Tax Issues

What I’ve Learned From Ten Years As An Enrolled Agent

This year, I celebrate TEN years of being an enrolled agent! I don’t discuss my previous IRS career often, so this seemed like a good time to talk to you all about it, as well as to reflect on what I learned over this past decade.

I started working at the IRS in the call site, then I became a correspondence auditor on a whim (I put in one application in Washington, DC, and I got selected for the role). I eventually got promoted to an international tax specialist role, where I completed hundreds of audits of foreign nationals living in DC, as well as audits of US citizens living abroad. I loved the work, but I disliked many of the managers (this was most pronounced at the beginning of my IRS career as well as the end of my time there: the in-between years were better). The managerial abuse was insane, and I knew I needed to leave for my mental health. Once I started my family, I left IRS and applied for my enrolled agent license (I had the requisite experience to apply without having to take the exam).

I was awarded my license in 2013, and I’ve been in good standing ever since. Here is some of what I’ve learned from being an enrolled agent.

  • Maintaining my license is pretty straightforward and fairly inexpensive. I complete the majority of my 24 hours of continuing professional education (CPE) on CPA Academy, one of the few websites that offers a lot of free classes that count toward CPE. There was a brief, shining moment during the Trump administration, when renewing my tax preparer ID number was free (there is no law that requires IRS to charge fees for these numbers), but that ended with Biden’s administration. There is a $30 annual fee to renew the tax preparer ID number, and I also pay an enrolled agent fee once every three years ($140). So, my average annual costs for maintaining my license is around $80.
  • Tax preparation is my least favorite part of taxes. I liked it when I initially began as an enrolled agent, but now I don’t do it at all. I prefer resolving tax discrepancies, or providing tax advice. Being an enrolled agent helped me learn what I really enjoyed about taxes, and which parts are better left to others. I learned that there are some people that love preparing taxes, and I don’t cross over into their territory.
  • Most tax work is underpaid, so it’s a good idea to work for yourself. You may not get the volume of customers you’d expect by working through a major tax company, but you earn more. With my expertise, I got an offer for a part-time senior tax consultant earning (drumroll please) $25 per hour. Not bad for part time work, and the ease of being an employee (no 1099-MISC payments, so less bookkeeping work for me). But, as someone that doesn’t need immediate income, AND as someone that has a client roster that pays $30+ for a half hour of my time, it wasn’t worth it.
  • Being an enrolled agent is a fiduciary-level role. You have to put your client’s interests first, and you are bound to the same ethical standards as most financial advisor/consultant roles. Just because you haven’t completed any of FINRA’s exams doesn’t mean that you’re able to bypass those standards. You are required to operate ethically at all times (both when working with clients and during your off-time).
  • You’re one of the few roles that can adequately represent people at the US Tax Court. I didn’t learn about this until I had been an EA for a while, but US Tax Court allows non-attorneys to represent clients in court, so long as the non-attorney has passed the Tax Court’s admission process. Being an EA offers a lot of credibility to your application to represent people in tax court. If you’ve always wanted to know what it’s like to work in a legal capacity, being an EA can position you to have this experience.
  • This job is what you make of it. You can do so much with this license: tax preparation, tax consulting, tax resolution, digital product creation, webinars & other instructional sessions, keynote speaking, tax research, and so much more. I have seen people pivot their EA license into all sorts of fascinating careers that go beyond the typical things we think of when talking about tax licenses. Your career is limited to your imagination.

Those are just some of the things I’ve learned from 10 years as an enrolled agent. So tell me: are you familiar with EAs? Would you be interested in getting this license? Let me know your thoughts below!

It’s Back-To-School Time! 7 Money-Saving Tax Tips for Parents

Parents, you are probably tired of the many back-to-school ads, endless emails from administrators, and registration fees for the myriad activities that your children have. For once, wouldn’t it be nice to SAVE money, as opposed to spending it?

As a parent, I feel your pain, and I’ve got some tips that may give you a little relief. For starters, children are costly, and the costs will only increase as they get older. In order to prepare our children for the world they will have to navigate as adults, we must invest in them emotionally, time-wise, and yes, financially. But, even with rising costs, it’s possible to save money, and even put more money in your pocket. Here are some ideas that can help you save money as you prepare for your younger and/or older children to return to school.

