Fake IRS Facts, or Why I was Yelling at the Television

My husband annoys me periodically by snarling at the TV while we are watching a perfectly reasonable police show. Based on his long-ago job in a peripheral law enforcement position, he gets worked up when the show’s cops do something that he says real-world officers would never do. I tell him that it’s just a little dramatic license. Who cares? He should be quiet and watch the program.

Then, last night, watching a new favorite show, I found myself yelling, “No, no! That doesn’t happen.” And, “No, don’t pay! The bill is wrong!” And, more!

Bad tax advice has people yelling at an off-camera television

Most people don’t get their tax advice from comedy TV shows… I hope! But, still, the assumptions made by the characters on the show are the same misconceptions people who come to us for professional advice have. The blatant mistakes got me worked up!

3 Things The Kominsky Method Got Wrong

I enjoy the characters and witty writing of Netflix’s The Kominsky Method. 

But, the drama of the episode I was watching was based on one of the characters learning that he received a letter from the IRS complaining that he had not filed taxes for three years and they were billing him for $300,000 which he decided to pay.


Wrong #1: The IRS does not wait for three years and send you one letter for all of the years you’ve missed. They send you a letter and a bill for a single year when they have discovered you’ve not filed for that year.

Why would they wait? To make the total owed larger and dramatic? Only on TV!

Wrong #2: When you don’t file a return (or you omit some information from a return you do file), the IRS assumes the worst. So, if the IRS learns from 1099’s or W-2’s that you’ve had income of $100,000, they will send you a bill for a tax on the full $100,000 without any deductions. They’ll also add on penalties and interest, even though in some circumstances you might be able to have penalties waived.

Taxes have a man holding his head

When you get a bill like that from the IRS, the solution is to see a CPA and file your taxes. Claim your expenses, exemptions, and deductions! Don’t just pay what the IRS says you owe!

But, in the TV show, what the IRS said the taxpayer owed was treated like it was written in stone.

Then on the program, another character offered to give the money to the IRS for the person who hadn’t filed. But, the donor said, we have to call it a “loan”, so you don’t have to pay taxes on what I pay for you.

Wrong #3: Gifts are not taxable to the recipient. So, there was no reason to call the gift a loan.

Gifts over a certain dollar limit need to be reported by the donor to the IRS, and gifts may decrease the amount available to be passed on tax free in an estate. But, they are not taxable to the person that receives them.

Moreover, calling something a “loan” when you don’t want or expect the money to repaid is lying to the IRS. No tax or legal professional would ever suggest lying. Neither should a television show!

Don’t Take Take Advice from a Comedy and I Won’t Use a Police Drama to Train Rookie Officers

Okay, okay. I now understand why my husband objects so strongly to the harmless dramatic license on crime shows!

When you see something on TV — or on the Internet — what happened sticks in your mind. You believe what the characters do in the show represent what reasonable people do. Don’t believe it!

The Kominsky Method has lots of great moments. And, the episodes need drama, even if it’s a bit contrived. So, I’ll calm down and let the tax misstatements wash over me.

But, if you get a notice from the IRS, don’t follow the Kominsky Method of dealing with the taxes. Call us!

Why We Won’t Open Your Attachment or Click on Your Link

Dear Geoffrey,
I am attaching a PDF with my W2 information for my tax return.

Dear Sterck Kulik O’Neill,
Can you tell me how much it would cost for you to do my tax return. I am sending a PDF copy of last year’s return with this email.

Hey, Charles. I have uploaded my tax information to http://bit.ly/my2017taxinformation .

A few times a month we get messages inviting us to open an attachment to an email or to click on a link where we are supposed to get information a client (or prospective client) has sent us.

We don’t click to open or follow! Even when the messages come from an email address of a client we know.

Few of the messages we get out of the blue — from people we know and from people we don’t know — are legitimate! They are Spear Phishing attempts. Spear Phishing attackBad guys stuff malicious software in the PDF they are attaching in the hopes that our anti-virus software is weak or out of date. Or, they set up a web page that tries to download evil code to infect our computers, probably when we think we’re clicking to download the promised information.

They can address us by name by picking off our identities and email addresses off the Internet. They can pretend their clients of ours because they’ve broken into a client’s computer and are accessing their list of contacts.

These guys know their business and are hoping that someone will let their guard down for just a minute! And, the busy tax season time, CPAs are distracted. We are much more likely to CLICK without thinking.

