Archive for the ‘Tax Preparation’ Category

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No Vacancy

Monday, January 30th, 2023

If you are searching for a tax professional and have yet to find one, you really, really need to get that into high gear.  As of today, we’re telling anyone inquiring that you will be put on a waiting list.  Based on talks I’ve had with other tax professionals, few have space for many (if any) additional clients.

There are two main reasons this has occurred.  First, the average age of tax professionals is in the 50s.  Many tax professionals retired when the pandemic hit.  Tax and accounting are not glamorous fields, and not enough individuals are getting into this profession.

Additionally, each year it takes longer and longer to prepare a tax return.  This isn’t just the Tax Code getting more complex; it’s also the regulations that tax professionals must comply with.  Let me give two examples.  Every time we efile a return to the IRS we are required to note the Submission Identification Number (SID) generated by the IRS on either the signature document, or we can note it separately with the signature document.  We print this as a pdf from each return and save it in our paperless system with each return.  This takes about 90 seconds–not a big deal.  But if you multiply this by 1000 returns, that’s 1500 minutes or 25 hours of work–more than three days I’m paying someone for “make-work.”  The SIDs are always maintained in the software we use, but the IRS regulation is very specific on what tax professionals must do so there is no choice.

Another regulation we deal with are the required interviews for the Earned Income Credit (EIC), Child Tax Credit/Additional Child Tax Credit, American Opportunity Tax Credit, and Head of Household status.  We don’t have many clients who take the EIC, but we have plenty of clients who have children and qualify for these other credits.  We’re required to do a brief interview where we talk to the client and note the client’s responses.  Most of these interviews take less than five minutes–for the CTC, the average is around three minutes.  With about 600 of these interviews, that equates to 1800 minutes (30 hours).  Who pays for this?  Anyone who hires a tax professional does.

Those were just two of the many regulations we have to deal with.  Then we get into the Tax Code, and dealing with Congress’s “simplifications.”  Maybe some session of Congress will see the Tax Code simplified, but I have my doubts.

What does this all mean?  First, the number of returns a tax professional can prepare decreases each year.  It should be the other way; after all, if I’m experienced I can work faster, right?  But it’s not: complexity and regulations just eat into the time.  Second, I value my employees and I don’t want them to burn out.  We (a) moved our deadlines earlier for the 2023 Tax Season and (b) are making sure that our staff gets one day off per week even in the height of Tax Season.  Third, while I want to hire an additional tax professional, I have been unable to find quality candidates.  Meanwhile, demand for tax professionals in our specialty areas is increasing.

What happens when supply decreases and demand increases?  Price goes up–significantly.  That’s the case for us and (as best as I can tell) the entire tax professional community.  If you need a tax professional, be aware of the issues we face and if you have a good one, treat him or her well.

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2022 Tax Season: The Tax Season From Hell (Part 4)

Friday, November 4th, 2022

To recap, in Part 1 of this series I dealt with IRS failures in the 2022 Tax Season; in Part 2, I covered what the IRS should do to fix the mess.  In Part 3, I wrote about what our firm got wrong.  It’s now time to look at the opportunities (or change-points) to resolve our issues.

1. We’re upgrading our hardware and software.  Our computer server is being replaced in a little over one week (which should allow us to access files faster).  We’re switching to a unified back-end software before year-end; this should eliminate (I hope) or greatly reduce our internal systemic issues and increase our work-flow efficiency and speed.

2. We’re moving to a new office in December.  We’re moving across the courtyard to a larger office that’s far better suited for our needs.  We’ll have room for expansion.  While I’ll miss having the only 17-sided office in the country (yes, it’s a heptadecagon!), the new office will work better for our staff.

3. We’re moving up our submission deadlines.  We need to be able to better deal with the workload, and we simply couldn’t get everything done correctly and provide the proper level of service with our old deadlines.  This does mean many of our clients may need to file extensions; however, while inflation is adding costs for all of us, the 24-hour day remains just 24 hours long.  (The details will be in the Engagement Letters we send to our clients in December.)

4. We’re changing our work hours for the health and efficiency of our staff.  We’re decreasing the hours we’re working during Tax Season.  Everyone needs time to recharge, and working seven days a week isn’t healthy.  We will be starting our increased Tax Season hours earlier, but our staff deserves time off every week–and they will be getting it this year.

