Wednesday, May 31, 2017

Would You Take the Bait? Why Phishing Scams Should Concern You

Who really falls for a phishing scam? 

It’s probably a question you’ve asked yourself or said to a friend or colleague.

People fall for phishing scams all the time, it’s why they continue to happen. Sure, there are a lot of “Nigerian Prince” emails that get sent. These are the most obvious and well known but they aren’t the only scam running these days. There are multiple ways to get phished – some of which can be extremely convincing.

The question, “What Kind of Idiot Gets Phished?” was recently posed on Reply All, a podcast that covers all things internet related. The host basically hired someone to phish her coworkers and guess what? It worked. The host’s extremely skeptical and intelligent coworkers took the bait and gave up their passwords to a very high tech and convincing scam.

Professional hackers can do everything from impersonate email addresses to impersonate trusted sites like Google or Dropbox. The podcast is definitely worth a listen. They explain how phishing scams work, and how they were able to phish their boss and CEO.

Give it a listen here: Reply All: What Kind of Idiot Gets Phished?

It’s important to stay up to date on the latest scams, to warn your clients, and to train employees on security best practices. Here are some other resources to check out.

7 Ways to Keep Client Data Secure

6 Common Phishing Attacks and How to Protect Against Them

Refund Scam Round-up: Know What You’re Up Against

Protect Yourself and Clients from Cybercrime

How to Protect Your Client Information

Are You Covered in the Event of a Data Breach?




Private tax bill collectors already breaking rules says TIGTA

Saturday, May 27, 2017

Memorial Day tax holidays offer LA & TX shoppers savings

Gig Workforce and Portable Benefits

On May 25, 2017, Senator Warner (D-VA) and Congresswoman DelBene (D-WA) introduced H. 1251 and H.R. 2685, Portable Benefits for Independent Workers Pilot Program Act. It calls for $20 million of grant dollars for states to study and pursue innovative ways to provide portable benefits to "the growing independent workforce."

Per Senator Warner: "Whether by choice or necessity, a growing number of Americans are working without a safety net and have difficulty planning and saving for retirement, health care needs, or on-the-job injuries. The nature of work is changing rapidly, but our policies largely remain tied to a 20th century model of traditional full-time employment.” “As more and more Americans engage in part-time, contract or other alternative work arrangements, it’s increasingly important that we provide them with an ability to access more flexible, portable benefits that they can carry with them to multiple jobs across a day, a year, and even a career. These incentive grants will accelerate experimentation at the state and local levels to better support a more independent 21st century workforce.”

This is a good idea, but puzzling as to why they don't address this at the federal level given the number of provisions regarding workers that exist at the federal level. For example, only employees get unemployment benefits, not contractors. Retirement plans differ for employees versus contractors. Why not modify these rules to address the fact that even if someone is an employee rather than a contractor, they will have numerous employers over their careers. They all need portable benefits.

Why aren't federal tax reform discussions also focused on trends and modernization of our tax system?

What do you think?


House Problem Solvers Caucus -- yes, it's a real group! -- sets sights on passing tax reform, infrastructure bill

Thursday, May 25, 2017

4 Reasons to Focus on Complicated Returns Next Tax Season

This Summer is a great time to evaluate the tax season and make a plan for next season. Beyond staffing and process improvements you should be looking at the services you offer and what you plan to offer or focus on next season.

We’ve been watching the industry and the news closely and have 4 reasons why you should focus on complicated returns next tax season.

Tax Software Competition is High complicated-returns

Tax software has made filing taxes easier and more convenient for taxpayers. Their marketing is aggressive and their apps and software are extremely user friendly. Thanks to the convenience and price point, more and more Form 1040 taxpayers are opting to use software over tax preparation services.

People with complex tax situations are more likely to seek out a professional to make sure that they file properly and pay the least amount of tax liability. So why not target them next season?

IRS Free File

In addition to tax software companies, there’s the IRS Free File option. Taxpayers with an adjusted gross income of $64,000 or less can use the IRS Free File option and essentially bypass the need for purchasing software or hiring a tax pro. It’s estimated that 70% of taxpayers are eligible for this service.

IRS Free File essentially eliminates your 1040 clients but it does not eliminate businesses or individuals with complicated tax situations.

Tax Reform is Coming

One of the big campaign promises of President Trump was to overhaul the tax system and simplify the tax code. The GOP is currently hard at work creating a blueprint for what that system will be. What will be passed is still up in the air but a simplified tax code will mean that filing taxes is going to be a lot easier for the general public. However, those who have to deal with tax complications, such as capital gains, rental property, business income, tax credits, estate taxes, etc. are going to need some tax planning help. Complications and a need for a tax pro are going to be inevitable for those with complicated tax situations.

For more on the possible tax reform, read What Tax Reform Will Mean for Tax Pros.

You’ll Make More Money

Focusing on complicated returns will bring in more revenue because complicated returns come at a higher cost to the taxpayer. They require multiple forms and more time and know-how to prepare.

Spend the off-season finding ways to market to people with more complicated tax situations. For some, that may mean more tax training to acquire the knowledge. Take advantage of our Early Bird Special and save 25% on Tax Courses and CE Seminars so you can be ready to take on more complicated returns.




Sunday, May 21, 2017

Some sales of beneficial insects could be tax-free

Pollen covered bumble bee via Science News-Wikimedia Commons
Bees are critical for pollinating not just flowers, but food crops. That's why in some cases, states exempt them and other beneficial insects from taxes. (Photo via Wikimedia Commons)

Don't squash that bug! It might be worth a tax break.

"While many states offer sales and use tax exemptions for agricultural products used for farming purposes, the states differ in their tax treatment of beneficial insects," writes Emilie Burnette at BNA's SALT Talk Blog. (For non-tax types who found this post by Googling "insect," SALT is the acronym for state and local tax.)

She cites California, where the Golden State's Board of Equalization specifies that sales of beneficial insects and earthworms are taxable. However, people who raise such crawly creatures may purchase feed for them tax-free.

