Are Your Tax Records “Company Clean”?

By Stacie Clifford KittsMom

My mom had a philosophy about housekeeping. I think this stemmed from her preference to spend her free time on other activities like mastering a still life in watercolor, or watching a classic old movie. In any case, her philosophy usually resulted in our house being in one of two stages. She lightheartedly referred to these as “lived-in clean”, or “company clean”. I can still recall the first time I noticed mom running around the house painting over dirty little finger prints, or using Old English scratch remover (love that stuff by the way) on the furniture. This was when she explained that “company clean” meant paying attention to the details while “lived-in clean”, maybe not so much.

We sometimes see Taxpayers that have this same philosophy. They never quite seem to pay attention to the detail, that is, until they have company knocking at the door. Sometimes that company is a taxing agency. But, more often than not, everyday life events have resulted in the need for “company clean” records. Those include:

1) Accurate tax planning
2) Retirement planning
3) Applying for a home or business loan
4) Divorce or marriage considerations
5) Estate and succession planning

Taxpayers are often shocked at how costly it is to have someone “clean-up” after the fact. But consider the cost of hiring someone to clean or repair your house after a long period of neglect. Imagine the damage that can occur to your property when not taken care of properly. If you cannot, might I suggest an episode of Horders as an arguably extreme example of the damage caused by a lack of proper housekeeping.

“Company clean” records do not need to steal from your free time thought. Here are a few tips.

1) Do not wait until the end of the year to accumulate your records or do your accounting. You should be accumulating this information and doing an accounting (if necessary) at lease monthly.
2) Know what records you should be keeping. Ask your accountant or check out the IRS Website
3) Hire a qualified bookkeeper. This is someone who has a basic knowledge of accounting rules, not just someone who knows how to use Quickbooks.
4) Have your CPA look at your accounting records before the end of the year to make accounting suggestions and to help with tax forecasting.
5) Budget for the costs of hiring qualified tax and accounting professionals. Usually, the quality of your tax and accounting information are a reflection of what you pay for them.

The IRS LOVES Social Media

The IRS apparently likes social media. Here are all the ways you can connect.

1. IRS2Go 2.0 IRS’s smartphone application allows you to check your refund status, get tax updates and follow the IRS via Twitter. IRS2Go 2.0 is available in the Apple App store for iPhone or iPod touch devices and in the GooglePlay store for Android devices.

2. YouTube IRSvideos YouTube Channel offers short, informative clips on various tax-related topics. The videos are available in English, American Sign Language and Spanish.

3. Twitter IRS tweets include tax-related announcements, news for tax professionals and updates for job seekers. Follow us @IRSnews.

4. Facebook IRS has Facebook pages that post tax information for individuals, tax professionals, and for those needing help resolving long-standing tax issues with the IRS.

5. Audio files for Podcasts These short audio recordings provide information on tax-related topics — one per podcast. The audio files (along with transcripts) are available on iTunes or through the Multimedia Center on IRS.gov.

6. Widgets These tools, which can be placed on websites, blogs or social media networks, direct people to visit IRS.gov for information. The widgets feature the latest tax initiatives and programs and can be found on Marketing Express, the marketing site that allows IRS partners and tax preparers to customize their IRS communications products.

As a reminder, the IRS uses these tools to share information with you. Do not post any personal information on social media sites, especially your Social Security number or other confidential information. The IRS will not be able to answer personal tax or account questions on any of these platforms.

For more about IRS’s social media tools, visit IRS.gov and click on “Social Media.”

My Joy of Solitary Public Dinning

Yes, that’s me, the lady eating by herself.  No, I’m not waiting for friends or being stood up on a date. I chose to be here, all by myself… And it’s glorious.

Normally, and just like other service professionals,  I spend long days, nights and weekends taking care of, or preventing, other peoples problems. “We worry for you” isn’t  just a slogan, it’s a fact of life.