5. We’re raising our rates for the 2023 Tax Season.  There are two major components of this.  First, as I’ve detailed in the past, inflation is impacting every input.  From the paper we use to the software we rely on, everything has gone up between 10% to 488% from last year.  Like every business, we must pass that on to our clients.  Second, we believe we’ve been charging too little and we need to adjust our rates (while providing a far better level of service than we did in the 2022 Tax Season).  (The details will be sent when we distribute our Engagement Letters.)

6. We’re not planning on net growth of clients for the 2023 Tax Season.  When Price goes up, Demand goes down; that’s one of the outputs of the Law of Supply and Demand.  We do expect to lose some clients because of our price increase, and we accept that.  Additionally, we’re going to cap the number of clients based on the number of returns we can realistically complete with the level of service we want to provide.  It’s quite likely that we will not be accepting new clients sometime early in 2023, so if you’re interested in using us, now is the time to let us know.

7. We’re attempting to hire another tax professional (or trainee).  Even though the economy is in a recession, the job market remains extremely tough.  We’d like to hire another tax professional, and we’re looking to do so.  Our trainee from 2022 will be on board as a tax professional for the 2023 Tax Season, so that should help.  Still, demand remains strong (and likely will continue to be strong as long as the Tax Code remains as convoluted as it is today).

Will these fix our issues from the 2022 Tax Season?  At minimum, they should greatly reduce the issues we faced.  However, no one can predict the future.  I can promise that we’re not going to have a repeat of the issues we had during 2022, and we are building more resiliency into our systems.

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2022 Tax Season: The Tax Season From Hell (Part 3)

Thursday, October 27th, 2022

This is, perhaps, the most painful post I’ve ever written for this blog.  Why?  I’m going to go over everything our firm got wrong with this past Tax Season.  As the saying goes (Murphy’s Law), what can go wrong will go wrong and, boy, was that the case this year!

When the 2021 Tax Season ended (2020 tax returns prepared in 2021), we added an additional tax professional.  We believed that would give us additional capacity for the expected growth for the 2022 Tax Season.  Otherwise, we expected 2022 to be a repeat of 2021.  However, that simply wasn’t the case.

1. We didn’t budget for returns taking 10% more time than last year (on average).  For whatever reason, we found that the amount of time we had to spend working an average return increased by that 10%.  Let’s say you spend 60 minutes (one hour) on a return; that would mean an extra six minutes.  That’s not much…but multiply that by 1,000 returns and you have 6,000 minutes or an additional 100 hours.  We didn’t budget for that (and didn’t see this coming).  This won’t be the first time I mention that while inflation is surely impacting our pocketbooks, there’s been no inflation in the length of a day.

2. Mr. Murphy struck on the illness front. When I wrote Part 1 in April, only one of our employees had gotten Covid.  By October, every employee had gotten Covid.  (Interestingly, no one caught it in the office.  Our office was built in the 1980’s and doesn’t have the best ventilation; one would think Covid would spread easily from employee to employee but that didn’t happen.)  That took each employee out of the office for at least one week (in my case, two weeks).  Additionally, last year’s flu shot was abysmal in preventing the flu (a reported 16% efficacy).  All but one of us got the flu, too (amazingly, no one caught it from anyone at the office–maybe the office’s ventilation is better than I thought).

3. Personal and legal obligations kept me away from the business for several weeks.  I had a family issue arise in January that kept me away from the office for almost the entire month.  While Scott (my business partner) and everyone else pitched in during my absence, it put me behind.  That’s a bad way to start a tax season.  I was then unlucky enough to have to deal with a legal issue which kept me out of the office for a couple more weeks.

4. We dealt with two day-long power failures and two air conditioning failures.  In Las Vegas, you simply cannot work in an office in the summer if there’s no air conditioning.  Twice, the power was out for several hours and we closed.  Twice, the air conditioning failed. (We do have a service contract that specifies same-day repairs, and the company we used was very efficient in fixing the issues).  Still, that’s another week lost from preparing returns.

5. The first four items highlight that we didn’t have enough resiliency built into our planning.  Consider an office of 100 tax professionals where one individual is ill.  The other 99 can pick up the slack fairly easily.  Now consider an office with five individuals with one out for an extended period; it’s far more difficult for the other four to effectively handle the increased workload.

