Monday, August 28, 2017


I came upon an interesting topic for discussion while reviewing the August issue of ACCOUNTING TODAY at dinner last week.
What caught my eye was a highlighted quote from Chuck McCabe, president of Peoples Income Tax and The Income Tax School, from Roger Russell’s article “Filling the time between April 18th and January” –
It’s a good idea to provide multiple services.  The more services you provide, the less likely your clients will be to leave.  Retention rate is critical.”
Back in 2009 I first published a post on advice to those starting out in the accounting world, which I have included in my new e-book SO YOU WANT TO BE A TAX PREPARER (read a review of this book by Andy Frye of PRONTO TAX SCHOOL by clicking here).  My advice involved a song lyric and two advertising slogans –
* “You See You Can’t Please Everyone, So You Got to Please Yourself”  
* “Only Sherwin Williams Can Cover the Earth”
* “Just Say No!”
For “Only Sherwin Williams Can Cover the Earth” I said –
When I first began my own practice, many, many, many years ago, I thought that I should offer, either personally or via relationships with consultants in other fields, all kinds of financial services to clients, not just 1040 preparation, so that their tax business could not be stolen away by their insurance agent or broker or another financial professional.
Then I remembered what a wise old Texan (my boss at the Summit YWCA) once told me – ‘Only Sherwin Williams can cover the earth’. You can’t be all things to all people. Don’t spread yourself too thin and try to offer the world to your clients
My advice here is the exact opposite of the advice offered by Chuck in the article.
Roger’s article concerned what tax professionals do between filing seasons.  One of the things that first attracted me to the tax preparation profession was its seasonal nature.  Ideally you can work 10-12 hours a day, 7 days a week for 2½ to 3 months and only 1-2 days a week the rest of the year.  I would truly be as happy as the proverbial pig in reality tv if that was true for me. 
Looking back over my 45 years in the business, if I were to start all over again I think I would limit my practice to 1040s.  Period.  No 1065s.  No 1120s.  No 1041s.  No 990s.  Just 1040s.  Not only to make the yearly schedule I suggested above a reality, but also to limit my need for ongoing CPE to 1040 issues only, and to limit my exposure to agita and liability.  There is certainly more potential for problems with business entity returns than with 1040s. 
The article also introduces another interesting concept –
For tax preparers who aren’t interested in expanding their tax business beyond the tax season, but would like to keep themselves and their staff employed in some meaningful activity, some accountants have found a solution – go into another seasonal business.”
This is an idea I have thought of over the years, but never followed through on.
So here are the questions I ask my fellow tax pros –
Do you limit your business to tax, or just 1040, preparation, or do you also offer other services – insurance, investments, real estate, college financial aid preparation, etc, etc?
And -
Do you have a second, totally different, seasonal business during the summer of other parts of the “normal” year?
I am looking forward to your thoughts and comments.

