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Telephone Tax Conundrum

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    Telephone Tax Conundrum

    Okay, this is a kinda hypothetical, but a few of you will run into this sooner or later.

    This is fun. Read this if you need a break, but don’t want to stop thinking about taxes entirely.

    Married couple, both age 65 or older. Income consists of:

    $15400 Taxpayer’s pension
    $11602 Taxpayer’s social security
    $4830 Spouse’s social security

    No federal income tax withheld from any of these sources.

    Looking at the chart on page 12 of the instructions for Form 1040, it appears that the couple is not required to file a return.

    Taxpayer politely, but firmly, insists that I prepare a return. Either he just doesn’t “get it,” and cannot comprehend the idea that some individuals are simply not required to file a tax return, and that he won’t get in trouble, or…

    maybe he wants to be able to provide documentation of his income in the most widely accepted format—a tax return—because he is planning to apply for an auto loan, or refinance his mortgage.

    When I do the return, guess what pops up?

    Form 1040EZ-T. The tax form that is used to claim the telephone tax refund by…

    someone who is not required to file a tax return.

    The software I use has an algorithm that forces the use of the simplest tax form that can be used. In other words, the program--

    - will not generate Form 1040 if Form 1040A can be used;
    - will not generate Form 1040A if Form 1040EZ can be used, and
    - will not generate Form 1040EZ if Form 1040EZ-T can be used.

    The logic is elegant. It's a hierarchical implementation of a principle called Ockham's Razor. (Okay, never mind.)

    In my example, Form 1040A would be required in order to claim a refund of tax withheld from the pension. Last year, even with no tax withheld, the program would still have generated a 1040A to report the pension income. And I would get a warning flag telling me that they may not have to file. But last year, in this example, Form 1040A was the simplest form that could be selected to report information I had plugged into the program. This year, with no tax withheld, the program conludes that the pension doesn't have to be reported since the person doesn't have to file--except for the phone tax refund. So the 1040EZ-T becomes the simplest form available.

    I’ll bet a lot of tax programs produce the same result.

    The program literally will not generate a regular tax form.

    Yes, I found a way to work around it. Selecting Form 8913, to claim actual phone tax paid, is one solution. But that involves fudging numbers, because no one really has all those phone bills. And if I plug in numbers for actual excise tax paid that produce an outcome that is equal to or less than the standard amount, the program kills the 8913 in favor of the standard amount, and reverts back to 1040EZ-T!

    I can tell the program that they don’t qualify for the phone tax credit, and that will eliminate the whole problem, too. Then the program generates a 1040A, just like last year, reporting the pension income, with a warning message that they may not be required to file. But then they get cheated out of the phone tax refund.

    This isn’t just a fantasy. This may happen to some college students who made only $4100 and had no tax withheld. The tax pro will prepare a Form 1040EZ-T ‘cause that’s what the program generated, and they’ll get the phone tax refund.

    And the tax pro will get a phone call when the guy pulls out his “tax return” to try to do his financial aid application.

    I can hear the conversation already:

    What kinda tax form is this? Where’s my adjusted gross income?

    Gonna drive the financial aid administrators nuts, too, when they request a copy of the student’s tax return…



    I think it’s a hoot.

    Anyone else care to try this in their program?

    Burton M. Koss
    Last edited by Koss; 01-29-2007, 08:28 AM.
    Burton M. Koss
    koss@usakoss.net

    ____________________________________
    The map is not the territory...
    and the instruction book is not the process.

    #2
    Koss....

    ..... to my knowledge all programs have an over ride to force a 1040 long to print. If you can't find that switch, call support.

    People need the 1040 long for many reasons, The STAR program is one. I always set my program to 1040 long only.
    This post is for discussion purposes only and should be verified with other sources before actual use.

    Many times I post additional info on the post, Click on "message board" for updated content.

    Comment


      #3
      Lacerte allows one to force a form. i.e., 1040EZ, 1040A, 1040, etc.
      Dave, EA

      Comment


        #4
        I use ProSeries. In all my years of professional practice, I have NEVER filed a 1040A or a 1040EZ. Period. I simply refuse.

