To those of you who sent kind e-mails offering to go on extension, to wait, or simply with kind words for me and Cat, thank you.

To those of you who are sending e-mails making suggestions for how I can improve my business during this time—less than helpful. Oddly enough I’m getting these from both colleagues who know nothing about my business or my clients and from clients whose only contact with my business is once a year when I file their tax returns (and none of them are professional business coaches—I actually have one of those and listen to her). In any case, I’ve been running this business for ten years now and you might, especially if you are a W2 worker or a freelancer with one or more relatively continuous gigs, take a moment to consider that running a business with over 100 clients at any given time (down from over 200 across three offices), a physical office (three physical offices once upon a time), staff on the payroll (albeit only one right now, but there used to be six spread across the three locations), and a huge level of professional liability because of the type of work being done 1) is fundamentally different than your situation and 2) might have already involved considering your idea and deciding against it. I also have to wonder if you e-mail helpful suggestions to the other professionals with whom you work (your broker, your doctor,  your attorney, your realtor) or if you just accept that the way they are doing business is the way that it is done and/or the way it works best for them.

To those of you who have requested that we return your documents, thanks for letting me know. I understand. Cat will be picking up documents from the office twice a week and getting them in the mail.

Here’s what I’m working on this week:

  • GRT Returns/Reports for the few clients for whom I do those
  • Complex returns that have been in the office since February or early March
  • Returns that were submitted from about 3/9 through about 3/16 and possibly some others depending on the number of issues with the returns and how much follow up is required
  • Creating a blog post with further information on extended deadlines (but wait! there’s more!) and the Economic Impact Payments (stimulus checks) with (I hope) additional information for people who are below the filing threshold, adult children claimed as dependents, and for those of you who are eligible for the payments but did not have a refund direct deposited in 2018 or 2019.

If you haven’t turned in your tax documents to the office yet, you can mail them, you can upload them, or you can wait until the governor lifts the stay at home order to drop them off. We have until 7/15 to finish the returns at this point so I see no reason to open the office to clients at this time. Everyone should be doing their best to stay at home. I will, of course, re-evaluate if the order continues beyond May 15th. If you are one of my clients who routinely has a “late K1” that is still no problem! I know who you are, I’m watching the deadlines, and I will be in touch!

Same rules for finished returns as for incoming returns. For the most part Cat will be sending them to you “as if” you were one of our out of state clients. When you get your copy you can call (leave a message) or e-mail to schedule a full review appointment by phone or Zoom. In this case I do not recommend waiting until the stay at home order is lifted for a review & signature appointment. If too many of you do that it is going to create yet another bottleneck similar to the one that occurred when all those return packets came in during March.

Finally, a reminder. I do not use text to communicate with clients. I know that some of you would like it if I did, but it simply is not a workable option right now. If that’s a deal breaker for you, I understand but I have to run my business in the way that best meets the needs of all of my clients and my professional needs with respect to office efficiency and security. Not to mention in a way that respects the boundary between my professional and personal lives.

As always, I appreciate your patience and understanding during this difficult time. It has definitely pushed me to the breaking point and is causing me to re-evaluate how the practice will be run moving forward into next tax season.

#fullambo out

This is me, showing you how to hold onto some of your money (or to mitigate the tax consequences of using it)…

Required Minimum Distributions (RMDs)

Recent legislation has suspended RMDs for 2020. If you haven’t already taken your RMD for 2020, you don’t have to. This includes RMDs from inherited IRAs.

You know what else got suspended? RMDs that were required by April 1, 2020 because the taxpayer turned 70.5 in 2019. Yep, so if you had to take your very first RMD in 2019, you actually had until April 1, 2020 to take it and now you don’t have to take it at all. Great if you happened to forget about it!

And remember, if you are turning 70.5 in 2020 your RMD age was increased to 72 (by the SECURE Act) so you don’t have a “first” RMD requirement this year. You take your first RMD by April 1 the year you turn 72.