But, so far, no one in our office has succumbed to the temptation to click. We keep telling ourselves that our clients know not to send sensitive information by email —  the data could be read and the ripped off by someone monitoring along the way. Moreover, we provide our clients with a secure portal to upload and download their information.

So, if you send us an email message that suggests we open an attachment or visit a link, we won’t click! (Really, we will try very hard not to click!)

Usually we don’t even respond to emails we think might possibly be from scammers. If the message is from a client, we may call and see if they really sent the message or suggest that their email has been hacked.

Of course, you should not email your social security number, private financial information, or even credit card numbers to anyone as a normal Word document, PDF, or plain text. It’s just too easy for a bad guy to monitor the Internet and help himself to your private info.

But, even if you’re willing to take the risk of identify theft by mailing your tax return to us, to your mortgage broker, or to your attorney, a smart person won’t open the document unless you’ve just talked to them and told them what is coming. (And, when you give your notification, they should tell you to use a secure transfer method!)

So, use our portal to send information or contact for other ways to get delicate data to us!

Don’t Fail to File… Even if it’s Only an Extension

Next appointment April 21st graphicOur team is working seven days a week to prepare taxes and to respond to other accounting emergencies of our existing clients. The partners want to make sure that the team is busy, but not crazed, and are now scheduling meetings for prospective clients after April 20th.

Why April 21st or later? Because the normal deadline, April 15th falls on Saturday, there are holidays in various jurisdictions on Monday, the national tax deadline is April 18th, our office is closed April 19th, and the partners are already booked on April 20th! Whew!

We are happy to schedule an appointment for new clients, but it won’t be before the tax deadline day. If you’re looking for help in preparing your return, give us a call. But, also stay in the good graces of the IRS by submitting an extension request.

Cannot File Your Return — At Least File an Extension

If you haven’t prepared your return and cannot get appropriate help by the April 18th deadline, we strongly suggest that you file an extension with the IRS. The IRS heavily penalizes late filers, but you can get extension to file automatically if you ask for one by April 18th.

Download the Form 4868 from the IRS website, print it, fill it out, and mail it so it gets postmarked April 18th! You can also electronically file an extension request on IRS page in the link.

Filing an extension request will allow you until October 16, 2017 to submit your completed return. You are still required to pay any balance you owe the IRS by April 18th, so if you think you owe taxes make an estimate of what you should pay and send in a check with the extension form.

Whether you plan on getting professional tax help or do it yourself, file the automatic extension request today!

The penalty for not filing is nasty. If you file more than 60 days after the due date, the minimum penalty is $205, or if you owe less than $205, you’ll be penalized 100% of what you do owe.

The penalties for failing to pay by April 18th are not so bad, generally 0.5 percent of your unpaid taxes per month, up to a total of 25%.  That is a relatively small penalty, especially compared to the penalty for not filing!

The IRS grants an automatic extension to file your tax forms, but the law requires that you pay what you owe by April 18.  So, if you think you may have to pay the IRS this year, enclose a check to cover your estimated shortfall with the extension form.

Tax Planning for 2017

Want to talk to a CPA about how to handle a big windfall in 2017?  Estimate what you’ll pay in taxes if you exercise those stock options? Do normal, intelligent tax planning?

Unhappily, 2017 is not a normal year.  Donald Trump and the Republican party campaigned on the promise to make major changes in the tax policy.

The victors in the election campaigned on the promise that they would cut the top tax rates.

They wanted to simplify the tax code, too. What “simply” means is not certain, but Mr. Trump’s proposal included the idea of limiting some long-cherished deductions.  Charitable deductions would be capped at $100,000 per person, for example.

Man stares into a crystal ball to see the futureUnfortunately for planning purposes, we do not know yet if cutting the tax rates and adoption of the other plans put forth by Mr. Trump will be done all in 2017. Moreover, the campaign promises of the Republicans in Congress differ from what Mr. Trump said he wanted to do.

Which changes will pass? When? What other ideas will be implemented?

Our crystal ball is cloudy!

Realistically, the answers to these questions will develop during 2017.

Unfortunately, actions that Congress takes in December will affect the financial actions you had to take in January.

What we — and all other tax professionals — can do now is:

  1. Advise you what the tax consequences of your actions would be if the 2016 laws remain in place.
  2. Advise you what the tax consequences of your actions will be as individual changes are made to the tax laws in 2017.
  3. Speculate along with you about what other tax law changes may be made and what the effects of those changes will be.

Speculating is not a comforting alternative to solid, professional planning.  But, it is all we all can do until the ultimate shape and scope of tax law changes is known for sure.

