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Welcome to Tax Season: Ways to Reduce Tax Preparation Fees

February 23, 2017

Following are some ways to reduce your tax preparation fees. Some of these will also simplify your life.

  • Publicly traded partnerships (“PTP”) send K-1s that can be upwards of ten pages causing additional preparation fees. Some PTPs that send K-1s late can cause an extension to be filed. Tip: If the income from the PTP is a relatively small amount, you can file your return using an estimated amount and “true it up” on next year’s return. True up means adjusting the next year’s K-1 amounts for the difference between the amounts reported the previous year and the actual amounts. If your investment is significant to your total worth, then the additional delays and preparation fees would not be a major issue; otherwise perhaps you should consider not making or maintaining PTP investments.
  • Hedge funds with 30 page K-1s will likely force you to extend, file returns in multiple states and pay a lot more in tax preparation fees. If you make significant investments, then the additional delays and preparation fees would not be a major issue; otherwise then perhaps you should consider not making or maintaining these investments.
  • Additional information for hedge funds and partnerships: Out of state partnerships that do not file with your state might cause you to not be permitted to e-file in your state. IRAs, Roth IRAs and other tax sheltered accounts that have these investments can cause a tax from these otherwise tax sheltered accounts. It is important that you check with your tax advisor before making such investments; better yet, skip them in these accounts unless they represent substantial positions.
  • Foreign stocks with withholding cause extra forms to be included in your return. If you have a few of these it will take some unraveling when the info is transferred from your brokerage or mutual fund statements possibly causing additional fees.
  • The children of clients with college children working summer and vacation jobs could possibly receive W-2s from two or three states. Usually many of these tax returns might not be required to be filed, but if there is withholding tax, they would need to be filed to receive the refund. Occasionally the tax preparation fees are greater than the refunds. To eliminate unnecessary tax returns, your children should report that they are exempt from withholding on Line 7 when they complete the W-4 for their employers; this will eliminate the withholding and possibly the need to file returns for those states. If it is later determined that a return will need to be filed and that a tax will be due, there might be some penalties but they would likely be minimal amounts.
  • Be organized. When you submit your information organize it in a logical order, answer all questions on the organizer and explain unusual transactions or questionable items. Anticipate how the preparer will react to what you are providing and whether it is clear.
  • Submit complete information. Otherwise additional calls, extra handling and delays will ensue.
  • Respond promptly to tax preparer requests for additional information.

Welcome to Tax Season – Tax Preparation Process

February 21, 2017

Here is how a tax return gets done in an accounting firm. I know this is upmost on your minds so decided to give you a look-see. Preparing returns is a detailed process involving multiple people in the firm – even the simplest returns go through these procedures.