6. We upgraded our internal paperless system and it didn’t work. We’ve used the same paperless system for more than a decade, and at the end of 2020 we “upgraded” to the new, improved version.  Unfortunately, new and improved wasn’t the reality.  It was slower and simply didn’t work.  We downgraded back to the old, unimproved version (which we’re still on).  The new version looked better but we’re far more concerned with quick retrieval of .pdf files, not the fact that the new system uses the cloud.

7. We discovered our systems were not robust enough to handle our growth.  We discovered multiple failure points during the 2022 Tax Season relating to our internal systems and how returns flowed in our office.  Most of these issues related to computer systems we use and were caused by using three different systems (excluding our tax software) for running the back-end of our office.

In many ways it was for us a perfect storm of issues.  It resulted in poor communication to our clients (which is unacceptable to us) and poor performance by us (mainly in timely preparing returns).

So what are we going to do about this?  That’s in Part 4 of this series coming next week.  For now, I’ll quote Lewis Mumford who stated, “The Chinese symbol for crisis is composed of two elements: one signifies danger and the other opportunity.” [1]  We’re looking at this as an opportunity for the 2023 Tax Season.

[1] I don’t speak or read Chinese, but I heard from a friend of mine that the Chinese symbol for crisis is actually not composed of an element meaning “opportunity;” instead, the second element means “change point.”  Whether it’s a change point or an opportunity isn’t relevant: for us, it’s going to be both.

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It’s Time to Panic!

Tuesday, September 20th, 2022

Today is September 20th. Three weeks from Monday is October 17, 2022. That’s the deadline for individual taxpayers on extension to file their tax returns (unless you’re in a federal disaster area). If you have yet to send your paperwork to your tax professional it’s past the time to do so. Yes, it’s time to panic!

If your return is simple and straightforward, stop procrastinating and get it done and filed. If your return has any sort of complexities, you must start working on it now. Your tax professional needs time to get it done correctly. You need to turn in that paperwork post haste. If you’ve procrastinated, stop, sit down, and get it done–NOW.

Every tax professional I’ve spoken to this year is buried.  Indeed, it may already be too late for your return to be timely filed with many tax professionals. For example, our official deadline was September 15th. We’re not horribly behind, but I can state that if one of our clients procrastinates beyond this weekend there will be issues.  And I can guarantee if you drop off your paperwork with us on October 10th your return is almost certainly not going to be timely filed.

If you file late, it’s as if you never filed your extension. So sit down and get everything done now! Of course, if you like paying a 25% penalty, continue procrastinating.  After all, tax professionals are far less busy after the October deadline.

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Do IRS Employees Know the Postmark Rule?

Friday, July 22nd, 2022

So what’s the postmark rule?  The IRS notes this on their website:

Your return is considered filed on time if the envelope is properly addressed, has enough postage, is postmarked, and is deposited in the mail by the due date. If you file electronically, the date and time in your time zone when your return is transmitted controls whether your return is filed timely.

Of course, the IRS website doesn’t govern; the Tax Code and regulations promulgated under the Code do.  And here the IRS website exactly matches the law under IRC Section 7502 and 26 CFR § 301.7502-1.  So why aren’t IRS employees aware of this rule?  Let me first explain why I’m asking.

We normally file business return extensions electronically.  However, every year there are a few that must be paper-filed (mailed to the IRS).  On March 11th we mailed an extension for an S-Corporation (call it Acme).  The IRS had yet to process Acme’s S-Corporation election paperwork; when I attempted to e-file the extension, it failed.  So we mailed it certified mail, return receipt to the IRS on March 11th; it was received at the IRS in Ogden, Utah on March 17th.  This past week, Acme received a letter from the IRS stating we cannot accept your extension because it was filed after the deadline.

The owner of Acme was, of course, upset with me until he saw that I did file the extension timely; eventually the extension will end up being valid.  But (a) I had to waste time on a conversation with the owner of Acme, (b) the IRS wasted time and money in sending out the notice, and (c) will waste additional time removing the penalty and noting the extension was timely filed.

And I’m not alone in having clients impacted by this.  On Twitter, another tax professional noted he’s been receiving a “steady stream” of notices denying extensions for business returns.  Why has this happened?

