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Tax Tips

Tax Tips

2012 tax changes

I have posted a summary of the 2012 tax changes on the main website
tab is tax changes 2012 summary

The IRS will not accept any returns until Jan 30th

In addition if your return includes some forms you may not be able to file until late Fed at the earliest .. people most affected are those with depreciation .. usually rentals or small businesses have this form


This is a decent read .. the links are useful too.

Out of the millions of tax returns that are filed with the IRS each year, a certain percentage are inevitably flagged and chosen to be audited. In some cases, this is because the taxpayer filing the return is already being investigated for tax fraud or other crimes, while other returns are merely selected at random. The formula that the IRS uses to flag returns for random audit, known as the Discriminant Function, is a highly classified secret known only to a few. However, there are several types of returns that the IRS tends to focus on in general. Filers with returns that fall into one of these categories must accept that there is a higher probability that they will be audited than other taxpayers. Some of the types of returns that the IRS tends to scrutinize more closely include:

More from Investopedia:

Returns that Itemize Deductions

Taxpayers who include a Schedule A with their 1040 likely have a higher chance of being audited than those who don't. This is because the additional calculations invite a greater possibility of fraud or error by the taxpayer.

Self-Employed Taxpayers

Taxpayers who report income on Schedule C or E are prime targets of the IRS, because of the number of expenses that can be claimed as deductions. Those who report net losses for the year that reduce other taxable income, such as salaries or investment income are especially vulnerable to examination by the IRS.

"Cash Cow" Businesses

Many businesses have traditionally operated largely on a cash basis, such as laundry services, restaurants, casinos and gaming establishments and other similar enterprises. A substantial percentage of these businesses have traditionally underreported their income on their tax returns, due to the difficulty of proving revenue that is received in cash from thousands of separate transactions. For this reason, the mafia and other organized crime syndicates have been heavily involved with these industries for the past several decades. Of course, this has not escaped the notice of the IRS, which has collaborated with various law enforcement agencies who pursue these criminals.

Small Businesses

Even businesses such as florists, hobby store owners, construction contractors and other local enterprises are often scrutinized by the IRS. This is because even honest business owners and partners often don't understand the rules for correctly reporting their income and expenses and therefore submit erroneous returns. This is particularly true of those who are filing a business return for the first time, such as the proprietor of a new company.

Private Transactions
Taxpayers who engage in the sale of substantial pieces of real estate or hold interests in oil and gas leases or other such investment property can often realize enormous income and profits from individual buyers or small companies. The IRS knows how easy it can be to underreport the profits from these transactions, in some cases.

The Bottom Line

Remember that if the IRS does flag your return for audit, it does not mean that they suspect you of cheating. As mentioned previously, many returns are selected at random, according to a formula. As long as you have not cheated on your return, then you don't have to worry about what they find. If there is an error, the IRS will notify you in writing of the discrepancy and tell you how much more you owe. Of course, this process can work both ways; it is possible that the IRS could state that you owe less than you reported as well. Just make sure that you have all of the documentation that you need to prove your deductions, such as copies of receipts and bills. As long as you can supply what the IRS requests, your audit should be a relatively quick and painless process.

A good read on tax deductions

I would have never thought to look here. It is a pretty good summary.

OIC offer in compromise

I am sure many of you have seen the ads for solving your tax problems for "pennies on the dollar'".

These firms charge large fees and in some cases don't do people much good.

You can do these yourself .. it takes time and you have to be rational about it.

The forms are long and require that you spend some time on them. But if you figure that the firms that do these often charge at least $2,500, then it could be time well spent.

Here are urls to get to the IRS website pages on this.,,id=104593,00.html,,id=104593,00.html

I have a client that managed to do one of these herself. She said it was timeconsuming, but she got a $16K IRS debt reduced to $1,200 .. she has been making payments since last year and with this year's refund, it should pay off the debt and she and her husband can sleep better with this large burden gone.

We don't do these OIC's, but if you use a professional, make sure you check them out. Most of the outfits that advertise are legitimate, however, they are expensive, have to be to pay for all the advertising.

If you want someone to do for you, check out your local Enrolled Agents. Not all of them do these, but  if you shop around you might be able to find a good one and perhaps get a better price.

try these two locations ..

for CA

for national listings ..

or do a search for you state and entolled agents


If you are having trouble communicating with the IRS then get in touch with the local taxpayer advocate. You can reach them by phone or thru

They can be very helpful

The state of CA also has an advocate service too.

Taxpayer Advocacy Panel Members Selected 
WASHINGTON — The Internal Revenue Service today announced the selection of 32 new members to serve on the nationwide Taxpayer Advocacy Panel. The TAP is a federal advisory committee charged with providing direct taxpayer feedback to the IRS.

The new TAP members will join 70 returning members to round out the panel of 102 volunteers for 2011. The new members were selected from more than 500 interested individuals from all over the country who applied during an open recruitment period last spring.

"TAP members represent the nation’s taxpayers, both in what they want and what they need," said IRS Commissioner Doug Shulman. "They provide the IRS with invaluable insights to ensure that the taxpaying public has a voice in the tax administration process. "
The TAP listens to taxpayers, identifies issues and makes suggestions for improving IRS service and customer satisfaction. Oversight and program support for the TAP are provided by the Taxpayer Advocate Service, an independent organization within the IRS that helps resolve taxpayer problems and make recommendations to avoid future problems.