But a couple of states eastward, New Mexico is a bit more bug tax friendly toward some bugs. Land of Enchantment tax law says that sales of insects "used to control [the] populations of other insects" to people in the farming and ranching business are exempt from sales tax.

Note that the sales tax breaks tend to apply only to commercial enterprises.

That means the price of that bag of ladybugs you picked up at your local nursery to take care of the aphids on your backyard rose bushes probably will include state and local tax.

In her post on insects and taxes, Burnette also discusses such things as the tax treatment of insecticides and pesticides. But I thought specific bug taxes would "bee" of more interest to most readers.

You also might find these items of interest:




Saturday, May 20, 2017

Armed Forces Day thanks to our military via celebrations, military-related tax breaks and tax-rewarded jobs

AFDPoster2017_DoDThe first Armed Forces Day was celebrated on this day 67 years ago.

President Harry S. Truman led the effort to establish a single holiday to thank U.S. military members for their service in support of our country.

On Aug. 31, 1949, Truman's Secretary of Defense Louis Johnson announced the creation of Armed Forces Day to replace the separate Army, Navy, Marine Corps and Air Force Days. It was a logical move given the unification under Truman's administration of the Armed Forces under the Department of Defense.

President John F. Kennedy established Armed Forces Day as an official holiday in 1962. It now is observed each year on the third Saturday of May.

If there's a parade or other Armed Forces Day festivities today in your area to honor our men and women in uniform, go, pay your respects and enjoy the event.

Business tax break for hiring vets: If you're an employer, consider showing your appreciation for those who have completed their tours of duty.

There's even a possible tax bonus. Hiring a veteran, including those disabled during their course of service, could provide your business a tax break.

The Work Opportunity Tax Credit, or WOTC, is a long-standing income tax benefit that encourages employers to hire certain types of workers who face significant barriers to employment.

There are now 10 categories of WOTC-eligible workers. They are:

  • Unemployed veterans, including disabled veterans
  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Ex-felons
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Supplemental Nutrition Assistance Program, also known as SNAP or food stamp, recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Qualified long-term unemployment recipients

These 10 categories of WOTC-eligible hires are this week's By the Numbers figure.

Tax credit steps: The credit amount is generally based on wages paid to eligible workers during the first two years of employment.

To qualify for the credit, an employer must first request certification by filing Internal Revenue Service Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in 8850's instructions.

Eligible businesses then claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.

Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C.

The WOTC page at has more information.

Military tax considerations: There also are several special tax provisions for the men and women being recognized today.

They include a later filing deadline in some situations, special consideration in claiming the Earned Income Tax Credit and some state tax breaks, too.

Rather than rewrite these military tax matters, you can find more in my previous blog posts listed below:

A bit of tax help is the least Uncle Sam can do for those who volunteer to put themselves in harm's way to protect the United States. He and I thank you, today and every day.

Sponsored Links


Friday, May 19, 2017

Workplace tax-free benefits help those who bicycle to work every day, not just on National Bike to Work Day

Today, May 19, is National Bike to Work Day, the high point of National Bike to Work Month. 

I didn't bike to work today or any other May day, mainly because I work from home. I just walk down the hall to my office and get started. OK, after first eating breakfast, thumbing through the newspapers and brewing a cup of coffee.

The other reason I don't bike to work is obvious in the photo below.

Our ignored bicycles

Both tires on my bike (the red on in front), as well as on the hubby's, are flat. As flat as the proverbial pancakes. They've been flat so long that that hand pump, partially pictured at the back of the bikes, probably wouldn't even do the job.

Excuses Reasons for no longer biking: We got our bikes when we lived in Florida. Our neighborhood there was flat, filled mostly with retirees who drove around 5 mph, and most of the year the weather was great for a turn through the streets.

Since we arrived back in Texas, our bikes have been unused. Yes, that's because, as you can see, the tires are flat.

But the main reason we've abandoned our bikes to a corner of our garage is that our Austin neighborhood is hilly. Very hilly.

I see competitive bicyclists using it as a training course and if they're struggling there's no way in heaven or hell I could manage these streets on two wheels. Walking them is tough enough.

So I missed Bike to Work Day. But millions participated, many here in Central Texas where it's already 90 degrees and 90 percent humidity. Good for them.

Good also for the companies that offer their environmentally and health conscious employees benefits for biking to work every day, not just a month or one day a year.

Census Bureau bicycle to work graphic

Tax-free workplace commuting benefits: Companies have long offered tax-free commuting benefits to their workers. That's generally reimbursement for parking or taking mass transit.

But many companies also offer bicycle commuting reimbursement.

In 2015, the Census Bureau estimates that nearly 900,000 workers in the United States. rode a bicycle to work, up from about 730,000 in 2010 and 620,000 in 2006.

Employers, if they decide to do so, can provide up to $20 per month to as a tax-free benefit to employees who regularly bike to work.

Officially, the worker must complete a qualified bicycle commuting month. This means that for each two-wheeling employee, a qualifying month is one in which the worker regularly uses a bicycle for a substantial portion of travel between home and work and doesn't take any other transportation benefits.

That means you can't drive to work and get workplace parking compensation or take mass transit and be reimbursed by your workplace for those bus or subway passes and also decide to bike to work on nice days and get the bicycle benefit.

There's some good news, though, on the bicycling benefit. It also can help cover reasonable bicycling expenses, which include the purchase of a bicycle and the vehicle's improvements, repair and storage. Again, these are covered as long as the bicycle is regularly used for travel between your home and work.

Four+ wheels benefits beat two wheels: Yes, I agree. A $240 annual maximum for pedaling yourself to the office is not much.

And it is a bit of a slap in the face when you consider that workplaces provide much more generous transportation benefits for mechanized vehicular commuting costs.

Under the Omnibus Appropriations and Tax Extender Package, usually referred to as the Protecting Americans from Tax Hikes (PATH) Act, that was signed into law in December 2015, parking and mass transit tax-free fringe benefits were given the same weight.