I can only think of two reasons: either the IRS is separating envelopes from extensions (so that the IRS employee processing the mailed extension has no idea when it was mailed and only knows the receipt date) or the IRS employee processing the extensions aren’t aware of the rule.  Neither of these reasons is acceptable, but it appears that’s the reality today.

What does this mean for taxpayers?  First, you must use certified mail, return receipt requested in sending anything to the IRS (or any other tax agency) by mail.  Yes, my envelope mailed on March 11th from Las Vegas should have made it to Ogden by the 15th (it’s about a 6 1/2 hour drive from my office) but it didn’t.  Because I have proof of the postmark there won’t be any issues (in the long run).  Had I not mailed it certified mail, there would be no proof.  Given current IRS practices, this is essential.  Second, where possible e-file.  With electronic filing, there’s absolute proof of the date and time of filing.

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Bozo Tax Tip #10: Email Your Social Security Number (or EIN)!

Monday, April 4th, 2022

It’s time for our annual rundown of Bozo Tax Tips, strategies that you really, really, really shouldn’t try. But somewhere, somehow, someone will try these. Don’t say I didn’t warn you!

This is a repeat for the ninth year in a row, but it’s one that bears repeating. Unfortunately, the problem of identity theft has burgeoned, and while the IRS’s response has improved, that’s just an improvement from awful to mediocre.  (If you try to reach the IRS’s Identity Protection Unit via the phone, you likely have a 1% chance of your call getting through.)

I have some clients who are incredibly smart. They make me look stupid (and I’m not). Yet a few of these otherwise intelligent individuals persist in Bozo behavior: They consistently send me their tax documents by email.

Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number.

We use a web portal for secure loading and unloading of documents and secure communications to our clients. As I tell my clients, email is fast but it’s not secure. It’s fine to email your tax professional things that are not confidential. That said, social security numbers and most income information is quite confidential. Don’t send those through email unless you want to be an identity theft victim or want others to know how much money you make!

If I send an email to my brother, it might go in a straight line to him. It also might go via Anaheim, Azusa, and Cucamonga. At any one of these stops it could be intercepted and looked at by someone else. Would you post your social security number on a billboard in your community? If you wouldn’t, and I assume none of you would, why would you ever email anything with your social security number?

A friend told me, “Well, I’m not emailing my social, I’m just attaching my W-2 to the email.” An attachment is just as likely to be read as an email. Just say no to emailing your social security number.

The same issue holds for a business’s Employer Identification Number (EIN).  These should be treated like your individual social security number: send them using only a secure method.

If you’re not Internet savvy, hand the documents to your tax professional or use the postal service, FedEx, or UPS to deliver the documents, or fax the documents. (If you fax, make sure your tax professional has a secure fax machine.) If you like using the Internet to submit your tax documents, make sure your tax professional offers you a secure means to do so. It might be called a web portal, a file transfer service, or perhaps something else. The name isn’t as important as the concept.

Unfortunately, the IRS’s ability to handle identity theft is, according to the National Taxpayer Advocate, poor. So don’t add to the problem—communicate in a secure fashion to your tax professional.

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The 2021 Tax Season (Part 1)

Monday, June 14th, 2021

I’ve had good Tax Seasons and bad Tax Seasons, but the first part of the 2021 Tax Season was unique.  And uniqueness doesn’t mean good nor does it mean bad.  Both points were present this year, and continue to be present.  Let’s look at the highlights and lowlights of the first part of the 2021 Tax Season.  (I state “first part” because we still have 50% of our clients’ returns to file–we always have a lot of clients on extension.)

The IRS’s Does Great!  Let’s heap some praise on the IRS.  The IRS generally did an excellent job in implementing the laws that Congress passed dealing with Covid relief.  These laws required many changes to the antiquated computers that the IRS uses to process tax returns and given the IRS’s systemic issues (low staffing, ancient computer systems, etc.) they did an excellent job.

