Is There Anybody Out There?

The other day it occurred to me that I had not written a blog article in a long time.  It wasn’t until I looked in the “Blog” folder on my computer and cross checked it against my blog page that I realized just how long it’s been…since August 2019!  As I thought more about it, I came to the conclusion that the reason for this is because when I was actively blogging, there really weren’t a lot of people reading what I wrote.  Effectively I was writing for an audience of one; me.  If I was into journaling (which I know a lot of people are; personally I’m not interested) then I guess my blog articles would be some sort of creative outlet, or something. I started the blog for one reason.  When I was opening my practice here in Virginia, the person who created my website and did the initial set up for search engine optimization told me that the more places I was, the more places people would be able to find me, and that would help my search rankings.  I started writing/posting articles about taxes, and each time I also tweeted or posted on LinkedIn that I had written an article, and people should check it out, and here’s a link to the article.  Like anything else online, I’m able to log in to my WordPress account (where the blog resides) and check out the stats.  Sadly I found that hardly anybody was reading my articles.  After a number of years, I guess I got fed up with taking the time to write these articles that nobody was reading, so I stopped…for what now looks like 3+ years.It got me also thinking about Twitter.  In the beginning I tweeted only about tax things, since I felt that this is why I set up the account (also at the recommendation of the guy who set up my website).  Over the years I’ve found that, like my blog articles, very few people were viewing my tweets.  Interestingly, I recently had the highest viewership I’ve ever had for one of my tweets.  It was a tweet on Jan 31 and to date it’s had 5,991 views, unbelievable!  The sad reality, though, is it’s because it’s a tweet about Flatland Cavalry (my current favorite Country music band), and because I tagged them in the tweet. I’m guessing it wound up in the feeds of all their fans, hence all the views.  What did the tweet have to do with taxes?  Absolutely nothing!I’m wondering two things now.  One, will anybody actually read this post?  Two, if so, how many people will that be?  I’m seriously questioning whether writing blog articles is really a good use of time, both for me and also for all the other average mortals like me.  Are people actually interested in this stuff, or in lame videos on Tik Tok?!  Let me know what you think.



When your 2018 tax returns were completed this past tax season, did those words (or worse) come out of your mouth when you saw the results?  Since I’m a CPA and I live and breathe taxes every day (and this is my blog), I can brag that my 2018 federal balance due was $105 and my Virginia balance due was $90.  That’s just about as good as it gets when it comes to tax return results (pretty much a break-even), but then again, I monitor my numbers/taxes throughout the year, and adjust my tax payments accordingly.  For those of you who aren’t tax professionals or don’t normally run numbers during the year, this past season was an ugly reminder of the need to do just that (e.g. tax planning).  The “new tax law” and changes to the tax withholding tables that went into effect at the beginning of 2018 caught a lot of people with their figurative pants down, and I wound up having to tell way too many people this past tax season that they owed thousands (or tens of thousands) of dollars on their return.  I think this happened for a couple of reasons.  The first one is that none of my new clients this past tax season had me as their tax professional in 2018 (obviously, since they were new this year).  As such, they weren’t on my client list during 2018, when I sent out multiple e-blasts with information about the tax law and the change to the withholding tables.  I also mentioned that even IRS (who came up with the withholding tables) suggested that taxpayers crunch some numbers, as it appeared there was an inherent error/shortage in the tables that could create underpayments.  If the new clients didn’t read about the new law themselves (or understand it, if they did read it), then they had no idea about what they needed to do, to plan for their own returns.  The second thing is, unfortunately, a result of the short attention spans that people seem to have these days, and how they don’t read things that they receive.  As I said, I sent out multiple e-blasts in 2018, warning clients about the new tax law/withholding tables, and recommended that they contact me so that I could run some numbers and do an income/tax/withholding projection for them.  A couple of clients took me up on that, and the projections showed big balances due, so with my help, they changed their withholding exemptions and/or estimated tax payments for the balance of 2018.  As a result of that, once their tax returns were finished, they were very happy that the adjustments they made brought them closer to a break-even, and not a big balance due like the projection showed.  Unfortunately, most people either didn’t read the warnings that I sent out during the year or didn’t enlist my assistance, and they were the ones who said “I owe HOW MUCH?!  I spent a lot of time this past tax season explaining to people why their balances due were so high, and how under withheld they were on their W-2 income, and how their itemized deductions were so much less this year.

