Nellie Williams

Patience, Priorities and Persistence – in Tax Season

laptop computer with bandages - computer repair, or online healthcare conceptWhy would I think these three words, patience, priorities and persistence, have anything to do with tax season? Do you think these words might also apply to the IRS?

Very recently, yes during tax season, I came back from a business meeting to find my office computer server had crashed. If you are one of my clients who had a tax appointment with me the third week of March, you know how our time was spent.

Tax season time is limited and I meet with several clients every day, six days a week. Sundays, after church, I work on completing returns whose outstanding information had been received. Every day in tax season is like a week in any other job. I easily spend 90 hours a week during tax season!

Usually I sit down with a client and together we build your tax return. I enter your tax data as we talk about things that apply to your unique tax situation. But after my server crashed, I was temporarily unable to access the professional software I rely on to craft your accurate return, I couldn’t even send or receive email!  YIKES!

Here’s where establishing priorities comes in….

Could my server be repaired? Would my server need to be replaced?  I placed an emergency call to my trusted computer technician and he came to my office on Monday.  Computer Doctor, Patrick (not his real title), took my sick machine to what I call his ‘high tech hospital’ to diagnose the problem.

Knowing I had a full calendar of appointments, and April 15th was only four weeks away, I had to make the best use of the time available. Rescheduling appointments was out of the question. Using the client tax organizer I send each of you right after Christmas, I gathered the tax information I would later enter into the computer.

I had great conversations with my clients and we got to know each other even better. I leaned that even McDonald’s has to close their doors when their computers are down. Kitchen timers and cash registers are computer driven.

Patrick called with good news and bad news. The good news was that my client data was safe, secure, and uncompromised. Protecting my data from breeches and doing frequent and regular backups really paid off. I did need a new server. Patrick would load my data on the new server and install it for me on Saturday.

A whole week without tax software access made me think back to the early days when I used pencil and paper tax forms. Preparing returns “by hand” is not an option today. I learned how to quiet my racing mind by taking deep breaths. During my “down time” I completed some administrative work that is usually saved for after April 15th.

I learned firsthand the true meaning of patience. I took a good look at what could be done and prioritized what would be done first. With the installation of the new server, it is time to practice persistence. Now I can enter that tax data I gathered during our appointments. As soon as my electronic filing cabinet (my data storage software system) is restored, I will print the tax returns everyone is waiting for.

Soon these tax returns will be electronically filed to the IRS and the tax cycle will be complete.

Buying Itemized Deductions

profitDoes the fear of paying too much tax drive you to buy more deductions?

Yes, I said “BUY” deductions. They do cost you money, you know.

Did you know that our government has a FREE deduction for most of us?

That free deduction is called the STANDARD deduction. I say it’s ” free”  because you don’t have to spend a dime to claim this one. The amount of your standard deduction does change from year to year and is based on your filing status. Single, Married Filing Jointly, Married Filing Separately, Head-of-Household status – each one has a different standard deduction.

There are various categories of deductions that are allowable on 1040 tax return form Schedule A, Itemized Deductions.  These different categories are:

  1. Medical and Dental Expenses
  2. Taxes You Paid
  3. Interest You Paid
  4. Gifts to Charity
  5. Casualty and Theft Losses
  6. Job Expenses and Certain Miscellaneous Deductions
  7. Other Miscellaneous Deductions

In deciding whether to take the standard deduction or whether to itemize deductions, I ask my clients if they own their own home. And if that answer is yes, I ask if they have a mortgage on their home.  The reason…Interest paid on a home mortgage is usually the largest of deductions. If you own your own home, you also pay real estate taxes. If you live in a state that has an income tax, those taxes you paid or had withheld from your paycheck are deductible. Since there are states that do NOT impose an income tax, the government allows us to choose to deduct sales taxes paid instead of income taxes paid. And if you have a car, you may also be able to deduct the license plate registration fee.