The IRS Made Some Confounding Decisions.  Let’s take tomorrow’s tax deadline (June 15th) for residents of Texas, Louisiana, and Oklahoma as an example.  Residents of those states can timely file returns tomorrow, and timely file extensions tomorrow.  (Individuals residing outside the United States can also so file.)  But if a resident of Texas wants to file an extension, that extension must be mailed to the IRS.  Ask any tax professional about correspondence sent to the IRS and the theme song from the musical Annie comes to mind (tomorrow, tomorrow, it’s always a day away).  Yet the IRS wants to increase the mail backlog.  This makes no sense.

Speaking to the IRS Is Near Impossible.  The Taxpayer Advocate reported that 2% of individuals attempting to reach the IRS actually do so.  And when you do, you’re likely on hold for a long time.  I have eight matters that require that I speak with the Practitioner Priority Service (PPS).  I have either Power of Attorney forms or Tax Information Authorizations for each client.  Some of these I could handle using the IRS’s e-services system if the IRS would timely process the forms.  It’s currently taking the IRS three months to process forms.  So I (along with other tax professionals) must call the IRS up.

I’m currently on hold for the business side of PPS, with a hold time of more than one hour noted.  Now, I can work while I’m on hold but most individuals cannot–they can’t take phone calls, they must sit at home, etc.  Meanwhile, I’ve tried to reach the individual side of PPS four times a day for the last week and cannot get through.  If I cannot get through over this week I will have to mail letters on some of these matters, delaying resolutions for months–it’s taking the IRS on average ten months to read the mail.  (While Commissioner Rettig states the IRS is timely opening their mail, they are not timely reading their mail.)

I have a client who had to mail his 2019 tax return to the IRS (the return has a form that is not allowed by the IRS to be efiled).  It was mailed in late September (he was on extension, waiting for a K-1). The return was just processed.  But my client was selected for Identity Protection Verification–that requires my client to call the IRS.  He’s tried three times a day for the last week and cannot get through.  Now, my client’s refund is about $40, so it’s not a big deal but the IRS’s inability to handle phone calls right now is a disaster that retards effective tax administration.

This Was an Early Year.  Tax seasons are sometimes late (everyone wants extensions) or early (everyone wants to file yesterday).  This was an early year–many clients wanted their stimulus money and, thus, wanted to file early.  Unfortunately, there are so many hours in the day (my cloning machine still needs work) and…

Tax Paperwork Comes Later and Later Every Year.  This year was no exception.  Most of my clients who are in partnerships saw their K-1s come one week later than last year.  That doesn’t sound like much, but a day here, a day there, and then you’re talking about many days.  (My apologies to Senator Dirksen.)  Adding to this was…

Congress Changing the Tax Law in the Middle of Tax Season Delays Tax Filings.  Many clients received unemployment.  When Congress changed 2020 tax law in March 2021, that means that tax professionals had to wait for (1) the IRS to update their computers and make any rules about the new laws and (2) the tax software to be updated.  While the IRS and the software companies generally did a good job, this added to delays.

Most of Our Clients Understood This.  We appreciate your patience this year.  For those who did not understand, please note that we did inform you of our deadlines when we sent our Engagement Letters (and all returns whose paperwork was received prior to the deadline were filed).

There Are Black Clouds on the Horizon for Tax Administration.  Congress and the IRS keep putting more and more work on tax professionals, and this is going to add to the cost of tax filings.  Consider the new Schedule K-2s and K-3s.  These are going to be forms used to report international transactions on partnerships and S-Corporations.  Lots more work.  Congress tends to pass laws mandating things like phone interviews for the Child Tax Credit.  This doesn’t sound like much, but take three minutes here and three minutes there–well, I’ve used my Dirksen quote already but you get the idea.

However, that’s nothing compared to the Pro Publica leak.  For those who haven’t heard, Pro Publica, a liberal special interest group, was provided tax documents showing how much various millionaires and billionaires paid in taxes.  (I will have a lot more on this later this week.)  Tax documents are never supposed to be released.  Indeed, felonies have been committed.

Democrats want to increase reporting to the IRS (as a way to pay for increases in taxes.)  Does anyone think that Republicans in Congress will go along with this given that the IRS can’t safeguard what they currently have?  When the previous tax scandal occurred (the Lois Lerner/targeting GOP-leaning non-profits), Republicans cut the IRS’s budget (it was the only thing they could do to show their displeasure).  Unless the felon is found in the next few weeks, expect the GOP to do the same thing as it’s their only means of showing displeasure.