But, Amber, what if I did take my RMD? Well, there might be some relief for you too. You have 60 days to roll that money back into your account or into an IRA (but you are only allowed one of these rollovers in a 12-month period, so be careful if you’ve done one recently). There’s a lot of fine print on this so it’s best to talk with either your investment adviser or an investment adviser you can trust. I happen to know one. Feel free to use the form on the home page or send me an e-mail if you would like his contact details. He can answer your questions, help you determine if you are eligible for the 60-day rollover, and can help you set up an IRA if you are allowed to put your funds back but maybe want a new account instead of, say, your employer’s 401(k).

Speaking of IRAs…

The deadline for making deductible contributions to your IRA has been extended to July 15, 2020 to coincide with the extended filing deadline. So if you haven’t filed your return yet you can still tweak your contribution (maybe contribute your Economic Impact Payment if you are sure you won’t need it). If you’ve already filed your return I expect you can still make an additional payment through July 15 and simply amend your return to reap the additional tax benefits. Please bear in mind that I have no official guidance on this specifically related to the CARES Act. It just seems logical that you would be able to amend your return to take advantage of the later contribution deadline. Remember, however, that amended returns must be filed on paper and if you use a paid preparer you will be charged for the work. You may even be charged more than you would save in taxes. It’s important to do the math. And it’s really important not to ask your #taxpro to do the math for you right now. I recommend waiting until at least mid-May to give us a chance to get through the returns on our desks (most of us are still working like the deadline wasn’t extended) and until some of this small business loan business has settled down (more on that in a future post).

I Need Money Now!

The CARES Act also provides some help if you need to take money out of your IRA or 401(k).

You can take out up to $100,000 from your IRA penalty free. Not tax free! But not subject to the 10% penalty for early withdrawal if you are under age 59.5. You can also include this income in three equal parts over three years instead of all in tax year 2020. That can help you use your money and stay in a lower tax bracket! And, in an unprecedented move, you also have three years to put some or all of that money back should your circumstances change.

If you are allowed to take a loan from your 401(k) the amount has been increased to a maximum of $100,000 (from $50,000). The due date for repayment has also been delayed for one year.

Please note that these must be “COVID-19 Related” distributions or loans. It is important to consult your IRA trustee/custodian (for an IRA distribution) or your company’s plan administrator and/or plan custodian (for 401(k) loans and distributions) to ensure that you meet the criteria for the distribution and to ensure you understand all of the requirements (the fine print). They can’t give advice on the tax consequences (how much to withhold, etc.) but they can tell you if you qualify for the COVID-19 distribution based on your specific circumstances and give other information related to your specific investments or plan. Finally, considering the state of the stock market right now, it may be best to avoid selling stocks that are in your retirement accounts right now. I mean, you want to buy low, sell high, not the other way around. So if you can avoid cashing out, it is probably best do try to ride this chaos out without selling low.

#fullambo out

They’re coming! Payments are supposed to start “within the next three weeks.” As to exactly what that means, your guess is probably not much better than mine. If you filed a 2018 and/or 2019 tax return and got a refund via direct deposit, your payment will be the first to be rolled out and you don’t have to do anything except wait for it to hit your bank account. But here’s what I know with respect to non-filers and everything else…