  1. Get familiar with the tax credits that are relevant to parents. It’s wiser to know the range of what’s available than to hope that your tax software (or tax preparer) will automatically know what benefits are applicable to you. At the beginning of every calendar year, remember to check out IRS.gov for information about tax credits, and then remember to check it at the beginning of every school year (like, now). For tax credits specific to parents, click HERE.
  2. Remember to separate the business from the personal. If you run a home business, then make sure that your business assets are “exclusive” – only used for the business. Please disregard all of those claims by scheming “tax gurus” and “entrepreneurs” that advise you that you can write off any and every item that you buy. The burden of proof for business expenses is “ordinary and necessary” (and sometimes reasonable is thrown in there). Yes, cell phones are necessary, but the phones that you purchase for your children who do not work in the business aren’t necessary to your money making operation. I hate to fear monger (but I suppose it isn’t mongering if it’s factual?), but IRS plans to hire (and has begun hiring) many thousands of employees, specifically for audits. Get your children their own cell phones, their own computers, etc., – if you are audited, and the auditor determines that any of your assets were not exclusively for business use, you may end up repaying IRS for any tax write-offs relevant to those assets. (If you need help setting up tax strategies that save you money and shield you from audits, contact me)
  3. Purchase school items on tax-free weekend (if applicable to the state where you live). If you want to bypass taxes completely, then tax-free weekend may be a good time to do so. Figure out when this occurs in your state. For some states, it has already occurred, but if you’ve missed it, remember that you can always plan for next year. Research your state to see what qualifies for the tax exemption (simply Google your state’s name and “tax free weekend”). You probably won’t care about this tip if you live in Alaska, Delaware, Montana, Oregon, or New Hampshire, since tax-free weekend is every weekend where you are (these states have no sales tax).
  4. Feel free to donate to your child’s school. The same rule that allows you to deduct the value of items donated to charity also applies to donations to schools, museums, and other nonprofit organizations. Always check IRS’s website to determine if an organization qualifies as charitable. If your children’s schools qualify, then you may be able to deduct items that your children will also benefit from (score!)
  5. Mind your memberships. The enriching things that you do for your children can be tax-deductible, so long as the organizations are nonprofits. So that museum membership that exposes your little ones to art, culture, and history may have multiple benefits for you (check with the museum to see how much of your membership cost is tax deductible). That same membership that your children enjoy may have perks for adults, like free exhibit tickets, exclusive invitations to gala events, and discounts to other businesses and service providers in the area. Not sure which museum is best for membership? Start with the North American Reciprocal Museum (NARM) Association, where you can quickly look up member institutions near you, and see what benefits they offer. If your nearby museum is a member, then you can get free admission to other member museums (this is great for when you’re traveling).
  6. Take your time with your (and your kids) W-4. For children that are working, remember to help them fill out a W-4 properly, so that they won’t get hit with a tax bill. A little known fact is that when your children get their first jobs, they will have to fill out a W-4 and possibly a comparable form for state withholding purposes (if you’re subject to state income tax) because taxes don’t care about your age. *If* your children are employed part-time, many people (friends, teachers, and employers) will tell them to write that they are”exempt” on the form. This is a TERRIBLE idea, especially since it doesn’t teach them how withholding is calculated and deducted from their pay. Also, if they earn more than they anticipated (which can easily happen when they work during summer breaks or over holiday weekends), they may go beyond the ceiling for “exempt” income and end up with – yup, you guessed it – a tax liability. And, unless they plan to consistently earn below the poverty level (the threshold for “exempt” income), they’re going to need to learn about withholding at some point. No time like the present to learn about how wages are taxed. If you’d like me to create a video about how to complete a W-4, let me know, and I’ll try to create that for you all. Just select “Other” on the dropdown options and write “W-4” in the details.
  7. Check your state and local tax website for additional tax benefits. Every state will have different tax requirements and benefits, and all would do well to consider the tax obligations within their states. Further, if you live in a city that has local taxes, there may be some things you need to know in order to maximize your benefit and reduce your expenses (click here for a list of states that have local income tax). The best tip that I have for familiarizing yourself with the tax obligations of your state and city (if applicable) is to get a copy of your state and local tax return instruction booklet, and flip to the section for deductions and credits. See what they have: you may be entitled to more credits than you realized.

