Tax Guru-Ker$tetter Letter
Monday, November 27, 2000
Simplify Schedule D
Some of the most time-consuming tax returns I have prepared have been the ones with several stock market transactions. Since I do charge by the time I spend, these have been extremely expensive for my clients. With the growth of the volume of day trading, this will just be even more trouble next year.
Much of the time is spent sifting through stock broker reports trying to match up both sides of the deals (purchase and sale). There are a few stock brokers that actually put that info in a very easy to follow side by side year-end report. However, most don't do that simple task.
Both for my clients and anyone else interested in reducing their tax preparation costs, I have prepared this basic Excel spreadsheet that can be used to assemble the data required for Schedule D. It can be filled in on the computer and then sent to your tax preparer via email or printed out and completed by hand.
Unfortunately, most tax preparation programs (including my Lacerte) don't have the capability to import the data directly from the Excel file; so we will still have to key it in. However, having the data this well organized will save your tax preparer huge amounts of time.
Beware of Trusting the Web
With the long overdue shakeout of online companies and the daily demise of one dot-com after another, it reinforces a concept I have always believed in, self sufficiency.
There has been a growing trend for what are called ASPs (application service providers) on the net. On the face, they seem to be very convenient, providing services for a growing number of tasks, such as bookkeeping (e.g. NetLedger), timekeeping (e.g. Timeslips), scheduling (too many to list). The weak link in relying on these companies, besides the occasional inability to use their services due to temporary outages (such as has been the case with this Blogger service), the larger risk is that the company will just fold up, leaving you high & dry. That's why I am still recommending that you use a program that runs on your own computer for bookkeeping, such as Quicken or QuickBooks.
I don't mean to rain on anyone's parade in regard to new and creative usaes of the Internet. I have always applauded that. However, I have to be honest in assessing the risk inherent in entrusting one's financial and other critical data to someone that may or may not be around in the future.
Monday, November 20, 2000
Alert To Arkansas TaxPayers
I just received the third fax from a client where the Arkansas Dept. of Finance & Administration has sent a bill charging late filing & payment penalties for 1999, even though the tax returns were filed before the October 16 due date.
These penalties are bogus and prove that IRS doesn't have a monopoly on screwing up the processing of tax returns. As with many states, the Ark DFA doesn't require a separate extension form to be filed directly with it if one has ben filed with IRS. As extra insurance against just this kind of erroneous penalty, I have been attaching copies of the Federal extensions and even rubber stamping the tax returns with "EXTENSIONS ATTACHED."
I mention this for others to not simply believe that the DFA knows what it is doing and send in a payment. Write to them and include a copy of your Federal extension form. Just as with similar bogus IRS notices, it is often necessary to instruct DFA employees on how their own laws and regulations are to be applied.
Sunday, November 19, 2000
Get Rich Quick
I have written often about get rich quick seminars, as are often advertised in late night infomercials. To summarize, I have personally known some of the alleged gurus and they very rarely actually do the things they advocate in their commercials and seminars. However, they often do earn great sums of money from gullible people who take their classes and buy their books and tapes.
What brought this topic up was this spoof on how to construct your own real estate scam. Be forewarned that there will probably be people who will try this for real. As recent events have proven, there is no shortage of brainless morons in this country (especially in parts of Florida) who will become victims.
Thanks to Inman News for the heads-up on this.
Friday, November 17, 2000
Auto Mileage Rate For 2001
Due to the higher fuel prices, IRS has announced the standard rate for business miles will be 34.5 cents as of January 1, 2001. This is a two cent increase from the 32.5 cents for 2000 business miles. Companies that base their employee reimbursements on the IRS rate have penty of time to make the necessary changes.
Likewise, there will be a two cent increase in some of the other mileage deductions.
The standard mileage rate for use of a car for medical reasons will be 12 cents a mile. The 2000 rate is 10 cents a mile.
The standard mileage rate to use when computing deductible moving expenses will be 12 cents a mile. The 2000 rate is 10 cents a mile.