American Flag with What's Next

We suggest that if you can postpone making major financial decisions that might be impacted by new tax rules, do put off taking any action until Congress acts!  Unless you have need for the cash generated by the exercising of stock options, for example, consider delaying exercising the options for a while.

Most years we suggest that you contact us early in the year to talk about potential major financial decisions.

In 2017, we will still be happy to talk with you and give you general advice. As the year progresses, it’s likely that we will be able to give tax planning advice with increasing certainty.


How Trump’s Election Changes Your Tax Planning

Donald Trump has promised to drastically lower taxes next year, and with Republicans controlling Congress, he’s likely able to get some or all of the tax changes he wants passed.

Most of the proposals call for individuals and businesses to pay less, maybe much less, in 2017 (or 2018, if Congress is slow to act) than they would under current law.  Independent analysis of many of the proposed changes show that well-off individuals will benefit significantly from the lower rates proposed. NPR reports that, according to Lily Batchelder, a law professor at New York University and a visiting fellow at the Tax Policy Center, people earning a million dollars will get an average tax cut of $317,000.

Tax deduction - word cloud conceptThe plan also lowers the business tax rate to 15% from 35%.  US-based manufacturers may elect full expensing of plant and equipment costs, although selecting this approach means they will give up their ability to deduct interest expense. (See Donald Trump’s campaign website press release.)

President-elect Trump and Republicans in Congress also want fewer people to have to itemize deductions.  They plan on raising the standard deduction rate to $15,000/$30,000 for a single person/married couple (Trump’s plan).  At the same time, they would cap deductions at $100,000-single/$200,000-married (Trump’s plan).  In addition, some Republicans have suggested eliminating the deduction for state and local taxes, and the mortgage interest deduction may be scrutinized.  (Read the Wall Street Journal for more details.)

Of course, unless you have a fully-functional crystal ball, there is no certainty that all/any of the changes will occur. But, IF you believe that significant changes will be made to the tax code, then you should take action based on what you think is likely to change.

We don’t have any fortune-telling ability, but here’s what we think is reasonably likely.  If you agree, consider accepting our recommendations!

Assumptions: The 2017 tax rates will be lower than the 2016 rates for both business and businesses.   Some change to deductions will be implemented that will increase the standard deduction amount and limit itemized deductions.

man wearing a suit pointing the finger to the word taxes written in the foregroundRecommendations:

  • Postpone the recognition of as much income as possible until after December 31st.  If possible push off the closing dates of profitable sales, receipt of bonuses, and all other activities that create income.  You’re likely to be taxed at a higher rate this year than you will next year.
  • If you are a US-based manufacturer, postpone plant and equipment purchases and upgrades into 2017 when you’ll be able to expense them in a single year.
  • Give to charity and pay your property taxes in full in 2016.  Many of our clients will run into the $100k/$200k talked-about limit for itemized deductions.  If you’re close to that amount, give everything you can in 2016 where you’ll get full credit for your gifts and payments.  Even if your itemized deductions are much smaller, give and pay in 2016 when you’ll get credit for each dollar.  In 2017 you may not want to itemize and instead you’ll benefit from the new, higher standard deduction rates.

You have only until December 31st to take action to take action to lower your 2016 tax bill and to plan for 2017.  Do it!

Please contact us if you’d like help.  Maybe all you need is a check-in phone call.  Or, maybe your situation is complicated and you’ll want a full tax projection.  We are happy to find out what you need and work with you so that you pay the lowest amount of taxes legally possible.

And, of course, all of this speculation.  Who knows what President Trump and the new Congress will really do?!!

They’re Not from the Government, and They’re Not Here to Help

Sometimes people don’t file their taxes and ignore the tax collector’s notices. To get your attention, the government will create a wildly high estimated tax bill and put a lien on your property.

When we are contacted by clients who have had liens put against them, they are horrified. They were busy, their finances were too complicated that year, or they were worried about the size of what they might owe and they just couldn’t get themselves to deal with the problem.

We — and most reputable accounting firms – can resolve the non-filing complaint, adjust the tax bill, and, if needed, work out a payment plan for the taxes.  The steps to resolution are low-key, routine, and straight forward.

  • First, we help you file your taxes for the year in question.
  • The lien against your assets will be lifted when you pay the new, and probably much lower, tax bill.

Clearing up the problem isn’t painless.  You’ll have to pay for the taxes owed on your actual income, penalties, interest, and for the tax preparation. Ouch! But, the path to fixing the problem is clear and relatively drama free.