Many Tax Professionals Are Unhappy.  Jason Dinesen, an Enrolled Agent in Iowa, penned a piece titled “The Tax Field is Broken.”  I don’t completely agree with the article, but much of what he writes is true.  Tax professionals do have lives outside of their businesses, and many have not had a break in over a year.  I have seen many posts about tax professionals retiring.  That said,…

I’m Still Standing.  Our business is doing fine (indeed, if you’re a tax professional and are interested in joining our firm, let us know), and I have no plans on retiring.  This was, though, the first year I was generally miserable for more than a month.

Expect Tax Preparation to Impact Inflation.  Everything I see shows that the supply of tax professionals is decreasing, the amount of work necessary to prepare a return is increasing, and the demand is increasing.  The Law of Supply and Demand says that if supply decreases and demand is constant, prices go up.  Here, we have a decrease in supply and an increase in demand and the amount of time needed to prepare the average return increasing.  Prices are going to increase, possibly significantly.

That’s my rundown on the May deadline.  We’ll see what the second half of the Tax Season brings us.

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Bozo Tax Tip #1: Lies, Deceit, and Nefarious Schemes!

Friday, May 14th, 2021

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.

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Bozo Tax Tip #4: The $0.55 Solution

Tuesday, May 11th, 2021

With Tax Day fast approaching it’s time to examine yet another Bozo method of courting disaster. And it doesn’t, on the surface, seem to be a Bozo method. After all, this organization has the motto, Neither rain nor snow nor gloom of night can stay these messengers about their duty.

Well, that’s not really the Postal Service’s motto. It’s just the inscription on the General Post Office in New York (at 8th Avenue and 33rd Street).

So assume you have a lengthy, difficult return. You’ve paid a professional good money to get it done. You go to the Post Office, put proper postage on it, dump it in the slot (on or before April 15th), and you’ve just committed a Bozo act.

If you use the Postal Service to mail your tax returns, spend the extra money for certified mail. For $3.60 you can purchase certified mail. Yes, you will have to stand in a line (or you can use the automated machines in many post offices), but you now have a receipt that verifies that you have mailed your return.

About sixteen years ago one of my clients saved $2.42 (I think that was the cost of a certified mail piece then) and sent his return in with a $0.37 stamp. It never made it. He ended up paying nearly $1,000 in penalties and interest…but he did save $2.42.

Don’t be a Bozo. E-File (and you don’t have to worry at all about the Post Office), or spend the $3.60! And you can go all out and spend $2.85 and get a return receipt, too (though you can now track certified mail online). For another $1.75, you can get the postal service to e-mail the confirmation that the IRS got the return (for the OCD in the crowd). There’s a reason every client letter notes, “using certified mail, return receipt requested.”

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Bozo Tax Tip #5: Procrastinate!

Monday, May 10th, 2021

Today is May 10th. The tax deadline is just seven days away.

What happens if you wake up and it’s May 17, 2021, and you can’t file your tax? File an extension. Download Form 4868, make an estimate of what you owe, pay that, and mail the voucher and check to the address noted for your state. Use certified mail, return receipt, of course. And don’t forget your state income tax. Some states have automatic extensions (California does), some don’t (Pennsylvania is one of those), while others have deadlines that don’t match the federal tax deadline (Hawaii state taxes were due on April 20th, for example). Automatic extensions are of time to file, not pay, so download the extension form and mail off a payment to your state, too. If you mail your extension, make sure you mail it certified mail, return receipt requested. (You can do that from most Automated Postal Centers, too.)

By the way, I strongly suggest you electronically file the extension. The IRS will happily take your extension electronically; many (but not all) states will, too.

But what do you do if you wait until May 18th? Well, get your paperwork together so you can file as quickly as possible and avoid even more penalties. Penalties escalate, so unless you want 25% penalties, get everything ready and see your tax professional next week. He’ll have time for you, and you can leisurely complete your return and only pay one week of interest, one month of the Failure to Pay penalty (0.5% of the tax due), and one month of the Failure to File Penalty (5% of the tax due).

There is a silver lining in all of this. If you are owed a refund and haven’t filed, you will likely receive interest from the IRS. Yes, interest works both ways: The IRS must pay interest on late-filed returns owed refunds. Just one note about that: The interest is taxable.

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