Unusually large medical expenses can also shift you from taking the standard deduction to itemizing deductions. I tell my clients that this is NOT the big deduction I want them to have.  Amounts you pay for medical insurance, doctor and dentist visits, prescriptions and lab fees are the common deductions. There are costs that are deductible and there are costs that are NOT deductible. How do you know which is which? Talk to your trusted tax advisor.

If you know you want to itemize, then you will also want to look at the gifts you gave to a qualifying charity during the year. These gifts can be money and they can be what I call “stuff.” Money does not just mean paid by cash. Money means cash, check, credit card. The important key is to get a RECEIPT for your gift. The Internal Revenue Service is paying much closer attention to this deduction because of fraudulent deductions claimed every year.

Deductions take money OUT of your pocket. Is your expense ordinary and necessary? Is your expense one you decided you needed only because you wanted to lower your tax bill?

Did you know that if you are in the 15% tax bracket and you spend $1000 on an “elective” deduction, you might save $150 of tax, but you are still out $1000! If you don’t need this deductible expense, don’t spend the $1000. Pay $150 more in taxes and you still have $850 in your pocket! If you have a choice, what is YOUR choice?

Daylight Saving Time

taxes clockDaylight Saving Time – This year, 2015, it begins Sunday March 8th

What does this have to do with taxes? Well, you’d be surprised.

Here in the United States, we have four time zones:  Eastern, Central, Mountain and Pacific.  Living in Arizona, we are one of the few places that does NOT observe Daylight Saving Time. Most cities and towns in Arizona stay on Mountain Standard time all year long.

In the Spring, the rest of the country “Springs Forward” and they advance their clocks one hour, changing their clocks from 8am to 9am; therefore, experiencing more daylight in the evening hours. Since the clocks in most of Arizona remain unchanged, we effectively “fall back” an hour.  We are neighbors to California and I usually explain to others that during Daylight Saving Time (DST) we are now on Pacific Time.

Pacific time is three hours behind Eastern time and this makes a difference when we are trying to contact businesses located east of us. When it is 8am in Phoenix, it is already 11am in New York and Washington, DC. When it is 8am in Phoenix, it is already 10am in Chicago and St Louis. And when it is 8am in Phoenix, it is already 9am in Denver and Las Vegas. Wait a minute, Phoenix and Denver are both in the Mountain Time Zone, but when it is DST, Denver is Mountain DAYLIGHT Time and Phoenix is MOUNTAIN STANDARD Time. And now when it is 8am in Phoenix, it is 8am in Los Angeles and San Diego.

The Internal Revenue Service has always been aware of the differences in our time zones. That is why their Customer Service offices are open past 5pm, but they are not open 24/7.

Now that they have developed a “modernized” electronic filing process, the IRS processes our e-filed tax returns continuously around the clock, but what happens on April 15th? A return filed after midnight will be considered LATE.  AH! But which midnight do I pay attention to? My midnight or IRS midnight?

March 15th is and important date for businesses returns. Corporation returns are due March 15th. Like an individual, if a corporation cannot file their return by the due date, they can request an extension of time to file. But this request must be filed before midnight on March 15th.

When it comes to these time sensitive and very important deadlines, I don’t wait until the last possible minute. I want to file at least one day before. If I can’t be one day early, I want to get as much as I possibly can get done before 6pm on that deadline night.

Everyone else who waits until the last possible minute is risking a bottleneck of electronic bandwidth. And it you are delayed by this bottleneck, your tax return or your request for more time could be delayed.

Uncle Sam doesn’t just want you — Uncle Sam wants your money. And when you owe money and you pay that money late, Uncle Sam wants even more money.

So watch that clock. Time is a-ticking and it waits for no man.

What does the IRS have to do with Valentine’s Day?

IRS ValentineLove is in the air. People use this heart-filled time of year to profess their love, to get engaged, and to marry.

When you marry, you get to change your income tax filing status. You may also change your name. When you do change your name, be sure to include Social Security Administration in all the name-change notifications you make.

