Friday, January 31, 2014

Do You Have An "ID"entity?---Protect It From Theft!!

Was it Oscar Wilde who said, "Most people are other people. Their thoughts are someone else's opinions, their lives a mimicry, their passions a quotation"? Poor Oscar lived during those simple times, when identities actually represented a person's personality & all of it's unique traits. 

The world has come a long, long way since, your identity is now associated with everything you touch, from something as simple as your email account or other social media to your Social Security Number, bank accounts, credit cards etc. As we enter the maze of the digital world, we have to beware of the dragon that is the identity thief! 

I had a close encounter with identity theft when a client's e-file was rejected with a unique error code. On calling the Internal Revenue service (IRS) to investigate, we found that the reason for the reject was the return had already been filed under the same Social Security Number, we were told by the helpful agent that we now had an e-file reject with the "kiss of death" on our hands!! 

How do we deal with this modern day problem that has far reaching consequences?: 
Many innocent people are victimized and it may take years for matters to be resolved. Suffice it to say the age old idiom, "Better Safe Than Sorry" applies here. 

Here are some Tips from the Internal Revenue Service to protect you from being a victim of Identity Theft:
  • Don't carry your Social Security card or any documents with your SSN or Individual Taxpayer ID Number (ITIN) on it: First rule of thumb, you do not need to carry your SSN/ ITIN card on a regular basis. Please leave it in a safe place, preferably a safe deposit box.  
  • Don't give a business your SSN or ITIN just because they ask: Do not give this information needlessly. Always pause to think if it is required for the business to have your SSN. 
  • Protect your Financial Information: Always shred your personal papers before you toss them out. Investing in a small shredder is a very good idea. Big box office supply stores have a service where they can shred your paper for a fee. 
  • Check your Credit Report every 12 months: Checking your credit report ensures you know of any unusual activity which has not been authorized by you. A good idea especially if you have a college student at home who has an authorized credit card, or if you are just back from a vacation out of the country. 
  • Secure personal information at home: Keep all your financial information, passports, social security cards, extra credit cards in a secure place at home. Investing in a safe deposit box that is also fire-safe is a good thing. Or renting a safe deposit box in a bank is a great idea & the cost of which is tax deductible if you itemize. 
  • Protect your personal computers: Use fire-walls; anti-virus software for your computers; apply update security patches & change internet passwords often. If you have a wireless router at home, make sure you have installed a safe network and you need a password to log in to your network. This is quite simple to set up or usually the router support staff can walk you through it.  
  • Don't give personal information over the phone unless you initiated contact or you are absolutely sure you know who you are dealing with. 

If you believe you are a victim of identity theft: 

If you are not currently affected by this but you think you are at a risk either due to a stolen purse or lost papers; questionable credit card activity or credit report, contact the IRS Identity Protection SU at 800-908-4490. 

Be alert to possible ID Theft if you receive a notice from the IRS or learn from your tax professional that:

  • More than one tax return was filed on your behalf.
  • You have a balance due, refund offset or collection actions taken against you for a year in which you did not file tax returns.
  • IRS records indicate that you received more wages than you actually earned or 
  • Your state or federal benefits changed due to an income change reported on your behalf.

  • Fill out the IRS Identity Theft Affidavit Form 14039. Follow directions on the form that relate to your specific circumstances. 

Additional Steps with Agencies outside IRS: 

  1. Create Identity Theft Report with the Federal Trade Commission here.
  2. File a report with the local police.
  3. Contact the fraud departments of the 3 major credit bureaus: Equifax (; Experian (; TransUnion (  
As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,

Sunday, January 26, 2014

Moving On In Life? How That Can Be Tax Deductible!!

It was Walt Disney who said, "We keep moving forward, opening new doors, and doing new things, because we are curious and curiosity keeps leading us down new paths." The world is shrinking and this quote has never been truer for us. Our professional lives no longer have the same boundaries as before. And we move for work & yes, the Internal Revenue Service (IRS) recognizes that and lo and behold lets us deduct moving expenses on our tax returns. 