Unfortunately, we have discovered a vulture industry that goes after taxpayers who have trouble with the IRS or state tax collectors.  A client shared with us the blizzard of come-ons he received once the tax lien against him was recorded and made part of the public record.

Scam Notice Square Collage
Sample of Notices Received. Click to see more.

These notices mimic official government notices — they’re not!  

They are designed to get scared taxpayers to call a phone number without thinking about who they will be talking to.

The language and style they all use is designed to trick you into believing you’ll be talking directly to the government.

The language each of these companies use is remarkably similar. Everything is URGENT, or FINAL.  Several of the notices give a made-up case or file number… a number that has nothing to do with what the real tax collectors are using.  One company says that they’ll get the $377,548 tax bill reduced to $79,509.60… another suggests if you work with them the final bill will be $18,499.85. The warn, if you don’t respond to their notice, your wages will be garnished and bank accounts seized.  (See a larger photo of the frightening notices this one client received.)

A couple letters say that they are from government-sounding organizations such as “The Taxing Authority” or “Tax Group”.  Others don’t tell you who the letter is from… you’re supposed to assume that it’s from the government. A couple even came in envelopes with the official-sounding warning:

$2,000 Fine or 5 Yrs. imprisonment or both for any person who interferes with or obstructs the delivery of this letter or otherwise violates Sec. 18 United States Code 1702.

Doesn’t this warning apply to all mail tampering?!

Some — but not all — of the letters say that they are NOT from an official government agency.  But, those disclaimers are in small type and designed to be overlooked.

We don’t know how any of the companies who send the breathless, fear-mongering notices plan to help solve the taxpayers problem.  But, we really don’t like the attempt to trick people into thinking that they are dealing with a government agency when they are not.

Our advice to people who receive tax notices or who have tax liens placed against their assets: call us or another professional tax preparer who doesn’t try to get new clients by tricking them or making them crazy frightened!



California LLC Payments

California has a confusing number of LLC payment vouchers… Here is a quick guide that  we’re passing around the office.

  • Form 3522 (Prior Year) – to be used to pay last year’s $800 payment if it was not made (regardless of when paid)
  • Form 3522 – to be used for the current year’s $800  due in April
  • Form 3536 – to be used for the estimated gross receipts fee due in June
  • Form 3537 – this is called the payment voucher for automatic extensions but should only be used if LLC is going on extension AND there is nonconsenting nonresident members’ tax owed.  (Extra credit if you need to file this one!)
  • Form 3588 – Payment Voucher for LLC electronically filed returns – This is only used if the LLC is e-filing and has a balance due based on the gross receipts fee.  (This would be when no 3536 payment was made)

Franchise Tax Board Website top screen scrape
Visit the Franchise Tax Board’s site for
More Information on LLCs and Taxes

California LLC extensions are automatic.  There is nothing to file and therefore nothing to be e-filed.  Instead, make the payments on the voucher for the type of payment you are making.

So to recap… for most small LLC’s, you only need to worry about the current and prior year 3522’s at extension time.  It looks to me like the extension transmittal letter is now including reference to both forms appropriately.  (Good news!)

Tell Me What I Did Wrong on TurboTax!

I filed my taxes at the end of January but later received another W2. I have received my federal refund already and state is scheduled for this week according to the website. In any case, I went into TurboTax to amend my return, and it said I now was going to owe close to $4K. This is very alarming since that’s almost all of what I received, so I wonder if I am doing something wrong. Is this something you can assist me with?

The message above is real and a typical example of an increasing number of requests we are receiving. People want help with part of their tax return.  They see a number that looks funny on a particular line or don’t understand how to complete a particular section.  They want to come in for a consultation on that one item.

Our firm is ready to prepare complete tax returns, but our partners are not comfortable dealing with just a portion of a return or helping with a specific line item.  The tax laws are so complex! One line item effects another, and various deductions and credits phase in and out depending on factors recorded in a different part of the form.  We worry about missing some nuance if we gave advice on a portion of a return or reviewed someone else’s calculations.

Frustrated man trying to do his taxes at homeWe also worry about frustrating people who are confident that they’ve nailed their return, but just cannot figure out why they are getting an odd result when they enter one particular number.  When we look at their work, we are liable to uncover that the reason for the numbers they don’t expect is a mistake they made somewhere else.  Fixing the unexpected numbers could involve substantial work, significantly beyond the hour of consultation the person signed up for.

What are we supposed to do?  Not tell the client of our concern?  Explain that their costs to correct the issue are several times what they expected? Neither are good choices.