"It is extremely important that the IRS consider the needs and preferences of America’s taxpayers," said Nina E. Olson, National Taxpayer Advocate. "The vital work of these citizen volunteers helps the IRS provide all taxpayers with the top quality service they deserve."

February 14 is a good date per the IRS

for those who have not been able to file their returns due to having a Schedule A, you can do this as of tomorrow, 11 a.m. in your time zone,

Should be a flood of them, I have about 20 just waiting for this ..

Avoid tax audits

while this does not cover everything, it does give some good guiid lines.

One note on contributions .. The IRS is cracking down on this.

for cash contributions, you need a canceled check or a letter/receipt from the non profit ..

If you go to church, set yourself up with envelopes and have them send you a year end statement, telling the IRS you put $10 a week in the basket is just not good enough.

For non cash (Goodwill type donations) if you give, but don't have a receipt you can take up to $250 .. if you have a receipt, then you can take up to $500 without filling out form 8283

If you have $501 or more, you need to fill out form 8283 .. which asks specific questions about your donation ..

for valuing non cash donations, there are sites on the internet that give values for items.

this is one site

Medicare Premiums are Self Employed Health Insurance

from my continuing education people .. good news for older, self employed people

IRS Changes Its Mind on Medicare Premiums as Self-Employed Health Insurance
With no notice, the IRS changed the wording in its 2010 Form 1040 Instructions. The instructions now say that Medicare B premiums can be used to figure the self-employed health insurance deduction. The 2009 instructions and Publication 535 said that they didn't qualify.
Example: Mary is a 67-year-old, self-employed real estate broker. Because she is a high income individual and is means tested for Medicare B, Mary pays $4,243 for her 2010 Medicare coverage. Mary also pays $1,200 for Medigap health insurance and $2,900 for long-term care insurance. If she's otherwise qualified, Mary can claim a self-employed health insurance deduction of $8,343. For 2010 only, this amount also reduces her self-employment income for SE tax purposes.
 © Sharon Kreider

New research tool at the IRS

Just in time for tax season, the IRS has released a new research tool that allows you to research the tax law by topic. This new service - IRS Tax Map - offers a search by topic or by frequently asked tax questions.

(Here is the URL in case the link does not function: 

Originally developed to provide better access to tax law technical information for the IRS telephone assistors, the IRS Tax Map is a kind of subject-oriented database. Each subject has a Title Page with links to forms, publications and related topics.

For example, the page on Health Savings Accounts (HSA) has links to all the relevant forms and publications. It also has a list of related topics, such as Contributions to an HSA, Death of an HSA Holder, and Qualifying for an HSA.

The Frequently Asked Questions (FAQ) are organized into logical groupings from Filing Requirements to Sale of Trade of Business to Aliens and US Citizens Living Abroad. Each question is answered and links are provided to the relevant publication or form.

If, like me, you've been frustrated trying to find information on the
IRS website

When you didn't remember the IRS publication number, this tool looks very promising. Be sure to bookmark it!

The Grapevine is a biweekly publication of the California Society of Accounting & Tax Professionals providing news and information to accounting and tax professionals. While every attempt is made to provide accurate information, it should not be relied upon as a substitute for independent research.


For many efling cannot be done until Feb 14 .. this is due to the late passage of the tax laws.

Everyone should efile .. no reason not to do it.. it is quick and efficient .. you get your money back faster .. a Direct Deposit will get you a refund in 8-15 days ..  no need to use those high priced refund anticipation loans ..

lots of ads out there that are sort of false .. HRB says they will do your taxes for free?? well, yes if you use a 1040EZ .. but extra for state .. and their normal high prices for 1040A and 1040 ..

I still see returns from new clients that used a chain tax store and their prices are much higher than ours and we do just fine with our pricing structure . of course it helps that we have low overhead, but still the chains often really gouge people .. this week a new client came in and had her taxes done.. she was with her friend that had gone to JH .. just for fun I showed her my pricing (it is on the computer screen) and what she paid $200 for, I would have done for $140 .. pretty sure she will come back to me next year..

brokerage account information is beginning to flow in .. keep an eye out for it .. make sure that you pay attention to the 1099-B .. if you sold stocks, even if you lost money on them you have to report them or you will get an audit lettter..  you should report to get the advantage of the loss.. also, people often don't  know that they have to report option sales .. they think because it is on the W2 it is taken care of.. it is not .. usually those sales have a small loss equal to the commission so you should report the loss.

Any one who did a conversation to a ROTH needs to be careful when they do their taxes.. you can either pay the tax now .. or you can spread the income over 2011 and 2012 and pay the tax then... this is what I will be doing. 

you should have kept theamount of the conversion separate .. then plan to file your taxes about October 15th .. why?  let's say if you do a $30K conversion .. if on 10!/14  it isworth $40 K, great go ahead and file

if the $30K has become $20K,you don't want to pay tax on the $30K when it is only worth $20K so move it back to the IRA . this is called recharacterization  see the following url for more on this

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