Read on...this truly gets more exciting (in a very tax nerdy way, if you know me!) 

Requirements to Deduct Moving Expenses?: Let me not get you too excited! Not everyone can deduct moving expenses. There are some requirements you have to fulfill, tests you have to pass (Oh groan!I know right?):

  • Your move must be closely related both in time & place with the start of work at your new job location. The time provided by the IRS is a year from the date you first reported on the new job. It is not necessary that you have to arrange to work before you move to the new location. If you are in the Armed Forces as a current member/retiree/survivor, there are separate rules applicable to you. 
  • You must pass the Distance Test. This can happen only if the distance from the new job to your old home is 50 miles more than the distance from your old job to your old home. This is well illustrated in the following figure: 

  • You must pass the Time Test. If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you start in the "general area" of your new job location. You may be self-employed or a seasonal worker to pass the time test. Special rules may apply. Temporary absence from work due to illness etc is allowed. 

Retirees Or Survivors Who Move To the United States:  
You can deduct moving expenses for a move to a new home if you permanently retired and were living & working abroad. You must also be considered permanently retired. 

Survivors of Decedents Who Were Working Abroad:  If you are a spouse or dependent of a person whose main job location at time of death (TOD) was outside the US, you can deduct moving expenses. However you have to fulfill the requirements of moving: move to a home in the US of A; move must be within 6 months from TOD; move is from the decedent's former home; this home was outside the US; the decedent's home was also the home of the spouse/ dependent.

When Does the Move Begin For the Above 2 Purposes?:  The move is considered to have begun if either you contract to move your household goods; OR your personal effects are packed and are on their way to your new home; OR you leave your home to travel to the US of A. 

Deductible Moving Expenses:   Only expenses which are considered "reasonable" are deductible. These expenses are those incurred for moving your household goods & personal effects, which include in-transit or foreign move storage expenses. 

You can deduct cost of travel including lodging but not meals on your way. If you use your own car to drive to the new home, you can deduct actual gas & related vehicle expenses or 24 cents/ mile. You can also include parking fees, tolls to either standard mileage or actual.  

You can deduct cost of packing, crating & transporting your household goods & personal stuff, connecting & disconnecting utilities, cost of shipping your car & household pets. 

Needless to say, you have to maintain receipts of all expenses incurred.

Do Not Double Dip: Do not take both a moving expense deduction and a business expense deduction for the same moving expense. Subtract reimbursements if any from your expenses. 

Form 3903  is used to deduct Moving Expenses and the number flows to the first page of the Form 1040, line 26 as an "Adjustment to Income".  

Bibliography: Form 3903 Instructions; Publication 521.  

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,

Saturday, January 18, 2014

Begin With The End In Mind: End Of Life Planning

 I borrowed part of my title today from Stephen R Covey's best selling book, " The 7 Habits Of Highly Effective People".  On his list of habits, habit #2 says, "Begin with the End in Mind". By this he possibly means to discover yourself & set life goals whilst envisioning the ideal characteristics of various roles you play and  your relationships in life. 

He may only partly be referring to the end of life itself but in the context of planning for end of life, we have to consider this statistic, that more than half of all Americans dying do not have a will or estate planning at all. As we look closer there are even more who haven't made any efforts to ease the burden left to their survivors. The burden in connection with burial, memorial, personal accounts and many other significant decisions which may cause divisions in family. Is that the legacy one would like to leave behind? 

One of MiSEA's recent CPE classes, was, "Let's Die And See What Happens". There were a few things that were discussed that are very relevant here: 

How Are My Remains To Be Disposed?: As gruesome as it may sound, this is the first
decision to be made when starting the conversation about end of life planning. 