Besides, accountants tend to be control freaks.  We want to know everything,  just in case there’s a rarely encountered rule that would apply to your return. We are not good putting blinders on and answering Yes/No questions.

Tax FormWe do think that TurboTax and its competitors are good, credible ways for people with relatively simple returns to prepare their own taxes. Hiring a CPA to do your W2-income tax return would be like going to the emergency room for a scraped knee.  The ER doctors would do a great job, but there are excellent, more cost-effective solutions.

We also believe that most people who have asked for our help are bright, computer savvy people who sincerely believe that they just need a small bit of knowledge to complete their own return.

But, really! Our firm — and other accounting firms and tax preparation services — are not good choices for someone looking for help to prepare their own taxes.

What to Do?

TurboTax’s website says it offers tax advice to people using their software.  Other software vendors probably have similar services.  You can try them out.

On the other hand, if your taxes have grown in complexity to the point that you’re spending time researching and worrying about the forms, maybe you’d like us to prepare your taxes for you!

If we can help, please call us at 415.433.4500 or contact us via the web.

Don’t Be [a] Delinquent

Shady businessman
Don’t be a delinquent like this shady guy!

Thursday is the deadline to file 2014 personal income taxes. The almost-automatic extension of the April 15th due date to October 15th is up!

Our firm is still getting calls from people wanting to know if we can do their returns for them. We are happy to talk with potential new clients and see if we can do a quick turn-around… but, really!

We, like most CPA’s, want to be comfortable that we genuinely know the client’s financial situation so that we can prepare an accurate return that results in the lowest legal tax bill.  We want to be able to look over the financial information, think, and ask questions that might uncover a deduction or better approach.  Preparing your taxes is more than just taking the information you have and retyping it into our computer screens.

It’s unlikely during a busy deadline week that any CPA can meet a potential client with a complex financial situation, review the materials, and prepare a return. Still, you have to file a return or you’ll be “delinquent”, and may be assessed significant penalties and interest.

Don’t panic! What you have to do is simple:

  1. File the best possible return you can yourself.  You’ll probably save time and angst if you use a personal computer tax program like TurboTax or a program from H&R Block.  (We don’t have a favorite or recommend an specific program.)  If you have a complex return like most of our clients, you may find yourself making estimates or best guesses at what you’re supposed to do.  Try as best as you can and make notes about the questions you had so you can go over the problem areas with a CPA later.
  2. Pay what you owe!  Niceties aside, the income tax system is meant to deliver money to the government, and that cash is really what the IRS and state care about.  For this last-minute return, don’t make aggressive decisions about deductions or other rule interpretations, You could be penalized and charged interest if the IRS decides that your optimistic assumptions don’t fly.
  3. Make an appointment NOW to see a tax professional next week to file an amended, 100% complete return.  If you made a mistake in filling out the forms and you underpaid, filing an amended return quickly will minimize penalties and interest you’ll owe.  If you overpaid, you’ll get your money back sooner.

Point 4, of course, is swear you won’t wait so long next year!  Pulling together information for your tax return can give you insight into your overall financial situation.  If you bring your financial data to a CPA when it’s not a deadline crunch moment, you can also have a conversation that may lead you to take tax-smart steps for the future.

What Does a Crook Sound Like?

Caller ID of Fraud CallCrooks trying to scare people into paying phony tax bills have been calling my home phone daily this past week.  The calls are robocalls from different phone numbers, all with caller IDs created to make me think the calls are official.

The message is very clipped and threatens arrest on a “no bail” warrant if I don’t call the number.  Today’s caller mentioned a Federal court case against me and something about a grand jury.

Oh, my!

Give a listen to today’s call and a couple more (hit stop to keep the threats from looping)

These calls are designed to scare people into calling the bad guys and paying made-up tax bills with credit card or bank transfers.

The real Internal Revenue Service (IRS) never calls, emails, or posts on social media demands like this.  They also don’t suddenly take you to court or convene grand juries.

The threatening calls I’ve gotten are crass, delivered in heavily accented English,  and easily dismissed as false… especially since I work for a CPA firm and know a bit about the rules.  Plus, I know I am up to date on my taxes!

But, obviously some people fall for these high pressure ruses.

Don’t let it be you.  And, talk to older relatives, newcomers to the country, or other people that may not know the IRS’s processes.  Make sure they know not to give in to these crooks!

For more information tax scams, see what the IRS says. If you get a call yourself, report it to the IRS by email or report the scam via an online form.

And, if you need the help of a real accountant, please contact us at 415.433.4500!