  • If you are below the threshold for needing to file a tax return and receive Social Security Benefits you will not have to do anything else to receive your payment. It will be automatically posted to the bank account where your receive your Social Security payments.
  • If you are below the filing threshold but don’t receive Social Security Benefits you may need to file a “simple” return or possibly a “zero” return. The details of what exactly these returns are and how the IRS wants to accomplish this are not available yet. But this situation will most likely apply to people receiving VA benefits and Social Security Disability payments. Neither of those types of payments are processed through the “regular” Social Security system. Update: Per Eva Rosenberg, the Tax Mama, “All software companies received guidance today (April 6, 2020) for filing returns with $0 tax liability.” Nothing is live yet, but the tax practitioner community will be ready when it is. I expect that low-income taxpayers will be provided with instructions on how to do this via the IRS free-file system. I’ll do a post once I’m sure everything is up and running as well.
  • The most important thing to know is that you will not have to pay a return preparer or anyone else to get your EIP! The scammers will be out en masse for this one as will unscrupulous preparers who want to charge you $$$ to ensure you get your payment. I will post an update when I get confirmed information as to how to file for your payment or you can periodically check irs.gov/coronavirus to get information straight from the source! In the meantime, do not respond to calls or e-mails from people offering to help you get your payment! We are supposed to be receiving information on where to report the bad actors, but for obvious reasons, that’s taking a back seat to getting those payments processed.
  • If you did not get a refund (if you had a balance due) then the IRS does not have your direct deposit amount on file. Paper checks may take up to 5 months to arrive! In theory, 1) the IRS will start mailing paper checks in May and 2) they are working on an app similar to the “Where’s My Refund” App that would allow you to enter direct deposit information if you prefer to do that rather than to receive a paper check. The latest information I read said that this app would be ready by late April or early May. So I would expect that they will wait to start issuing paper checks until people have had a chance to opt-in to direct deposit via the app. That means if the app is late, the paper checks will be even later. Again, I will post updates as soon as I have reliable information or you can follow along at irs.gov/coronavirus to get information as they update it.
  • If the IRS is mailing you a check they may not have your most recent address. Or perhaps you no longer have the account where your most recent refund was direct deposited. Former Taxpayer Advocate, Nina Olson, talks about her concerns with the implementation issues here. Not much we can do right now except to be aware of the potential bumps in the road that could delay your payment. It is really important not to call the IRS to ask about the amount of your payment or when to expect it. They are doing their best to continue to process 2019 returns, issue refunds, continue to work on other taxpayer issues, and to implement this new law. All with many staff working from home and many simply furloughed.
  • The additional $500 credit for “dependents” is for dependents who would qualify for the Child Tax Credit in 2020. That means children who turn 17 in 2020 do not qualify. At this time it is unclear if the system will be attempting to calculate payments based on your dependent child/children’s projected age in 2020. In other words, we don’t know if they are just going to look at your 2019 (or 2018) return, see if there’s a qualifying child and give you the $500 or if they are going to “do the math” to see how old that child will be in 2020. Surprise!
  • There’s kind of a “donut hole” for adult children in college. They are still dependents on their parents’ returns but they are too old to qualify for the Child Tax Credit. So the parents don’t get $500 but the kids don’t get a $1200 stimulus payment either. Trust me, Congress and the IRS are well aware of this issue by now. Whether or not they decide to address it in future legislation remains to be seen.
  • The EIPs are not subject to “offsets” other than child support. If you are behind on your child support, this payment will go towards that. But if you are behind on your taxes, your refund will not be used to offset balances due for federal or state returns.
  • This is not taxable income! It’s an “advance” on a refundable tax credit for 2020. That means (if you are a client) we will have to reconcile the amount of your credit received with what you were supposed to get on your 2020 tax return. So please, when you get your payment write down the amount of the credit, the date you got it, and how you got it (direct deposit or by paper check in the mail). If you didn’t get enough credit, the difference will be refunded when you file your 2020 tax return. If you got too much—nothing happens.

Finally, some people are saying “well, this won’t do me much good” and have asked about donating their payments. Of course you can! Here’s a list of some of the places I like to donate (in no particular order):

I also know that New Mexico’s school districts could use some help because they weren’t ready to pay for the cost of converting everyone to remote learning. The Navajo Nation and many of the pueblos are in dire need of help as well. If you are outside of New Mexico I recommend your local food banks, schools, local PBS, local arts organizations (who may be trying to help performing artists who are out of work), and charities that support your area’s indigenous populations.