That means for the 2017 tax year, a workplace can provide workers who use more traditional means to get to their jobs monthly tax-free benefits of up to $255 for transit and eligible van pooling passes and $255 for qualified commuter parking. The amount will be indexed in future tax years for inflation.

Yep, one month of parking your car at work is more than what is provided for a full year of bicycling to work.

But at least bike commuters do get at least some workplace benefit consideration.

As for bringing it up to more equitable levels for other modes of transportation, let your Senators and Representatives know that you'd appreciate their support in equalizing workplace commuting benefits for every type of transportation.

PeeWee Herman enjoying his bike ride via Giphy

I hope your bike to work was as fun as PeeWee Herman's ride. You can see more fun bicycling GIFs at Twitter's #BikeToWorkDay hashtag.

You also might find these items of interest:




What's simple about a postcard size tax return?

The House Republican tax reform blueprint touts that the individual system would be so simplified that individuals would have a postcard-sized return. Speaker Paul Ryan's 5/19/17 op ed in the Kenosha News states: "Imagine being able to file your taxes on a postcard." 

This isn't a new suggestion. The Hall-Rabushka flat tax first introduced in 1982 touts that both individuals and businesses would file postcard-size returns (also see chapter 3 of their Flat Tax book).

My concerns with the postcard size return include:
  • It sounds like something filled out by hand and mailed in. Why not instead say that it will be so simple that your tax adviser or if you chose, the IRS, can compute your taxes for you and securely text or email you the amount owed which you can use your bank app or Paypal or some type of debit card option to receive a refund or pay an amount owed.
  • The size of the return is not tied to complexity. Even today, we can file on a postcard if the IRS would be fine just knowing our AGI, taxable income, total credits (including withholding), tax and amount owed or to be refunded.
  • The House blueprint postcard is missing a lot of information such as the taxpayer's name and contact information, signature line, where you want your refund (if any) deposited, and the penalty of perjury statement.
  • Gen Z filers might wonder what a postcard is.
What is a better / alternative message to sell simplification via tax reform to individuals?  Letting taxpayers know they can log into their secure online IRS account by February 1 to see their tax calculation based on all of the information returns the IRS has including W-4 information on filing status and number of dependents. If they have other transactions, they can easily add them in. If they prefer, they can set up with a tax return preparer or software provider to have this information show up on an account the taxpayer has created with them. This would also aid the filer with state tax obligations and more complicated aspects of income tax calculations such as dealing with partnership or other business income, retirement plan deductions or distributions, etc. 

Another part of the message that can help, perhaps is that the standard deduction is higher and personal and dependent allowances are in the form of a single tax credit (rather than having deductions and credits).

What do you think?


Thursday, May 18, 2017

3 big tax breaks for Americans who go into home debt

Americans have again dived into the deep end of the personal debt pool

"Americans have now borrowed more money than they had at the height of the credit bubble in 2008, just as the global financial system began to collapse," write Michael Corkery and Stacy Cowley in today's New York Times' DealB%k column.

The $12.73 trillion in debt reported in the first quarter of 2017 is comprised mainly of housing-related borrowing. But there is a bit of good news here.

Housewarming cupcakes_Danl Lurle via Flickr
Here's hoping that the new residents find being homeowners as sweet as these house warming cupcakes. (Photo by Danl Lurle via Flickr CC)

While mortgage debt represents 68 percent of households' total debt, that's down from 73 percent during the same period nine years ago. In fact, housing's share of personal debt has fallen back to 2003 levels. (The household debt figures are not adjusted for inflation, notes the newspaper.)

Even more comforting, the broader economic picture looks far less precarious than it did in late 2008, according to Corkery and Cowley. "The amount of monthly income that Americans must spend paying off their debt is smaller, and employment is flush."

Possible tax changes for home tax breaks: Will U.S. debt continue along this path, particularly when it comes to loans for residential real estate?

Maybe not if tax reform under the Trump Administration makes major changes to how the Internal Revenue Code treats residences. The outline released April 26, however, is woefully short on details.

As for housing, it is mentioned in just one bullet point:

  • Protect the home ownership and charitable gift tax deductions.

It's unclear whether that means all current residential tax breaks, or just the biggie, deductible interest on most home loans.

That uncertainty is frustrating some lawmakers on Capitol Hill who must flesh out any tax cuts or code overhaul. "To date, they have not given us very much — one page — I've had drugstore receipts that were longer," said Sen. Ron Wyden of Oregon, the Senate Finance Committee's ranking Democrat. "The clock is really ticking down, and they need to get us some specifics soon."

Existing home debt tax breaks: Homeowners, current and prospective, also would like to know what, if any tax breaks they will get along with their residences.

As for the debt portion or the home owning equation, here's a look at the three big home-related tax breaks that a residential property owner homeowner can claim.

1. Mortgage interest 
The loan you get to buy, build or improve your main home is known in tax speak as acquisition debt. And for homeowners, especially in the early years of owning the residence, the biggest tax break comes from the interest paid on this acquisition debt.

All of that mortgage interest is deductible as an itemized expense as long as the loan is not more than $1 million. If you can get a lender to help you move into that multimillion-dollar mortgaged mansion, the Internal Revenue Service will limit your deductible interest.

What if you happen to also own a vacation home? Interest for a loan to buy a second home also counts as acquisition debt and therefor is fully deductible, too, as long as the total mortgages on all your properties don't exceed the $1 million limit.

Also note that your second home — or your first one, for that matter — doesn't have to be the traditional structure in a fenced yard to qualify for the mortgage interest deduction.

A home, for tax purposes, that house or a condominium, a cooperative apartment, a mobile home, a boat, a recreational vehicle or any similar property that has sleeping, cooking and toilet facilities.

2. Refinanced home debt 
Although home interest is deductible, no one likes to pay a higher interest rate than they have to. If you refinance your home loan at a lower rate the new mortgage's balance also is treated as acquisition debt up to the balance of the old mortgage.

3. Home equity loan or HELOC interest 
If you use your residential property to obtain extra cash, interest on that added home-related debt also offers in many cases another tax break.