At various networking events that I’ve attended since getting my life back after tax season, as part of my “sixty second elevator pitch” I tell people that tax planning is something that can (and should) be done at any time during the year.  And for the people who had a big balance due on their 2018 return (especially those who were under withheld on their W-2 income), doing an income/tax/withholding projection has taken on a greater urgency than in the past.  IRS has all sorts of information about doing a “paycheck checkup” and has a “tax withholding estimator” function in their website, and that’s all fine and dandy, if a person understands what they’re looking at, or takes the time to read what IRS has written.  I know that what I’m about to write is biased, but the best way to get a handle on what your numbers will look like for 2019 is to have a tax professional help you, and prepare a projection for you.  Yes, it’ll take some time and there will be a cost involved, but wouldn’t you like to know now that you’re projected to owe, say, $15,000 on your federal return, so that you can plan for that and increase your withholding or make a couple of estimated tax payments between now and tax season?  Or would you prefer to be surprised and find out that you owe $15,000 on your return, especially when you may have spent that money already?

A long time ago I heard the term “people don’t plan to fail, but they fail to plan”.  It was aimed at financial planning for the future, but it can just as easily be said about tax planning.  Don’t fail to plan!

Tax Planning 2018

Daylight savings has ended, Thanksgiving is in a couple of weeks, Christmas ads have already started to air…what better time is it to talk about tax planning?!

Realistically, tax planning is something to think about throughout the year, but since the end of the year is in sight and we’re still getting used to the provisions of the tax law that went into effect at the beginning of 2018, if you haven’t yet thought about your 2018 tax picture, you should probably start now, since there are many things that could affect your 2018 tax return.  Here are just a few things to think about.

Tax Brackets

The new tax law lowered many of the tax rates, with the maximum rate being 37%, compared to 39.6% under the old law.  Oddly, in spite of the lowered tax rates, some people may actually see an increase in their tax, because of the break points from one rate bracket to the next, and how they’re different this year from where they were last year.  For example, a single taxpayer with taxable income of $300K would have been in the 33% marginal tax bracket in 2017, but will be in the 35% bracket in 2018.  If you’re curious about where your taxable income will fall, check out the 2017 and 2018 tax rate schedules.

Additional Medicare and Net Investment Income Tax

The new tax law doesn’t change the fact that taxpayers above certain income levels will be subject to the .9% Additional Medicare tax and the 3.8% Net Investment Income tax.  Taxpayers who are nearing the threshold for being subject to these taxes might think about deferring income or not selling investments at a gain, to keep their income below the threshold.

Standard Deduction

The new tax law almost doubled the standard deductions for taxpayers, and are now $12K for single taxpayers and $24K for joint taxpayers.  I’ve already seen instances where clients who were able to itemize deductions in 2017 look like they’ll wind up with a standard deduction for 2018, even some people who own a home and would ordinarily be able to itemize deductions because of the mortgage interest and real estate tax paid.

Personal Exemptions

Gone!  I can’t really say more than that, other than for people with kids (especially 3, 4, 5, or more) they’re not going to see that $4K per kid deduction on their 2018 returns, which in the past added up to a decent deduction.  It’s not just dependent exemptions that have disappeared; the exemptions for the taxpayer and spouse (if applicable) are also gone.

Child Tax Credit

In lieu of the loss of personal exemptions for dependents, the new tax law increased the amount of the child tax credit to $2K, and increased the income thresholds at which the credit phased out, so more taxpayers with higher incomes with kids will be able to claim a child tax credit.

