The following two stories are true. Only the names have been changed to protect the Bozos.
I was at the barber shop a couple of weeks ago and overheard a barber (not mine) telling someone,
…I just filed my tax return. I didn’t use Ray, my normal guy, because my Realtor wanted me to use Agnes Smith. Gloria, my Realtor, wanted my return done fast so I could qualify for a loan…yes, she made up some of the numbers on my return but I’m self-employed. Agnes didn’t care, and Gloria liked the result. Agnes told me I could amend my return later to get it right.
Yikes! Let’s count the Bozo actions. We have the unnamed barber who is signing a return that’s knowingly wrong, probably also committing bank fraud in trying to get a loan to buy a house. There’s Agnes who appears to have slept through ethics classes during continuing education. There’s Gloria, who may be guilty of aiding and abetting, and is certainly missing ethics for Realtors.
The Las Vegas real estate market is really booming: there’s high demand and really low availability. And the law of supply and demand leads to prices going up, so some are engaging in Bozo behavior in order to be able to buy their dream home.
Committing a felony (or two or three) in order to buy a home is not a brilliant idea. A better idea is to wait for prices to moderate, or perhaps not aiming for the McMansion and just buying a smaller (more affordable) home. Yet the Bozo contingent is what it is.
And here’s story two. John Smith, a professional gambler, wanted to get his returns done right. “I have a feeling,” he said, “That there were issues with my 2019 return.” So I took a look at his return. I saw his occupation listed as “Professional Gambler.” But his return lacked a Schedule C (sole proprietorship); instead, all his gambling winnings were reported as “Other Income.” I noticed he was using the standard deduction. I looked at his records, and there were both winning and losing sessions. The net of those was about $5,000 higher than what was reported on Other Income.
I asked Mr. Smith about this. “Oh, I told Ms. Doe [his tax professional] what my business expenses were. She told me as a professional gambler I could net my wins and losses, and there was no reason why I couldn’t take my business expenses.”
Ms. Doe, who happens to be both a CPA and JD, is correct: a professional gambler does get to net his wins and losses. But they have to be reported on Schedule C as a business, and you have to note business expenses in each category. And a professional gambler must pay Self-Employment Tax.
“Ms. Doe told me the way she did the return I wouldn’t have to pay Self-Employment Tax.” Ms. Doe was right! Of course, the return was wrong.
I explained to Mr. Smith that he should amend his 2019 return and pay the additional tax. It’s far better to come clean with the IRS then to have them come after you.
There’s a corollary to this second story, too. In November I did a consultation with a potential new client in Missouri. He was starting a new business and wanted his taxes done right. I listened to him, he explained his business (trucking/logistics), and how to set it up (from an accounting and tax perspective). I gave him what advice I could, but told him I was not the right person for him for the long-term. I knew little about accounting methods for that industry, and there were individuals who specialized in it who could do a far better job than I could. It’s important to know your limits, and saying “no” at times is a good idea–that client was not a good fit for me. The same was true of Mr. Smith to Ms. Doe, but she apparently felt otherwise.
That’s it for the 2021 Bozo Tax Tips! I hope you’ve enjoyed them. We’ll be back to normal posting starting with a recap of the 2021 Tax Season (aka a miserable year) in about one week.