Monday, July 31, 2017


In my opinion the area of the Tax Code where proper documentation and strict adherence to the law is perhaps the most overlooked (or actually ignored) is the deduction for mortgage interest – both on Schedule A and Form 6251.
Taxpayers are required to keep separate track of acquisition debt and home equity debt, to make sure that the deduction on Schedule A does not include interest on debt principal that exceed the statutory maximums, and to determine what interest deduction to add back on Form 6251 when calculating Alternative Minimum Taxable Income.  However, I firmly believe that 99.5% of taxpayers do not do this.  I do not know of any taxpayer who does.  And I expect that many tax preparers do not do this for their homeowner clients.
As we know, a deduction for mortgage interest is only allowed on acquisition debt of up to $1 Million and on home equity debt of up to $100,000.  And home equity debt is not deductible in calculating the dreaded AMT.  The acquisition debt limit may not be an issue, but how many clients do you know who keep track of the extent of home equity debt – or even know that there is a need to so do?
I have created a MORTGAGE INTEREST GUIDE.  In it I explain the various types of mortgage debt and the deduction limitations, and go into detail on how refinancing an acquisition debt mortgage can result in home equity debt.  I include in this guide two worksheets – one for Acquisition Debt Activity and one for Home Equity Debt activity – and provide a detailed example of how to use the worksheets.
I am offering limited “reprint rights” for my Mortgage Interest Guide to my fellow tax professionals to purchase and use for just such purposes.  The reprint rights are for use in your own practice only – for free distribution to current or potential clients.  You cannot use the reprint rights to sell the guide to the public.
Give this guide to clients who have just purchased their first or a new home - so they can learn how to keep track of the two different kinds of mortgage debt, and make your job easier at tax time.  Or you can offer the guide, with an included promotional message, as a free gift to new home owners as part of your marketing program
Here is what one satisfied customer said about this guide in the newsletter of the PA chapter of NATP –
"I ordered the guide 'the limited reprint rights' version for $11.95. I must say that it was the best $11.95 I have ever spent. There is a wealth of information in that guide, some I knew and some I didn’t."
The normal cost of the limited license and right to reprint the Mortgage Interest Guide is only $14.95, with a 25% discount for members of the National Association of Tax Professionals.  But for all orders of reprint rights postmarked during the month of August the price is only $9.95!  The NATP discount does not apply to this special price.  
The guide will be sent to you as a word document email attachment.  The signed reprint rights license will sent via postal mail.
You can order a pdf review copy of this report to for only $1.00, which can be deducted from the $9.95 if you subsequently order reprint rights.
To order your reprint rights to this report send your email address and a check or money order PAYABLE TO TAXES AND ACCOUNTING INC (very important) to –
HAWLEY PA 18428.

Monday, July 24, 2017


As a tax professional you have the obligation and responsibility to make sure all returns you prepare are correct.

Any tax preparer – regardless of training, experience, or “initials” – can make a mistake.  Even I have made mistakes on 1040s I have prepared over the years (a surprise, I know).

The mistake can be mathematic or involve the proper application of tax law or regulation.

A tax preparer can unintentionally omit reporting or entering income or deductions from an information return or client worksheet. 

A tax preparer can unknowingly understate or overstate taxable income or legitimate deductions.  A tax return is prepared based on information supplied by the taxpayer, and this information can be, purposefully or not, faulty.

Over the years I have found that tax preparers who use tax preparation software – which I expect is now about 99% of all tax pros (I am truly one of the last of the dinosaurs) – tend to become lazy when it comes to checking software-generated tax returns.

There is nothing to guarantee that a tax return generated using tax preparation software package is correct, mathematically or otherwise. 

I triple check all finished returns before giving them to the client. This should not be limited to returns prepared manually. Tax returns generated by software must also be triple checked in the same manner.

Here is what I do -

I run three series of adding machine tapes – verifying net taxable income three different ways.

The first is a tape adding and subtracting, as appropriate, the numbers on pages 1 and 2 of the Form 1040.

I next run a continuous tape of all the numbers on all the forms and schedules in the return – Schedules A, B, C, D, and E and so on – and any unattached worksheets used to determine entries on the 1040 in the order the information appears on Page 1 and 2.

For example, I would add the wages and other income numbers of Page 1 (that are not carried forward from an internal form or schedule or unattached worksheet) and the individual entries from each internal form and schedule and unattached worksheet that are carried over to Page 1, subtract the adjustments to income in the same way (using the individual entries from any internal forms and schedules and unattached worksheets), subtract either the individual components of the Standard Deduction or the individual items from Schedule A, including any individual items of deduction or adjustment from unattached worksheets, and each personal exemption individually.

The total from both of these first two sets of adding machine tapes should be exactly the same. If they are not I go back and check the additions and subtractions of individual items on each of the internal forms and schedules and unattached worksheets to verify the carryforward numbers.

I run the last tape directly from the original source documents of the information reported on the return – W-2s, 1099s, K-1s, 1098s, bills and receipts, and any worksheets either prepared by myself or provided by the client. Here I use the complete dollars and cents for each item. The total of this tape should be within a couple of dollars (and change) of the totals on the first two – considering there would be minor rounding adjustments.