The interest on a home equity loan, whether taken out separately or as part of a refi, or a HELOC, aka home equity line of credit, is deductible as long as the added debt is $100,000 or less.

Be careful, though. Your interest deduction here could be limited if the combined balances of the debt you go into to buy the home (known as acquisition debt) and the home equity debt happen to be more than your home's fair market value at the time you take out the home equity loan/line of credit.

You can read more about more home-related tax breaks in one of my earlier posts.

IRS Publication 936 has details on home mortgages, including a nifty flow chart to help you determine whether all or just some of those interest payments are deductible.

Schedule A and its instructions also have more on claiming your home's interest payments, as well as the other big home-related expense: property taxes.

Home sweet home for most, not all: The hubby and I have owned five primary residences, the latest one being the casa we call home here in Austin, Texas. We've also refinanced three times over the years.

So as you might surmise, we're a big fan of not only owning our own place, but all the tax breaks they have provided over the years.

But homeownership is not for everyone. And even if you do find that buying a house is the best move, be sure you don't overextend yourself.

Home loans typically are considered good debt as compared to revolving debt such as owed on a credit card. But borrowing more than you can afford, whether it's to buy a house or a totally new wardrobe, can be dangerous.

So do your budgetary and home buying homework.

Don't just buy for potential tax breaks. They might not always be there!

And when you do get the keys to your new place, enjoy! It's not an investment. It's where you and your family will live and make some great memories.

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4 Reasons Why You Should Recruit and Train Tax Preparers in House

Is your tax business growing?

Did you have tax preparers leave or retire after the season?

Could you use some help next tax season?

If you answered yes to any of these you’re probably looking to hire tax preparers next season. Before you put the word out that you’re hiring “experienced tax preparers” read this blog post! At Peoples Tax, our sister company, we discovered long ago that recruiting and training tax preparers in house was actually better than hiring experienced tax preparers. In fact, that’s how The Income Tax School got started!

You’re probably wondering, why spend all that time teaching and developing new tax preparers when you could just hire someone who already knows what they’re doing?

Most national tax firms actually offer income tax classes to recruit and train tax preparers. In fact, operating an income tax school has become recognized as a best practice. Here are some reasons why.

1. You get to train them on your own terms

Sometimes when you hire experienced professionals you get their bad habits as well. So why not start with a blank slate and train preparers exactly how you want them to approach taxes? This way, you can hire someone who is people oriented rather than numbers oriented and get the chance to develop them into a customer service focused tax preparer. Yes, being good with numbers is important, but as a tax preparer you are performing a service. Having the ability to develop strong relationships is what keeps clients coming back year after year.

2. You have a bigger pool of people to hire from  

Clients want to come to the same tax preparer year after year. Yet it’s hard to retain employees when you can only offer part time work. That’s why finding the people who only need seasonal work and training them to prepare taxes is a great solution. It also increases your hiring pool! We’ve found the best long-term prospects to be:

  • Homemakers with children in school.
  • Early retirees who like to travel and spend time with their grandchildren during the summer.
  • Moonlighting professionals.
  • College seniors and graduate students who need experience.

Look for people who see tax preparation as a rewarding career because they like to help others.

3. Operating a tax school will provide a revenue stream in the off-season.

You don’t have to take a leap of faith and hire someone blindly, operating a tax school where students pay tuition to attain the knowledge needed is a great way to vet students. Set-up a basic income tax course that students can take for a fee with the potential for coming on board once they’ve completed the course. This way, you earn revenue on your time and materials, you get the ability to observe students in class, and you can choose which students to bring on board.

4. Retention increases when you develop people

Growth, development and opportunity are all important to employees. Training and developing tax preparers will increase loyalty and retention because you’ve invested in that person’s future.

Where to recruit

There are several places you can advertise your tax school to gain prospects. Here are some places we’ve found to be effective.

  • Employee Outplacement Services
  • Women and Senior Support Groups
  • The military
  • Colleges and Career Schools
  • Your clients
  • Employee referrals

Essentials for Training

In order to operate your own tax school, you will need:

  1. A qualified instructor
  2. A course curriculum
  3. Instructional materials
  4. A classroom
  5. A plan to recruit students

Finding and keeping good tax preparers is essential to building and growing a quality tax service. Qualified seasonal tax preparers are scarce and competition for experienced tax preparers is stiff. Experienced tax professionals command a high price and may not become your best long-term employees. In order to maintain client relationships, you need preparers who will be with you for years to come. A proven best practice is running a tax school in the off season to recruit and train entry level preparers and then develop them into experienced professionals.

Want to learn more? Download our whitepaper:

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Wednesday, May 17, 2017

Rep. Ben Sasse says we're not helping kids grow up. Do tax breaks contribute to Americans' extended parenting?

Ben Sasse discusses his new book on CBSN 051517
In his new book, "The Vanishing American Adult: Our Coming-of-Age Crisis — and How to Rebuild a Culture of Self-Reliance," Nebraska Sen. Ben Sasse says young people in the U.S. are failing to launch. He explained to Elaine Quijano on "Red & Blue" how we ended up here and what Americans can do to prepare for adulthood. (Click image to view CBSN video)

Sen. Ben Sasse swears that his book is not just 320 pages of old man "get off my lawn" rants at neighbor kids.

First of all, the 45-year-old Sasse is far from old.

Plus, says the Nebraska Republican, he didn't write "The Vanishing American Adult" just to complain about these kids today. Rather, Sasse's goal is to get a national conversation going on how parents, communities and governments, can help our children grow up — with growing up being the key phrase — so that they can better survive in our highly-competitive global economy.

The core advice from Sasse, a father of three, is that overprotective parents need to stop coddling their young adult children and help them become active and engaged citizens on their own.

But he doesn't just take moms and dads to task.

Public policy to blame, too: In the book, which is subtitled "Our Coming-of-Age Crisis — and How to Rebuild a Culture of Self-Reliance," Sasse also points to what he calls misbegotten government programs that have helped stall young people's participation in traditional coming-of-age rites, such leaving home, starting a family and becoming economically self-reliant.