  • Organ Donations: This is the MOST important instruction to be left behind if you desire any or all of your organs be donated for transplantation or research. There are other parts of the body other than the vital organs that can be donated as well. These decisions if left to the survivors may cause confusion or heartache. Therefore one must leave clear instructions regarding organ donation/s. 
  • Funeral Arrangements: Burial or end of life rituals are largely dictated by one's religious affiliations. However, if one wants to bypass these & add their own instructions, then some religious groups want to see it in writing. Many secular mortuaries now expressly require written instructions for cremation of remains or even Advanced Health Care Directives. Many facilities accept pre-arrangements & pre-paid burial plans. One should also add directives as to location & funeral programs if one wants to take the heartache of planning out of the hands of survivors & leave a happy memory for them.   

How Are My Memorial Services To Be Conducted?:  As you may attend others' memorial services, you may envision one that is going to be conducted for you. If there is a certain way you want it to be, again, put it down in writing! Some of you may desire large parties and food served and some of you may not want anything at all.  These plans are dictated
by economics as well as personal desires. Without personal instructions, we may leave a confused family possibly bickering over these decisions. The choices of memorial services are limited only by your imaginations & your finances. 

Obituaries & Notices:  Some burial services or cemeteries publish one-line obituaries as part of the program. However, if you desire a public notice of your demise and take pride in the "finished" work of the obituary, you may want to leave behind an outline of what you want said; about yourself, family members you want to include, your accomplishments you want highlighted, and even the length you want your obituary to be. You have to keep in mind though that the newspapers also publish these obituaries on their online editions, and they remain available to anyone searching for them for years & years.

Instructions: It's very important after deciding on the above, to hand over the the instructions regarding organ donations, funeral arrangements, advanced health directives, obituaries, notices & memorial services to an attorney or family member/s whom one has designated to take care of matters after one's demise. Preferably these should be placed in an envelope which reads, " To be opened immediately upon death" and MUST be signed & dated thus authenticating them.  

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,

Friday, January 10, 2014

The Transfer Tax That Skips Generations: Otherwise known as the GSTT!

For those of us navigating the treacherous seas of estate planning, we have to deal with the monstrous GSTT aka Generation Skipping Transfer Tax  at some point or the other. Swimming through all the complications, we can many a time whittle it all down to a simple set of circumstances to watch for when your clients would be subject to GSTT. But before we can do that, we need to know the following: 

What is GSTT?:  If some or all of your estate bypasses your children and goes directly to a grandchild, there is another tax on your estate called the generation skipping transfer tax. 

Although it wouldn't serve to pay this tax intentionally, in some circumstances, this could be unintentional. If the inheritance is in a trust, the heir dies after the client but before receiving the full amount, and under the terms of the trust, the grandchildren receive the remaining inheritance, the inheritance could be subject to the GSTT. 

Why This GSTT?: In the past, generation skipping trusts were common. These trusts distributed only income to the children and the trust principal would later be distributed to the grandchildren & generations beyond. The trusts grew tax free and appreciated in value, avoiding heavy taxation much to Uncle Sam's chagrin! So wanting their share of the proverbial pie, the government passed the Tax Reform Act in 1986. 

Generations-Who Are Part of It? Grandchildren, great grand-children and future generations fall under the GSTT. This tax also applies if you leave assets to a non-relative who is more than 37 and 1/2 years younger than you. 

How much is the GSTT?:  This is a very expensive tax. It is equal to the highest federal estate tax rate in effect at the time. In 2013, the top rate is 40%. And the GST is in addition to the federal estate tax. 

How Estate Planning Would Help?:  For simplicity's sake, if $10 million out of a $15 million estate was left directly to the grandchildren in 2013 with no estate planning, $5.5 million (10% of $10 million) would be paid in estate tax. Another $1,800,000 (40% of the remaining $4.5 million) would be paid in GST taxes. Thus the grand-children would receive only $2,700,000 of their $10 million inheritance! 