Those are my top 7 tax tips for parents. Do you have any tips that you’d like to share? Feel free to post it in the comment section below.

3 Things To Do In March For Financial Health

Welcome to March! As we get closer to the spring equinox, we can’t help but feel the freshness and the energy of “new starts”. While this may be the beginning of the next season, this is also the season for completion, specifically, the completion of major financial obligations, such as tax filing. For the month of March, here are three things you can do to ensure and promote your financial health.

  • Review your budget and see how you’re doing. If you set up a budget for the year, this is a good time to look at how you’re doing and make adjustments. I’ve found it’s best to look at the previous quarter objectively: don’t beat yourself up over financial missteps, just commit to doing better in the future, and move on. Looking at your numbers at this point is also good if you have a tax year that differs from the standard calendar (January to December). Fiscal year filers may find it useful to see what’s happening in March, as this is often their mid-year point, and as such, a good time to make big changes to ensure that they finish strong.
  • File Forms 1120S and 1065, as well as applicable Schedule Ks. This is the time to file tax returns for partnerships and S-corps (unless you’re on a different tax year schedule). Schedule Ks should also be filed at this point. If this doesn’t apply to you, then start gathering the financial documents needed to file your tax returns (especially if you file a 1040). Review those documents and make sure that the information that has been reported is correct.
  • Update your beneficiaries on insurance policies and retirement accounts. While you’re in the process of reviewing and reconciling, it may be a good idea to review all of your insurance policies and retirement accounts. Make sure that the correct beneficiaries are listed, and take time to read through the benefits available under each policy. It’s worthwhile to check these regularly, and confirm whether your comprehension is still clear and accurate.

That’s all for March. Do you have any financial moves you’re making this month? I’d love to hear all about it!

Extensions Due on October 17th

Just a gentle (or firm, depending on what you require) reminder: all of those extended tax returns are due on October 17th. If you’ve been following this blog since the summer, then you know I’ve been sounding the alarm on tax return extensions and how to prepare for filing those. Along with filing extended tax returns, this is the time to do any withdrawals of excess IRA contributions made during calendar year 2021 (excess contributions must be withdrawn to avoid penalties). This is also the time to contribute to solo 401(k) simplified employee pension (SEP) plan for tax year 2021 if you extended the filing time for Form 1040.

Whew, that’s a lot! There is still time to do a few things to close out tax year 2021 if you’ve extended your time to file. For most tax preparers, October 17th is the end of their tax season, and they can finally have a chance to rest before the beginning of the next tax season. However, if you’re a business owner, you may have a different tax filing date. If so, keeping up with the general extension dates and assigning specific tasks to complete on those dates can be a fantastic way of staying ahead of the surge of work that comes when its time to file taxes.

That’s all: get those extended taxes filed! Talk to you all soon!

Avoiding Gift Tax – Make Sure The Checks Clear!

Recently, I discussed the issues surrounding the estate of Aretha Franklin. From the sources that I reviewed, it appears that she did not intentionally reduce the size of her estate through gifting to her heirs before her death. It isn’t required that people reduce their estates through giving, however. . . With an annual ceiling of $15,000, affluent individuals of advanced age may prefer to distribute a portion of some inheritances before their death, to avoid taxes to both themselves as well as the recipients.

For those that choose to give before death, whatever you do, make sure your heirs cash those checks as soon as they receive them! A recent tax case (Estate of de Muth v Commissioner) determined that if a check isn’t cleared before a person dies, the checks become part of the estate, and therefore subject to estate tax. Of course, gifters can’t force recipients to quickly cash checks given to them, but if the intent is to ensure that the size of the estate is reduced, then time is truly of the essence.

I was interested in Estate of de Muth because it was always my understanding that it was the date of gifting, and not the date of cashing, that determined when a gift was given. But with the tax courts determining that the act of gift giving occurs upon cashing the check, I now have a different perspective regarding gifts and what constitutes receipt. This is why I love staying aware of the changes with the tax law: you never know what you’ll learn!

Aretha Franklin’s Messy Estate – Key Takeaways

A couple of weeks ago, it was announced that Aretha Franklin’s estate has settled a nearly $8 million tax bill, and the way has been cleared for her four sons to start receiving payments from the revenue generated from the use of her image and music. This outcome was a long time coming: Franklin passed four years ago, and her heirs have been unable to settle the estate issues until recently. This development is excellent news, as this opens the way for her sons to start receiving the benefits to which they are entitled.