The most direct government contact that parents and their kids ever have is through the tax code. So Sasse's book got me thinking about child related tax breaks that are currently available.

I decided to focus on seven popular child/parent tax related situations, which I've highlighted below.

I'm just going to list them with a few tax details and leave the evaluation as to how these tax breaks might help or hamper a child's growth into a productive young adult to the Cornhusker State senator and child psychologists.

1. Dependent exemption
From the moment a child makes his or her screaming appearance into the world, that little human is an automatic tax break. A dependent child can be claimed as an exemption, which provides a dollar amount that's subtracted from your adjusted gross income. For the 2016 tax year in case you got an extension and have yet to file, that's $4,050. For the 2017 tax year, inflation was low so the exemption amount stays the same.

You can claim this exemption until the child reaches age 19 or 23 if a college student. There's no age limit on a dependent exemption claim for disabled children.

2. Adoption tax credit
Many families grow thanks to adoption. Uncle Sam heartily approves, offering these self-selected families a nice tax credit. The adoption tax credit is worth up to $13,460 per child on 2016 taxes; it's adjusted annually for inflation, meaning it's worth $13,570 for 2017 adoptions.

There are income limits (also inflation adjusted annually) that could reduce or eliminate your credit amount. And, bad news, the adoption credit is nonrefundable, meaning that if it's more than the tax you owe, the excess won't come back to you as a refund. But you do get to carry it forward for up to five future tax years.

3. Child tax credit
On the same "wow, that's great!" level as the exemption for your child is the child tax credit. This $1,000 tax break is available simply because you have the kid. The credit is available for dependent children age 16 or younger.

Even better, some families can claim the additional child tax credit, which is refundable. That means you could get the credit amount as a refund if you don't owe any tax for it to reduce.

4. Child care credit
Child care can be costly. However, when parents work, you can count at least part of what you pay others to watch after your youngster as a tax credit, specifically the child and dependent care credit.

The tax credit could be worth as much as $1,050 in connection with the care costs of a child younger than 13. If you have two more dependent kids in day care, the credit could be as much as $2,100.

Note, too, that the overseeing of your youngsters doesn't have to be strictly conventional. As this week's tax tip notes, day camp costs can count toward claiming the child care credit.

5. Young family employee
If your child is older, he or she might look for a summer job. If you own your own business, you might be able to do your kiddo and yourself a favor by providing that job. The benefit is not just from having your youngster around all summer.

If you're a sole proprietor or you and your spouse are partners in your own business and hire your child, you get some tax breaks. As long as the youngster is 17 or younger, you don't have to pay Social Security or Medicare taxes on a portion of your child's earnings. The salary you pay your child — and yes, it must be a real payment for real work or the Internal Revenue Service will come after you — also is exempt from unemployment tax when your employed child is younger than 21.

6. Education expenses
Savings for your youngster's education also provide tax breaks.

There's the Coverdell Education Savings Account, where you can contribute up to $2,000 a year for the educational costs of a child younger than 18. There are no age restrictions if the child has special needs. The money can be taken out tax free to pay educational costs. Plus, Coverdell money isn't limited to college expenses; it also can be used to pay for qualifying elementary and secondary.

Similarly, putting money into a 529 plan for your kid's eventual college costs offers tax-free savings.

And wealthy grandparents get a twofer by paying a grandchild's college tuition. Not only does it help the youngster (and his parents), it's a good estate planning move. It can help reduce your overall assets value to a level below the $5.49 million level (that's for 2017; it's adjusted annually for inflation) at which the federal estate tax applies. This gift amount is not subject to the annual tax-free gift tax exclusion, which currently is $14,000 (also adjusted annually for inflation). Neither does it count toward the lifetime gift tax exclusion.

7. Health care coverage
As we all know, the Affordable Care Act, aka the ACA and/or Obamacare, lets parents keep their young adult children on their health care policies. I'm adding this as a tax-related child provisions because Obamacare is intricately tied to taxes.

And although the debate continues on how to repeal and replace Obamacare, this provision seems likely to stay. Now, and presumably in the future, where a parent's health insurance plan covers dependents, that parent can add a child to the coverage until the youth turns 26.

As I mentioned at the start of this list, I prefer to leave the discussion as to whether these (and other) tax policies aid or impede a young person's maturation process to parents (of which I'm not, my assisting my elderly mother and it's tax implications notwithstanding) and their members of Congress.

But if you're so inclined to share your thoughts, please feel free to do so via a comment or two.

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Tuesday, May 16, 2017

Oklahoma freezes standard tax deduction amounts Preemptive move to avoid potentially costly Trump tax reform changes

Federal tax reform is still a ways off, but the prospect of an Internal Revenue Code rewrite already has prompted Oklahoma to change one of its tax laws.

Oklahoma tax return

Republican Gov. Mary Fallin on (R) May 12 signed legislation that will decouple the Sooner State's standard deduction from the current federal standard deduction.

The reason for the change? If the Trump Administration's proposal to double the federal standard deduction eventually becomes part of the tax law of the land, Oklahoma stands to looks a lot of tax revenue.

Federal, state tax ties: Oklahoma's tax system, like that of many states with income taxes, is closely connected to taxpayers' federal filing data.

In the 41 states and Washington, D.C., that currently tax their residents' incomes, those state filings to a large degree conform to many features of the federal tax code. They use similar definitions of what is considered income, what can be deducted and how certain tax transactions are treated.

And in Oklahoma's case, that includes tax laws that automatically change when there are adjustments, such as the annual inflation tweaks, to the federal code.

Conscious tax decoupling: That's why H.R. 2348 was introduced in the Oklahoma House. It separates the state's standard deduction amount from that used on returns sent to Uncle Sam.

The new law is effective with the 2017 tax year and freezes the state's standard deduction at the current levels, which are the same as the inflation adjusted 2017 federal standard deduction amounts. That's $6,350 for single filers and for married taxpayers filing separately; $9,350 for head of household filers; and $12,700 for jointly filing married taxpayers.

