Electronic Age

[kathyc2]

Hasn't been mentioned before but I do get sucked in by a non-income tax issue. And that is Social Security. And I hate it because invariably they ask me when they should start drawing, most commonly whether they should draw at 62 or wait. The calculation of benefits is such that it is a coin-flip with actuaries' math at any age, but I will always take the time to advise them of the earned income penalty SS will recover if they begin drawing between ages 62 and 66+.

For me, that's the fun part. When to draw depends more on their overall financial picture rather than try to guess when they will die which is really what you need to know if the goal is maximizing SS benefits.

One couple retired at 63 and had enough put back that they will be fine in retirement years. As she was a stay at home mom for a number of years, her benefits were quite a bit less than his. I came up with a plan in which she take benefits and he delayed. In those years they converted close to 500K from traditional to Roth paying less than 50K in tax. Their RMD's will now be low enough that they likely will never pay FIT again.

At the other end of the spectrum a single gal turns 70 and it would be very tight to retire. Advised her to start SS and work one more year and max out her 401K. Her lower paycheck money will be replaced by SS checks. She will also save several thousand in tax using this plan. After she retires the amount she will need to take from 401K to supplement SS will be low enough that she also will likely never pay FIT again. She earns around 45K so tax on just W2 is 3.3K Adding 28K in SS benefits increases that to 7K. The 28K SS plus the 15K W2 after 30K in 401K results in maybe a couple hundred in tax.

[Snaggletooth]

[QUOTE.[/I]"Snaggletooth, you seem to have a distorted view of your role in this process.[/QUOTE]

I probably do - or at least that is the consensus of those who are responding. But it is my view. If it was intended to be an insult - I'm immune.

I will say this - I have learned much from the discussion. I gleaned quite a new perspective from Kathy's discussion about the benefits of interacting with different taxes in her own state. And I'm not a CPA so I can't grasp the auditing problems created by Sarbanes/Oxley (on steroids) discussed by Uncle Sam. Those of you who are CPAs should take note. I had heard that a number of companies retracted their IPOs (Initial Public Offerings) when Sarbanex/Oxley came out and was going to require the stockholders to take their clothes off for the public. I don't know this for a fact but this was being tossed around in the rumor mills.

Hasn't been mentioned before but I do get sucked in by a non-income tax issue. And that is Social Security. And I hate it because invariably they ask me when they should start drawing, most commonly whether they should draw at 62 or wait. The calculation of benefits is such that it is a coin-flip with actuaries' math at any age, but I will always take the time to advise them of the earned income penalty SS will recover if they begin drawing between ages 62 and 66+.

[kathyc2]

IN allows an extra over 65 deduction for RE tax if their AGI and house value is low enough. It has absolutely nothing to do with preparing their income tax return. If clients AGI is low enough I'll take the extra minute to look up their RE bill to see if they receiving the deduction or not. If not, I advise them to take return to county offices to file for the deduction. When I talk with other local preparers I've not found anyone who does so and most are not even aware of it.

MI allows a refund of some RE tax to be claimed on their income tax return for low income. It's a regular PIA to claim, but worth it.

[Lion]

I haven't been a tax preparer as long as many of you, but when I started with HRB back in 1995 or earlier, the CT income tax form already had a line asking taxpayers if they purchased any items out of state without paying CT sales tax. It was a required response. If the answer was Yes, it lead to a form to list purchases, compute the CT sales tax owed, and subtract any sales tax paid to other states on those purchases. For my NY commuters who shopped in NY with it's higher sales tax, that form usually netted zero.

I had one wealthy client, CT residents, hubby earned 6 figures in NY (and maybe NJ) selected by CT for a sales tax audit. Turns out the wife did shop a LOT in NY, having her purchases sent to her CT home. At that time (before Wayfair) Saks and her other favorite stores did NOT collect NY sales tax on purchases they shipped out of NY. CT charged sales tax on clothing over $75. As wife told me, "I haven't bought a blouse under $75 since I was 12 years old !!" CT required her to get printouts of all her purchases from Saks and Barneys, IIRC, and charged her CT sales tax for 3 years. (I don't know if CT continued to watch their returns, because hubby thought they'd save money if wife prepared their returns on TT; wife did have a personal assistant who paid bills, etc. But they had 3 states and kiddie tax with 3 children! I was leaving Block, so don't know how that worked out for them.)

