gateway found that in 2016 parents who work with a private agency to adopt a newborn, either domestically or from another country, could pay as much as $40,000.

However, the Internal Revenue Code helps eligible adoptive parents cover some of the costs of adding to their families.

Some employers provide a tax-free adoption benefit. There's also a sizable adoption tax credit.

For the 2017 tax year, a company can provide eligible employees up to $13,570 in tax-free assistance to go toward adoption costs. The amount is adjusted annually for inflation.

In addition, parents in 2017 can claim an adoption tax credit of $13,570 when they file their returns.

Some tax break restrictions: The good news for people seeking to add to their families via adoption is that this tax credit — which provides a dollar-for-dollar reduction in any tax liability — is per child.

The slightly bad news is that the adoption tax credit is nonrefundable. That means it can only erase the amount of tax you owe, not get you a refund if the credit is more than your tax bill.

Still, zeroing out a tax bill is always a good thing. And there's a silver tax lining. Any excess tax credit may be carried forward for up to five years.

Depending on the adoption's cost, you may be able to claim both the tax credit and the income exclusion from your employer.

However, you must use any allowable exclusion amount before you file for the adoption tax credit. And you can't double dip; that is, you cannot claim both the credit and exclusion for the same expenses.

Income limits tax benefits: Both the tax-free employer provided adoption assistance and the tax credit also are affected by the new parents' earnings.

The amount of both tax breaks begins to phase out when the new adopting taxpayer's modified adjusted gross income (MAGI) is more than certain limits, also adjusted for inflation each year.

In 2017, that earnings threshold is $203,540 regardless of filing status. The tax-favored assistance ends totally once the adoptive parents' MAGI hits $243,540.

Credit for qualifying kids: Of course, there also are rules regarding your new family member. To claim the adoption tax credit or use the workplace benefit, you must adopt or try to adopt an eligible child.

The Internal Revenue Service defines an eligible adopted child as a youngster age 17 or younger. Though not as common, the IRS says an eligible adoptee also can be an older person who is physically or mentally incapable of caring for him- or herself.

If you're looking to adopt a U.S. child, the IRS defines this youth as one who was a citizen or resident of the United States (including possessions) at the time the adoption process began.

There also are special rules for adoption of a U.S. child with special needs, you may qualify for the full amount of the adoption tax credit even if you paid few or no adoption-related expenses, once the adoption is final.

A special needs child is one whom a U.S. state or county child welfare agency has determined is not likely to be adopted unless the government provides assistance to the adoptive family. Foreign children aren't considered to have special needs for purposes of the adoption credit.

Timing of claims: When you can claim your adoption expenses and how much is affected by whether you adopt U.S. child, a special needs youth or a youngster from another country.

For domestic adoptions, before the adoption is final you claim eligible expenses (more on these is coming up) in the year after you paid them. Once you're officially a new family, you claim expenses incurred that year on that year's tax return.

And if for some reason the adoption doesn't go through (so sorry), you still can claim the costs you incurred in trying to add to your family.

The rules for a foreign adoption are slightly different. In these cases, any costs you paid cannot be taken until the year the adoption is final.

Whether you adopt a U.S. or foreign child, once your adoption is completed, any expenses you incur after that can be claimed in the year they are paid.

In the case of a special needs adoption, you may qualify for the full amount of the tax credit once the adoption is final even if you paid few or no adoption-related expenses.

Allowable adoption expenses: OK, you know when to claim your adoption expenses. Now just what costs can you count toward the adoption credit?

Qualified adoption expenses are what the IRS calls "reasonable and necessary" adoption fees. These include:

  • Adoption fees,
  • Court costs,
  • Attorney fees,
  • Travel expenses, including amounts spent for meals and lodging while away from home, and
  • Other expenses directly related to the legal adoption of an eligible child.

You cannot, however, count expenses for adopting your spouse's child or for a surrogate parenting arrangement.

More issues, more info: In keeping with the complexity of adopting a child, claiming the tax credit or income exclusion can get tricky.

You can find additional details on the adoption tax credit in Form 8839, which you file to claim the tax credit, and its instructions, as well as in Tax Topic 607, Adoption Credit and Adoption Assistance Programs.

The IRS also has an online app that helps you determine if you're eligible to claim the adoption tax credit or exclude from your income any assistance you got in adopting.

State adoption assistance, too: Finally, don't forget possible state tax help.

Some states offer similar types of tax credits or deductions for adoptive parents. Check with your state's tax department, the North American Council on Adoptable Children (NACAC) or the Child Welfare Information Gateway.