Update: If you are reading this after you got my e-mail I just realized I forgot to update the subject line of the e-mail. Same name. Same website. 🙂

This post is mainly for clients to let them know what I will be working on this week in the office.

  • The window for filing amended returns for 2016 to claim a refund closes on April 15, 2020. I have one of those to prepare. These must be prepared for paper filing, signed, and mailed so they are time consuming and must be done with a great deal of care. That’s what I’m working on today.
  • To date the #taxpro community has not received guidance on an automatic deadline extension (to July 15, 2020) for Form 8938. This form is required if your foreign bank account balances meet certain thresholds. To protect the rights of my clients who may meet those thresholds (basically any client who files an FBAR) I will be filing Form 4868 (Request for Automatic Extension) to ensure that if you are required to file Form 8938 you have until October 15, 2020 to do so. I will be filing those forms this week (hopefully today, but we’ll see).
  • I have a client who needs some prior year returns filed to avoid having to file a Tax Court Petition (expensive process). I will be working on those.
  • I will be working on returns that have been in my office, mostly completed, for over a month. This includes some returns with multiple state returns, returns with complicated Schedule As (Itemized Deductions), and one estate return that whose extended deadline occurs in May. So if your return came in towards the end of February, or earlier, and you’ve been wondering where it is, it’s being worked on this week and early next week.
  • I will be filing returns for those of you who have signed your e-filing authorizations and doing the office paperwork that closes out your return processing.
  • I will be doing review & signature appointments for some of you.
  • I hope to, by the end of the week (time has been blocked out on Friday), be preparing NM GRT returns for myself and applicable clients.
  • I will be doing blog posts to keep you all updated on the Economic Impact Payments (stimulus checks); new rules for RMDs and retirement account distributions; NM State unemployment (plus a little bit for neighboring states in which I have clients); and what’s going on with the new Small Business Administration loans (hot mess) and a new tax credit that could be a better option. The short version is that for most of my Sch C clients your help won’t start until at least this Friday because most of you don’t have W2 employees—it’s just you.
  • I have a standing meeting on Tuesday morning and another 2-hour class on the new law Tuesday at noon.

As you can see from this list there’s not a lot of time available for processing “regular” returns. Once the really old, really complex ones are finished, I will be getting back to what is still in the office. The earliest date on those is 3/6. The latest came in around 3/20. A couple may have come in later. If you are reading this, you may have also read the e-mail that says that I work much more slowly without Cat in the office helping. She is doing what she can from her home office and as this situation evolves I am working on processes that allow her to do even more while still maintaining the necessary security precautions.

I am doing my best to continue processing returns on a first-in, first-out basis. I want to thank all of you who have let me know it is OK to extend your returns through October 15th and I will be filing those extensions probably in May (we have until July 15th).

#fullambo out #stayfrosty

 

Well I did not blog yesterday, nor did I make it into the office. I woke up around 7:00 figuring I was going to take a walk and head in. Alas, the universe had other plans. Woke up to a flooded entryway, laundry room, kitchen, garage. Hot water tank had broken and water was pouring everywhere. Managed to re-direct, slow down, and eventually stop that. Got the carpets professionally suctioned and the most amazing plumber in the world had me back up and running by 7:00 last night.

He’s back this morning tweaking some settings and cleaning up. I’m at home reading tax stuff, blogging, and catching up on admin work. I expect to be in the office tomorrow filing returns.

APS has cancelled school and mommy’s little rocket scientist is not happy about that. His AP calculus teacher has been providing online content, but he’s going nuts. I’m having him apply for an essential job at a hardware store (he likes fixing stuff and welding—he’s going to be an engineer with skillz) in the meantime. Might pay for some online content to keep his skills sharp because I am lucky enough to be able to do that.

Bill is still in Idaho. We are hoping he stays well and can drive home next week. We will see.