State and Local Taxes

This is an item that got a lot of publicity at the end of 2017, as people rushed to pre-pay real estate tax before the new tax law kicked in.  Starting in 2018, $10K is the maximum that any taxpayer (single or joint) can claim for all of these taxes; state & local income tax, real estate tax, personal property tax.  Period.  For taxpayers with multiple homes (principal residence and vacation home, etc) the limit is still $10K.  Perhaps it’s time to turn the vacation chateau into a rental property, as that could help generate the deduction for real estate tax.

Mortgage Interest

For mortgages obtained after 12/14/17, interest is deductible only on a maximum of $750K of loan value.  Additionally, interest on home equity loans/lines are no longer deductible, unless the proceeds were used to buy or substantially improve real property.  In other words, if a home equity loan/line was tapped to pay off credit card debt, student loan debt, fund a vacation, etc, the interest is no longer deductible.

Miscellaneous Itemized Deductions

Similar to personal deductions…gone!  Examples of miscellaneous itemized deductions are unreimbursed employee expenses, tax preparation fees, safe deposit box fees, and investment fees.  These had been subject to a 2% adjusted gross income (AGI) threshold, and in the past I saw a lot of clients whose AGI was too high, and they didn’t get this deduction anyway, but for those who had gotten the deduction in the past, they’re going to miss it now.

These are just a few of the many changes that could affect taxpayers’ 2018 tax returns.  I would highly recommend giving some thought about doing an income/tax/withholding projection, so you’re not surprised by a big balance due this coming tax season.  Your favorite CPA (named Jay) in Arlington can help you with that!


Tax Planning 2017

For those of you who read the title of this post and thought “Jay, it’s too early in the year to think about tax planning!”, my response is “some stores already have Christmas decorations out, and it’s not even Halloween yet…isn’t that too early?!”  As someone who plans out lunch and dinner while eating breakfast, I say it’s never too early to think about tax planning!

The reality is that you should’ve started thinking of 2017 tax planning at the same time that you filed your 2016 tax returns, in fact, there are instances when you can even plan for the following year, if there are circumstances that you know will be changing, such as a marriage.  I’m a big proponent in people knowing ahead of time what the tax consequences will be for certain things, rather than waiting until tax time (when it’s too late) and finding out that there’s a balance due of thousands of dollars.  So let’s take a look at a few things to consider, when planning out the rest of 2017.

Withholding and estimated taxes – did you have a large balance due or overpayment on your 2016 tax returns?  Did you sell a stock or mutual fund for a big gain?  Did you start a new business and are anticipating a big net income or net loss?  There are many other examples, but large balances due or large refunds are indications that you paid in too little or too much tax in the prior year.  If this is the case and you’d like to get closer to a break even this year, consider raising or lowering your withholding and/or estimated tax payments.  Similarly, large gains on securities sales or net income/loss from a new business can have effects on your taxable income, and could be reasons to increase or decrease your withholdings and/or estimates.  Think about your 2016 results and anything happening in 2017 that could have more than a minimal impact on your 2017 results, and adjust accordingly.

Alternative Minimum Tax – I could write an entire article just about Alternative Minimum Tax (AMT), but let me just say here that as taxable income rises, there’s a higher likelihood of winding up in the AMT, which could substantially increase your tax bill.  You can search for AMT worksheets to crunch your numbers to see if you’ll be there for 2017.

Marital Status – as I alluded to above, getting married (and on the flip side, getting divorced) will have an impact on your taxes.  Your tax filing status is determined by your marital status as of the last day of the tax year (Dec. 31), so if your marital status changed in 2017, think about how that will affect your taxes.  And if you plan to get married or divorced in 2018, you can start planning now for the changes next year.

Gifts – any taxpayer can make a gift of up to $14,000 per tax year to another taxpayer.  Property that is generating taxable income to you can incur less tax on that income when it’s gifted to somebody in a lower tax bracket, which is why parents will make gifts to their kids.  So consider making gifts to family members (or your favorite CPA, ha!)