GSTT Exemptions:  For 2013, the GST exemption is $5,250,000. Every donor is allowed a lifetime GST Exemption. The GST Exemption amounts have been increasing every year since 1999. (This table can be found in the Form 709 Instructions.)  However, each annual increase can only be allocated to transfers made during or after the year of transfer. Keeping a record of the transfer & allocations is a must. 

Bibliography: Form 709 & Instructions; Journal of Accountancy Quick Guide to GSTT;; Various articles on Elder Law. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,

Saturday, January 4, 2014

Why Taxes Shouldn't Be DIY Projects! Hire an Enrolled Agent!

Google Images
We are on the verge of finishing up another of hubby's DIY projects at home, the basement is a mess, dusty, I can barely make my way to the treadmill every morning! I guess it will get done eventually! I use this as an analogy for DIY tax preparers everywhere: Why Hiring An Enrolled Agent To Do Your Taxes is Important? 

Keeping Up With Tax Law Changes: As we turn a page on another year, January dawns bright & peppy. For Enrolled Agents everywhere, it is the time to get ready for another tax season; take update classes, download updates to software programs, send out organizers to their clients & draft new engagement letters. And all of 2013 was spent keeping up with the IRS' minimum 24 per year Continuing Professional Education requirements. What this means to you? An enrolled agent is up-to-date with the latest tax law changes. This is especially important for the 2013 Filing Season. This also means your Enrolled Agent is going to make sure you do no procrastinate till the last minute to file your taxes. 

Google Images
Handy Research Tools: Enrolled Agents know how & where to look for answers. They have at their disposal tools to constantly monitor updates. DIY tax software programs in a box, depend on you answering their questions correctly to get you the optimum tax return. Those algorithms work for many whose tax returns are very simple with a couple of W2s and few more items, throw one life changing event in there, like a child going to college/ helping a child paying off a student loan, all of which should have been pre-planned with a professional who would advise you on steps that you need to take before hand. Extensive knowledge of taxes makes an Enrolled Agent aware of the exact filing status for you, make decisions based on numbers whether you should itemize or not and also plan for the future. 

E-Filing Your Tax Returns: How many of you DIY-ers still resort to pen & paper to do your taxes? IRS Statistics have shown that 20% of tax returns are still done by hand. This subjects tax returns to higher chances of math errors, no signatures or dates. The hand done returns are then input into the system before the IRS processes them. This delay in processing can be avoided by e-filing your tax return with an Enrolled Agent. E-filing means faster processing, faster refunds and an option to have any dues directly debited to your bank account.  

Protection From Identity Theft: The IRS reported that identity theft had affected 1.6 million taxpayers in 2013, and that is more than those affected in 2012. An Enrolled Agent
makes sure your personal information is protected always and takes extra precautions to make sure your records are properly processed. 

Tax Planning:  Enrolled Agents are the only federally-licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the Internal Revenue Service. Not all important tax decisions are made during filing time, it's equally important that you are aware of where you may stand at tax time through out the year. An Enrolled Agent keeps track of your finances in relation to taxes, and helps you plan accordingly, so there are no surprises. These decisions involve withholding taxes, retirement contributions, flexible spending accounts etc. 

Why should I choose an enrolled agent who is a member of the National Association of Enrolled Agents?: The enrolled agent is the most expansive license IRS grants a tax professional. Enrolled agents are generally unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and the IRS offices before which they practice. 
IRS recommends using a tax preparer that is a member of a professional organization that offers continuing education and other resources, and holds members to a code of ethics. NAEA goes beyond IRS’ recommendations by requiring members to fulfill continuing education requirements that exceed the IRS’ required minimum. 
In addition, NAEA members must adhere to a stringent Code of Ethics and Rules of Professional Conduct. Members of NAEA belong to a strong network of experienced, well-trained tax professionals who effectively represent their clients and work to make the tax code fair and reasonably enforced.

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website,