I won’t rehash all of the details of the case, however, I will highlight some key takeaways that I gleaned as I learned about the messy estate left behind by the Queen of Soul:

  • Destroy previously executed wills. For most people, their end-of-life planning only covers the execution of a will (if they’re proactive). Sadly, some people don’t even do that much planning: far too many people die intestate, leaving their estate planning in the hands of the state where they lived and died. But I digress . . . Leaving a will clarifies how you want your property to be distributed after your death. However, this distribution becomes unclear if you have multiple versions of your will floating around. So, consider destroying previously executed wills whenever you make a revision. The estate is currently comparing 3 different versions of Ms. Franklin’s will, and I’m sure the probate courts will have a field day trying to figure out which one is the one that will be honored.
  • Set up a trust. If you only have a will, you’re doing better than many people. But if you really want to simplify how your assets will be handled, a trust is what you need. Trusts can be established to distribute assets before and after death, they can help avoid certain types of taxes, and they can provide an extra level of clarity that may not be accomplished through the execution of a will alone. Consulting with a trust attorney is a great idea, even if it turns out that a trust isn’t advantageous for your specific circumstances. These attorneys can answer many of the questions you may have related to other estate or end-of-life financial issues.
  • Consider gifting some of your possessions while you’re still alive. The current ceiling for tax-free gifting is $15,000 per person that you choose to gift. Even if you aren’t giving everyone you know $15,000, you can certainly gift some of your possessions now, so that your heirs can avoid gift and estate taxes later.

Those are three of my takeaways from the tax agreement between IRS and Aretha Franklin. I’ll keep an eye on this case to see if any additional developments arise, and if so, I’ll be back with updates. Take care!

3 Things to Do in August for Financial Health

One of the things that my friends regularly do is ask me about what they can do to turn their money around. Most of them have lots of money coming in, but they are unclear about how to invest for growth. Or, they are living well under their means but they want more fun in their finances (less austerity, more joy). Still, some don’t have enough money but they are open to making changes that will allow them to increase their income, decrease their expenses, and start living the life they desire.

For that reason, I’m going to start sharing monthly tips to help with financial health. These are things that I’ve done, or that I’ve recommended, that have helped my friends to get more bang for their bucks, as well as created opportunities for them to grow their finances. For the month of August, I’m focusing on stopping the leaks, or reducing the unnecessary outflow of money. If you can stop costly expenses, then you can save more money and (hopefully!) create the kind of wealth that supports the lifestyle you desire. On that note, let’s look at three things you can do in August for your financial health:

  • Review your withholdings and make appropriate adjustments. If you are a W-2 employee or 1099 recipient that has withholding calculated by the payer, then review your withholdings and see if you need to adjust them. If you tend to owe taxes when you file, then consider holding out a little more money as a pre-payment toward your tax liability. However, if you tend to get a refund (especially if it’s a large refund every year), consider having less money taken out of every check, so you end up having access to more of your money as you earn it. If you want some additional clarity on how to do this, I can make a guide for your convenience (just let me know in the comments below!)
  • Request lowered interest rates on current lines of credit. You may be surprised at what your creditors will do for you, especially if you have a great payment history. Requesting lowered interest can mean more money in your pocket, so ask!
  • Eliminate one (or more!) unused or underused subscription or membership. Last week’s post mentioned one way to save money on memberships, but if you have unused or underused subscriptions or memberships that you’re paying for, the best thing you can do is cancel them and save your money. But, along with canceling those subscriptions or memberships, immediately make a plan for what you’ll do with the money saved. If you don’t, that money will likely still be wasted.

A key point that is often missed when talking about saving money is finding the best way to use those savings. Most of the time, we think we will put that money into a savings account, which may grow and eventually offer a bit of a financial cushion. But the truth is, the money that is freed up by making small adjustments is often squandered. As soon as you know how much money you will save by making small changes, you should quickly designate where that money will go, and put that money where it needs to be without haste Will you put it into a savings account that has a higher yield? Get a clear focus for what that account is for, so that you aren’t tempted to spend the money whenever you’re feeling bored or frustrated. Will you put it in an investment account? Make it an account that makes it a little difficult for you to make frivolous withdrawals. Will you use it to reduce debt? Set up or modify your auto-payment, and increase your current payment account by the amount you’re saving by trimming expenses elsewhere.