The bill moved quickly through the state legislature, narrowly passing in the House on May 2 and getting overwhelming support of the state Senate two days later. Fallin signed the measure into law last week.

Budget benefit, but at what cost? In debating the change, supporters of the decoupling characterized it as a "safety measure" that will help raise new revenue and fill a projected $878 million hole in Oklahoma's budget by raising an estimated $4.4 million

It also "protects Oklahoma from seeing a really large revenue loss," especially if the federal deduction amount is changed, Gene Perry of the Oklahoma Policy Institute told Tax Analysts.

Opponents of the change, however, say the separate Oklahoma standard deduction amounts put the tax burden heavily on the backs of working families. Without some sort of indexing, as Oklahomans earn more, their frozen standard deduction amounts will provide less tax benefit.

Many states are struggling with similar fiscal shortfalls. As the federal tax reform process progresses, it will be interesting to see how many decide to follow Oklahoma's example and separate themselves from the federal tax code on budgetary grounds.

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Monday, May 15, 2017

Trump Administration tackles U.S. cybersecurity needs as Wannacry ransomware goes global

Last week's cyberattack has affected more than 200,000 computers across 150 countries. The ransomware program known as WannaCry encrypts information on computers and demands targeted users pay $300 in order to regain access to their machines.

Wannacry ransomware attack screenshot_EPA-BBC

The good news here in the U.S. is that so far, no federal systems have been affected by the global ransomware attack, according to Homeland Security Adviser Tom Bossert, who appeared at today's regular White House press briefing.

The bad news is that a few companies have been hit and the government is still unaware of who was behind the attack.

And as this work week opened, tech security experts are warning people that while the cyberattacks have slowed, they are still out there so we all still need to be on high alert.

Everyone is a target: Are you in danger? To be on the safe side, assume so.

Although this particular malicious software reportedly was first spotted in Russia, it spread rapidly across the connected globe. Before it's over, it could turn out to be an attack of unprecedented scale.

The attackers apparently took advantage of a known flaw in Windows XP, the operating system that is still used by millions of PC owners and machines worldwide. Microsoft officially stopped providing security support for XP in 2014, but issued an emergency patch in response to the latest attacks.

The graphic below from Stastista shows that Wannacry's $300 ransom demand (in Bitcoin) is lower than earlier ransomware demands. The average ransom across all attacks known to security software provider Symantec in 2016 was $1,007.

Infographic: 200,000+ Systems Affected by WannaCry Ransom Attack | Statista You will find more statistics at Statista

Presidential cybersecurity effort: Coincidentally, as the Wannacry ransomware epidemic was spreading across the globe, the Trump Administration was exploring ways to fight such threats. Donald J. Trump on May 11 issued an executive order tackling cybersecurity.

In contrast to many of the president's earlier Oval Office pronouncements, most tech and security experts view this as a good first step.

The executive order outlines plans to improve data security for federal agencies and to better protect critical U.S. infrastructure. It calls for sweeping reviews of the federal government's digital vulnerabilities and directs agencies to adopt specific security practices.

"There's not much in there that's actionable yet — much of it comprises deadlines for recommendations — but analysts appreciate the approach," writes Brian Barrett in Wired. "In fact, it borrows heavily from the Obama Administration's recommendations, and focuses heavily on protecting infrastructure and pushing as much as possible to the cloud."

Of course, notes Barrett, the only way to really measure the order's impact will be to wait for the actual policies that emerge.

Bob Ackerman in a piece for TechCrunch agreed: "Firstly, this development was truly important — a serious call to action to beef up government cybersecurity measures at a time when breaches dominate the headlines and mounting worries about a future cyber war among nation-states are legitimate. Secondly, while this executive branch step was absolutely necessary, it is insufficient. We need to go much further."

IRS cybersecurity needs: One government agency that would definitely benefit from an overall beefing up of Uncle Sam's overall e-security system is the Internal Revenue Service. The country's tax collector has been a constant target of hackers who see the personal data of millions of taxpayers as a gold mine.

Most recently, the IRS' online tool that assists students and their families when applying for student aid was hacked. Data on as many as 100,000 taxpayers may have been compromised.

Meanwhile, telephone and phishing tax scams are continuing apace as identity thieves keep looking for any info tidbit that will allow them to steal taxpayers' identities and file fraudulent tax refund claims.

Con artists never sleep…or vacation: You'd think that with the main tax season over, these crooks would take a summer vacation. They don't. So beware, not only of ransomware that could attack your machines, but also of all identity theft efforts, tax and otherwise.

You'll find plenty of posts on scams and ID theft here on the ol' blog.

You also can check out the IRS' special Taxes. Security. Together. page, created as part of the Security Summit to involve individual taxpayers in the ongoing fight against identity theft and tax scams.

Mainly, though, just use common sense.

Install and update security software on your electronic devices. Don't automatically take a caller's or emailer's or in-person visitor's word that he or she is with the IRS.

And if something just feels off, trust your gut and go directly to the IRS to double check the potentially criminal and costly contact.

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Sunday, May 14, 2017

10th Anniversary Blog Post

On 5/14/07, I started this blog.  While we are 17 years into the 21st century, many aspects of our tax administration system and rules are stuck in the 20th century. Also, we tend to ignore trends to see how they should shape tax systems and compliance.

I started the 21st century taxation website and blog while I was a fellow with the New America Foundation. The focus for fellows was to get new ideas out to lawmakers and the public, such as through op eds in newspapers. In addition to that, I started the blog and am glad I did. It's fun and a good way to connect to lots of people via the Internet and search engines.  The blog gets over 12,000 hits per month.  And it connects me with other bloggers - on tax, technology and more, which continues to be fascinating.

Here are a few items I expect to be blogging in my 11th year:
  • Federal tax reform and how the proposals stack up against principles of good tax policy and reflect how we live and do business today.
  • How to pay for lower tax rates that will certainly be part of tax reform. There are lots of special exclusions, deductions, credits and preferential rates that cause rates to be high today and limit the tax system in meeting principles of good tax policy.
  • How to modernize worker classification rules and why.
  • How new and existing technologies should be used to truly simplify income tax compliance and perhaps even reduce the tax gap.
  • State tax oddities and how to address them.
Anything on your list that is not on mine?

