Tag Archives: taxes

My Perspective of Accountants and CPAs

Larry Goldsmith

by Larry Goldsmith, JD, CPA, MAFF, and Julieann Chaet, CPA, MAFF

I’ve always looked at accountants, CPAs or not, as instruments or tools to be used by the IRS or the banks, or buyers and sellers of businesses. What I mean by that is, accountants working in public accounting firms complete the tasks for the Internal Revenue Service to collect its taxes. We provide the measuring stick used by bankers to lend money. We are the instrument that verifies income and assets for the buyers and sellers of businesses. We are important because we produce the tax returns the IRS looks for and the financial statements the banks require. We provide the verification to business that the company is profitable.

To our clients, we become the trusted individuals they depend on to prepare their tax returns or to prepare their company’s financial statement. But all too many times clients will make financial decisions without asking for their accountant’s opinion. I have to say my favorite clients are the ones who call me up to say “Are you busy?” or “Do you have a minute?”  The truth is, I was busy, but that interruption when they ask for my opinion or ask me a question, can save them hundreds or even thousands of dollars.

It usually takes only minutes to answer a client’s question when they call or e-mail. It’s when clients don’t ask the questions, that it can cause problems that can cost more than money.

I prepared very few tax returns this tax season because I was thankfully busy with my forensics work. However, one of the tax returns that I did prepare was absolutely gut-wrenching. A month later, I still think about these particular clients who I’ve never personally met. As I was sorting through their data and inputting the numbers into our tax program, I became curious. I thought I must be missing something. I finished preparing the tax return. The couple owed what was for them a lot of money – thousands of dollars.

So I asked the partner whose name is on the return, “what’s the deal?” Apparently, this 62 year old couple was making over $100,000 a year for at least the last 5 years. Both husband and wife had their own careers. They owned a home. The husband had even gone back to school to further his professional degree while maintaining his career.

The problem started with a stroke – a stroke had debilitated the husband at the age of 59. The husband could no longer care for himself so a full-time nurse was brought in to care for him. After a couple years the wife could no longer afford the full-time nurse so she quit her job to care for her husband. They sold their house and moved into their daughter’s apartment.

By the time I was preparing the couple’s tax return, most of the couple’s savings including IRAs and proceeds from the house had been spent on living expenses and the husband’s medical care.

So what did I do?  I saw Larry Goldsmith, the head of CJBS’s Financial Group’s litigation, asset protection and tax practices team walking past my desk. “Larry, you need to do something!”, I said. I didn’t care that he was just walking in from the polar vortex that we were having outside, and that maybe he wanted to take off his hat and defrost. This woman was going to live probably for another decade or two. Her husband could live years in his current condition, and all their money was squandered on medical bills. Where would the money come from to pay the tax return?

Unfortunately, even with his vast experience and resources for this sort of thing, Larry wasn’t able to provide a solution. It was too late. The truth is the couple was financially bankrupt and didn’t know it. Their liabilities (the monies they owed) far exceeded the monies and assets they possessed. They spent their savings along with their IRA’s that she would one day need because she didn’t know that there were taxes to pay on the IRAs.

Thousands of dollars of her savings were spent caring for her husband that didn’t need to be. The wife did not know about different agencies that could’ve helped or the benefits of financial planning. She did not know that creditors cannot seize her IRAs from her.

You see she never asked the questions of her accountant so the accountant wasn’t aware of all that was happening.

We became aware the day we called her to try to make sense of the documents in front of me.  There is a solution, but it requires planning.

Julieann Chaet, CPA, MAFF

Julieann is the Manager of CJBS’ forensic accounting and litigation services practice.

Call Julieann at 847.580.5449, or e-mail: jc@cjbs.com

 

Larry Goldsmith, JD, CPA, MAFF

Call Larry at 847.580.5427, or e-mail: Larry@cjbs.com

House will not consider tax extender legislation in 2013

by Michael W. Blitstein, CPA 

Legislation to extend the group of expiring provisions commonly known as “tax extenders” will not be considered by Congress in 2013.  House lawmakers will begin their winter district work period on December 13th, but tax extender legislation is not on the legislative floor schedule and no markup is planned in the Ways and Means Committee.

The House is likely to consider legislation dealing with Medicare payment rates for physicians, a fiscal year 2014 budget conference agreement and, possibly, a conference report on the farm bill.

Rather than following its typical pattern of passing a one or two-year extension of tax incentives in late December, Congress could approve an extenders bill in 2014 that applies retroactively, possibly as part of larger comprehensive tax reform legislation.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

Illinois Small Business Jobs Creation Tax Credit Program

by Michael W. Blitstein, CPA 

To help move the Illinois economy to a sustainable recovery, the Small Business Jobs Creation Tax Credit has been extended by Governor Quinn and the General Assembly with some new components.