Really, and I’m being totally serious here, the questions, What can I get you?  How was that?  Can I get you something else?, well..they are just plain magical.  So magical in fact, sometimes they amaze me.

And it’s not only that. The whole darn process is satisfying.

First, there are so many wonderful venue choices-and the choice is all mine!  Better yet, if I want to go to the same place over and over- who cares?  I never have that irritating conversation with myself that starts, where do you want to go?  I don’t know, where do you want to go. I don’t care, what do you want to do? Argh- shoot me.

Next, I arrive and someone greets me.  “Can I help you?” Why yes, yes you can.

The smiling, friendly and eager hostess leads me to my own temporary little bubble of personal space, where she leaves me alone with a list of tasty and fun treats.  Of course, this magical piece of fine literature, from which I can choose anything I want, is the menu. No really, menu writing is a skill and a work of art if done correctly.

And, if all of this isn’t enough, someone is willing, nay, begging, to cook, clean and serve ME while I indulge in something I enjoy – completely stress free – like reading, catching up on the news, or even writing a blog post. I do imagine that heaven must be something like this.

I admit, sometimes people are a bit puzzled by my enjoyment of solitary “public” dinning. And yes, in my younger days, there was often that “one guy”  who just didnt think it was right for me to be alone and so wouldn’t go away.

But, as I’ve gotten older, that problem has faded sweetly and comfortably (for the most part) into the past, allowing for much cherished ME time.

When you think about it, here is a process that focuses totally on your wants and needs, no pressure to perform or entertain, and allows you the ability to do something you enjoy?  I mean really, need I say more?

Oh, and what does this have to do with a tax blog? Absolutely nothing.

My morning drive with Rush Limbaugh – OMG His Tax Knowledge Cracks Me Up

Rush Limbaugh Is a Big Fat Idiot and Other Obs...

Love My Morning Drive With Rush

By Stacie Kitts, CPA

I’ve considered myself a bleeding heart liberal Democrat ever since I knew what a Democrat was, an interesting political choice for a successful business owner / Certified Public Accountant living in the OC. But an even more interesting dichotomy is how much I enjoy my morning drive listening to the lunatic ravings political commentary of Rush Limbaugh.

I can’t help myself. It’s like comedy hour really.

Now I know there are a lot of people who like Rush and that’s okay, I’m not judging. However, this morning he was so over the top that I couldn’t resist making him the subject of this blog post.

In the spirit of full disclosure, I must admit I arrived at work before Mr. Limbaugh’s ranting commentary concluded so he may have redeemed himself later in his broadcast.

Here is what I thought I heard – no quotes here because I am recalling this from memory.

  1. Obama wants to tax the rich by increasing the 15% tax rate that many wealthier Americans enjoy on the sale of their investments. ( I have also heard this point made on several other news broadcasts)
  2. The 15% tax rate is a double taxation because wealthy Americans have already paid taxes at a 35% rate on the money they invested.

**********

First, I want to start this discussion by helping my readers to understand that different types of income are taxed at different rates. (I promise I will get to Rush’s points – I can hardly wait to tackle those) This varies from the regular tax rates that you might be familiar with.

So the basic tax rate schedule looks like this for 2011:

Tax Rate

Single

Married Filing Joint

Married Filing Separate

Head of Household

10% Up to $8,500 Up to $17,000 Up to $8,500 Up to $12,150
15% $8,501 – $34,500 $17,001 – $69,000 $8,501 – $34,500 $12,151 – $46,250
25% $34,501 – $83,600 $69,001 – $139,350 $34,501 – $69,675 $46,251 – $119,400
28% $83,601 – $174,400 $139,351 – $212,300 $69,676 – $106,150 $119,401 – $193,350
33% $174,401 – $379,150 $212,301 – $379,150 $106,151 – $189,575 $193,351 – $379,150
35% Over $379,150 Over $379,150 Over $189,575 Over $379,150

But here is what you may not know – tax law has all kinds of exceptions. In addition to the “regular” tax rates mentioned above, there is a whole host of other tax rates that might apply to your income.