Had another client selected by NY for a sales tax audit. A CT resident, he bought a computer online, DID pay CT sales tax, But he had it shipped to his office in NY, because no one was at home during the day in CT, and pricey computers did get stolen off front porches with some frequency. It took a lot of back and forth with NY to convince them the computer was taken home to CT the day it was delivered to his NY office, for use in CT at his home for personal (probably his kid for school, AOL, and gaming) use and not biz use. I think he had a picture of his kid opening it up at home, setting it up in the home's family room or such, because that was a generous gift for a child at that time.

But these audits are time-consuming!

Ask the state questions. Document the answers. Like Kathy, I have a one-pager of questions that clients answer AND SIGN. And, a paragraph on my engagement letter that states when a separate fee, separate engagement is triggered.

[Rapid Robert]

"CT, NY, CA are three states I can remember asking if the tax payer owes Use Tax on the state income tax return."

CA has had this for quite a few years. What they also offer to make it easy is an optional "safe harbor" amount of use tax based on AGI. Ever since the Wayfair court decision that out of state sellers like Amazon must withhold state sales taxes, the answer for almost all of my clients is "no", they have no unpaid use tax. It's not a big deal.

This may put you in a tizzy: recently, CA has started requiring that a taxpayer's physical address and county of residence be reported on the tax return, so that they are properly included in jury selection pools.

"If we are still around, we would long for the times when income tax preparers prepared income taxes only."

Snaggletooth, you seem to have a distorted view of your role in this process. We already deal with many taxes other than "income" tax (which itself is a fuzzy definition). We have to report and calculate payroll taxes, for self-employed or tip income, for example. We actually have three different income tax regimes to deal with (regular, alternative, and net investment), even if only to determine that we are not subject to one or the other of them. We calculate and report a number of excise taxes and penalties (sometimes known as "additions to tax"). We also facilitate government welfare programs (various refundable credits, "Economic Impact", "Making Work Pay", etc).

Oh, and don't forget that in order to properly complete Schedule A, you have to determine whether the state income tax or state sales tax deduction is greater (and this has been around for decades, were you complaing about asking sales tax questions back then?)

It's like this: citizens elect legislators, wno in turn legislate tax laws. Our job as paid professionals is to process the forms provided completely and accurately. If you find that Alabama's individual income tax return is out of scope for the level of service you offer, then don't prepare them. Just like I, for example, don't prepare estate tax returns (Form 706).

"Am I whining? I guess so."

Agreed.

[kathyc2]

State auditors need to get off their butts and out in the field auditing and collecting, instead of insinuating preparers become auditors under the guise of "Due Diligence." My clients pay me to prepare their income taxes based on information primarily supplied by them. If I started looking under the woodwork to find money for taxing authorities, I would lose every one of them.

No one is saying you need to grill clients, but you do need to ask. I have a one page checklist that clients need to sign off on that they have given me everything on the list that pertains to them. Tax free purchases is a line item as is a generic "any other items of income". It's protection for me to ask.

In Indiana it's generally only a matter of time until state will audit business clients. They will say it's an income, payroll and sales tax audit, but the auditor will spend 90% of the time looking for use tax.

[Uncle Sam]

Buckle your seatbelt folks.
Are you aware of the fact that FinCEN's Corporate Transparency Act is coming up starting January 1, 2024?
Another term for it is Beneficial Ownership Information (BOI) where all but corporations subject to Sarbanes Oxley will need to furnish to FinCEN a reporting form disclosing
what the Federal and State governments ALREADY HAVE in the form of ownership information. There is already a coalition of tax practitioner groups organized to fight this
(and inform their respective memberships). I have been informed by reliable sources that this disclosure process - if we as practitioners will be involved in providing this for
our clients - is tantamount to practicing law without a license. And yes - there ARE exceptions to the requirement of disclosure, but the entity first has to
file to disclose it is exempt.

So if you think that state tax returns incorporating a line for state use tax is extensive - be prepared for what's coming up.
I attended last year's 1040 tax update from NCPE that mentioned it and have been on the lookout for any news articles this year.

Here's a preview: https://www.google.com/search?q=corp...TF-8#cobssid=s

[Snaggletooth]

This whole conversation has opened my eyes. Apparently other states are crossing the sales tax threshold to create the fusion of a different type of tax into a state income tax return.