Ordinary income vs capital gains – interest income (such as bank accounts, CDs, corporate bond funds) is taxed at your marginal income tax rate.  Based on current tax law, that rate can be as high as 39.6%.  If that same income was “qualified dividend” income, the tax rate on that income would be 15%, which is the same rate as long-term capital gains (for those in the 39.6% top ordinary tax bracket, the rate is 20%).  So for somebody in the top marginal tax bracket, converting ordinary interest income to qualified dividend income would halve the amount of tax charged (20% vs 39.6%).  Similarly, when considering selling appreciated securities, if the security is held a year or less (short-term), the tax will be at the marginal tax rate, while long-term gains (over a year) are taxed at the 15%/20% rate.  So if your holding period is nearing a year, think about holding it a few more days, to get the gain taxed at long-term rates.

These are just a few ideas to consider, when planning out the rest of the year’s taxes.  If you want to do some tax planning before the end of the year, but think it’s too complicated to do, remember to ask your favorite CPA (as in Jay the ___)  for help!

Trumped on Taxes

One era ends and a new one begins, which is a happy or sad thing, depending on which side of the aisle you sit on.  Regardless of where you stand (or sit) on the prospect of Donald Trump becoming our next president on January 20th, one thing will be sure; he’s going to look to shake up the tax code.  Depending on how much he gets his way, your 2017 tax picture could look very different from your 2016 one.  Let’s take a quick look at some possibilities.

Tax Rates – whether it’s Mr Trump or Congress, the Republican majority will look to cut tax rates in some fashion.  Lower tax rates mean that any deductions you have will get less bang for the buck, in the form of income tax savings.  For example, if you’re in a 25% marginal tax bracket and have itemized deductions of $10,000, the deductions will save you $2,500 in federal tax (deduction amount times the tax rate).  If tax rates are reduced and you drop to a 20% marginal bracket (I’m just making up that rate), your same $10,000 of deductions will only save you $2,000 in tax.  The bottom line is that for those of you who claim itemized deductions for charity, state & local taxes, and mortgage interest, a reduction in tax rates means that you’ll save less in income tax.

Charitable contributions – because tax rates could go down (and your income tax savings for making charitable contributions could be reduced), you might want to consider accelerating any donations that you were going to put off to 2017, and make them before the end of 2016.  If you have any securities that have appreciated in value, making a donation of the appreciated securities is a great way to avoid the potential capital gain income on a sale, and get a deduction for the current value of the security.

State & local taxes – I’ve personally seen less people get a tax benefit for these, as more of my clients have wound up in the Alternative Minimum Tax (AMT).  In the AMT computation, state & local taxes are disregarded as a deduction.  If you’re not in the AMT, prepaying by December 31 any state estimated tax payment that you’d otherwise make by January 15 would save a few dollars in 2016, and with possible lower rates in 2017, you’d have lower income tax savings in 2017 anyway.

Capital gains – while Mr Trump’s plan would retain the current long-term capital gains rates of 0%, 15%, and 20%, the threshold for hitting the top rate would be reached a lot faster, which means that long-term gains would be taxed at 20% starting at about $225K of taxable income on a joint return (vs about $467K now) and $112K of taxable income on a single return (vs about $415K now).  This would seem to indicate that if you’re considering selling any investments at a long-term gain, and expect to have a pretty high taxable income, it would be better to sell before the end of 2016. But…the other consideration is the current 3.8% net investment income tax, which is a tax on interest and dividend income, and capital gains.  If adjusted gross income is above certain levels, this tax kicks in.  Mr Trump and Congress both want to eliminate the net investment income tax.  It then becomes an exercise of figuring out whether gains will net out a higher total of capital gain + net investment income taxes in 2016, or possibly only capital gain tax (potentially at a higher rate) in 2017.  You gotta admit, isn’t this fun stuff?!