Many of these “exceptions” are a decrease to the regular tax rates. For example:

  1. Qualified dividend income starting in 2003 and ending in 2012 has a maximum tax rate of 15%.
  2. Long Term Capital Gains income (selling stock you held for more than 12 months for example) is taxed at a maximum rate of 15% from years 2003-2012. The maximum rate increases to 20% in year 2013.

Income types that will increase your tax above the regular rate are:

  1. Self employment income (so if you are a business owner, you will likely pay more than the “regular” rates)
  2. Penalty taxes for early withdrawals of retirement investments (so if you pull money out of your 401K before you are eligible you will pay more than the “regular” rates)

Other exceptions to the regular tax include:

  1. Alternative minimum tax
  2. Depreciation recapture

So what is the argument?

It is simply this – working American’s, the ones who “work for a living” and are likely receiving a paycheck and Form W2 at the end of the year are paying taxes at a higher rate than individuals who make most of their income from investments. In addition, those American’s receiving a paycheck are also paying Social Security and Medicare taxes on top of the regular tax.

And why does this equate to the wealthiest Americans pay less tax? As Warren Buffett pointed out, working Americans don’t have the “extra” funds to invest. Middle America spends the money earned from their jobs on day-to-day living, not on investments that could earn income at a lower rate.

I like visual aides so here is one to help make the point:

If you are married and filing jointly and your taxable income after everything you can deduct, is $70,000 (and assuming all your income came from your paycheck) you will pay to our government in the form of Federal Taxes 25% of your income – on top of the social security taxes withheld from your check.

Married Filing Joint

Income

Total tax including social security)

Joe Tax Payer 70,000

$21,700

Warren Buffett 70,000

$10,500

Now that you know a bit more about how the tax system works – I hope – here are my answers to what Rush implied:

  1. Obama wants to tax the rich by increasing the 15% tax rate that many wealthier Americans enjoy on the sale of their investments .

Well, no Obama wants to tax income earned from investments similar to the way working Americans are taxed. Does this equate to taxing the rich more? More than what? -If most of your income is coming from investments – More than now – YES. More than the average American – well DUH NO.

  1. The 15% tax rate is a double taxation because wealthy Americans have already paid taxes at a 35% rate on the money they invested.

First, how does Rush know that wealthy Americans paid 35% on the income they invested? As we have learned, there are all kinds of ways income is taxed. And second, you only pay tax on the net profit – the increase in the value of the investment after you sell it and have control of the cash. The amount used to purchase the asset is subtracted from the profit to come up with the taxable amount and therefore is NOT taxed twice. (see post script)

Post Script: It appears Rush’s comment on the 35% rate relates to income that is taxed at the corporate level before being distributed out at dividends or capital gains.

The tax policy blog explains:

The reality is that capital gains and dividends are taxed at a lower rate at the individual level because this income has already been taxed at 35 percent at the corporate level before it was distributed to shareholders. Both Mr. Obama and his tax advisor Warren Buffett seem unaware that the U.S. has the 4th highest overall tax rate on dividend income among the largest industrialized countries in the OECD at 49.5 percent. Only Denmark (56.5 percent), France (55.9 percent) and the United Kingdom (54 percent) tax dividends at a higher rate.

So here is my take on the argument above:

If I earn money from my job (for which I pay taxes) and I take my money (lets say $1.00) to the grocery store and buy my dinner, then the grocery store takes my $1.00 and adds it to their profits (for which they pay taxes) leaving oh say $.85 – and then they buy merchandise from a vender using my $.85 and that vender adds it to their profits (for which they are taxed) and so on and so on. My dollar, or portions of my dollar were taxed over and over and over.