Work wise I am doing triage on clients. I am prioritizing 2016 issues that need to be addressed before the filing window closed on 4/15/2020; filing 2018 returns for clients so they can get their stimulus payments (clients, more on that in an e-mail after today’s class on the new law);  2019 returns for clients in states where the deadlines have not been extended (there aren’t many of those at this point);and preparing 2019 returns in a modified FIFO.

Why modified? Because to tell the truth, I’m undone. Upended. Frazzled. And I’m willing to admit it. If I’m having an amazing day I’ll work on the more complicated returns (multiple states, estates, Sch C & E that need some help). If not, I’m working on returns that I am familiar and comfortable with. Returns that don’t change much year-to-year. I want to make sure I’m doing my best work for all of my clients and some days I’m just not up to wrangling with complex issues or a lot of missing information.

That’s where I’m at for today. I’m off to more reading and then to class. I’ll be in the office tomorrow. Stay well.

I’m at work again. Getting a lot done. And legally. The latest update from the NM Department of Health lists “professional services” that “assist in legally mandated activities” (like preparing tax returns) as essential. That’s good. I don’t have to feel like such an unrepentant scofflaw. Why unrepentant? Because church services are still not considered “mass gatherings” for the purposes of the notice. Hypocrisy much??? That is, well, frustrating is probably an understatement. Rage inducing is closer. Nevertheless, I am still attempting to do what I can to comply with the stay-at-home mandate, essential or not. Cat is still staying home. That means no help. That means moving much more slowly through the piles of returns. I’m also still committed to some full stay-at-home days instead of working six or seven days a week in the office. I’m prioritizing returns based on clients with specific issues (such as those living in states who haven’t extended their deadlines—although that list is shrinking rapidly) and those who I know really need their refund money. I’m also prioritizing based on what my stressed-out attention span can handle. The last thing I want is to make mistakes because I’m freaked out and not operating at full brainpower.

My clients have been pretty wonderful about all of this. I’m getting plenty of encouraging messages and clients who are, shall we say, a bit tech challenged deciding that they can give this whole remote appointment thing a try. So, for now, I just keep swimming.

 

Yesterday, New Mexico Governor Michelle Lujan Grisham issued a stay at home order for all non-essential businesses. It appears that Tax Therapy is considered non-essential. Unfortunately, the landlord at my office does not consider my rent payments non-essential and many of my clients don’t consider their tax refunds non-essential either. Of course many of those same clients waited until well into early March to decide to get me their information and now I’m under a stay-at-home order. I’ve decided to do my best to comply with the spirit of the law. Cat has gone home. I am working an abbreviated schedule. Instead of working six or seven days a week I will be working three or four and staying completely at home the other three or four days. The extension of the federal filing and payment deadline to July 15th and most state deadlines to July 15th has allowed me to do this. I’m fine with that. Grateful even. I’ve always thought the 10-week tax season model was toxic and I have no problem flattening my work curve into a longer time period.

I’ve been sending many updates to clients but I am finding that there’s often a lot more I want to say. Still, I’m getting annoyed with all of the e-mails from the places with which I do business so I decided that instead of inundating my clients with more useless e-mail I would do some writing here on the blog and only e-mail the most important updates. I haven’t accomplished much today. I am, however, known for working well under pressure and in bursts so I’m planning on coming back tomorrow, isolating myself from electronic distraction (not possible today due to a virtual BNI meeting first thing this morning), and churning out some tax returns.

I’m doing my best. And if you’re my client I’m going to take good care of you. Rest assured of that.

 

I recently read that 95% of small businesses fail within the first 5 years due to either bad management, under capitalization, or some combination of the two. Tax issues for small business owners have the same roots. Bad record keeping is often a sign of bad management. Mileage is one of the most highly scrutinized and most common areas on which small businesses are examined (audited). If you are a small business owner who isn’t keeping good mileage records you may be leaving money on the table. Worse, if you are audited, legitimate business mileage expenses may be disallowed because of your failure to keep adequate records.