These are just a few points to ponder, while you’re slugging it out and standing in line at the mall this holiday season.  As always, if you need some tax number crunching done, consult your favorite CPA!

Tax Planning 2016

The election’s over, we’ll have a new president come January, and there’s uncertainty at every turn.  You know what won’t change?  The need to do tax planning before the end of the year!  Certain deductions that were set to end in 2015 or prior were extended by The Protecting Americans from Tax Hikes Act of 2015 (or PATH Act…who comes up with these acronyms?!).  With the passage of the PATH Act, there are deductions that will still be in play for 2016, so let’s look at a few of them.

Teachers’ classroom expenses – elementary and secondary school teachers can take an “above the line” deduction of up to $250 for out-of-pocket classroom expenses.  The above the line aspect is important, because it can directly reduce adjusted gross/taxable income, even if a taxpayer does not itemize deductions.  The PATH Act expanded the deduction to allow “professional development” expenses, so the cost of any courses that the teacher takes (that relate to the curriculum that the teacher teaches) can be deducted.

Qualified tuition and fees – another above the line deduction is allowed for qualified tuition and fees paid for post-secondary education.  There is a maximum amount allowed as a deduction, and this is subject to an adjusted gross income phase-out.  The tax savings from this deduction should also be compared to the tax savings for taking an education credit, to see which yields the better benefit.

Mortgage insurance premiums – while this is an itemized deduction (and not an above the line deduction like the two above items) the tax savings for the ability to deduct mortgage insurance premiums (a/k/a PMI) as mortgage interest can help offset the cost of paying the premiums.  As an itemized deduction, it’s subject to its own adjusted gross income phase-out.

Cancellation of mortgage debt – for taxpayers who are underwater on their mortgages and are able to have some of that debt forgiven, the Act extended the ability to not have to reflect the cancelled debt as income on a tax return.  This provision is primarily geared toward mortgage debt on a taxpayer’s primary/principal residence, and there are limits on the amount that can be excluded.

Code Section 179 expensing – for businesses, the Section 179 expensing limit will remain at $500,000, which means that businesses will be able to deduct up to that amount for major capital purchases in year one, rather than have to depreciate those purchases over 5, 7 years or longer.

These are just a few things to consider before the end of the year.  As always, if you’re unsure of how to plan for your own taxes before 2016 ends, you should contact your favorite tax professional (like JayTheCPA!)

So You Want to Be Your Own Boss, eh?

Over the years I’ve had a lot of people come in for consultations about starting a new business.  Either they’ve already taken the plunge and want to understand what they’re getting themselves into from an accounting, recordkeeping, and tax perspective, or they’re currently an employee and are considering going out on their own.  And then there are the people who come to me at tax time (after the prior tax year has ended) because they need someone to prepare tax returns for their first year of small business activity.  Regardless of the reason for these people showing up at my office, many times the result of the meeting is them scratching their head wondering what they got themselves into, and whether having their own small biz is even worth it.  Having been a small biz person myself for about twenty years, my answer is “yes”, it’s definitely worth it.  Those who know me personally know that in some respects I march to the beat of my own drum, and I told somebody recently that at this point in my life/career, I couldn’t even picture myself being an employee of somebody else.  Being my own boss, I set my own hours and schedule from day to day and week to week, I don’t have to get permission to take a day off or a vacation, and I pretty much come and go as I please.  At the same time, all the responsibility falls on my shoulders.  I can’t blame somebody else if a client should complain, it’s up to me to get the work done for the clients, and it’s up to me to network or do whatever else is needed to obtain and retain clients.  And that’s just the way I like to lead my professional life!  For those of you who are considering going into business for yourself, there are some important things to consider when you’re thinking of taking the plunge into entrepreneurship (is that an actual word?  My autocorrect didn’t change it!)