When a corporation makes a profit it pays taxes, just like I do. A corporation is considered a separate person distinct from its shareholders. So in the same manner as the rest of us, it takes some of the money it makes and its spends it. When it distributes its “profits” to pay investors (investors get dividends – its a perk of ownership and an incentive for them to buy the stock) those investors pay taxes on the income they receive in the same manner (all be it the investors get a tax break) as the grocery store does when I take my $1.oo profit (for which I have already been taxed) and buy my dinner.

I’m still struggling to understand why the profits that I distribute from my job to others are different than the profits distributed by the corporation.

IRS Releases Specifications for Registered Tax Return Preparer Test – Doesn’t it just give you the chills?

Katherman Kitts & Co. LLP

Choose A Tax Preparer That Has a Clue

By Stacie Kitts, CPA

Here it is, what all un-registered (non CPA’s, attorneys, or enrolled agent) tax preparers have been waiting for.  The specs for the competency test  that will award those who pass the title of  “Registered Tax Return Preparer.”

Wowwee doesn’t it just give you the chills….

No – well maybe that’s because CPA’s and attorneys can sign tax returns even if they don’t have a single clue what they are doing.  They get to do this without passing a test (other than the initial licensing exam which he/she could have taken a hundred years ago – so not even relevant today) or taking a single hour of tax related continuing professional education.  You know, training that would keep you up to speed on the actual tax laws that apply to tax return preparation.

So what do you think the odds are that  many of these licensed “professionals” would have a difficult time passing the new competency test?

Ya, scary jacked up regulation that leaves out a large number of people who are trusted to prepare your tax return.

Fixing the mistakes of these so called professionals is a large part of my practice.  I guess I should be grateful instead of loosing my mind over the absurdity of it all.

WASHINGTON — The Internal Revenue Service today released the specifications for the competency test individuals must pass to become a Registered Tax Return Preparer.

The test is part of an ongoing effort by the IRS to enhance oversight of the tax preparation industry. Preparers who pass this test, a background check and tax compliance check as well as complete 15 hours of continuing education annually will have a new designation: Registered Tax Return Preparer.

The specifications identify the major topics that will be covered by the test, which will be available starting this fall. Although individuals who already have a provisional preparer tax identification number (PTIN) from the IRS do not have to pass the exam until Dec. 31, 2013, they may take the exam at any time once it is available.

The test will have approximately 120 questions in a combination of multiple choice and true or false format. Questions will be weighted and individuals will receive a pass or fail score, with diagnostic feedback provided to those who fail.

Test vendor Prometric Inc. worked with the IRS and the tax preparer community to develop the test. The time limit for the test is expected to be between two and three hours. The test must be taken at one of the roughly 260 Prometric facilities nationwide.

To assist in test preparation, the following is a list of recommended study materials. This list is not all-encompassing, but a highlight of what the test candidates will need to know.

Some reference materials will be available to individuals when they are taking the test. Prometric will provide individuals with Publication 17, Form 1040 and Form 1040 instructions as reference materials.

The fee for the test has not been finalized but is expected to be between $100 and $125, which is separate from the PTIN user fee. Currently there is no limit on the number of times preparers can take the test, but they must pay the fee each time. Individuals must pass the test only once.

Only certain individuals who prepare the Form 1040 series are required to take the test. Attorneys, Certified Public Accountants and Enrolled Agents (EAs) are exempt from testing and continuing education because of their more stringent professional testing and education requirements. Also exempt are supervised employees of attorneys, CPAs, attorneys or EAs who prepare but do not sign and are not required to sign the Form 1040 series returns they prepare and individuals who prepare federal returns other than the Form 1040 series.

Approximately 730,000 return preparers have registered and received PTINs in 2011. Approximately 62 percent do not have professional credentials. The IRS does not yet know how many preparers will fall into other exempt categories, but those individuals will be required to identify themselves when they renew an existing PTIN or obtain a new PTIN beginning in October 2011.

The IRS will notify those preparers who have a testing requirement and provide more details. Once the test is available, preparers who have on-line accounts can use their accounts to schedule a test time and select a Prometric site.