  1. Every accountant in the firm takes a full day tax update course in December
  2. The firm has an in house “getting ready for tax season” meeting, usually about two hours, to update staff on software changes, quality control procedural updates, scheduling, client contact and process changes and issues to be aware of
  3. The accounting firm sends client an organizer in January after a partner of manager reviews it for applicability
  4. When client sends in their data, it is reviewed by a partner for completeness and any notes or comments that need to be taken care of before the return is processed or answered independent of the tax return processing and those questions are then responded to
  5. The partner will indicate the level of complexity for the tax return scheduler
  6. The tax data is given to an administrative person who scans the data in our secure smart scanner software
  7. The smart scanner software will “read” the information on the client’s tax statements and populate the tax preparation software
  8. The smart scanner also supplies a fully indexed file of all of the client’s tax data
  9. The scheduler will assign the return to a preparer using the information previously provided by a partner
  10. The accountant assigned to prepare the return will be notified by the work flow software that the return is ready to be worked on and he or she will verify that the input was properly done by the smart scanner software
  11. After the verification, information that could not be handled by the smart scanner will be entered into the tax preparation software
  12. The preparer will then review the client’s “filing cabinet” for information entered during the year independent of the tax preparation process that would affect the preparation of the return or for information the preparer and reviewer would need to know of be aware of when working on that client’s return
  13. If there is missing information of items that need clarification, the preparer will discuss with a partner and if necessary will call the client for the missing data. If the client doesn’t respond promptly (usually within a few days) there will be follow up calls. At this point the return is put on hold awaiting the missing information. When it arrives, the return will then be completed. Comment: Clients occasionally get upset with multiple calls but the reason for the excessive calls is their lack of responsiveness to our earlier requests to get their return completed in a timely manner
  14. When all the entries are completed a diagnostic report will be generated indicating entries that need correcting or that require a further look
  15. After the diagnostics are cleared, the preparer will then review the return for reasonableness, inconsistencies or missing information, red flags and changes made accordingly
  16. The preparer will also compare the final return to the client’s previous year’s return and also to the projection if one was done
  17. If the return is correct but there are large differences from the prior year, the projections or what appears to be a surprise result, a reconciliation will be prepared indicating the reasons for the exceptions for the quality control department to review
  18. The return is then assigned to a member of the quality control group
  19. By the way, all assignments are done with work flow software and through the secure paperless cloud based system. The only paper used in the tax preparation process is the documents the clients that do not use the firm’s portal send in or provide at a meeting for that purpose. The entire work product is paperless until it is time to provide something in paper to a client that requests a paper document. There will be some returns that will be assigned beforehand to a specific reviewer. This will be indicated in the work flow software
  20. Someone in the quality control group will review the return for accuracy and completeness and for tax planning, compliance, tax savings issues and red flags that might cause an audit. Some of these issues could affect the return being prepared, a prior year’s return necessitating an amended return or a carry back adjustment, or the planning for the current or a future year
  21. If corrections are necessary, the return is sent back to the preparer to make the changes
  22. After the corrections are made it will be returned to that person in the QC group
  23. If there appears to be a “surprise” result, the QC person will discuss this with the partner in charge of that client and to determine who will call the client. With good news it could be the reviewer or preparer. For bad news it likely will be the partner
  24. After all reviews the return is sent to the admin department who will assemble the return for filing
  25. A partner will then review the return, sign it and approve it for filing
  26. An admin person will send a copy (either via the secure portal or a hard copy by mail) to the client to review before it is finalized for e-filing. Included with the return will be the tax payment and estimated tax forms that will be used once client accepts the return. Client will be requested to return an IRS designated form to us signifying their consent for e-filing
  27. When the consent is received by us, it will be e-filed
  28. If return is to be filed by mail, a final return will be sent to the client with full instructions and mailing envelopes to the tax agencies. Included will be all estimated tax vouchers for the year
  29. All backup will be filed by the admin person and will be maintained on the secure cloud based filing cabinet
  30. Bills will be sent out either with the return or the beginning of the next month after our time records are reviewed
  31. When payment is received, staff bonuses or overtime will be paid and distributions will be made to the partners
  32. Then we can all take a vacation
  33. After the April 15 tax season, usually in the late Spring and Summer we meet with clients to follow up with additional planning where a need was indicated when we prepared their returns
  34. However, tax season doesn’t end on April 15 (April 18th this year). If is continued through the extension filing date of October 15
  35. Then we start getting ready for next tax season
  36. Tax preparation is a twelve month process, but we love every minute of it!

I hope this gives you some insight on the care and attention that accountants give to every client’s tax returns. It is an involved process with many people but it works and we usually get great results for our clients.

JFK Stamp Free Collectible First Day Cover

February 16, 2017

jfk-stampMonday will be President’s Day and the U.S. Postal Service chose that day to issue a special commemorative stamp honoring the 100th Anniversary of President Kennedy’s birth. He was born on May 29, 1917. The new forever stamp will be available at post offices throughout the country on the next day since President’s Day is a legal holiday and post offices will be closed except for the special post office station at the John F. Kennedy Presidential Library and Museum in Boston where the stamp will be issued.

I collect first day covers which are envelopes with a new stamp postmarked on its date of issue usually with a specially designated cancellation marking the stamp’s issuance. To encourage readers to experience this fine hobby, I will send a free first day cover to anyone emailing me their postal mailing address. The envelope will contain a portrait of President Kennedy drawn by artist and illustrator Don Bloom.

I will also send information about the American First Day Cover Society ( should anyone wish to pursue this hobby by joining the only national association dedicated to this fine hobby.

Welcome to Tax Season

February 14, 2017


Taxes are hard enough without making avoidable errors. Before you file, double check to make sure you do not make these errors.