Comments?  Please leave them.  Thanks for reading!!


Tax audit lessons from 'Mom' on, of course, Mother's Day

Happy Mother's Day! What a perfect day to talk about tax audits.

You don't see the connection? Then you missed the season finale last week of the CBS show "Mom." I'm not really a fan, but it was on in the background as we were fixing dinner.

Mom CBS_Anna Faris_Allison Janney_Leonard Roberts_IRS audit episode S4-22 051117
Scene from the May 11 season finale of CBS sitcom "Mom," where the characters portrayed by Anna Faris and Allison Janney consult an attorney, played by Leonard Roberts, about some tax trouble. (Photo courtesy CBS)

But as I was chopping veggies I heard "the IRS put a lien on my account." So naturally dinner got delayed by a half hour.

TV tax time: Here's the episode's synopsis. The show's titular mom Bonnie, played by the magnificent-in-everything-she-does Allison Janney, hasn't filed taxes for 20 years. She pressures convinces her aspiring lawyer daughter Christy, played by Anna Faris (who is, yes, adorable and married to Chris Pratt; life isn't fair!), to help her sort out her tax troubles.

Wisecracks are exchanged. Strained family ties are repaired. Sorta hilarity ensues. Everything ends mostly happily.

As for the tax and Internal Revenue Service component, well, remember it is a sitcom. But it made some decent points as long as you take the script as a broad broadcast comedy guideline to the tax code.

Here are the three tax biggies, fittingly on this Mother's Day, that "Mom" made.

1. Hire a tax professional.
First, get professional help if the IRS examines your returns, or in this case, lack of returns. Christy's effort to quickly learn as much as she could about taxes before the IRS hearing was amusing and futile. That's why she pushed Bonnie to hire a professional, who happened to be Ray, her recently discovered half-brother who is an attorney.

He's the one who points out "the one mistake" Christy made: taking her mom to the IRS meeting.

Again, remember it's TV. Since Christy isn't an attorney, Bonnie had to be at the IRS meeting.

But when you hire a tax professional who can represent you before the IRS — that's an attorney, Certified Public Accountant (CPA) or Enrolled Agent (EA) — then you put your tax nightmare in their expert, experienced hands.

As your official representative, he or she handles all the talking, writing, documents and negotiations with the IRS auditor. That means you don't have to go to the interview and meet face-to-face with the auditor. Your attorney or CPA or EA can do it for you.

The reason such distance often is advisable is that a person facing tax trouble too often wants to over explain and volunteer information that could create additional problems.

So rule #1 that "Mom" clearly made is get qualified professional tax help as soon as your learn you're under IRS audit.

2. Income doesn't have to be cash.
One reason Bonnie hadn't filed taxes in recent years was because in lieu of her services as an apartment complex manager, she got free lodgings at the property.

She didn't realize the value of her rent counted as earnings when it comes to taxes. It does. In fact, the IRS considers a whole of stuff as taxable income, like Bonnie's bartered housing.

If you have any questions as to what is taxable income vs. what's nontaxable, check out IRS Publication 525 for details.

3. Cut a deal.
The episode's happy resolution was that Ray, of course with Christy along since she did much of the early tax prep work, got Bonnie an installment payment plan to settle her long unpaid taxes.

Setting up a system to pay your overdue tax over time generally makes both the IRS and the owing taxpayer happy. Or, as one of the show's supporting characters noted, "The IRS just wants to make a deal. They don't try to put anybody in jail."

This being a TV show, there was, of course, a tax retort from another character who pointed out that the IRS put Wesley Snipes in jail, "robbing us of so many action-packed movies."

Still, if your tax nonpayment is not egregious, and you're not a celebrity that Uncle Sam's tax officials can use as a media catching example, ask the IRS for a plan to pay your debt over time.

Yes, you will pay interest on the payments. And yes, the penalties you incurred for not paying typically are rolled into the total due amount. But it will get you back in tax good graces without unduly damaging your finances.

And such a relatively easy resolution is something that every mom hopes for her children's tax situations.

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Saturday, May 13, 2017

State sales taxes will add to your Mother's Day gift price

Homemade card and gift_Loren Kerns Flickr CC
Based on how much Mom is enjoying her homemade card, I'm sure she'll absolutely love the creatively wrapped Mother's Day gift. (Photo by Loren Kerns via Flickr CC) 

Moms usually embrace the adage that it's the thought that counts when it comes to Mother's Day gifts. They love those macaroni picture frames we made as kids as much as the store-bought gifts we started giving them as soon as we were making our own money.

But state treasurers don't agree.

In the 45 states and District of Columbia that collect sales tax, they are hoping we spend a lot on Mom this weekend so that their tax collectors can get a cut.

Most reliant on sales tax revenue: That's particularly true in Washington. The Evergreen State depends most heavily on state and local sales tax money, according to research by the Tax Foundation based on fiscal year 2014 data.

Slightly more than 45 percent of Washington State's total tax collections come from the taxes tacked onto retail purchases, according to the Washington, D.C.-based tax policy group's examination. When you add local taxes and transit taxes in some locales to the state's 6.5 percent sales tax, the combined levy on Washington purchases can be more than 10 percent.

The reason? There's no corporate or individual income tax in that Pacific Northwest state, although it does levy a gross receipts tax in lieu of the corporate income tax.

States reliance on sales taxes_Tax Foundation

Tennessee comes in second with around 41 percent of its income derived from state and local sales taxes. Like Washington State, the Volunteer State doesn't have an individual income tax, except on interest and dividend earnings.

South Dakota is the third most heavily dependent at just more than 40 percent. Stop me if you've heard this, but the Mount Rushmore State also doesn't have a corporate or individual income tax.

Rounding out the top five states most reliant on sales tax are Arizona at 39.6 percent and Louisiana at 38.3 percent.