At the time the current version of Publication 17 went to press, there were certain tax benefits that had not been finalized and several tax benefits were subsequently extended. See Legislative Changes Affecting the 2010 Publication 17 on IRS.gov for the details needed for study purposes.

Is Stripping An Art Form or An Obscenity – Kelly Phillips Erb Explains The Tax Connection

Is stripping an art form

Is stripping an art form

By Stacie Kitts CPA

These days I rarely have time to do anything that doesn’t directly involve running my accounting firm.  But Kelly – also known as the TaxGirl ® penned an  article that caught my eye Strip Club Doesn’t Meet  “Bare Minimum” in Court.  Punny huh?!

In fact, it so entertained me that I had to change gears to tell you about it.  I admit it, even I think tax is a dry subject for a blog.  But there is that rare story that entertains.

The fundamental question posed in Kelly’s post – Is exotic dancing an art form?

It turns out that in the state of New York, since 1965, sales taxes are imposed on the fees paid by patrons at strip clubs. However, Nite Moves, an adult club in Latham, New York, begs to differ with the state’s interpretation of adult and exotic dances. The club was audited in 2005 by the New York Division of Taxation and told to remit nearly $125,000 in unpaid sales tax – plus interest – for fees paid for door charges and private dances (if you have Tina Turner’s “Private Dancer” song in your head now, you’re not the only one). But Nite Moves claims that the assessment was in error. They believe that the fees paid should be exempt from sales tax and appealed.

In its argument, Nite Moves cited Tax Law § 1105 (f)(1) which exempts:

Any admission charge … except  charges  for  admission  to  race  tracks,  boxing,  sparring or wrestling matches or exhibitions which charges are taxed under any other law of this state, or dramatic or musical  arts  performances,  or  live  circus performances, or motion picture theaters, and except charges to a  patron  for  admission to, or use of, facilities for sporting activities  in which such patron is to be a participant, such as bowling alleys  and  swimming pools.

(Emphasis added)

In other words, they believe that fees for lap dances should be exempt just as fees for the ballet.

The court ultimately disagreed.  They concluded that the club didn’t provide enough evidence that would prove that the “private dances offered in the club were choreographed performances.”  The club simply didn’t successfully sell the court on their argument that stripping is an art form.

I don’t know, swinging around on a pole – upside down secured by a single limb – plus, some of those girls are really bendy and have some pretty impressive acrobatic skills.  (What?  I’ve seen Striptease – you know with Demi Moore) Seems to me that there is some skill involved, some artistic expression…and shall I say it, even some talent.   I think, yes, I think I might have been able to sell that in court….but that’s just me.

Recovering Bubblehead- Unfortunately, There is No 12 Step Program

Ally McBeal the unrecovered Bubblehead

By Stacie Kitts, CPA

I like to think of myself as a recovering recovered bubblehead.  You might know the type, she was portrayed by Calista Flockhart in the late 90’s as Ally McBeal.  The character was described as “annoying and demeaning to women (specially professional women) because of her perceived flightiness, lack of  [knowledge], short skirts“, and….. well you get the point.

As ridiculous as it sounds, there was a time – a long time ago in a galaxy far far away – when I thought I had found the right combo.   Often sporting an outfit that only Ally McBeal (an imaginary made up TV person, so like no real person should have tried to pull this off) would wear, I was, sadly, the “sexy” CPA.

Ludicrous, I know!

This style choice did not endear me to my female colleagues. And had you met me in those days, you might not have noticed that I had a brain at all.  This, of course, is not the impression you want to make when your brain is what you are selling.

Flash forward ……. now we are visiting my solo “stay home” tax practice period.  This quarter decade represented my relaxed period, where comfort was my style of choice.  My old warn out sweats and stylish jammie sets worn around the home office probably earned me the label of “comfy” accountant.   Also, NOT the serious accountant image you want to project, particularly when you are trying to convince a person who has amassed a considerable amount of wealth that you are the advisor who is going to help them keep it.