You also might find these items of interest:




Monday, July 17, 2017

Tax filing emojis to consider on World Emoji Day

Are California taxes high?

California State Sales Tax Rate Breakdown. Most cities also have sales tax making the total rate higher,
such as 9.25% in San Jose.

Are California's taxes high? I was asked this question recently by a reporter with Politifact California. Assemblymember Travis Allen who is running for governor had stated that California had the highest taxes. His website says that California has the highest personal income tax and state sales tax rates. [Chris Nichols article of 7/11/17]

If just looking at the rate structure, those are correct statements. The Federation of Tax Administrators posts helpful and current tables of the PIT and sales tax rates among the states.

So far as the California personal income tax though, less than 5% of individuals are at the highest rate of 13.3%. Many Californians owe little or no state income tax because the exemptions in California are fairly high.

But, everyone pays the sales tax, directly and indirectly.

When a state has high tax rates, it is due to two possible reasons (and perhaps both at the same time):
  1. A narrow tax base
  2. Lots of spending
A narrow tax base is certainly the reason for California's high sales tax rate. We only tax tangible personal property and then not even all of that. We tax almost no personal services, entertainment or digital goods. This also makes the tax system inequitable, non-neutral and inefficient because the exempt consumption tends to be that of higher income individuals.

What do you think?


Thursday, July 13, 2017

IRS Launches New Educational Series on Cybercrime


Taken from the IRS notice: an example of a spear phishing email that targeted a tax professional during the 2017 filing season

We’ve been talking a lot about phishing scams and tax fraud lately. It’s a very serious problem that has lots of people in the industry talking – including the IRS. Cybercriminals have become increasingly sophisticated, which means taxpayers and tax professionals need to become more educated about how these scams work. We talked about this in the blog a few weeks ago: Would You Take the Bait? Why Phishing Scams Should Concern You.

This week, the IRS announced the launch of a new cybersecurity awareness effort designed to educate tax pros, who are one of the most targeted groups when it comes to cybercrime.

Don’t Take the Bait

The Don’t Take the Bait Series is part of US-CERT’s “Protect Your Clients, Protect Yourself” campaign. This 10 week campaign covers spear phishing emails, business identity theft, account takeovers, ransomware attacks, remote takeovers, business email compromises, and Electronic Filing Identification Number thefts.

Since the IRS and other agencies have taken measures to make sure cybercriminals don’t get their hands on sensitive information or file fraudulent returns and collect taxpayer money, cybercriminals have set their sites on a new target: tax professionals who also have the necessary info to steal someone’s identity.

In fact, according to the IRS, there were 177 tax professionals or firms that reported data thefts from January through May of this year. That’s thousands of stolen taxpayer data! The IRS is currently receiving 3-5 data theft reports per week from tax professionals.

According to Commissioner Koskinen, “We continue to see new and evolving threats involving data breaches, intrusions and various takeovers that put people’s personal information at risk. These efforts are increasingly targeting tax professionals and businesses with tax information. Too many still overlook basic security steps needed to protect their data. As part of this, we urge the tax professional community: Beware your inbox. Don’t take the bait from these phishing scams.”

If you haven’t already, take a look at their first news release, that lays out what a phishing scam is and how to identify it: Don’t Take the Bait, Step 1: Avoid Spear Phishing Emails. It’s extremely informative and helpful! Look for these releases each week through the end of the IRS Tax Forums in September.

For more education on cybercrime and tax fraud, check out these resources:

Avoiding Social Engineering and Phishing Attacks

Season of Risk: Preparers Face Malpractice Suits

Protect Yourself and Your Clients from Cybercrime

What Kind of Idiot Gets Phished?




California couple must repay almost $13,000 in Obamacare advance premium tax credits

Wednesday, July 12, 2017

Becoming a Tax Business Owner Doesn’t Take Much

Set your own schedule.

Make your own rules.

Answer only to your clients.

Who doesn’t want to be their own boss, right?

If you’re getting into, interested in, or are already working in the tax industry, you may be surprised at what little it takes to start your own business as a tax preparer. Getting started is easy so long as you have the education and courage to take that leap. In this blog post we will lay out the bare minimum necessities to become an independent tax preparer.



The first step is an education. You can start with a basic tax education and earn money preparing returns for the general public while learning to prepare more complicated returns (that will earn you more money).

Our Comprehensive Tax Course is a great place to start.


PTIN Number

PTIN stands for Preparer Tax Identification Number. This number is required by the IRS for anyone who prepares or assists in preparing federal tax returns for compensation.