Effective July 1, 2012, new, full-time jobs created beginning July 1, 2012 to June 30, 2016 will be eligible for tax credits. The program will either run until June 30, 2016 or it will immediately come to a close if $50 million in tax credits are issued prior to that 2016 date.

Overall, not a lot has changed from the pilot program to this extended program. Eligible businesses (and not-for-profit businesses) are still those with 50 or fewer full-time employees. Eligible jobs are those that pay at least $10/hour or $18,200/annually and the position must be sustained for one full year from the hire date.

One important thing to note: You do not have to keep the same individual in the position the entire year, but you will need to make sure the position is filled with any number of employees for at least one year from the actual hire date.

A new piece to this program is that PEO’s (Professional Employer Organizations) would be able to receive a tax credit based on their working relationship with an eligible business. If a PEO has been contracted by an eligible business to issue W-2s and make payment of withholding taxes, then they could enter their information and be eligible to receive a tax credit.

After creating one (or more) new, full-time positions that meet the eligibility requirements, employers are eligible to receive a $2,500 per job tax credit. Theoretically, this will provide an extra boost for employers, enabling them to grow their businesses in Illinois.

To register a position or to learn more about the program please visit www.jobstaxcredit.illinois.gov.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

IRS Expands Its Fresh Start Initiative; Provides Penalty and Installment Payment Relief

by Michael W. Blitstein, CPA 

The IRS announced enhancements to its “Fresh Start” initiative by providing higher dollar thresholds for using the streamlined application process for installment agreements and new penalty relief for qualified individuals affected by the economy in 2011. The IRS doubled the dollar threshold amount and increased the maximum term for streamlined installment agreements. Unemployed taxpayers, if they file their returns after April 17th, and the self-employed may be eligible for late payment penalty relief. The agency has updated its online materials about the Fresh Start initiative to reflect the new relief.

Fresh Start

The IRS launched its Fresh Start initiative in early 2011 to help taxpayers affected by the economic slowdown. The IRS modified its lien policies by increasing the lien-filing threshold to $10,000 from $5,000 and by creating a process in which a lien will be released if the taxpayer qualifies for a direct-debit installment agreement. Additionally, it eased and streamlined installment agreements to make them available to more small businesses. Small businesses with an outstanding tax liability balance of $25,000 or less are able to apply for an installment agreement without providing a financial statement and financial verification. Additionally, they could apply for up to 60 months to pay off their outstanding tax liability.

Installment Agreements

Effective immediately, the IRS has raised the threshold amount for using the streamlined installment agreement without having to provide a financial statement or verification from an outstanding tax liability of $25,000 or less to a balance due of $50,000 or less. The agency also increased the maximum term for streamlined installment agreements from the current 60 months to 72 months.

Taxpayers must agree to direct-debit payments. Under the Direct Debit Installment Agreement (DDIA) system, funds are automatically debited from a taxpayer’s bank account for the agreed upon installment amount.

Taxpayers should file Form 9465-F, Installment Agreement Request, but do not need to provide a financial statement, Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-F, Collection Information Statement. Taxpayers seeking installment agreements exceeding $50,000 will still need to furnish a financial statement. Taxpayers must also pay down their balance due if over $50,000 to take advantage of the expanded streamlined program.

Penalty Relief

Taxpayers normally have until April 17, 2012, to file their 2011 tax returns and pay any tax due. Taxpayers requesting an extension of time to file have until October 15, 2012, to file their 2011 returns. This year, certain unemployed and self-employed taxpayers may be eligible for a six-month grace period on failure-to-pay penalties. Penalty relief is available to the following two groups of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17th deadline for filing a Federal tax return this year.
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

The taxpayer’s 2011 calendar year balance must not exceed $50,000. Additionally, the taxpayer’s income must not exceed $200,000 if he or she files a joint return or $100,000 if he or she files as single or head of household.

The request for relief from the failure to pay penalty is only available for tax year 2011 and only if all taxes, interest and any other penalties are paid in full by October 15, 2012.

Generally, taxpayers who fail to pay taxes owed by the original due date are subject to a failure to pay penalty of 0.5 percent of the unpaid taxes for each month or part of a month after the due date that the taxes are not paid. The penalty can reach 25 percent of the unpaid taxes. Thus, under this program, taxpayers will have until October 15, 2012, to avoid the penalty.

The IRS is legally required to continue to charge interest at the current annual rate of three percent on the unpaid tax liability. It does not have the authority to waive statutorily imposed interest. Taxpayers should note that the failure to file penalty remains in effect at 5 percent a month with a 25 percent cap.

Offers in Compromise

The IRS also reminded taxpayers that the expanded streamline Offer in Compromise (OIC) program, one of the first Fresh Start Initiative, is still available. The streamlined OIC application is available to more taxpayers, has fewer financial document requirements, and, most importantly to struggling taxpayers, a greater flexibility and more common-sense approach to determining feasibility of collection.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com