Did you know you are born with an income tax return filing status? We all start life as Single. Even is you are a twin, you are a Single taxpayer. Can a baby be a taxpayer? Well, did you ever hear of the Gerber Baby? The answer is “Yes.”

Your filing status is determined by your marital status on the last day of the calendar year. When you marry, and are married as of December 31st, you will generally choose Married Filing Jointly. What else could you choose? You could choose Married Filing Separately. You might qualify for Head of Household.

One of my clients asked, “You mean if I get married on December 31st, I am treated as I was married ALL YEAR?” And the answer to that question is YES. Maybe you want to marry on December 31st, but wait until after midnight to say “I DO!” and sign the license on January 1st. With planning, you can choose the year you begin your joint return.

One thing I want you all to know is, “When you marry the person, you marry their tax troubles, too.” So be sure you know all the facts and enter into this new partnership, this new joint venture, with your eyes open. When you file a joint tax return, your taxable income includes the worldwide income of both taxpayers.

On a tax return for two people legally married, one is the primary tax payer and the other is the secondary tax payer. This just means that the name listed first is referred to as primary and the name listed second is considered secondary. The terms husband and wife don’t always fit. The IRS may still use the terms taxpayer and spouse.

Another filing status is Qualifying Widow or Widower. Special tax rules come into play with each of these choices. Do you have a choice when choosing your filing status? What was your personal situation on December 31st?

Have you heard, “Things Change.”? How many times was Elizabeth Taylor married? Like Liz, you may find yourself returning to Single when the other filing status no longer applies to you.  Are you making changes this year?

Calling Employees: This is for YOU!

irs tax auditYou are required to attach your W2 to your tax return when you file this important once-a-year tax form. Every year you have the chance to  “look yourself in the eye” and sign your tax return under penalty of perjury that it is correct and accurate.
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If you don’t already have your W2 for 2014, you should be getting this important form very soon. Employers are required to issue their W2 forms by January 31st. Since 1/31 fell on a Saturday, that gave employers until the next business day, or February 2nd.
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Did you move since you were first employed? Does your employer have your correct current address?
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Did your employer go out of business during the year? Did they pay their accountant in advance to issue the year-end W2 forms? They probably did not.

On payday did you get a paystub showing the cumulative, or year-to-date income earned and taxes withheld? Did you keep track of these numbers yourself? Most people won’t but it is a good idea.

Did you have more than one job during the year? Do you have a W2 from EACH of your jobs? You must report your total income from all taxable sources. What can you do if you don’t have this required for filing form?

If you have not received your W2 by February 17th (because 2/14 is on Saturday and 2/16 is a holiday) , you can call the IRS for assistance. When you dial 1-800-829-1040, be prepared to wait on hold. It could be a VERY long wait. This is a toll-free number, the IRS gets a lot of callers AND they have had budget cuts that limit the number of assistors and hours available to work. (Really government?!).

The  assistor at the Internal Revenue Service will ask you for your name, your address with zip code and your social security number. Remember YOU called them. Do NOT EVER (NEVER!) give this confidential information to any one who calls you. Protect your identity.  IRS will also ask for your employer’s name, complete address, phone number and your dates of employment. IRS will contact your employer for you (if that is possible) and will request the missing form for you.

Form 4852, Substitute for W2, was designed for just this purpose. When you call the IRS to request their help, they will send you this form. There are blanks for you to fill in your wages and withholdings. It will ask you how you determined the amounts you are entering. It will also ask you to describe what you did to try to obtain your W2. But, you cannot file a return using this form until after April 15th.

If you did receive a W2, was it correct? If you think it was not correct, contact your employer and request a corrected W2, a W2-C.

If you filed your tax return using Form 4852 and then received a W2 or W2-C showing different amounts, then you must file Form 1040X to amend your return. This amendment may result in you owing more tax or it may result in you getting a refund. Consult your tax professional for help filing this more complicated form.