Check out the IRS’s PTIN Application Checklist to find out more.



Before you can electronically file tax returns, you must apply to become an Authorized e-file provider with the IRS. Once you are approved, you will be given an IRS Electronic Filing Identification Number (EFIN) so you can e-file tax returns.


Business License

Of course, if you are going to do business, you will need a business license. These are very easy to obtain and can be done by going down to your local city or town hall.

SBA’s guides to obtaining a business license



You’ll also need a computer to run tax professional software, communicate with clients, etc.


Professional Tax Software

Choosing professional tax preparation software will depend on what type of tax returns you will be preparing and what you can afford. You can choose anything from a simple pay-per-return package, to a basic tax software package that will enable you to prepare simple returns, to a very advanced tax program that will allow you to prepare all types of tax returns with many bells and whistles.

Read our blog post on choosing suitable software.


That’s it. Those are the bare minimum essentials for starting your own business as a tax preparer! Get off the ground before tax season and let us help you grow with education and tax practice management tools.



More Great Reads:

Should You Work From Home?

How To Start Earning Money As A Tax Preparer

5 Easy Ways To Establish Clientele As A New Preparer



IRS to seek stay in PTIN fee collection court ruling while it ponders its additional legal options

Friday, June 30, 2017

5 Reasons Tax Preparation is a Great Career for Service Members and Military Spouses

Finding a career path can be hard if you or your spouse is in the military. You never know when your schedule is going to change or when you’re going to have to relocate. When both your schedule and location is at the whim of someone else, your options can be limited.

In our 30+ years of teaching tax preparation and running a tax preparation business, we’ve found that tax preparation is a great career for military members, veterans, and their spouses! Here are 5 reasons why:

  1. It’s portable.
  2. You have flexibility.
  3. It’s an affordable fast track to a professional career.
  4. It has high income earning potential.
  5. There’s a military discount!

You Can Do It From Anywhere

For military members and their spouses, relocation is inevitable. Finding a job or career you can take with you is not always easy to come by. Tax Preparation is a great option because of the portability! You can be a tax preparer anywhere – wherever there are U.S. taxpayers, there is a need for tax preparers. That includes bases overseas.

If you’re a military spouse, a great way to start getting clients is to offer your services at the military base and then expand your client list from there. Tax clients typically continue to ask their tax preparers to do their returns remotely if they or their tax preparer relocates. Remote tax preparation is very easy using the Internet, phone and e-mail. Real-time interviews can also be conducted by web-cam, Skype, or FaceTime.

You Have Flexibility (+ Summers and Holidays Off!)

Since most tax preparation offices are open days, evenings and weekends, tax preparers have options when it comes to schedules. If you decide to go out on your own, you can choose your own hours as well. In addition to the flexible schedule, many tax preparers also have their summers off and don’t work on major holidays since tax season is mid-January through mid-April. This works great for military spouses with children at home in the summer months and holiday breaks! This is also great for retired military and veterans who no longer can/want to work full-time and/or year-round.

Fast Track to a Professional CareerFast-Track-Tax-Education

So many career paths today require years of schooling and are very expensive – leaving you burned out and in debt! A career as a tax preparer is possible in as little as 10-weeks by completing The Income Tax School’s online 60-hour Comprehensive Tax Course, which starts at just $497.

In addition, you don’t need to know accounting or high level math. You don’t even need a college degree! We teach you everything you need to know. The most important attributes for success as a tax preparer are the ability to read and comprehend the tax laws and excellent people skills. If you’ve got that going for you, you’re golden!

High Income Potential

As an experienced tax preparer working for someone else, you may earn $25 per hour or more, and self-employed tax professionals can earn more than $100 per hour. During the 3-month tax season (mid-January to mid-April) it’s possible for a self-employed tax preparer to earn $50,000 or more.

Year-round income opportunities also exist for tax preparers who provide taxpayer representation or related services such as small business bookkeeping, payroll and financial planning. In addition, the more tax knowledge you acquire, the more complicated returns you will be able to prepare, and the more income you can make!

Learn more about how to get started as a tax preparer today!

5. We offer Active Military and Veteran Discounts

Active Military Personnel and Veterans, as well as their spouses, save 20% on e-learning tax courses, seminars and certificate programs.

Not valid with any other offers. To qualify, please scan valid military ID and email or fax (1-877-787-1040) to The Income Tax School. Please call 1.800.984.1040 to register for discounted elearning tax courses or programs once valid ID has been received at The Income Tax School.

What are your waiting for? Get started on the fast track to a rewarding career as a tax professional today!



