Do You Know Where Your Accountant Hangs Out?

It has happened again; I got a call from someone that wanted to know if we could get their S-Corporate return done by Monday, as the “person I have been working with just stopped returning my calls and emails.”  When I asked if they went by the person’s office to ask what was going on, they said: “as far as I know they, don’t have an office, and the only time I met them it was at Denny’s.”

It’s never a good idea to do business with an accountant, or any other business, that does not have or will not tell you where their business office is located. This sounds like another case of somebody doing accounting and tax work while they are looking for a job, and leaving their clients high and dry when that job comes along.

This “cheap” tax return is now going to cost a lot more – as it’s a rush job, that is, IF we can get all the information, and complete it by close of business on Monday.

Don’t be fooled into using an accountant that has no office so he comes to you and works out of his home or a PO box, in the end, cheap services always end up costing more than using a true professional.

Illinois Passes New Law Changing State Income Tax Withholding Requirement For Nonresidents.

The state of Illinois signed SB 1515 into law on August 26, 2019. It repeals the previous law pertaining to state individual income tax withholding requirements for out-of-state residents. Now, nonresidents who spend 30 days or more working in Illinois during the calendar year are considered to have been compensated in the state and are subject to Illinois income tax.

SB 1515 requires employers with nonresident employees working in the state to:

  • Maintain record of the number of days worked in-state by their nonresident employees, or
  • Have the nonresident employees submit a written statement that includes the number of days that they reasonably expect to spend working in the state during the year.

This law will be applicable to tax years ending on or after December 31, 2020.

Dead Horse Kills Deductions

United States Tax Court ruled in the case of Denise Celeste McMillan v. Commissioner of Internal Revenue on August 26, 2019. That her horse business no longer existed with the death of her last horse. Ms. McMillan challenged the IRS on disallowing her deductions for her horse showing/breeding business. Ms. McMillan was self-employed, both as a horse breeder and trainer and as an independent IT professional. During the 2010 tax year, she claimed a deduction for her horse business, which functionally no longer existed due to the death of her last horse. Proving that not only can you not beat a dead horse but also that a horse business lives and dies with the horses.

For the complete decision see T.C. Memo. 2019-108.

Cowboy on a dead horse

Questions About Converting an IRA To A Roth IRA

Question: “Does it make sense to convert my IRA to a ROTH IRA?”

Answer: We need a lot more information to answer that question. The answer will depend on your marginal projected tax rate for the year, along with your projected marginal tax rate at retirement. It also depends on how long you project between conversion and beginning withdrawals. While Roth IRAs can be a great choice, the conversion should not be done without fully understanding the tax ramification and what your plans and needs will be for the money in the account. If you know that you will be in a low tax bracket this year due to being out of work or having deductible business losses it can make a lot of sense to convert some or all or your IRA to a Roth IRA. Just how much to convert depends on your projected income and how much you can get in at the projected lower marginal rate.

We welcome your questions. Just email them to Info@RMSAccounting.com or call us at 954-563-1269.

Employee vs Independent Contractor

Would your business be safe from the reclassification of independent contractors to employees if the IRS or Department of Labor (DOL) decided to audit your use and classification of independent contractors? As the cost of having employees has increased over the years, more and more businesses are trying to avoid those costs by replacing services performed by employees with services provided by independent contractors. However, simply calling someone an independent contractor does not necessarily make them an independent contractor.

Misclassification can become very expensive when challenged by the IRS or the DOL. The result can be responsibility for uncollected taxes, penalties, even disallowance of pension plans and health insurance costs.

To help you better understand the proper classification of independent contractors and employees, we have just released a new publication “Can You Pass an IRS or DOL Audit of Independent Contractors vs. Employees?” It’s available free. To download a copy, simply  click here.

Tax Savings for First Time Home Buyers.

First time home buyers can take up to $10,000 from an IRA without being subject to the 10% early withdrawal penalty.  Beware that this exemption to the early withdrawal applies only to IRAs and not to 401(k)s or other retirement plans.  This was recently confirmed by the U.S. Tax Court in the following case (Soltani-Amadi, TC Summary Opinion 2019-19).