For all y'all who've read my frequent posts about living in a no-income-tax state, I wanted to let you know that Texas comes in at #10. Thirty-six percent of the Lone Star State's revenue is from state and local sales taxes.

Other state tax sources: So who gets most of their tax revenue from sources other than state and local sales taxes?

Alaska was the winner when it came to not relying on sales taxes, with less than 4 percent of its revenue coming from state and local sales taxes.

Yes, I (and the Tax Foundation) know that the Last Frontier is the only state without a state income or sales tax. However, Alaska law lets local jurisdictions levy their own sales taxes.

Also low on the sales tax reliance list are Vermont at 10.5 percent of total state income from such levies; Maryland, one of my old stomping grounds, at 12.5 percent; Taxachu… I mean Massachusetts at 13.6 percent; and Virginia at 13.7 percent.

On average, according to the Tax Foundation, 23.3 percent of state and local tax revenues in fiscal year 2014 came from sales taxes.

So if you're shopping today for the perfect gift for Mom, be sure to take your state and local sales taxes into account.

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Friday, May 12, 2017

Trump attorneys' tax letter, take 2: This time it's re Russia

Trump extended interview Lester Holt NBC News May 11 2017
In an exclusive NBC News anchor Lester Holt, the president mentioned the letter, released today, that discusses what his attorneys say show only tangential connections to Russian money. Click image to watch the full NBC news interview.

Still no Donald J. Trump tax returns, but today we got another letter from his lawyers regarding his taxes, specifically whether there was any Russian-sourced income on his filings over the last 10 years.

The letter, from partners Sheri Dillon and William Nelson of the Washington, D.C., branch of law firm Morgan Lewis, was addressed to Trump and "hereby confirm[ed] the following facts:"

  • The president holds interest as the sole proprietor or principal owner in more tan 500 separate entities that collectively comprise The Trump Organization (TTO).
  • Trump operates the businesses almost exclusively through sole proprietorships, S corporations and/or partnerships, meaning that the income, as well as interest paid or received by Trump in connection with the businesses, is reflected on his personal tax returns.
  • Those tax returns do not, "with a few exceptions," show any income of any type from Russian sources.

Neither do the returns, according to the Morgan Lewis lawyers, show any debt owed by Trump or TTO to Russian lenders or any interest paid by Trump to Russian lenders; any equity investments by Russian persona or entities in businesses controlled by Trump or TTO; or any equity or debt investments by Trump or TTO in Russian entities.

Nothing, but…: The few exceptions noted in the letter are Trump's beauty pageant and some Sunshine State real estate.

The 2013 Miss Universe competition was held in Moscow. Overall, that pageant earned $12.2 million, according to the letter, with "a substantial portion" of it attributable to the Moscow event.

The Morgan Lewis letter also cites a 2008 transaction in which Trump Properties LLC sold an estate it acquired in 2005 for approximately $41 million to a Russian billionaire for $95 million.

Also, the attorneys told the president: 

[O]ver the years, it is likely that TTO or third-party entities engage in ordinary course sales of goods or service sto Russians or Russian entities, such as sales/rentals/fees for condominiums, hotel rooms, rounds of golf, books or Trump-licensed products (e.g., ties, mattresses, wine, etc.) that could have produced income attributable to Russian sources (such income would not have been separately identified as "Russian" in your books and records and therefore not separately reflected on your tax returns).

The amounts from that last group, according to the law firm, "are immaterial."

Quite material to many: I'm not sure immaterial was the best choice of words, since many folks, both on Capitol Hill and across the country, still want to see Trump's tax returns. In an interview with the Economist that was published Thursday, May 11, Trump stuck with his argument that "nobody cares about my tax return except for the reporters."

However, he did add that he might release his taxes after he serves out his term(s).

"Oh, at some point, I’ll release them," Trump said. "Maybe I’ll release them after I’m finished because I’m very proud of them, actually. I did a good job."

First, it was more likely his tax attorneys and accountants who did the good job on the 1040s.

Second, who else is thinking too little, too late?

Trump tax & attorney miscellany: A few other things to note regarding Trump's taxes and Russia.

The letter to Trump was copied to Sen. Lindsay Graham. The South Carolina Republican asked former Director of National Intelligence James Clapper at a Senate Judiciary subcommittee hearing on Monday, May 7, whether he had concerns about Russian ties to Trump's business interests. Clapper said he could not comment because the issue could be a subject of an ongoing investigation.

The unnamed Russian billionaire mentioned in the letter is Dmitry Rybolovlev. His money comes from his companies' production of potash, often used for fertilizer.

This Russian-focused communique is the second letter about Trump's taxes issued by Dillon and Nelson. In March 2016, they sent out written confirmation that the then-candidate's returns were being audited. In fact, the duo wrote that Trump's personal returns "have been under continuous examination by the Internal Revenue Service since 2002, consistent with the IRS's practice for large and complex businesses."

Dillon also made a personal appearance at Trump's media Q&A on Jan. 11 when, in response to concerns about the new president making money from his companies while serving as commander in chief, he announced he would give the federal government any profit from payments by foreign dignitaries who stay in his hotels.

Morgan Lewis was named as "Russia Law Firm of the Year" in the 2016 Chambers Europe guide. In announcing that designation, the law firm said that its "Moscow office provides full-service business representation for clients, including advice on corporate and finance matters; mergers and acquisitions; transactional finance; litigation and international arbitration; energy and natural resources projects; real estate property transactions; labor and employment issues; immigration; and a wide range of regulatory matters."

Online reaction: As expected in this internet age, this latest letter's reference to the income exceptions immediately sparked a #withfewexceptions hashtag on the president's favorite social media platform,

Finally, and with the clear notation that this is not meant in any way to discount the seriousness of the matter, the best Twitter exchange regarding the attorneys' letter about Trump's Russian business connections focused on attorney William Nelson's name similarity to a favorite son of my native Texas:

Willie Nelson Trump tax letter Twitter Andrew Katz

Willie Nelson Trump tax letter Twitter Brook

Hey, I'd take Willie Nelson's advice on just about anything, with the exception of taxes!

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