Georgia cancels its 2017 back-to-school sales tax holiday

Tuesday, June 27, 2017

Senators introduce bill to punish prescription price gouging

The Common Denominator In Most Tax Scams

There’s a new tax scam on the rise that is being reported across the country. Fraudsters are getting extremely creative and will stop at nothing to fool the public into getting what they want: your money. In these new scams, criminals are calling taxpayers over the phone and demanding they make an immediate payment via prepaid debit card, claiming it’s linked to the EFTPS (Electronic Federal Tax Payer System). The person will claim to be from the IRS and insist that they have already sent two certified letters that have been returned as undeliverable. They threaten arrest if they do not pay immediately. The victim is also warned not to contact their tax preparer, an attorney, or the local IRS office until after the payment is made.

We know, reading this sounds so bogus but remember, lots of people fall for scams. We wrote about this recently: Would You Take the Bait? Why Phishing Scams Should Concern You.

The common denominator for tax related scams is the instruction to make a payment, usually to a debit card.

According to IRS Commissioner John Koskinen, “Scams and schemes don’t take the summer off.” It’s important to stay vigilant and to keep your clients in the loop about the latest scams. That’s why we created the Tax Scam Roundup, a list of scams as they come up (we’ll be adding this recent one to the list). Check it out here: Tax Scam Roundup: Know What You’re Up Against.

Here are some facts to share with your clients:

While the EFTPS is a system for paying federal taxes, it does not require the purchase of a prepaid debit card. The system is automated and taxpayers will never receive a call from the IRS about it.

Making payments electronically is risky. If you make a payment to the IRS by mail, make sure to verify the IRS address in Washington, DC and make the check payable to “Internal Revenue Service” (not “IRS”). A check issued to IRS might be changed to a different name, such as MRS MARY JONES.

The IRS will never angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.

For more on protecting yourself and clients from tax scams, check out this post: Protect Yourself and Clients from Cybercrime.



Sunday, June 25, 2017

One Year Anniversary of House Republican Tax Reform Blueprint

On June 24, 2016, the House Republicans released their "A Better Way" blueprint for tax reform. Obviously as part of an election strategy. On November 9, 2016, with Republican victories all around, I thought there would be fast track activity to draft legislative language to be released early in the 115th Congress.  We haven't seen any legislative language yet although I suspect some exists.

The details of the plan can be found in the full report of the Republicans and a July 2016 article I have on it. The blueprint seems to have hit a few roadblocks, most notably the tax on imports. Note that this is not a tariff. Instead, imports are taxed by not allowing a deduction for them. Likewise, exports are tax-free by removing export revenue from the tax base. The goal is to make the business tax a consumption tax that can be border-adjustable (per the report).

Many taxpayers are not in favor of the import treatment, most notably retailers with lots of imports, as well as oil companies (and others). For example, see the National Retail Federation's website on "BAT is a Bad Tax." [BAT = Border Adjustable Tax]

The import tax though generates a lot of revenue to help pay for lowering the corporate tax from 35% to 20% and the maximum tax on passthrough business income from 39.6% to 25%.  So, it is an important part of tax reform.

The blueprint includes several simplifications and several open questions to be resolved. Drafting legislative language is difficult as changes have effects on several other parts of the law, transition rules must be addressed, and there were several questions left open in the report.

Meanwhile, it it not identical to President Trump's plan and the Senate doesn't yet have a formal plan. However, this past week, Senate Finance Committee Chairman Hatch formally asked for suggestions - due by July 17.

Also, on June 20, Speaker Ryan delivered a speech on tax reform to the National Association of Manufacturers. He would like to see tax reform by the end of 2017 [CNBC, "Speaker Paul Ryan tries to save 'crown jewel' of GOP agenda: Tax reform," 6/20/17.]

There are additional agenda items for Congress and President Trump for this year, including work on the Affordable Care Act, passing a budget, and dealing with the debt ceiling.

What do you think? Will we see tax reform by the end of the year?


Bill collectors accused of using financially dubious tactics to collect unpaid IRS debts

Friday, June 23, 2017

Fee-free PTINs are available again at IRS website

2017 IRS Tax Forums

The 2017 IRS Tax Forums are approaching. Have you registered for one yet? Dates/locations include:

Orlando, FL: July 11-13 

Dallas, TX: July 25-27

National Harbor, MD: August 22-24

Las Vegas, NV: August 29-31

San Diego, CA: September 12-14

As you may already know, attending the IRS Tax Forums provides you with the opportunity to earn up to 18 CE Credits from over 37 seminar classes. But you can get that from multiple other sources. In our minds, there are 2 unique benefits to attending the Tax Forums.