Taxes: As a CPA, of course the very first thing I need to bring up is taxes, as that’s generally the main reason why prospective or new small biz owners consult with me.  From an income tax perspective, there’s generally no difference between how much you’re going to pay as an employee vs how much you’re going to pay as a sole proprietor small business.  What I mean is that $100K will be taxed to you the same way if that’s your W-2 income or that’s your net business income.  There are a couple of small intricacies that make it a bit different, but I don’t want to bog you down with tax-speak right now.  The big difference that a lot of people don’t expect or anticipate is what’s called self-employment tax.  As an employee, you have 7.65% withheld from your paycheck for “FICA”, which is Social Security and Medicare.  As a cost of having employees, your employer kicks in a matching 7.65% expense of their own, and 15.3% is paid in to the government on your behalf.  As a self-employed small biz owner, you’re responsible for both of those halves out of your own pocket, which is the self-employment tax.  So being in biz for yourself will cost you an additional 7.65% in FICA tax.  Again, I’m oversimplifying it a bit, but if your net biz income is $100K, you’re going to pay $7650 more in FICA than if you received that same $100K as an employee, which is a substantial chunk of dough.  The other point I want to make regarding taxes has to do with actually getting that tax paid in to the fed and state governments.  As an employee it’s very easy; your employer withholds FICA, fed, and state tax from your gross pay and you receive your net paycheck.  When you’re self-employed, you’re responsible for getting all that tax paid in yourself, via quarterly estimated tax payments.  There’s the actual physical payments that you need to remember to do, but even before you get to that, you need to be disciplined enough to set that money aside (and not spend it) so you’ll have it on hand to pay it in every quarter.  Between self-employment tax, federal income tax, and state income tax, I generally recommend to people that they set aside anywhere from 25 to 40% of what they receive from their clients, to cover their taxes.  Depending on how much one expects to make from their small biz, that amount could be even higher.

Insurance: I’ll keep this one brief, but as an employee, many times you have a whole “menu” of insurance options available through an employer, such as health, dental, vision, disability, and life.  As a self-employed person you’ll either have to get those items covered through your spouse (if offered at her/his work) or you’ll have to find those items yourself, and pay for them on your own.  Health insurance generally can be 100% deducted as a self-employed business owner, but, again, I won’t bog you down with the ins and outs of doing that.

Retirement: As with taxes and insurance, when it comes to saving money for retirement, it’s all on you.  You can set up your own SEP (simplified employee pension) or Solo 401K, but, again, it’s up to you to set it up and to fund it.  On the plus side, there’s the opportunity to sock away a lot more dough as a self-employed person than you can as an employee.

Liability: As an employee, liability for what happens between your employer and their clients is usually your employer’s issue, not yours (disclaimer…I’m not an attorney) but when it’s your business you need to insulate yourself from liability as best as possible, through business insurance and also by setting your business up as either a corporation or limited liability company (LLC).

As I said at the beginning, I wouldn’t trade being my own boss for being an employee.  I like the “thrill of the chase” when it comes to drumming up biz, and I like to be able to help people and have the fees wind up in my pocket at the end of the day.  I think you’ll find the same to be true for you, as long as you have some good information and understand what you’re getting yourself into.

Do you have any thoughts or interesting anecdotes about your own experiences with entrepreneurship?  Please share them.

My Yelp Review of Myself

Jay is a great guy; professional, smart, funny, serious, down-to-earth, empathetic, helpful, responsive, and I give him ten stars!

O.K., I admit it, I’m reviewing myself. Well, to be perfectly honest, I’m using this “review” to write a personal letter to my fellow Yelpers. I decided that now is a good time to do this. First, it’s after the April 15th filing deadline (so I have a little bit of breathing room now), and second, I’m really bugged by the one-star Yelp reviews that I’ve received over the last few years, all of which were during tax season. I think that the people who wrote those reviews (and not a single one has ever been a client) had unrealistic expectations and/or really don’t understand what CPAs go through between January 1 and April 15. Since you probably got to this “review” while doing your research to find somebody to help you with something tax related, I want to give you a little information that will hopefully save you some time.