In the case of a Schedule D with a loss, where the total of all the individual items results in a net loss in excess of the $3,000 allowable maximum, I first run separate tapes of the Schedule D items – both from the return and the source documents – to verify the net capital loss and then use the $3,000 loss deduction in each of the 3 “triple-check” tapes. I would also do the same with Schedule E if a passive loss is limited.

Once the net taxable income has been verified I double check the actual tax calculation, using the number on the tax return and the net taxable income from the third adding machine tape process.

This triple check process is not as time consuming as it may seem from the explanation.
Any questions, or suggestions for additional checks?


Monday, July 17, 2017


Here is a practice tip to cover your arse when it comes to agita-producing clients who want to blame you for their omissions when caught by the IRS.
Place a personalized stamp or mark on all original documents you have viewed in the course of preparing an income tax return and will return to the client.  This way a client can’t say he gave you information that you failed to include on the return if he is audited and tries to claim “I told my tax preparer, but he forgot to report it”.
For example - enter your initials followed by a sequential number and an arbitrarily chosen non-sequential capital letter - RDF1C, RDF2T, RDF3W, RDF4M, RDF5F - with a colored pen on each item.  The letter “F”, or whatever other letter you chose, indicates the last document viewed in the sequence.  So even the most devious client cannot sneak in a 6th item.
When I first provided this idea in another venue I received the following comment -
I read the part of your post about marking the documents presented for tax prep.  I started doing that a few years ago after a client did exactly what you described.  I use a specific rubber stamp for each preparer in the office. I also staple the paperwork into the client folder.  So when a client told me I missed a 1099-B this year we asked for the original file I gave him.  Funny how the paper I missed didn’t have my stamp on it nor did it show staple marks.”    
Do you have an idea that has worked in your practice?  You can email me at with TAX PRACTICE TIP in the “subject line”.  I will post a compilation of submitted tips here in a future post.
+ Have you heard yet?  Kay Bell, the yellow rose of taxes, tells us “IRS to seek stay in PTIN fee collection court ruling while it pondersits additional legal options” at DON’T MESS WITH TAXES.
While Kay says the IRS and Department of Justice have not officially decided to appeal the decision that shut down the collection of a fee to apply for or renew a tax preparer’s “PTIN” (Preparer Tax Identification Number), IRS Commissioner Koskinen “said his agency is likely to appeal the PTIN ruling”.
So, fellow tax pros, don’t expect a PTIN fee refund check in the mail any time soon.
+ I came across this article via Twitter – “Which Superheroes Would Make the Best CPAs?".
Of course, coming from an AICPA source, it has the arrogance of limiting its reference to CPAs when it applies to all accountants and tax pros as well.
+ My editor at the NJ TAXING TIMES told me, and other NJ tax preparers, about a great resource for tax pros and taxpayers – a “Glossary of Tax Terms” from the NJ Division of Taxation.  It is indeed comprehensive and the individual definitions include links to appropriate pages on the NJDOT website.
+ Here is a reminder for tax pros with clients receiving a Form 1099-C for cancellation of debt from fellow tax blogger Jason Dinesen - “Insolvency Calculation: What Does “Interest in a Retirement Account” Mean?


I have been preparing 1040s since 1972. Over the years I have developed a collection of forms, schedules and worksheets that have proven very helpful in my practice. 
Some of my forms are given to clients to help them provide me with the information I need to properly prepare their returns. Some are used as “memos” to the client’s copy and my office file copy to back-up items reported on the returns. Others are used as attachments to the returns.
I offer this compilation to you for only $7.95!
Click below for more information-