Peer to Peer Interaction

Thousands of tax professionals attend these seminars each year. Where else can you get that kind of interaction with fellow tax professionals and tax business owners from various other parts of the country? Having peers to talk to about the challenges you face in the industry is extremely important for growth and sanity.

Learn about the latest products

The IRS does a great job of wrangling up tax vendors from across the country. Attending the forums gives you an opportunity to visit with multiple tax industry vendors, all in one place, and obtain detailed product and service information and demonstrations. Where else can you learn about the latest products and get to test them in person?

Here’s another bonus: our team attends all of them. Come learn more about The Income Tax School and meet our team in person!

Click here for details on the forum.

Hope to see you there!



Thursday, June 22, 2017

Senate mostly follows House plans to kill Obamacare taxes

Testimony to Senate Small Business Committee for AICPA

On June 14, 2017, I had the privilege to testify on behalf of the AICPA before the Senate Committee on Small Business & Entrepreneurship. The title of the hearing - Tax Reform: Removing Barriers to Small Business Growth. A goal of the hearing was for this committee to help the Senate Finance Committee know that they want to be sure tax reform helps small businesses and that such businesses are not forgotten in efforts to reduce the corporate tax rate.

The AICPA's written testimony is at the hearing page and AICPA website. There is a good summary of the hearing in Accounting Today, "AICPA tells Senate corporate tax cuts should also go to small business," Michael Cohn, 6/14/17.

In my 5 minutes, our AICPA testimony focused on:

  • Any rate reduction should apply not only to C corporations but also to other entity types (sole propreitors and passthrough entities).
  • The cash method of accounting should not be limited.
  • Small businesses should be allowed to continue to deduct interest expense.
  • The Section 195 start-up expensing amount should be inccreased.
  • The AMT should be repealed.
  • IRS should be modernized and a new executive-level practitioner services unit formed.
  • S. 540, mobile workforce legislation should be enacted (note that HR 1393 passed in the House on 6/21/17)

There is a video of the hearing at the committee website. It was an enjoyable experience and a nice opportunity to discuss tax reform and small business and hear of the concerns of the committee members.

What do you think about tax reform and small businesses?


Saturday, June 17, 2017

Disney: Unhappiest property tax place on Earth

Walt Disney World balloon seller_Davidlohr Bueso Flickr CC 111914
Walt Disney attorneys contend that the values of its properties are as inflated as these Disney World balloons and have gone to court to get new assessments. (Photo by Davidlohr Bueso via Flickr)

Walt Disney's namesake recreational areas have built their vacation reputations on being the happiest places on Earth.

But the company's tax lawyers are in decidedly bad moods after getting what they say are excessive tax year 2016 property value assessments of their Sunshine State parks.

So Disney is taking the Orange Country, Florida, property appraiser to court.

Dozens Disney tax suits: Disney Parks and Resorts have filed nearly a dozen tax-related lawsuits in Orange Circuit Court, according to the Orlando Sentinel.

The legal actions contend that Orange County Appraiser Rick Singh's analysis exceeded the Disney properties' fair market value and incorrectly "included the value of certain intangible property in the assessments."

The tax assessments in question, according to court documents, include are Disney's Epcot at $446 million, Magic Kingdom at $437 million, Hollywood Studios at $339 million, Caribbean Beach Resort at $209 million and Animal Kingdom Lodge at $153 million.

In a statement to the Orlando newspaper, a Disney spokesperson said:

"The increases in the assessments of our property are unreasonable and unjustified. Similar to other property owners in Orange County, we have no choice but to take action to dispute these errors by the property appraiser. We look forward to presenting our case in court."

In addition to Singh, the Disney lawsuits name as defendants Scott Randolph, Orange County tax collector; Leon Biegalski, executive director of the Florida Department of Revenue; and the Reedy Creek Improvement District, the Disney-controlled government agency that collects its share of taxes from the Disney properties.

Disney is seeking "proper" fair market and assessed values to be determined so it can receive a new tax bill. The company also wants to be reimbursed for courts costs.

Standard tax operating procedure: Singh declined to comment on the latest pending tax litigation, but it's not the first time he's done tax battle with Mickey and friends.

Last fall, Disney, as well as other Orlando-based theme parks operated by SeaWorld and Universal, took the property appraiser to court over allegedly incorrect property values upon which their 2015 real estate taxes were based. Those suits are still pending.

You also might find these items of interest: