by Garrett Spangler on January 26, 2012
It’s tax time and you should be receiving your tax related documents for the last year. As a tax attorney who also teaches tax at a local college, people often ask me whether they should do their own income tax returns or not. While I often encourage people to consider doing them (and the goal of my federal income tax class is to make students feel comfortable preparing their own 1040s) there are a few considerations to make before you rush out to purchase this year’s new software or drop some of your hard earned cash on a preparer.
1) How complicated are your taxes and do you feel comfortable using software?
If you are considering preparing your own tax return, determine what type of a taxpayer you are. On one end of the spectrum, if you happen to be a recent college grad who has little assets and work as a W-2 wage earner I say go for it. Preparation software makes it surprisingly easy to put together your own tax return these days and a simple taxpayer like this is one of the least likely to be subject to audit.
If you are a business owner with various investments, work out of your home and seek to maximize your itemized deductions however, I’d probably suggest you get some help. Of course every situation is different and if you seldom use a computer you might need a little help regardless, and if your business just happens to be tax preparation, well then you probably don’t need my suggestions now do you?
2) Can you make the time commitment?
A consideration that is often overlooked is the amount of time required to prepare a tax return. Income tax returns can easily take dozens of hours to prepare and the time will continue to rise the more complex your tax situation and the less familiar you are with tax preparation. If you have the time and would like to save a couple bucks it may make sense to venture into the tax preparation world yourself and get a more thorough understanding of your overall tax picture. If you don’t think you are going to be able to find the time to complete the return accurately however, you should find a CPA to assist you because you could miss certain deductions or set yourself up for a tax problem.
3) Are you willing to pay the cost of professional preparation?
Despite some fees that are advertised to be lower, most taxpayers can expect to spend a minimum of $200 to have their return prepared. It isn’t unusual for the amount to jump up to $1,000 - $2,000 as complexities are added so be sure you understand the costs you are likely to incur. In addition, not all tax preparers are created equal. On a budget and for simple returns, a seasonal tax services like H&R Block, Liberty Tax Service or Jackson Hewitt can be a good option.
Overall however, I don’t think temporary preparation centers are a good value because an experienced CPA, for only a moderately higher fee, will often be happy to develop a relationship with you, may be able to make suggestions to reduce your tax bill, and will be able to help you work with the IRS to resolve any problem. Plus, in the event you have a tax question outside of the few months that the temporary stores are open, you can always call your local CPA.
Of course, if you don’t have much extra time, are inexperienced preparing tax returns, and find that you have a reasonably complicated situation, I would suggest you can’t afford not to have a paid preparer of some type.
4) Are you still unsure whether you should prepare your own taxes?
Ah yes, this is often where taxpayers find themselves even after taking an inventory of where they think they stand on the complexity scale in the tax world and how comfortable they feel taking the tax code into their own hands. On the plus side, you are certainly not alone. If you want to take the plunge and try it yourself but just can’t be confident in your abilities to do a good job, try both!
That’s right, while it may sound a little odd, nothing could set you up for better success than paying to have your taxes prepared by a professional but also trying out the software on your own. You will be able to get a feel for both how well you were able to navigate the preparation software as well as see how you compare to your professionally preparer. Then you will be able to make a more informed decision next year.
by Garrett Spangler on January 11, 2012
Spouses who have been the victim of their significant other’s tax problems should be a little more hopeful now that the IRS has made changes to the relief options. It’s not a moment too soon for those facing such issues as the IRS continues increased enforcement efforts during this economic downturn.
Last week the IRS issued newly proposed guidelines to make sure deserving innocent spouses may more easily be granted relief from tax liabilities that were out of their control. Specifically, the notice focuses on taking into account issues of spousal abuse and financial control when reviewing innocent spouse claims. This is an excellent addition because spouses who suffer from abuse in a relationship or simply enjoy no financial control over their assets often have little input on their tax returns, even if they sign them.
When you sign and submit a tax return with a spouse, you agree that you are jointly and severally liable for the income tax associated with the given tax year. This includes any issues associated with what income is reported, or is not reported, as well as other mistakes that are made whether purposeful or accidental. This presumption of liability must be overcome for the IRS to grant innocent spouse relief and common issues like assets held in joint or the spouse’s name were enough to trump claims that they, in fact, still lacked control.
Of course the best way to avoid tax liability is to be an active participant in preparation and review of your tax return. If that is not possible, at least the IRS is finally willing to consider some new contributing or mitigating factors. In the event that you are facing some tax issues however, I would still recommend that you contact a tax professional for help and guidance through the process.
by Chris Erb on November 9, 2011
I don’t know about you, but don’t answer my home phone any more, and I certainly don’t answer it during election time. Why not? Calls which I want are extremely rare, given that most of the people I know either send me an e-mail or call my cell phone, and the few times I actually pick up it’s some sort of survey or poorly disguised sales pitch. In fact, it it wasn’t for 911 we probably wouldn’t have a landline at all.
Now, a bill has been introduced in Congress which would allow automated calls to mobile phones as well. The Mobile Informational Call Act of 2011 (H.R. 3035) would allow companies to call cell phones for purposes other than “telephone solicitations,” a.k.a. sales calls without obtaining the cell phone holder’s consent. Not surprisingly, consumer groups have been screaming bloody murder, particularly given that many consumers must pay for the cost of incoming calls, and some are organizing online petitions opposing the bill.
Not surprisingly, the bill has a fair number of supporters, including debt collection agencies and a “leading global provider of cloud-based, multi-channel proactive customer communications” a.k.a. a provider of internet-based autodialing services. Supporters claim that the dearth of landlines in the United States has prevented consumers from receiving critical information by phone, citing flight cancellations and calls regarding possible credit card fraud as examples.
Either way, I’m preparing for the possibility that I’ll be ignoring my cell phone when it rings as well.
by Garrett Spangler on September 22, 2011
Yes, thats right, breaking free from jail is now in fact legal….sort of. While actually breaking out of a penitentiary, prison or that medieval castle’s dungeon in which you’ve been toiling away may be met with local law enforcement or cries to release the hounds, “jailbreaking” your new high tech device will leave you with considerably less to worry about.
When the iPhone went on sale in 2007, several options for removing the apple imposed restrictions quickly appeared online. The process of removing such restrictions, allowing one to load applications not sold or approved by Apple, became known as a “jailbreak” and now is widely used to describe the same process for other tech products. While manufacturers wish to control what can and cannot be done with their devices for a variety of reasons, Apple has notoriously been a leader in providing rewarding but tightly controlled user-experiences.
Due to legislation which was newly enacted last year, the US Copyright Office no longer considers reprogramming an electronic device a violation of federal copyright law. Of course there are still consequences to jailbreaking your devices, like voiding warranties or violating license agreements, and you will have to go through the jailbreak process again each time an update is released. These issues are probably minor though if you are adventurous enough to consider jailbreaking your device in the first place.
Now remember, this is not an endorsement to go out and start jailbreaking like there’s no tomorrow. Just confirmation that freeing your device from the restrictions placed upon it by the manufacturer isn’t going to land you in the slammer for copyright violations.
by Chris Erb on August 22, 2011
In a recent opinion the ULD, a data privacy organization in the German state of Schleswig-Holstein, has declared (link in German) the use of Facebook’s “Like” buttons on German websites to be in violation of the German data privacy act, and has threatened website operators who continue to use “Like” buttons with penalties if the buttons are not removed by September 2011. According to the ULD, the use of the “Like” button transfers both user content and tracking data to the US company Facebook without the express consent of the user as required by German law.
For the moment this decision impacts website owners in Schleswig-Holstein more than anyone else, who face fines if they continue to violate the law. It also, however, serves as a reminder of a much larger and perhaps more concerning issue - social media and the related exchange of data has long raised issues under European privacy law, a problem which is only exacerbated by the increased interconnectedness of websites with social networks. Although investigation and enforcement of EU privacy laws and data transfers to the US has been fairly lax, the laws are fairly comprehensive and regulate the treatment of EU citizen data by US-based websites as well.
Given the increasing concern of even US users (and Congress) as to the ultimate destination of personally identifiable information, this shot across the bow from lightly-populated Schleswig-Holstein could be a harbinger of increased enforcement ahead.
Hat tip to Dr. J.C. Seevogel (@InTheLaw).
by Garrett Spangler on August 12, 2011
At the center of the recent debt ceiling debate in Congress were spending cuts and taxes. Democrats were looking for reductions in spending as well as increases in tax revenues to help pay down the country’s increasingly large debt. Republicans were seeking deeper spending cuts and no changes to the current tax rates. And neither party was particularly fond of cuts to entitlements because they are unpopular with older Americans and those are the people who vote. With the country on the precipice of default, an agreement was reached to increase the debt ceiling with reductions in government spending, no tax increases and no cuts to entitlements.
No matter what political party you tend to agree with, one thing is evidently clear, tax dollars just don’t go as far as they used to. This sounds a lot like a lesson from grandpa, but it becomes clear we are on a dangerous financial course when you take a closer look at what that means.
According to information available at the Government Accountability Office, by 2020, without significant changes, 89% of the tax revenue collected by the federal government annually will go to pay for Social Security (28.4%), interest on debt payments (24%), Medicare (21.3%), and Medicaid (15.3%). That means that only the remaining 11% of tax revenue collected will be available to pay for everything else, including education, infrastructure, and even national security.
Wow, just wow.
Putting that into perspective, 11% of the 2010 federal tax revenue of $2.16 trillion would be around $235 billion. Of course that sounds like a lot to you and I, but the spending for the wars in Iraq and Afghanistan ($170 billion) plus what we spent here on homeland security ($44 billion) in 2010 totals $214 billion. That leaves just $11 billion to cover things like the $667 billion in military spending (excluding the wars and security efforts mentioned above), and spending by the Departments of Agriculture ($129 billion), Labor ($173 billion) or Transportation ($78 billion). That doesn’t cut it and this list doesn’t even include things like national parks, the FBI, food safety, environmental protection, education, and the list goes on.
Without intervention, by 2040 the federal government will only be able to pay the interest on the debt and most of Social Security. Everything else would require additional borrowing if we continue to chart the same course. Tax revenues should go toward the provision of government services and saving for a rainy day like recessions and times of economic stress instead of squandered on interest payments. That’s not how I operate my finances and thats not how the country should either.
It’s gut check time America, in case you haven’t noticed, everyone is for small government and low taxes and for the government to continue to provide the services they are accustomed to, but there is one little problem called “math”, and the numbers simply don’t add up. Higher taxes, less spending, and reduced entitlements is the only way out. Let’s get our act together before we are essentially handing over a quarter of what we earn each month to China, Japan, and the EU, the only way out is to get real and pay ourselves first.
by Garrett Spangler on July 8, 2011
Careful consideration should be taken each step of the way when creating an estate plan. This is where the extensive training and experience of estate planning professionals comes into play to help people deal with the unique situations in their lives and reach their specific goals.
So let’s just assume for a second that you went through all the details of your life, discussed them with an estate planning attorney and have drafted an airtight plan to address all of your needs. Then you go to the bank and the pretty young teller suggests that you add a POD (payable on death) designation to one of your accounts to avoid probate. She says it convincingly and tells you that it will save some money on probate fees. Do you listen and make the change?
While it may sound good, let me frame this question a little differently.
You just finished developing a complete estate plan with an experienced attorney who discussed all aspects of your life with you and weeks carefully drafting the documents to address all of your concerns. The pretty young teller who just found out your name from your deposit slip tells you that she can help you to revise your estate plan without any other information about your life. Do you let her make some changes?
You may have considered it in the first scenario because she was trying to help but of course you wouldn’t let a teller with no knowledge about your life revise your estate plan. Unfortunately, advice is often taken from bank tellers, stock brokers, and other employees of financial institutions without thought of unintended consequences.
I recently had a client call me to ask about this after receiving several phone calls from, well, let’s just call them Carguard, about updating his investment account. The employee stated that they were simply ensuring that their customers accounts were kept up to date and out of probate so he should add a beneficiary. Feeling pressured and as though he may be doing something wrong he called me to ask about naming a designee and I reassured him that due to his planning goals he was much better served by allowing his estate plan to dispose of his assets.
Everyone should have an estate plan and make decisions in advance to help facilitate the transfer of their assets no matter how large or small they may be. There are a great many considerations that go into planning for an estate and if you have a plan in place, simply let an institution who asks you to make some changes know that you have a carefully drafted plan in place to handle the disposition of your assets. And if you are still unsure, just double check with your estate planning professional before making changes, even if it seems insignificant. I can promise you that your heirs will thank you!
by Garrett Spangler on June 30, 2011
A new piece of legislation is poised to address the cries made by music and movie companies that piracy is the largest cause of financial harm to their respective industries. It is called the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act (”PROTECT IP Act”) and is said to address issues related to piracy and copyright infringement, but many suggest it may go too far.
The PROTECT IP act states that “[c]opyright infringement and the sale of counterfeit goods are reported to cost American creators and producers billions of dollars and to result in hundreds of thousands in lost jobs annually. This pervasive problem has assumed an especially threatening form on the internet.” While it focuses on websites that are not registered in the US and has garnered some wide-spread support in Congress, the bill does not includes specifics about what constitutes an infringing website.
The bill seeks to take the penalty for alleged infringement well beyond even that of the Digital Millennium Copyright Act (”DMCA”). A properly prepared DMCA notice can force an internet service provider or hosting company to block access to a website unless the recipient of such notice resolves the alleged issue or provides counter-notice that they believe there is no infringement. The PROTECT IP Act allows a copyright holder to allege infringement to request a court ordered injunction. Once obtained, not only must a site be blocked by a service provider but all sites which link to such site must be blocked and search engines must censor their results to remove any alleged offending websites. The goal is to make infringing sites invisible and disappear as if they did not exist.