Monday, August 21, 2017


All “enrolled” tax preparers – Enrolled Agents, CPAs, and those who participate in the IRS Annual Filing Season Program – are required to complete a defined number of CPE hours annually or periodically to maintain their “enrollment”.  The defunct IRS Registered Tax Return Preparer regulation regime also required annual ethics CPE.
The main reason for required annual ethics CPE can be traced to the Enron scandal.  Bureaucrats somehow believed that the CPAs who created the Enron scams would have miraculously become honest and ethical, and would never have attempted to defraud the government, if only they had sat through a 2 hour session explaining ethics.
These bureaucrats seem to feel that unless tax preparers are forced to sit through at least 2 hours of redundant ethics preaching each and every year they will suddenly begin to create large fictional employee business expense deductions for clients, or add erroneous dependents and false EIC claims, to client 1040s.
Ethics is defined as “moral principles that govern a person's behavior or the conducting of an activity”.  Ethical behavior is really just common sense.  Basic ethics is taught by our parents, in school, and in Sunday School, Hebrew School, and the equivalents of other religious organizations.  The specific ethics of individual trades and professions – legal ethics, medical ethics, ethics related to accounting, architecture, and engineering – are imparted in the formal education for that trade or profession.
I have been preparing 1040s for 45 years.  If I ain’t “ethical” by now, having 2 hours of preaching thrust upon me isn’t going to suddenly turn me honest.
Come on – how many times does a tax preparer have to be told not to knowingly report false or misleading information on a tax return or not to share or discuss the confidential personal financial information of clients with others without their approval.
In most cases the annual ethics CPE requirement is 2 hours (100 minutes) each year.  But in reality tax preparers are forced to waste time and money on 4 to 6 hours of sermons each year, as CPE providers seem to feel that they must include 2 hours of ethics in almost every offering.  I was told by a provider a few years back that if 2 hours of ethics were not offered attendance would drop.
For example, I recently signed up for NATP’s annual “The Essential 1040” year-end tax update seminar.  I paid for 8 hours of education on new tax law, rules and regulations, inflation and COLA adjustments, and developments – but I will be cheated because I will only receive 6 hours of actual update CPE.  Each year 2 hours of this seminar is devoted to redundant ethics preaching, during which I either “zone out” and daydream or read the newspaper.  Like other “unenrolled” tax preparers, and those who choose not to participate in the AFSP, I have no requirement to sit through any ethics preaching.
NATP should remove the 2 hours of ethics preaching from “The Essential 1040”.  The association’s annual National Conference (I went this year) and Tax Forums (I will attend next month) always include several good sessions on ethics issues (none of which I attended or will attend), each 100 minutes or 2 CPE hours.  For those who do not attend the conference or Forum NATP could make available to the local chapters the course materials for these sessions and the individual chapters could offer a half day seminar on one or more of these offerings, or a combination of ethics and another tax topic.   
Should “enrolled” preparers and AFSP participants be required to take any ethics CPE?.  Perhaps 2 hours of ethics CPE in the first year of enrollment or participation, with maybe at most a 1 or 2 hour required ethics update every 3 or 4 years thereafter.  CPE providers should, however, continue to offer ethics sessions as optional offerings at annual conferences and forums for those who feel the need to be reminded to remain honest.
I am very interested in hearing what my fellow tax professionals think about this.

Monday, August 14, 2017


Now that the Republicans have been unable to accomplish anything with health care they are moving on to tax reform.
I firmly believe that the current “mucking fess” that is the US Tax Code should be completely shredded and we should start from scratch.  And I firmly believe that this new Tax Code must not be used for social engineering, to redistribute income or wealth, or to deliver social welfare and other government benefits.
One of the biggest problems with the current system, and a large source of its complexity, is the erroneous use of the tax return to deliver government benefits.  The Internal Revenue Service, and the tax professional community, should not be required to act as Social Workers and administer and verify government program benefit payments.  This practice is not only inappropriate, but it also invites and encourages tax fraud. 
I am not saying the government shouldn’t provide financial assistance to the working poor and college students, provide encouragements for purchasing health insurance, making energy-saving purchases and improvements, and other ‘worthy’ actions.  What I am saying is that such assistance and encouragements should not be distributed via the Form 1040.
The benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the Premium Tax Credit, the energy credits, and other such personal and business credits should be distributed via direct discount payments to the appropriate vendors or direct rebate programs, similar to the successful Cash for Clunkers program of a few years ago, funded by the budget of the appropriate Cabinet departments.
Distributing the benefits in this manner is much better than the current method for many reasons:
1. It would be easier for the government to verify that the recipient of the subsidy, discount or rebate actually qualified for the money, greatly reducing fraud. And tax preparers, and the IRS, would no longer need to take on the added responsibility of having to verify that a person qualifies for government benefits.
2. The qualifying individuals would get the money at the “point of purchase,” when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.
3. We would be able to calculate the true income tax burden of individuals. Many of the current “47 percent” would still be receiving government benefits, but it would not be done through the income tax system, so they would actually be paying federal income tax.
4. We could measure the true cost of education, housing, health, energy and welfare programs in the federal budget because benefit payments would be properly allocated to the appropriate departments.
So what do you think?

FYI - I have written a "review" of the 36th annual National Conference of the National Association of Tax Professionals at the Marriott Wardman Park in Washington DC. that will appear in 2 parts at THE WANDERING TAX PRO.  Part 1 appears today and Part 2 will be posted on Wednesday..

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, August 7, 2017


I am sure we all have a “wish list” for clients – a list of things we wish they would do.  Here is mine - 

(1) I wish that when a client receives a letter or notice from the Internal Revenue Service, or a state tax authority, about a tax return I prepared they would put it in the mail to me, fax it to me, or include it as an attachment in an email to me IMMEDIATELY.