        You pay my price for the 1040, or you go some place else.

        The reason is clear. You will make fewer mistakes if you use the same form for everything. I don't have the 1040A or 1040EZ lines memorized. I can fill out a 1040 ten times faster than a 1040EZ. Therefore, I always check the box that forces the program to produce a 1040 even if they qualify for a different form.

        If anyone wants their $30 telephone tax refund from me, they need to pay me my $100 minimum for preparing a 1040. Sorry, that’s just the way it is.

        Comment


          #5
          I'm with you on this one Brad. I have my Lacerte program set to force 1040's for all of my returns.
          Dave, EA

          Comment


            #6
            I agree 100% with Brad! (wow.. that is unusual)

            I always prepare a long-form 1040 regardless of the client's income or status and I do that for exactly the same reasons Brad listed.

            Comment


              #7
              I do the same, except when they bring there kids $800 W-2 with them for me to file, I print the 1040EZ for them to take home for the kids to sign and mail in. (I charge a small fee for this)

              Comment


                #8
                Full Blown 1040

                I always use a full blown 1040 even for a high school student. My thinking is that eventually I will have to upgrade anyway. I like the one-size fits all.

                Comment


                  #9
                  1040 forms only

                  EVen I won't mess with a 1040A or ez.

                  But 100$ for a 30$ refund?

                  As Bill O'Reilly says, "That's ridiculous."

                  And as I say, you don't build client goodwill charging like that.
                  ChEAr$,
                  Harlan Lunsford, EA n LA

                  Comment


                    #10
                    Minimums

                    My minimum without a Schedule A is $155. So that is what they would pay for the credit. Of course these people are not my clients. If someone does call I would just refer them to the IRS website where they can download the form, fill it out and send it in.

                    As far as client's kids go, I almost never charge them. The only one I can remember charging had an investment account with a lot of money and stock trades.

                    Matt
                    I would put a favorite quote in here, but it would get me banned from the board.

                    Comment


                      #11
                      I'm with the majority opinion here

                      And I only post to say that in Drake you select the option to supress forms in the "setup" "options" "forms" submenu.
                      In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
                      Alexis de Tocqueville

                      Comment


                        #12
                        Software?

                        Koss I hope you are mistaken about your software, and you can find a setup or configuation option that will allow you to file 1040s only. In my software, it is in the "printing" options. I simply suppress printing of any form except the 1040.

                        By the way, does the Fiesta Bowl tell you what would happen if the Buckeyes were in the SEC? (yuk yuk)

                        A couple of issues here. Firstly is a software package that is so IRS-oriented that it forces the preparer to file the simplest form. Find a software that allows a preparer to override within his authority to do so -- and installs soft edits warning him when the overrides will jeopardize electronic filing.

                        Second is the mentality of tax preparers who recognize the IRS is wanting to stuff these "simple" returns down our throat. These "simple" forms guarantee the taxpayer is going to pay the maximum tax. No wonder the IRS loves them. I don't even give the 1040A or 1040EZ a second thought. I proceed as if every customer is going to file a 1040.
                        Last edited by Snaggletooth; 01-30-2007, 12:40 AM.

                        Comment


                          #13
                          Software

                          The software packages I have used have all let me over-ride production of simpler forms. I have used this feature only when clients asked for more familiar forms. The option has never changed what was on my screens when I prepared the returns, so I am at a loss to understand the need to prepare only the more complex returns. On the other hand, I also have a minimum fee that is designed, along with my refusal to offer loan products or advertise withholding of fees from refunds, to get me out of returns for the poorer clients.

                          Comment


                            #14
                            What Kind of Software?

                            Koss,

                            That's crazy! What software do you use?

                            Comment


                              #15
                              Using only the 1040

                              I find it much easier to use only the 1040. If I had to switch from one form to another there I would get confused about which line to use or which schedule to attach. There is nothing easier about doing a 1040A or EZ if you use tax software. The other forms might be easier for self-prepared returns by a non-professional who would not be used to the 1040.

                              Comment

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