One of my “five-star” clients wrote in his Yelp review “Jay is direct and to the point in emails”. Understand that when you contact me, you don’t get an assistant, or a staff person, or somebody screening my calls or emails, you get me. And keep in mind that especially between January 1 and April 15th, I’m responsible for a lot of people all at one time, and it’s quite a job to keep everybody happy, and also field inquiries on top of everything else. I have loads of clients, friends, and contacts who tell me that they don’t know how I do it. So if you contact me, and I’m direct and trying to get to an answer really quickly without endless rounds of emails, don’t take it personally, it’s the nature of my biz, especially during tax season.

A very important thing to know about me is that I don’t do “interviews”. I’ve been in the public accounting profession since 1981, and I’ve been in practice for myself since 1992, and after all this time I know what I’m doing, and I have a file in my desk that’s stuffed with testimonials and happy thank you notes from clients, attesting to that. So if you want to come to my office for the sole purpose of meeting me to decide if you want to work with me, I’m really not interested, sorry. If you have tax questions or issues that you need help with, you can schedule a paid consultation, and you’ll be able to see me in action, which will be all the ‘interview’ you’ll need.

From a procedural point of view, I bill clients by the hour for all work that I do, and for tax returns there’s a minimum time/fee charge. As I mentioned above, consultations are paid, and are an hour minimum. I don’t do fixed fees, and having been burned over the years by people trying to hold me to estimates I gave them when I had no idea what I was walking into, I’m very hesitant to give estimates. The bottom line here is that I’m not interested in “shoppers”, that is, people who are just looking for a price. Please don’t take what I’m saying as being conceited or anything like that. To me, the important factors are experience, knowledge, and the ability to help solve problems, and for people who seek me out for those reasons, we’ll get along just fine. For those who place price ahead of knowledge and experience, we’re just not gonna be a good match, sorry.

What all of the people who gave me one-star reviews don’t understand (since none of them ever came in the door as clients) is how I go out of my way to be as helpful and responsive to my clients’ needs as a one-person-firm can be. For people who send me inquiries, I try to be friendly, helpful, and responsive too, but understand one thing; this is a two-way process. If you’re nice when you contact me, I’ll be a lot more responsive and helpful than if you act like a jerk, and you wouldn’t believe some of the words and tone of email inquiries I’ve received over the years, some of which were from the people who gave me the one-star reviews. There are a lot of badly behaved people out there. Remember too that I’m not required to accept as clients everybody who contacts me. Taxes are very personal and there’s a lot of close work between my clients and me, and if we don’t have a good working chemistry, it’s going to be painful for you and me both.

Please keep in mind that I’m not saying any of this to be mean, snotty, rude, or anything, but as I alluded to earlier, based on my minimum fee, I’m just not cost efficient for people with comparatively simple returns, so I try to point those people elsewhere. I’m just trying to save them time and money, not just trying to stuff money in my pocket.

So that’s a little bit about the person behind the picture on the Yelp profile and the website. If you can deal with a “tough love” New Yorker who’s going to be honest and blunt with you, smack you over the head when it needs smacking, push you when you need to be pushed, and will take a kick on the ass himself when it’s deserved, I’m the guy. If you’re looking for somebody who’s going to say “how high” when you say “jump”, or will agree that the world revolves around you, I’ll save you the time of having to write a one-star Yelp review.

My fellow Yelpers, thank you for your time and interest, and I look forward to helping those of you who value a professional’s experience and time!

Investing and Backdoor Taxes

It’s been a pretty good year so far for the stock market, and you may have locked in some nice capital gains on investment sales, and/or received some hefty dividends from mutual funds (or may yet receive year end fund distributions). While all of this is good stuff (more money in your pocket), the additional gains and income could put you in the position of paying even higher taxes than you may anticipate.

In my practice, this past tax season was a “perfect storm” for a bunch of my clients, who got hit with additional/higher taxes, as well as the loss of various deductions. Let me run down a few things from last year that are still lurking out there this year.