I still have some clients who insist on trying to call me first to tell me that they got a notice from the IRS. This is a total waste of time. My telephone answering machine is turned off during the “regular” year – it is only on during the tax filing season (January 15 to April 15).

And what would happen if they did manage to reach me by telephone? They would tell me that they got a notice from the IRS or the NJ Division of Taxation or whoever and I would tell them to mail, fax or email it to me!

Here is an example. A client tried repeatedly to call me with no success. So he told his mother to try to call me, which she did for a week or so, again without success. The mother mailed me a note saying that her son was trying to get in touch with me. I mailed a note to the son, along with a self-addressed envelope, telling him to mail me the notice.

The notice, which was from the NJ Division of Taxation, was dated October 1st. I received the notice in the mail from the client, finally, on November 10th. Look at how much time was wasted!

And I do have clients who just pay the balance due on the notice without consulting with me first.  I only learn about the notice when the client sends me his or her “stuff” at tax time.  Now I have to try to get the money they erroneously paid back from the IRS or the state.

I have found, as I am sure you have also, that more often than not a notice from the IRS or a state tax agency is wrong – and even more so with state notices.

(2) I wish clients would keep track of the cost basis of all their investments and give the information to me at tax time when they have sold investments.

Or at the very least tell - not ask – their brokers to provide them with – or send directly to me - a detailed Profit and Loss Statement showing dates of purchase and cost basis for every investment sold during the tax year.

Some clients do it right. They set up a file folder for each investment at purchase and put the original purchase confirmation in the file.

If dividends are reinvested they put the annual DRP statements in the file each year. If the investment spins-off or merges or whatever they put any related correspondence, notices and statements in the file.

If they purchase real estate they put the Closing/Settlement Statement in the file along with any receipts for expenses involved in the purchase that were not paid through the closing. They also place any receipts for capital improvements in the file each year.

If they receive an investment (including real estate) by gift they ask the giver to provide them with the cost basis of the investment gifted. If they inherit an investment (including real estate) they ask the Executor of the estate to provide them with the market value or appraised value on the date of death that was used in filing the federal estate, if required, and/or state inheritance tax return or filing.

When the investment is sold they put the sale confirmation, or Closing Statement, in the file and give me the file folder with their tax “stuff”.

To be honest, I would prefer a Profit and Loss Statement from the broker, to save me the time of actually determining the gain or loss on each investment. However, the individual file folder system discussed above would provide more complete and accurate information.

While the new 1099-B reporting requirements have been a big help, the mandatory cost basis reporting only applies to relatively recently purchased securities.    

(3) I wish clients would provide me with specific numbers for deductions they are claiming – instead of telling me “claim the maximum” or “whatever I am allowed” or “same as last year”.

The maximum is what you actually paid. You are allowed what you actually paid. It is very rare that an expense or number of miles driven for an activity is exactly the same as it was the previous year.

I need clients to tell me “$1023.50” or “$20.00 per week for 50 weeks” or “4638 miles”!

Each year I include in my January client mailing worksheets that apply to specific clients’ individual situations – for medical expenses, charitable contributions, rental income and expenses, employee business expenses, etc. I wish clients would fill them out completely and accurately – or provide me with a detailed listing of deductions in any other format.

When clients do not give me the proper information and I have to email or write them, this wastes valuable time and delays the completion of the return.

I want to make sure my clients take advantage of all the deductions and credits to which they are entitled – but I can only do this if I am given complete and accurate information.

(4) I wish clients would make and keep a photocopy of all their Form W-2s for the year before sending me their “stuff” – as I clearly instruct in my annual January client mailing.

Each year during the season I get two or three frantic calls or emails asking me to fax photocopies of the W-2s to a bank, Mortgage Company or to the client. This is not a big thing, but anything that takes time away from actual 1040 preparation is bad.

(5) My invoices all clearly state “payment due upon receipt”. This means once the client receives the invoice and not “30 days net”. I wish my clients would sit down and write my check, and put it in the mail, as soon as they have finished reviewing the finished returns

This is only the beginnings of my client “wish list”. I could probably fill several more posts - and may just do that.

So what is on your client “wish list”?

BTW – as you are reading this I am in Washington DC attending the annual NATP National Conference.  I will post about the conference next Monday.