Watch Your Mailbox for Important Tax Forms! Part One

LetterEven though electronic tax filing season will begin January 20th this year, January 31 is the deadline for many of your “Important Tax Information” reports to be mailed to you. You may even have received some of them early. They truly are important for you, but they are a goldmine for identity thieves. That being said….get them out of your mailbox and into a safer place right away.

The reason we are getting them in the first place is that they are also important to the IRS. The IRS gets copies of these forms too. If you happen to forget to include income on your return, don’t worry, the IRS will certainly be contacting you.

A W-2 is the key form for employees. You need to report the wages you earned from each employer you worked for during the year. This form also reports the income taxes withheld from your earnings and other important information.

A 1099-MISC is the key form for independent contractors or business owners. Much like the W-2 for employees, this is the form that businesses report total yearly payments of $600 or more to workers who are not considered employees. If you think you are an employee and get a 1099-Misc instead of a W-2, I’d like to consult with you. If your business has taken the steps to become a corporation or partnership, you may receive a W-2 or a K-1.

Form K-1 is used by various entities to report earnings and other tax return related information. S-Corporations, Partnerships, Trusts and Estates use this form to “pass through” income and expenses to owners, partners and heirs. Your tax return cannot be completed until this K-1 is reviewed. If the business has filed an extension of time to file the business return, you may not get this form until close to, or even after, the April filing deadline for individual returns. If this is the case for you, you will need to file an extension for your individual tax return.

A W-2G is used to report Gambling Winnings. There are different reporting requirements depending on the type of game you won. Just because you were the WINNER does not mean you are ahead “of the game” and had a profit. It means you had a WIN. To avoid an IRS inquiry, report ALL gambling winnings, whether or not you received a W2G. Be sure to keep a log of your Gambling Activity. See my blog on Gambling Winnings and Losses for more information.

1099-G is issued by states when you receive a tax refund of state or local taxes. This refund may or may not be fully taxable to you. Consult with your tax advisor. A separate form of this same number will also report unemployment benefits paid to you. Unemployment benefits received are income taxable and must be reported on your tax return.

Next week we’ll cover more of the 1099 series of forms you need to watch for. We will also cover the newest of forms, the 1095A which has to do with the Affordable Care Act (Obamacare) and your MarketPlace Premium Discount.

The US Tax Code states all income is reportable except that which is specifically exempt from tax. Protect yourself from IRS audit by reporting all of your income.

Tax Season 2015

calendarIs there such a thing as GOOD NEWS from the Internal Revenue Service?
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Tax season used to begin with a vengeance on the second Friday of January. Tax season was delayed the last two years until the end of January. Congress waited until January to decide to extend certain deductions and tax credits.  Their delay to act caused a backlog in tax form programming at the Internal Revenue Service.

This year the IRS has announced Electronic Filing of tax returns will begin January 20th. Now that is not a Friday, it’s a Tuesday. Why Tuesday? The reason is because Monday, January 19th, 2015 is Martin Luther King Day.

The first returns to be filed are usually for people who have already received their W2 forms. Wait for all of your W2s if you worked for more than one employer.

Some tax offices still provide a way for taxpayers to get a quick advance of their refund in the form of some kind of bank product. These bank products come at a price, but most people who want this fast refund are taking advantage of what can be called some kind of ” free” money.  This free money usually comes from the Earned Income Tax Credit or the Child Tax Credit. These credits are refundable credits. Taxpayers who are able to claim these credits might have a low or even zero income tax liability. They get a refund of more than the amount of taxes they had withheld to pay their income tax. That is why they are called refundable credits.

Because these credits are like free money from the government, some taxpayers are willing to give up some of this free money to pay the cost to get their money quickly. This is not instant cash. It used to be as fast as one or two days. I am not as “up to date” on this information as I once was because my office no longer offers refund anticipation loans.  I can tell you that if you have your own bank account, you can have your refund deposited directly to that bank account. This direct deposit used to be as quick as ten days depending on which day you filed your return. The IRS is depositing refunds quickly these days.
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Electronic filing, or e-filing, has made such a difference in the processing of tax returns by the IRS. I use professional software to help me prepare accurate  tax returns. Tax returns are prepared with fewer errors. They are sent, or filed,  electronically to the IRS. The IRS is not keying in data from a paper return that was mailed in, so the IRS makes fewer errors in the processing of the tax return. All this is good news for you.