If you don’t have an IRA but do have a 401(k), or another employer plan, all is not lost. All you have to do is set-up an IRA and roll $10,000 from the employer plan you have to that IRA before you make the distribution. But be careful. You have to be sure the rollover is made before the distribution. If you are under 59½, doing this could save you $1,000.00 in early distribution penalties.

For help with this or any other tax strategy, just give us a call.

IRS can have your U.S. Passport Revoked

By: Steven J Weil, PhD, EA, President RMS Accounting

Did you know that the IRS can have your U.S. passport revoked if you have delinquent tax debt of $52,000 or more? The Fixing America’s Surface Transportation Act (FAST -P.L. 114-94), enacted on 12/4/2015, gave the IRS the authority to have the passports of those with seriously delinquent tax debt revoked.

The good news is that if your address is up to date with the IRS, you should receive a letter notifying you of the IRS’s intent to request that the U.S. Department of State revoke your passport.  That means that you won’t have to face finding that out when trying to reenter the country from a business trip or vacation.

To prevent the IRS from taking this action, you can pay the tax or (if this is not possible) enter into an installment agreement and make payments over time.

For more information see IRS Information Release IR-2019-141 or call us at 954-563-1269.

School Won’t Teach Your Children About Money

By: Steven J Weil, PhD, EA, President RMS Accounting

School Won’t Teach Your Children About Money. That’s your job as a parent, and if you fail at it, or just avoid it, your children will lack the skills to be successful adults. Worse yet, they might just end up living in your house until the end of time.

When do you start teaching them that money is a tool and how to deal with it? For my wife and I, the lessons started early when our children were in elementary school. In those days, money was tight and we had to spend wisely, which meant the kids could not have everything they asked for every time we went to the store. We needed a way for them to understand that buying things was about choices.

Our solution was the creation of the “Bank of Mom and Dad.” Each week they got an allowance, and it was deposited to the Bank of Mom and Dad. We kept running balances for each child, and when they wanted us to buy them something at a store, we would tell them how much they had in the bank of mom and dad. If they had enough, they could buy it with their money.  If not, they could save up for it, and buy it when they had enough money.

An interesting development was that often, if they had to spend their own money, they did not think it was worth it. This had never occurred to them when they were spending our money.

Over the years the amounts they received increased, and they had chores to do in order to earn some of the money that ended up in their accounts. At age thirteen, we opened real checking accounts for them. They could not sign, of course; but they had checkbooks and had to keep track of how much was in their account as well as learn to write checks and record them. They also became responsible for more of their expenses, such as school supplies, school lunches and other small items.

I will never forget the look on my oldest son’s junior high school band teacher when she told me that he needed a band uniform and the cost was $25.00.  I told her that he had his own money and that it was his responsibility, not mine. She looked even more surprised when the kid got out his checkbook.

Yes, our children learned early about money, and they did not all learn at the same rate. My oldest saved his money and bought a TV for his bedroom while his sister, just a year younger, bought toys and junk until she realized that she could not buy a TV since she had not saved her money.

All three of my children are now self-supporting with high credit scores and their own homes. They range in age from 24 to 31 and understand the importance of work and money management. 

All three went to college on a budget where they controlled their own money (and some that their parents contributed) so they had to make tuition payments, pay for housing and food, dating and other personal expenses. They knew that running out of money was not an option. They were expected to budget for their expenses, and they knew how to do that.

I am proud of all three of my children and hope that they will pass on the knowledge they gained about money to their children. I know that the ability to deal with money is one of the best things I did for them, and it gave them a skill that many of their friends don’t have.

If you want to know more about The Bank of Mom and Dad drop me a line at steve@RMSAccounting.com.

IRS Notifies Virtual Currency Owners

Released July 26, 2019

Last week, the IRS began sending educational letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

There are three versions of the letter, all of which aim to help these taxpayers understand their tax obligations and how to correct errors in reporting. Recipients are also directed to information on the IRS website that pertains to their situation, including forms, and schedules.

It is estimated that more than 10,000 taxpayers will receive these messages by the end of August.

More information about the tax status of virtual currency and how general federal tax principles apply to virtual currency transactions is available here. Further guidance will likely follow as the IRS continues to consider feedback from taxpayers and practitioners.