  1. Not signing the return (if you file paper copies)
  2. Number transposition and spelling errors
  3. Unchecked or unanswered questions
  4. Entering incorrect or unpaid estimated tax payments
  5. Missing pages in a paper filed return
  6. Not correcting reason for a tax notice for a prior year, on this year’s return, if there is a continuing issue
  7. Underpaying or overpaying [Ugh!!!] the tax due
  8. Sending your tax check or making out the check to the wrong tax agency
  9. Not calculating underpayment penalty (on Form 2210), if applicable
  10. Not calculating a penalty on an early withdrawal from a retirement or IRA account
  11. Calculating a penalty on a permissible early withdrawal from a retirement account
  12. Paying tax and penalty on IRA distributions that were timely rolled over to another IRA account
  13. Not calculating a penalty if you took more than one 60 day tax free rollover in a 365 day period
  14. Not filing Form 5329 (Additional Taxes on Qualified Plans Including IRAs and Other Tax-Favored Accounts) when it was required and if being filed separately from tax return, it must be signed
  15. Not calculating self-employment tax on freelance income or commissions
  16. Information from K-1 schedules entered incorrectly or withholding tax on those forms not properly claimed as a tax payment credit
  17. Responding to an email notice from a tax agency – they do not send emails. You received spam
  18. Your paid preparer did not sign your return or enter their ID number
  19. Claiming the wrong exemptions or omitting a correct Social Security Number
  20. Claiming an exemption for someone that properly can claim themselves (this can occur when a dependent marries during the year and files a joint return; or no longer qualifies as a dependent such as because of excessive income and/or is not a student for at least five months of the year or is a student and over age 24 at end of the year; or a child you support where your ex-spouse is entitled to the exemption under a divorce agreement)
  21. Omitting a Social Security Number for someone you paid alimony to
  22. Not itemizing deductions when you should have
  23. Claiming excessive home mortgage interest deductions is a red flag. Interest on home mortgages over $1,100,000 is not deductible
  24. Deducting points in full on refinanced mortgages, instead of amortizing them
  25. Reporting mortgage interest and real estate taxes on rental properties as itemized deductions
  26. Not claiming investment interest costs properly and not being aware of limitations or interest tracing rules
  27. Omitting or reporting incorrect state tax payments and withholdings as an itemized deduction
  28. Reporting deductions that stretch the imagination, e.g. someone with high debt indicated by a high mortgage and extensive home equity loan interest (not reportable) usually won’t be making cash charitable contributions equal to 16 percent of their gross income
  29. Not properly picking up carry forward expenses or credits from the prior year’s return. This includes charitable contributions, investment interest expense, net operating loss deductions, capital losses, suspended losses from passive activities, alternative minimum tax credits and foreign tax paid credit
  30. Reporting as income the state tax refund you received and that was reported on a 1099 when you did not get a full deduction for that on your prior year’s return because you claimed the standard deduction or all or part of the payments were “disallowed” because you were subject to the alternative minimum tax
  31. Not correctly answering foreign account questions on bottom of Schedule B especially when Schedule B is not otherwise required to be filed and then not filing the FBAR FinCEN Form 114
  32. Overstating charitable contributions or deducting contributions you did not make, or overvaluing non cash contributions
  33. Not having proper charitable contribution receipts in your possession when you file your return claiming those deductions
  34. If you made non cash contributions over $500 additional forms must be attached to your return
  35. Not having a certified appraisal if you made a gift of tangible property over $5,000.  The entire contribution can be disallowed because of this
  36. If your income is sufficiently high, not adding the 3.8% tax on net investment income or the .9% tax on earned income
  37. If you were a “real estate professional” that did not claim yourself as such you possibly subjected yourself to the tax on net investment income
  38. Reporting incorrect cost basis on sales of capital assets. This is common with inherited stocks, stocks received as a gift, or with dividend reinvestment account accumulations or where you had a previous wash sale
  39. Not treating wash sales properly. If you have a wash sale, any losses are not deductible but increase the basis of the purchased shares that caused the wash sale
  40. Reporting gross sales from brokerage transactions that are less than the amounts reported on the 1099s issued by your brokers
  41. Not reporting proper basis on employer stock sales that were also reported as income on your W-2 form
  42. Self-correcting and reporting the “correct” amount where you received an incorrect 1099 (and cannot get a corrected 1099 in time to file your return). You should report on your return the amount on the 1099, even if it is wrong, and subtract as an adjustment on another line (e.g. line 21) so the net amount is the proper income you received
  43. Omitting allowable IRA, Roth IRA, SEP or other retirement plan contributions
  44. Omitting paying payroll taxes on your individual tax return for household employees
  45. You should self-check your return by a line by line comparison to last year’s return and understand large or illogical differences
  46. Inputting incorrect bank account numbers and information for your tax payment or refund

And… make sure you e-file or mail your return by the April 18, 2017 due date!

Idea for Sale: $7.99

February 9, 2017

Would you pay $7.99 for an idea you could use in your business? Well, the current issue [February 2017] of Fast Company has 175 ideas (at least) and costs $7.99 at the newsstand. You could also subscribe for $10.00 for 10 issues. Getting one usable idea a month for $1.00 an idea seems too good to pass up. Try it! Unless you have all the ideas you need, then skip it.

This publication and similar others are chock full of ideas from many thought leaders and successful managers. One way to handle these publications is to subscribe and when the issue arrives flip through it looking at each page not spending more than about three minutes per issue. Some ideas will stick with you and some you might want to rip out the page to read more of it at a free moment. Then take the idea and run with it.

Another way is to go to your local public library and spend twenty minutes to a half hour a couple times a month with 5 or 6 magazines – but do not rip anything out – if you want you can take a photo of it with your smart phone.

Both methods work because I do them. Think about it – it is just an idea.

Fifth Anniversary of Partners-Network Blog

February 7, 2017

Tomorrow is the fifth anniversary of the blog. This is the 520th blog that has been posted at a twice a week frequency. I have the over 900 subscribers to thank as well as the many others that read the blogs sporadically. I also appreciate the many emails and calls I get thanking me, commenting or asking questions. I would like that more if they posted them as comments so it could be open to a wider discussion.