The standard mileage rate for the use of a car when giving services to a charitable organization remains at 14 cents a mile.
Again, this just illustrates the immense intellect of the IRS head honchos. They have been able to determine through their extensive research that vehicles cost less to operate for these other purposes than for business. Since my formal education in this area consists of Auto Shop in high school, where we never covered this aspect of auto science, I have to trust the IRS brainiacs to steer us in the right direction.
Sunday, November 12, 2000
Reverse Exchanges Finally Have IRS Guidelines
Delayed like kind (aka Starker & 1031) exchanges were legalized in 1984. You can see all the rules at Tax Free Exchange Corporation's website.
IRS likes to take its sweet time in issuing regulations on how laws are to be applied. This has been the case with reverse exchanges, where the replacement property is acquired before the original one is disposed of. IRS still hasn't issued official regulations; but they did finally approve of a safe harbor approach to structuring such transactions. Basically, it involves parking the replacement property with a neutral third party prior to disposing of the original property. It is not the only way reverse exchanges can be handled; but it is the safest way to avoid any IRS challenge.
This safe harbor was published by IRS as Revenue Procedure 2000-37 in its Internal Revenue Bulletin 2000-40. You can download the entire 29 page IRB from IRS's website or just the three pages with the Rev. Proc from my site.
I will be expanding on my interpretation of this new procedure in the near future.
Wednesday, November 08, 2000
No Slavery Tax Credit
Among the tax questions posted to me and the other experts on AskMe.com, a recurring one has to do with the urban myth floating around that there is such a thing as a special tax credit for African-Americans as reparations for their time as slaves. This is as bogus as the rumor a few years ago advising blacks to claim the value of 40 acres of land and a mule as a tax credit on their 1040s. Although film director Spike Lee named his production company after this, there is no truth to that tax break. The current hoax is well described here on the snopes.com site, which I highly recommend you consult any time you receive one of the countless email alerts about viruses or get rich quick schemes.
Sunday, November 05, 2000
I Want To Be A Millionaire
As a long time master of the Trivial Pursuit board game, it seemed a natural to take a stab at the often ridiculously easy questions on Regis Philbin's show. Having failed to make it past the first level of qualifying on the telephone, I actually made a trip to St. Louis to take part in the show's new audition process. 135 folks who were lucky enough to qualify for a spot via a phone call were in a room taking a 30 question test. The 35 with the highest scores (including me) were then interviewed in groups of five while being video-taped.
We are supposed to hear back in December if we are chosen. However, this story in the St.Louis paper about what the show's producers are looking for doesn't make me very optimistic about being selected. I happen to be an unwanted white male accountant.
I will keep you posted on any new developments.
Thursday, November 02, 2000
NAEA: Expect a "Chaotic" Tax Season
Washington (Nov. 1, 2000) -- The upcoming tax season could prove to be chaotic, as the Internal Revenue Service irons out the kinks brought about by a major reorganization, says an industry observer.
National Association of Enrolled Agents executive director Jan Bray told the Electronic Accountant that since this is the first season for the newly revamped IRS, a lot could go wrong. "It's going to be a chaotic season," she said. "With any major reorganization there are some details you might not have thought about, and some that look good on paper but don't work in reality."
For instance, she said this is the first year that practitioner hotlines won't be in all the service centers, but the IRS hasn't indicated whether they will be increasing the number of people handling all the calls. Another potentially troublesome issue is that the addresses for where to send returns has changed, and the agency hasn't addressed the issue of 1040 filers who also have business expenses.
"Those filers would fall under the new small business division, but what if by accident they send their returns to the wage and investment division? When is it considered filed? We haven't gotten an answer on that yet," Bray said.
The NAEA is working up a list of such questions for the IRS and Bray hopes most of the problems will be solved before January. "If the IRS is responsive to our questions and acts on them quickly, these will just be bumps along the road. But if they get caught up in their bureaucracy, it could be a very difficult filing season," Bray said.
-- Tracey Miller-Segarra