Net Investment Income Tax – this was a new tax in 2013, and is a 3.8% tax on income such as capital gains, dividends, interest, and a few other items. Once income goes above certain levels, this additional tax will kick in.

Personal Exemption Phaseout – while this isn’t an additional tax per se, the fact that personal exemptions (for self, spouse, dependents) can be reduced literally to zero if income is high enough, which has the effect of raising taxable income, obviously creating a higher tax.

Itemized Deduction Phaseout – this works similarly to the exemption phaseout, in that when income is high enough, itemized deductions will be reduced. And as with the exemption phaseout, this exposes more income to taxation.

Higher Long-Term Capital Gains Rate – for taxpayers in the top tax bracket, long-term capital gains will be taxed at 20% and not 15% for most other taxpayers.

Alternative Minimum Tax – I’ve covered this in previous articles, but it’s something that’s also still hanging around, and shouldn’t be forgotten.

From a tax planning perspective, if you feel some or all of these could be applicable to you in 2014, and you don’t want surprises at tax time, I recommend that you contact your favorite CPA (maybe one whose name starts with “Jay The…”?) to crunch some numbers and get some additional guidance on ways to reduce the sting of some of these stealth taxes.

Mistakes on Taxes? Avoid These

It’s tax season again, yee haw! Sure as the sun comes up in the morning, the IRS has its hand out from January to April 15th (and beyond) waiting for somewhere in the area of 150 million tax returns. In spite of ever more complicated tax laws, approximately one-third of those returns will be self-prepared. Based on their own research, my competitor (ha!), H&R Blockhead says that one of every five self-preparers forgo almost $500 in taxes (e.g. lower refunds or higher balances due) because of mistakes they’ve made on their own returns. These mistakes can lead to letters from IRS, possibly with penalties or other harsher actions resulting. As a licensed tax professional, my recommendation to all taxpayers is to avoid all preparers whose names start with either “H&R” or “Turbo”, and instead engage a qualified tax professional (preferably a CPA whose name starts with “Jay the”) who understands the tax laws, and stands a way better chance than you of preparing an error free return. But…I’m not naïve enough to think that people will actually listen to me (or read this), so for those of you who still insist on going it alone, and preparing your own tax returns, pay attention now, and don’t make these mistakes.

Claiming the wrong number of dependents-IRS has publications and pages and pages of information on who can and who can’t be claimed as a dependent on your tax return. Don’t think that just because somebody lives with you or is your kid that they can be claimed as a dependent.

Failing to itemize deductions-taxpayers automatically get a standard deduction, but don’t be so fast to leave it at that. Add up how much you paid in state/local tax, personal property tax, mortgage interest, charity, and other various items, and if that total exceeds the standard deduction, you can shave a few bucks off your tax bill by itemizing.

Overstating charitable contributions-yeah yeah, you put ten bucks in the Salvation Army kettle at Christmas time, or you put money in the basket when it’s passed around in church, but can you prove it? Like dependents, IRS has all sorts of information to read, that discusses the required substantiation for deducting charitable contributions. And they’ve been increasing their audits in this area, so make sure you’ve got the correct documentation, before you claim that deduction. Another mistake to avoid is forgetting about the United Way or CFC contributions that were deducted from your paycheck.

Deducting points on a refinance-while points paid on an original first mortgage are deductible when paid, you generally cannot do the same with points paid on a refinance. Instead, you must amortize that deduction over the life of that loan.

I could go on and on about mistakes you should avoid, but I think that’s enough free advice for one article. Remember rule number 1, which is to go to a qualified tax professional to have your tax return prepared. Rule number 1(a) is that the qualified tax professional should be me. Finally, rule number 2, if you’re gonna go it alone, make sure you review everything twice before you send the return out, and if you’re not sure about something, research and read!

Have you made any good (or bad) mistakes on tax returns, and are willing to tell about it? Leave a comment, and share it with others, so that they may learn.

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