Those are three tips (and actually, a fourth tip, too, if you include the savings designation idea!) that can be done during the month, to bring you a little closer to the financial condition you desire. Have a great day, and look out for more tips in the months to come!

Tax Changes May Be Coming – The Inflation Reduction Act of 2022

Hey dear readers! I hadn’t planned to post anything else this week, but when there’s breaking news, I have to share it!

I recently learned that the Inflation Reduction Act of 2022 is gaining traction, and Senators Chuck Shumer and Charles Manchin reached an agreement on the terms of this bill. That is exciting news, considering how Manchin had originally pushed for limited terms. Manchin’s decision to back the bill – without limiting it to the areas of concern, namely, pharmaceutical prices and continued health care subsidization – was unexpected, but an exciting turn that means this bill will be moving forward sooner than expected.

For those that are curious, there are tax implications in this bill (I mean, why else would I be posting about it?). For starters, $124 billion is set aside to fund increased tax enforcement. This means that, if the bill is passed, there will be enhanced enforcement, starting with a little over $3 billion for taxpayer services, $45.6 billion for enforcement (think revenue agents and officers, auditors and specialists, attorneys, and appeals unit employees and resources to support all of the functions), $25 billion for operations support (the other employees that work behind the scenes outside of the enforcement functions), and $4.75 billion for business systems modernization, among other things. The funding is designed to cover 10 years, so the financial gravity of these provisions can be staggered over time.

For taxpayers (individuals) this means that IRS may be getting more help in the months and years to come (the bill provides for more “direct hire authority” capabilities, meaning faster hires). This also means that the previous weakened collection and enforcement function will be beefed up, so the scams and schemes that may have slipped through the cracks before may be identified and examined faster and more efficiently (in other words, wrap up your scams now, if you have some!) For tax practitioners, prepare for more clients that want to clean up their tax records before the enforcement units have the staff and resources to pursue collections on more individuals. There is also an opportunity to offer modernization services and products once various IRS contracts become available.

Now, the bill, as it’s written, indicates that the increased funding isn’t designed to target anyone that earns less than $400,000 annually. However, I think that some taxpayers that earn under the $400K amount may end up getting caught up in the random audits, especially when the more specialized agents and officers are hired and assigned to higher dollar cases, freeing up the overall caseload for less technical (but still effective) specialists and auditors. This will all take a bit of time, of course, but it’s something to look for on the horizon.

The other tax implication discussed in this bill is enforcing a minimum corporate tax of 15% for companies that have over $1 billion in profits. The actual corporate tax rate is a statutory 21%, but these highly profitable companies often pay far less than the proposed 15% amount, because they have the best attorneys and accountants that exploit all of the loopholes currently in the tax code (which is EXACTLY what good practitioners are supposed to do on behalf of their clients, and within the confines of the law). With these new proposals, corporations that qualify will have to pay no less than 15% tax on profits. According to the bill, the minimum corporate tax rate would go into effect after December 31, 2022.

This may sound like a groundbreaking move, but to be clear, the minimum corporate tax rate was a standard issued by the OECD at the last G20 summit (October 2021), and already standard tax practice in multiple other countries. The 15% minimum rate was proposed as part of the two-pillar plan to address digital economies and the tax avoidance that is prevalent in that realm. This segment of the Inflation Reduction Act of 2022 is simply mirroring the accepted standards already in place in other OECD member countries.

Also, the minimum corporate tax rate would only affect 200 companies. So the targeted parties are small in number but account for billions of dollars in the economy. For this reason, there is already criticism from some representatives, regarding the fact that this could affect jobs. Indeed, billion-dollar companies usually employ a lot of people, so there is a possibility that the workforce may be affected. Time will tell what the overall effect will be once the most profitable companies are forced to fork over a minimum amount of their earnings.

Whew, that’s it for today! I hope this got you all caught up on the latest tax happenings, and I’ll be sure to share more of my thoughts as the situation develops. Take care, and I’ll talk to you all soon!

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Articles reviewed: Yahoo, OECD, Business Insider