Even better news for 2015 is that the IRS will be accepting electronically tax returns for 2014, 2013 AND 2012. We can file late, or delinquent, tax returns electronically. They do not have to be mailed as in the past. Some of the more complex returns still have to be mailed. We do still have to mail in amended tax returns. We are making progress with technology. Just like the tax laws, things change.

Easily keep Tax Records for as long as you need them

file-cabinetHow to Easily keep Tax Records for as long as you need them. And be ready anytime for the Inquiring Mind of the IRS.

The IRS has more than one employee. They have more than one division. Do they have more than one mind?  They do have one mission. The mission of the Examination Division is to determine if the correct amount of tax was paid.

When it comes to your tax returns, IRS has certain requirements.

My Top 5 Tips are simple. Here is a recap of the 5 tips I gave you in my last blog of 2014.

  1. Keep your copies of your tax returns FOREVER.
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  2. The Internal Revenue Service has THREE YEARS time to examine your tax records. This is called the Statute of Limitations for examination or audit.
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  3. Your state has MORE time. Arizona has ONE more year. California has TWO more years. Which state are you in? How much longer do they have to look at your tax records?
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  4. For calendar-year tax return items, you must keep your records AT LEAST five years. But some records need to be kept even longer.
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  5. Don’t be in too big a hurry to get rid of the paperwork. Keep the original documents. Scan them. Use a cross-cut shredder to really destroy the no-longer needed documents.

Now,  I’ll share HOW to easily use a multi-drawer cabinet. Once you design your own system, it will save you time, money and tax headaches…

  1. A plastic cabinet is convenient, but not secure like a locking cabinet. How many drawers does it have? Have one drawer for each of the 5 prior years plus a drawer for the current year. Permanent files will take up more space over time, so you may want a more secure place for your long-term permanent file.
  2. Label the drawers 2015 (current paperwork for the coming year.) 2014, 2013, 2012, 2011 and 2010 for the years still open for audit. Look at the date you filed your 2010 tax return. Count forward five years to determine when (what date) it is actually safe for you to begin shredding.
  3. In each of the 5 years’ drawers keep your tax return for that year. Keep a small box for your income records, your expense receipts and records of anything you sold in that year.
  4. Keep a file of paperwork related to assets or investments you still own. You will use this “basis” information In the year you sell an asset or investment. It will help your determine the gain or loss on the sale. In the year of sale, that paperwork will go into that year’s tax box.Because state returns are generally based on the federal return, keep the IRS return and the state return’s documents together.
  5. Save the tax returns in your permanent drawer. Shred the documents that are related to items only pertinent to a single year’s tax return for which the statute of limitations has already expired. For 2010 returns timely filed in 2011, the IRS statute “tolls”, or expires,  in year 2014. The Arizona statute for 2010 returns runs out in 2015. The California 2010 tax return expires in 2016.


If you have been flirting with tax evasion or tax fraud, the IRS has more than three years to look at your return. They have FOREVER to look at  a fraudulent tax return. You be the judge. Let your conscience be your guide. Stay out of tax jail. Be honest with yourself and on your tax return. Have a happy year!

How Long Do I Save it?

The end is near – the end of the calendar year, that is. What does the IRS say?

What does Nellie, “The IRS Insider” say?

     ‘Twas the day after Christmas and all through the shop,

            Busy workers were working with no time to stop.

            The New Year is coming! There’s so much to do.