Monday, July 10, 2017


One of the reasons I created this blog was to initiate and facilitate thought and discussion on topics of interest and importance to the tax preparer community.
While not specifically a tax topic, the issue of “repeal and replace” does involve taxes and 1040 preparation.
The basic concept of Obamacare – attempting to provide universal comprehensive health insurance coverage by using advance credits to help reduce the up-front out of pocket cost – is a good one.
But Obamacare was hastily written by the idiots in the Democratic Party, without taking the time to properly and completely think it through, or taking the time to read it before passage, to provide Obama with a quick and early victory.  The Affordable Care Act (ACA) is a convoluted mess.
The Republican Party has also earned the right to bear the description "idiots”.  They have opposed the Affordable Care Act from the beginning, more because it was Democratic legislation than probably anything else.  So the Republicans have had 7 years to come up with an appropriate alternative to replace Obamacare.  Of course the idiots did nothing, and are now scrambling to come up with something in the same way the idiot Democrats scrambled to put together the original legislation.
Obviously, at least to the intelligent among us, what needs to be done is not Republican “repeal and replace”, but Republicans and Democrats working together to fix what is wrong with Obamacare, while keeping what is right – as some Democrats have actually suggested.  But the concept of “Republicans and Democrats working together” on anything has been impossible to achieve for decades now.
Here, from a post that originally appeared at THE WANDERING TAX PRO, is, in my humble opinion, the Good, the Bad, and the Ugly of Obamacare.
The absolute best thing about Obamacare is the advance premium credit.  It provides direct assistance to individuals not covered by employer plans who cannot afford the monthly cost of health insurance premiums.
Historically tax credits are always “after the fact” – you must wait until you file your tax return to get the benefits for the prior year.  For example – for the education credits you must wait until February to April of 2017 to get federal tax aid for tuition paid as early as January of 2016. 
With tuition, and more especially with health insurance premiums, you actually need the money provided by the tax credit at the “point of purchase” – when you must actually pay for the tuition or the premiums – and not a year later.
Another of the good things about Obamacare is the requirement that “pre-existing conditions” are covered.
There are many bad things about Obamacare.
1. The penalty for not having “adequate” health insurance coverage.  Individuals should not be forced to purchase a certain degree of coverage by being financially penalized for not doing so.  And employers should not be forced to provide health insurance for employees, and be financially penalized for not doing so.  There should be no “shared responsibility penalty”.
2. The requirement that individuals must purchase health insurance through the official Obamacare Marketplace in order to get the advance premium credit.  An individual who purchases qualifying health insurance directly from an insurance company, at probably a slightly lower premium, cannot get the needed premium assistance to which he or she would otherwise be entitled to based on income.  This is totally unfair and unjust.  Individuals should be allowed to purchase whatever is determined to be “adequate” insurance directly from whichever provider they choose, and then go to a government health care website to apply for the advance premium credit, which would be applied to reduce the monthly premium charge, or apply for the credit directly with the insurance company at the same time they apply for coverage.
3. The Obamcare NIIT and Medicare “surtaxes”.  I firmly believe that taxing the so-called “wealthy” simply because they can supposedly afford it is NOT the answer to every problem. 
4. The various restrictions and penalties on certain types of employer health care benefits, such as the “Cadillac plan” and health care reimbursement programs.
5. The other “nickel and diming” charges, surtaxes, and penalties used to fund Obamacare.
Truly the worst thing about Obamacare, and about the House Republican replacement option, is age-weighted premiums.  This is a new concept.
Under Obamacare health insurance premiums became much more expensive for older Americans, and cheaper for younger ones.  I was told the reasoning behind this was to encourage young taxpayers just starting out to buy health insurance, and maintain coverage, by making it very inexpensive.
In reality it is the younger Americans, just starting out and without any family or mortgage expenses, who are, in many cases, more able to afford to pay for health insurance - while older Americans not yet eligible for Medicare coverage often find paying for insurance difficult, especially with substantially higher age-based premiums.
The calculation of premiums should return to the way it was done before Obamacare, with older Americans not unfairly and improperly excessively charged.
We most certainly need to “repeal and replace” the current idiot in the White House (I realize there are several idiots currently in the White House – but you know who I mean).  Maybe we also need to “repeal and replace” Congress!
So what do you think about Obamacare – what should be kept and what should be repealed?

Monday, July 3, 2017


Let me start off the return of THE TAX PROFESSIONAL blog with an idea for a post-tax season promotional campaign that I had always wanted to undertake in the past, but never got around to it.  At this point I will never get to try it, as I am no longer looking for new clients.  I am actually attempting to “thin the herd” as I approach retirement after my 50th tax filing season. 
This idea will take an initial investment of money and time, but has great potential and could turn into an annual event.
Pick a slow period when you have free time – like now - and take out ads in local papers and on local radio programs to announce a special offer.  The ads will begin by asking taxpayers if they are confident that their past tax returns were prepared correctly, and that they paid the least amount of federal and state income tax or got the biggest federal and state refunds possible. 
You then offer a special free service.  During the chosen month taxpayers can bring their past three years’ federal and state tax returns to your office and you will review them for free.  If the returns were prepared correctly and there is nothing you would change there is no charge.  If you find an error, and can amend a return or returns to get a refund, you will prepare the amended return(s) at your normal fee schedule, or maybe a special reduced rate (perhaps 50% of your normal fee).
In the case of minor errors that would generate small refunds of perhaps $50 - $100, and your fee to amend might eat up most or all of the refund, amend anyway and either do not charge or charge a nominal amount not to exceed 50% of the refund.
My mentor and I discovered early on that the best way to get a new client for life, and a good source of future referrals, was to amend a past return, prepared by the taxpayer or someone else, to get a refund.  Of course back in “the day” we had more tricks we could use, like Income Averaging and 10-Year Averaging, to get a potential new client a really big check.
Today the main target audience of such a campaign is the taxpayer with little or no knowledge of tax law and the Tax Code who “self-prepares” by using a “box” (tax preparation software).  You want to emphasis the fact that no tax preparation software is a substitute for a competent and experienced tax professional.
And, what was always my favorite thing to do, you also want to take clients away from the fast food preparation chains.
If you find an error that caused the taxpayer to underpay their correct tax liability you would point it out and recommend that they amend, but charge nothing if they do not.  Sometimes identifying a serious mistake and offering to fix it promptly before the IRS bills the taxpayer(s), to reduce potential penalty and interest, will also result in a new loyal client.
Have you ever tried something like this?  How did it work out?
And those of you who decide to try this idea, please let us know the results.
If you have a practice tip you would like to share with fellow tax professionals you can submit it to me at