The blogs cover a wide range of topics with some that would make a substantial book. In all I wrote over 240,000 words making the average blog about 460 words. The focus is to cover issues clients are concerned about and most of the blogs did that. Some involve me personally and my interests and hobbies, the accounting profession, book reviews, obituaries, some might be termed “creative writing,” and some provide updates about what is happening at Withum. The client focused blogs include business management and leadership, investing, financial planning and taxes.

Many of the blogs are generated by calls from clients. If I feel others would be interested, I write it up. The first draft takes about an hour and the editing adds an hour and half to two hours. For the last year Matt Basilo from our marketing department posts them after a quick look to see if anything egregious stands out.

I am asked if I get much business from the blogs and I do, but not the way one might expect. I rarely get a client from someone who reads the blog and feels they must call me and become a client. Rather readers occasionally pass on a blog to someone they know that has that issue and I get the client by way of this referral. The other way is when I print out a blog and mail it to a client or someone I know with a note that they should read the blog and call me if they want additional information or a consultation. That is very effective and almost always results in some business but the reality is it is an opportunity to assist clients in a critical area they weren’t aware of how a solution can be realized. Of course the personal stuff is just an expression of my interests and really has no business purpose except, maybe, to show what a great and interesting guy I am [and modest, too].

I like writing the blogs; find it very satisfying; and feel that they provide solutions to needs clients have and are an opportunity to offer some free information. Thank you for reading them, and I am looking forward to continuing for many more years to come.

P.S. This blog is exactly 460 words.

Financial irresponsibility, inevitability and reality

February 2, 2017

Yesterday’s New York Times had an article* about the irresponsible handling of Johnny Depp’s finances and the dire state of his wealth. I do not know Mr. Depp or his financial advisors but the article suggested a somewhat joint responsibility for the bad current situation. I thought about this and since I’ve previously advised an irresponsible client I thought about a letter I sent to that client to stress the criticalness of his situation. Here is an abbreviated version which suggests how a client could be made aware of their detrimental behavior. When this was sent, the client’s major income producing days were behind him. A moral of the story is to spend less than your income regardless of your situation or who you are (or were).

To my client,
This memo addresses some concerns I have regarding your financial situation and repeats many of the conversations we have had. I wanted to take this time to try to put it in urgent perspective for you.

Inevitability and reality
I feel you are on a course that will lead to an inevitable disastrous conclusion, and that the clear reality of the situation is not being recognized or dealt with. The inevitable conclusion is that you will run out of funds to support you and your family.

The reality is that your assets are finite, not growing, and that the income and cash flow being generated is declining. Even allowing for an unexpected windfall, or big hit, the situation is as it is, with dire conclusions if nothing is done to reverse the course you and your family are on.

I am an accountant, and am looking at this as a numbers situation, and am not considering any personal elements or feelings or relationships. That provides me a luxury that you cannot have – it allows me to view your situation more objectively. Additionally, my professional background has permitted me to have an experience in matters such as you are in now, so that I can reasonably project a conclusion. Unfortunately, in your case, it is a bleak forecast if no changes are forthcoming.

Current situation
Your annual expenses are in excess of $1,000,000. This includes you, your wife and the support you provide to your children and their families. Your projected annual cash flow is just over $600,000. The present deficit of about $400,000 and is being provided by reductions in your assets.

Inevitable conclusion
You will deplete your cash in less than two years, and your assets in less than ten years assuming some sort of orderly liquidation of the assets. You will have no substantial income source after the assets are depleted. These projections consider a reduction in cash flow as some of the assets are liquidated as well as a reduction of certain costs needed to maintain non income producing properties. These are the amounts you provided to us, and while we did not audit or otherwise confirm them we concur with the substance of the conclusion.

Suggested remedy
Since your efforts to earn income has declined, additional revenue sources cannot be a remedy.

I suggest that the only thing you can do is to drastically, substantially and immediately reduce your cash outflow so that it is not in excess of your income. This requires all four of you (you, your wife, son and daughter) to recognize the reality** of the situation and to stop draining the assets with expenses that will have to be eliminated anyway if nothing is done. And it has to be done as triage. I believe it is that critical!

Not responding is a decision to continue as is. I feel that will be the height of irresponsibility for you, your wife and children.

This short memo repeats numerous conversations that were started after we met a little over two years ago. Nothing in here is new and your situation has declined as we have discussed. You have the numbers! You know how to interpret them! And you know the consequences of making no changes! Only you can do something. And I believe you must! And it must be now!

* The Depp Riddle: Who Should Watch the Money?
** Face reality as it is, not as it was or you wish it to be! (First said by Jack Welch)