            Sorting and filing and shredding paperwork, too. ©

The point of that little poem is to help you understand you cannot toss paperwork too soon. When it comes to your tax returns, the IRS has certain requirements.
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shredMy Top 5 Tips are simple:

  1. Keep your copies of your tax returns FOREVER. Yes, every year that you filed. You never know when you (or your heirs) will need to look back.
  1. The Internal Revenue Service has THREE YEARS time to examine your tax records. This is called the Statute of Limitations for examination or audit. This 3-year clock runs from the date your tax return was filed, or the date your return was due, whichever is later.
    ….
    If you filed your tax return on February 14th, and it wasn’t  due until April 15th, the later of the two dates is April 15th. If your tax return was due on April 15th, but you didn’t file your return until August 15th (it may have been on extension so you avoided late-filing penalties) the 3-year “statute” clock doesn’t start running until August 15th, the later of the two dates.
  1. Your state has MORE time. Arizona has One more year. California has TWO more years. Which state are you in? How much longer do they have to look at your tax records?

    We are just finishing 2014. We will file the 2014 tax returns in calendar year 2015. Three years from 2015 is 2018. Four years from 2015 is 2019. But the records are from 2014. And the 2019 is FIVE years later than 2014.
  1. So how long must you keep your records? For calendar-year tax return items, you need to keep your records AT LEAST five years. But some records need to be kept even longer.

    Take a deep breath. It’s not too difficult to understand. And it is not too difficult to do. Keep cancelled checks and paperwork related to stocks, or other investments you buy and sell, until 5 years after the date of sale. Keep documents related to the purchase, improvement, refinance of your home and other real property, until 5 years after the sale of each property.
  1. Don’t be in too big a hurry to get rid of the paperwork. Keep the original documents. Scan them. Technology is great, but things change over time and anything can fail. Don’t just toss or recycle sensitive information. Use a cross-cut shredder to really destroy the no-longer needed documents.
    ..
    Debbye Cannon of SmartCut Solutions shared an easy way to corral the clutter. She recommended using a  plastic multi-drawer cabinet you can find in any office supply store.

Big Game Changer

3636701Time marches on whether we plan for it or not, and we only have a few business days left in this year!

What will be the BIG GAME CHANGER for this upcoming tax season? For EVERY taxpayer, for every tax return preparer, you will need to have the answer to this question:

“Did you have minimum essential health insurance for at least one day in EVERY month of 2014?”

If you did have health insurance for yourself, good for you. “Did you have the minimum essential health insurance coverage for everyone in your family?” Tax return preparers will also need to know how much income your dependents earned. Why? Because household income plays a part in calculating your  possible penalty for NOT having insurance. Before you panic, there are exceptions. If you are my tax client, I will be looking at every angle of this issue for you.

Did you know that the Affordable Care Act, commonly known as “Obamacare”, requires that every one of us are covered by minimum essential health insurance? Did you know that if you do not have this coverage, you may have to pay a penalty on your tax return?

Coverage can be a combination of  Medicare Part A, Medicaid (ACCHS in Arizona), Military Health Insurance  (Tricare)  an employer sponsored  plan. or insurance you buy on your own. These all help to meet the “Shared Responsibility” part of the plan.

If you do not have healthcare coverage for the entire year, you could be assessed a penalty. The penalty calculation formula is complicated. If I say there is a minimum penalty, will you realize that is the LOWEST it can be and that it is likely to be even higher?  The lowest possible 2014 penalty for a single person is $95. The penalty for a married couple starts at $190. As the size of the family grows, the penalty grows. And it gets bigger every year. If you do not have the essential coverage for 2015, you could face a larger penalty.

This shows up on your income tax return because the IRS has been charged with the responsibility, to make sure we are paying our fair share. Not only must we pay our fair share of income tax. We must also pay our fair share of healthcare insurance premiums.

I am not a healthcare insurance provider. I am a tax return preparer. If you get your health insurance through “The Marketplace”, the insurance exchange agents will want to see your tax returns to determine how much premium assistance, or discount, you might qualify for.

Tax return preparation will take more time this year. It may cost you more this year in more ways than one. In this business, one thing we can all count on every year is that the law is ever-changing.

In spite of this tax news and gloom, I wish you all a Merry Christmas and Happy New Year!

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