If this can happen (and apparently it is), what's next? Property taxes? Ad Valorem Taxes? Business Licenses? License plate tags? Mortgage (stamp) taxes? The states can have a field day if they can require all imaginable taxes to be part of due diligence. If we are still around, we would long for the times when income tax preparers prepared income taxes only.

State auditors need to get off their butts and out in the field auditing and collecting, instead of insinuating preparers become auditors under the guise of "Due Diligence." My clients pay me to prepare their income taxes based on information primarily supplied by them. If I started looking under the woodwork to find money for taxing authorities, I would lose every one of them.

[Lion]

CT, NY, CA are three states I can remember asking if the tax payer owes Use Tax on the state income tax return. I'm sure there are many more. In CT, not answering the question is equal to not filing a use tax return, so there's no SOL if a use tax return is not filed. Do your due diligence.

[Snaggletooth]

"A preparer of income taxes should not be a collection agent for state sales tax."

can you at least acknowledge that there is nothing about this situation that prevents you from efiling an Alabama individual income tax return (except maybe limitations of Drake software)?

Yes, according to Drake, they are forced to be compliant with Alabama's insistence that the use tax question be answered. I believe Drake is just passing through the requirement, and not the author of the requirement.

Uncle Sam has stated that a sales/use tax line item is included as an integral part of the income tax return on many states. I didn't know that, as I only do personal income taxes for Alabama and Kentucky. I have done payroll taxes (SUTAS and SiTS) for a number of states as I do write-up work for government contractors.

Living in Tennessee, without an income tax, is long and narrow, so we are never far away from the eight states that surround us (ALL of which have income taxes). At one time or another I have done all of them, but probably before the Supreme Court decision to allow interstate sales taxes. On an annual basis, I only do Alabama and Kentucky now.

Thanks to RR, Kathy, and Uncle Sam for responding.

[kathyc2]

Kathy, I'll have to disagree on this one. A preparer of income taxes should not be a collection agent for state sales tax. Thanks for your response though.

Seriously? I assume all states have something along the line of "under penalty of perjury I believe this return is complete and correct". If you don't ask, how can you ethically sign your name to that statement?

[Rapid Robert]

"A preparer of income taxes should not be a collection agent for state sales tax."

Can you provide evidence that anyone asking or expecting the paid tax preparer to collect state sales/use tax? Your comment has nothing to do with your original complaint.

Meanwhile, I factually addressed your original complaint, can you at least acknowledge that there is nothing about this situation that prevents you from efiling an Alabama individual income tax return (except maybe limitations of Drake software)?

[Uncle Sam]

I have to agree with Kathy - state sales (use) tax calculation has become part of many state tax returns in recent years. And answering a sales/use tax question on a state
return is similar to answering the Digital Asset question on the Federal return.
There usually is an open line on the state tax returns to declare any unpaid sales tax on purchases that were made on out of state purchases where the retailer didn't collect it
because of falling under the minimum thresholds to collect it. That's the taxpayer's last opportunity to pay the tax liability. It's another due diligence effort on the part of the
preparer.

[Snaggletooth]

Asking client if they had purchases subject to use tax should be part of your information gathering whether you need to answer the question on the return or not.

Kathy, I'll have to disagree on this one. A preparer of income taxes should not be a collection agent for state sales tax. Thanks for your response though.

I do, however, agree with the IRS requirement for digital assets and control of foreign accounts.

[Rapid Robert]

"The preparer/filer must swear out on a checkbox that the taxpayer has not imported anything into Alabama for which Use Tax has not been paid. If the preparer doesn't check the box, Alabama has forced Drake to program an exception that e-filing would not be allowed."

That is not true in general, maybe just another Drake limitation. In my software, if you don't check the box for "no use tax due", then you simply have to fill in the data to calculate sales and use tax on out of state purchases and it gets added to the tax liability on the return using Schedule ATP. The dialog box in my software includes all three purchase categories and the corresponding rate for each one already set up. Much easier and faster than spending time searching through form documentation (and I am a big fan of relying on the documentation when appropriate).

"Once electronic filing is required, then there is no accountability required of the states to maintain accessible websites."

Not sure what you are talking about. The Alabama Form 40 booklet has about half a page discussing the sales/use tax reporting requirement. And an image of the Schedule ATP is available at https://www.revenue.alabama.gov/form...ies-form-40-3/