Water/Sewer "Tax"

[Justataxguy]

I know what TTB says about water and sewer fees, but had a second time client in last night that was kind of perturbed last year when I showed them that they could not claim said fees as part of the property tax deduction on Sch. A. They both insisted they had seen a recent news report about being able to claim 80% of those fees this year. I can't find anything indicating such, has anyone else heard this?

[BP.]

Sometimes local tax bills include the service assessments, as well as taxes. Maybe they heard that only 80% of the tax bill is deductible as property taxes, versus the other 20% that is a bill for services, and not deductible?

[FEDUKE404]

Fees are just NOT taxes

It's a common practice in this area.

The "tax bill" frequently includes additional fees such as those for trash pickup or recycling costs. One local community has even added a "stormwater fee." For vehicle bills, the "tax bill" will also include a fixed fee for city and/or county registrations, several of which are now a fixed $30/year fee. (In olden days you also had to buy a city license tag, then replaced by a city windshield decal, now replaced by a fee on the "tax bill.") Of course, the politicians are also crafty by being able to say such things as "But, we did NOT raise your taxes!!"

The IRS rules for deducting "taxes" have always been quite specific: The only thing that can be called a "tax," and therefore constitutes a valid deduction, is something based on the ad valorem tax rate for the property.

Yes, some clients may "get perturbed," and it may require a bit of extra work to view the actual tax bill (such as when the mortage company pays from an escrow account), but them's the rules!!

FE

[Traveling EA]

Fees on Property tax bill

If a client gives me a property tax bill with fees, I don't deduct the fees. However, if the client fills out an organizer, or some other summary of their income tax data, they give me a figure that says property taxes. I take it in good faith, that it is property taxes. In WI, it is widespread of municipalities having vs not having fees on the tax bill. Just like many other things, it is not my job to audit the figures given to me by the client.

[FEDUKE404]

There is a need for obtaining the facts

If a client gives me a property tax bill with fees, I don't deduct the fees. However, if the client fills out an organizer, or some other summary of their income tax data, they give me a figure that says property taxes. I take it in good faith, that it is property taxes. In WI, it is widespread of municipalities having vs not having fees on the tax bill. Just like many other things, it is not my job to audit the figures given to me by the client.

Interesting approach to things, since a professional tax preparer should have knowledge of and adhere to IRS regulations while providing a service.

While I agree it is "not my job" to audit the client, I do feel a certain professional responsiblity exists for me to determine the relevant facts.

Just curious: What do you do if a client writes in an organizer he gave $500 to the church? (And the underlying facts are $200 in cash, a box of clothes worth $250, and $50 paid for a Christmas tree at the church bazaar.) And what about those $1500 of medical insurance premiums he paid through his employer? (But they were really pre-tax.)

There is a significant difference between interrogating/auditing a client, and demonstrating a need to obtain the relevant facts in order to prepare a proper return. It would be my opinion that most clients do not generally understand many of the subtleties of the tax laws (that's why they pay us!) and to blindly rely on certain information entered on a general purpose organizer could present potential problems for both the client and myself.

Just my 2¢ worth.

FE

[Traveling EA]

fees

Interesting approach to things, since a professional tax preparer should have knowledge of and adhere to IRS regulations while providing a service.

While I agree it is "not my job" to audit the client, I do feel a certain professional responsiblity exists for me to determine the relevant facts.

Just curious: What do you do if a client writes in an organizer he gave $500 to the church? (And the underlying facts are $200 in cash, a box of clothes worth $250, and $50 paid for a Christmas tree at the church bazaar.) And what about those $1500 of medical insurance premiums he paid through his employer? (But they were really pre-tax.)

There is a significant difference between interrogating/auditing a client, and demonstrating a need to obtain the relevant facts in order to prepare a proper return. It would be my opinion that most clients do not generally understand many of the subtleties of the tax laws (that's why they pay us!) and to blindly rely on certain information entered on a general purpose organizer could present potential problems for both the client and myself.

Just my 2¢ worth.

FE

I don't feel the need to have to look at every document they give me. I will ask them if they have backup to prove their deductions if needed. If the answer is yes, that is sufficient for me to take their word in good faith. The vast majority of my clients have been my clients for well over 20 years. I have very little turnover. If I were running a storefront operation where I would take any Tom, **** or Harry that walked into the store, I would probably ask to see more documentation, but that is not my practice. If someone tells me that they have $1,500 worth of health insurance and have an employer, yes, I will ask that question, since there are some state issues. If someone has a $20 fee on a $3000 property tax bill, I am not going to spend the time for them to send me the property tax bill to prove to me that it may have been $2,980, not $3,000. If someone has a rental property, and they pay the utilities, I am not going to want to see the utility bills, because, who knows, they may be giving me their personal utility bill, instead of the bill from the rental. If I verified everything on the tax return, I would turn a $250 tax fee into a $1,500 tax fee. If things appear to be reasonable, I do not interogate or audit them.

[taxea]

Ask the client to provide you with the source of the information. Perhaps, with that, you will be able to ascertain what is actually being referred to.