The Self Help tab of the Tax Therapy website (Get Organized and Get Answers) offers additional resources to help you track and substantiate your business mileage. In a nutshell, your business mileage log should be contemporaneous (done at about the same time or shortly after you make the drive) and should show the date of the trip, the business purpose of the trip, and the miles driven. It is really common for people to not record the business purpose of the trip on the mileage log. It’s a lot easier to do this when you record the miles than it is to try to re-build that from an appointment calendar!

Finally, a great way to record your starting and ending odometer readings for your annual mileage total is to take a picture of your odometer with your phone on January 1 and again on December 31. If you haven’t taken a picture of your odometer this year, it’s not too late. It won’t be perfect, but it will be close and it will help you get into a really good habit! I hope that one of your New Year’s Resolutions, if you are a small business owner, is to improve your record keeping! It’s easy to do once you make a habit of it. And it’s one of the simplest ways to make sure your start up stays up!

 

I mentioned in the last post and the one before that that during tax season we require a non-refundable deposit at the time of your intake appointment. Some of you may be wondering why we do that. The short answer is that one tax season I got burned by several “clients.” They came in during season to have their taxes prepared and when they didn’t like the results or didn’t like the amount of follow up and due diligence I was doing they decided to go elsewhere. This was after I had already done a lot of work on their returns. So 1) I was not paid for my time and 2) I was not able to take on clients who really did want to work with me. Lesson learned.

“Onboarding” makes the process sound super complicated, but it really isn’t. All paid preparers have to do a certain amount of due diligence for each tax client. At a minimum we have to check your ID to ensure you are who you say you are and collect the information necessary to prepare your tax returns. At a new client intake appointment (what happens when you get onboarded during tax season) we do the following:

  • ID Check for taxpayers and dependents
  • Engagement Letter & Privacy Policy Signed
  • Notice Assurance Program Opt In or Out
  • Client Interview & Question/Answer Session
  • Basic Review of Prior Year Returns
  • Collect your W2s, 1099s, and other information needed to prepare your return
  • Send you home with a list of missing items and information

During the off season I am happy to meet with potential clients and do an ID check, return review, and basic client interview for free. I am happy to spend some time discussing your needs and expectations.. We then send you a reminder at the beginning of tax season to request an organizer. In the meantime, if you have found someone else or have decided to do your own taxes and don’t call for the organizer, it’s not really a problem. We are sorry we didn’t earn your business, but we understand.

During tax season we are less understanding. The preliminary work required to bring in a new client takes 30 minutes to an hour (sometimes more if the tax situation involves a business or complex investments). During tax season our work time is limited and much more valuable (it’s like surge pricing for Uber). So, if we are going to spend the time getting to know you and your situation we want to make sure that you are serious enough about having us prepare your tax returns that you get all the way through the e-filing process and that if you don’t we still get paid for the time spent processing your return.

I’ve said it before but it bears repeating. Tax Therapy is a small business and this is how I earn my living. I appreciate the opportunity to show you just how valuable a good #taxpro can be but to make my business work, I have to stick to the processes and policies that work for me. Right now we are still accepting new clients with a non-refundable deposit. If you are still looking for a #taxpro and would like to schedule an intake appointment please get in touch!

Are you ready?! We are. Reminder postcards for returning clients and new clients who onboarded over the summer and fall will be mailed tomorrow. On Monday, Cat will be here to start answering calls and e-mails and getting organizers delivered. The organizer contains our annual engagement letter, a copy of our privacy policy, and an interview and other supplemental forms to help you remember and collect all of the information we need to do your tax returns!

If you are reading this and are still looking for a #taxpro, I am still taking “shopping” appointments. Once tax season really gets going though I don’t have the availability to meet with anyone except new and returning clients. If you’re sure here is where you want to be then I’m happy to bring you in as a new client during tax season but I do require a non-refundable deposit to do your onboarding and accept your information for processing. If you aren’t sure or have any questions feel free to call or e-mail the office. We are happy to help.