While I have no doubt that enacting and enforcing such legislation could be another major blow to those who have built a business around piracy, these measures are draconian and likely take enforcement too far. Since no notice is required to be given to the alleged offender under this Act, there may be issues of free speech and there will be websites that have not violated any IP laws who find themselves surprisingly shut down for months trying to resolve the matter in court.
Much like the DMCA has been abused in the past for political and business gain, this legislation goes well beyond entertainment media and provides an opportunity for competitors to find something small that could be in violation of IP laws and effectively put them out of business until a resolution can be made. It is surprising that this legislation may pass following the research conducted by the government accountability office that there was no substantiation of the losses claimed by the music and movie industries, in fact there were also many benefits to the industry through wider dissemination of material.
If this bill does see the light of day, I hope some additional penalties will be put in place to deter people from making false allegations. Claims that the sky is falling from entertainment media have come and gone since cassettes and video tapes entered the market in the late ’70s and the industries have survived and thrived. While the largest corporations producing such material may have issues continuing to generate the level of profits they once enjoyed, much of that can be attributed to the ease with which independent artists can record their own high quality audio and video.
Here’s to hoping the government gets it right and doesn’t just take the media industries on their aggressive, deep-pocketed, self-serving word.
by Garrett Spangler on June 20, 2011
ICANN doesn’t have cheeseburgers, but they have unveiled a major change for internet websites of the future. The worldwide organization plans to revolutionize the internet’s domain name system and will allow generic top-level domains (gTLDs).
The Internet Corporation for Assigned Names and Numbers (ICANN) met in Singapore to discuss the potential to loosen their restrictions for top-level domain names. Currently, the only top-level domains which are permitted include the familiar .com, .net, .org, .edu, and .biz, among several others. Companies will now be able to apply for custom domain names that reflect the image or name of a corporation.
This is a major departure from the current structure associated with the internet. Allowing corporations like Microsoft, Sony, Apple and countless others to create their own corporate domain name gives them a flexibility to portray their brand in a new light for both online and offline marketing. Providing this additional degree of expression and personal identity to companies online will likely be a welcome change due to the newfound freedom and also will likely limit the effectiveness of “cyber-squatters” who buy up domain names in anticipation of reselling them for a profit.
Of course it sounds wonderful and will likely prove popular, just be sure that your company is ready to make the financial commitment and jump through a few hoops before you apply. To submit a request to ICANN to create a new custom domain name it will cost around $185,000, and you must also meet some yet to be finalized criteria before the application may be approved.
ICANN reports that the large fees are necessary in order to get this program off the ground and ensure they can properly establish the new domain for any approved organization’s use. I might suggest waiting a couple years to flesh out any issues and the price to come down, unless your company has close to $200,000 burning a hole in its pocket.
If you just have to have one like the latest gadget, the first applications for gTLDs will be accepted beginning next January. At least initially they will only be available to established business entities in good standing with ICANN; individuals and sole proprietorships need not apply.
Of course if it’s just ICanHasCheezburger you were looking for, as well as a chuckle, well I’ve got you covered there too.
by Garrett Spangler on June 14, 2011
A question that comes up frequently is whether tax is really due when you die. The answer of course, as is commonly the case if you deal with attorneys on a regular basis, is it depends.
There is a federal estate tax in the Unites States which is imposed upon the assets that a person owns when they die. Of course this is subject to several caveats which may exempt someone from tax.
Transfers of anything owned at the time of death to a spouse are completely free of tax. This is called the marital deduction and ensures that married couples can continue to enjoy their assets and lives they way they have become accustomed until the second spouse passes.
If an individual does not leave a living spouse when they die, the estate may be subject to tax if it reaches a minimum threshold. The current rules in 2011 exclude the first $5 million from any taxes and in the case of married couples, some simple tax planning allows spouses to take advantage of each exclusion for a total of $10 million tax free. Any additional assets beyond $10 million would be subject to the current estate tax rate of 35%.
While this can sound like a lot, take into consideration that this actually means only about 3,500 people who die in 2011 will have estate tax bills. That is 0.14% of the 2.5 million who die annually in the U.S., and the vast majority of those who have a tax bill have less than $15 million in assets. The tax due for someone with such a $15 million estate would be approximately $1.75 million and therefore the estate tax would effectively levy a tax of 11% on such estate assets.
It should be noted that there are also countless tax planning techniques and additional opportunities offered to reduce certain taxpayer’s burdens. So is there an estate tax (or death tax) in the U.S.? Yes, but 99% of us won’t be affected by it, and even 86% of the final wealthiest 1% will escape tax free.