Interestingly, of these two periods, the comfy accountant was/is the hardest to overcome – a few enlightening moments, and some mentored wisdom eradicated the “sexy” CPA fairly quickly.  But taking the comfy out of accounting was like a slow excruciating death.

Even so, it’s done.  These days I work in an office building and I look forward to casual Fridays where I can throw on some jeans with my conservative cardigan.  I might even spice it up with some colorful shoes or fun jewelry.  But for the most part, first impressions are my main concern and my style choices scream I’m confident, educated, serious and professional.

~~~~~~~~~~~~~~~~~~~~~~~~~~

The Blouse

Your fashion choices actually play a large part in selling you and my own fashion history is testament to this.

Being a recovered fashion bubble head probably explains why I recently had a slight meltdown when my assistant commented on how cute my suit was but added, “Your top makes you look like a big orange pumpkin.”

Let me explain.

That morning I had arrived at work wearing a conservative black suit over a cute orange top with cute orange shoes carrying my cute salmon colored purse.  Just the right  >pop<  of color.  I felt completely prepared for my big pitch to a large potential client.  I was clear on the tax issues and confident in my ability to sell it.  But that was before I realized that my clothing choice looked like a Halloween inspired disaster.

I hurried to the bathroom where I stood in front of the full-length mirror and thought, Oh-My-God, she’s right.  Why did I pick orange and black?  I look ridiculous.

Now my confidence is waning.  I can’t get the pumpkin image out of my head.  How was I going to sell ME and MY skills when I looked like “that” lady.  You know, the one that can’t possibly own a mirror because if she did she wouldn’t be wearing that!!!!!!

My head starts to fill with possible solutions:  go home and change – nope not enough time, swap blouses with a co-worker, nope not an option, run to the mall – yes there might be enough time for that there’s one right across the street.  I gathered all the paraphernalia I needed for the meeting, business cards, portfolio, flyer about the company etc. and head out.

I found parking rather quickly and felt the relief flooding through my system.  I ran toward the door and pull on the handle. Locked!!!  It’s locked.  I look at the hours – “OPEN 10am”

10AM?

10AM, what? …..Shut down by my lack of knowledge about mall hours.

I pulled out my cell phone and click a button so I could see the time.  9:30 – No time to wait until it opens, find an appropriate blouse and still get to the meeting on time.

I’m screwed, I’m screwed, I’m screwed.

Despondent, I slowly slink back to my car and try to convince myself that,  it’s no big deal, you can still sell it, it’s not that bad, forget it.  Ya right,  I was a wreck.  So as I headed toward certain rejection,  I resolved myself  to make my pitch just the same.

But miracle of miracles, not only did I arrive early to the meeting, but by some grace of god, the meeting was across the street from a mall.  A mall that was open!

It wasn’t too late, I might pull it off.  I am elated, rather giddy in fact.  I top the escalator and see just the perfect thing.  How wonderful.  I try it on and it looks great.  Stepping out of the dressing room, I spot a manned sales register.

Hello, I’m in a hurry can you ring this up for me really fast?

I am sorry dear, but we just opened and it will take some time to get the registers up.

HUH, really, what?  There’s noo time?  NooooTime!

At this point, I’m thinking run, run with the cute blouse, go ahead make a dash for it…..it’s your only hope….It was amazing the amount of thoughts that flowed through my mind in those few seconds.  Could I get away with it, I would come back later and pay, maybe she would hold onto my wedding ring for collateral.

And then…..

She must have read the desperation in my expression because she says, “Wait, I think the register over here is up.  Let’s see.”  And glorious day, it was.

Sporting my new blouse with renewed confidence and relieved that I wasn’t a fugitive from justice, I arrived in time, made my pitch and yes, landed the client.

Hurray, disaster averted- thanks to the right first impression and my cute new blouse!

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