IRS Direct Deposit Refunds Will Be Getting Faster
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The IRS is working toward a real-time filing system. They announced today that they are hosting a Second Real-Time Tax System Meeting. This real-time system will allow instant matching on returns which should result in 24 hour refunds.
In my opinion this is long overdue, at least the refund part. Under the current system you can receive your refund in 5-10 business days. This is without any type of document matching. Employers don’t have to file W-3′s and W-2′s with the IRS and SSA until Feb. 28th so any matching that is done is way after-the-fact. In fact, the IRS admits that “It is not uncommon for a taxpayer to receive a notice 12 to 18 months after a tax return is filed. This after-the-fact compliance approach can create problems and frustrations for both taxpayers and the IRS.” So, my question to the IRS now is, what happens in the 5-10 business days that people currently have to wait? Why is there even a wait time at all if there is currently no matching done?
When I e-file a client’s return I get an almost immediate response from the IRS that the return has been accepted. In a matter of minutes their computers have matched up the taxpayer’s name, SS#, spouses name, SS#, all W-2 company names with Tax ID#’s and some other various information. Of course, they cannot match up any W-2 payroll information because they either haven’t received the information from the employer or they have and it hasn’t been processed (it will be 12-18 months later). Then, they wait 5-10 business days before they directly deposit the money? Why? What happens in that 5-10 days? It appears, nothing. There should already be 24 hour refunds. They don’t need a perfect matching system in order to implement that.
This real-time system should be done in two phases:
1) Start refunding taxpayers money immediately upon them filing. This would be simple to implement under the current system. Anything larger than $15,000 should require additional approval (or matching) to prevent extremely large fraudulent refunds.
2) Start improving the matching system.
A real-time system is great, but, the big question for me is, how much “matching” is going to be done up front? All of it? And, will it cause even greater delays for many taxpayers in getting their refunds? Employers aren’t perfect either. Many times the information that they file with the IRS is inaccurate. Under the current system taxpayers receive letters 12-18 months later. Then they have to either agree with the changes to the return or disagree and state the reasons why they disagree. Sometimes it turns out the the employers filed inaccurate information.
I’m for a real-time system. But, in what form? I think it would be great if the IRS would match things up faster so that taxpayers aren’t accruing interest and penalties for 12-18 months before they find out that their return is wrong. But, the IRS already receives the info by Feb. 28th, 30 days after the taxpayer’s receive their tax documents. Why does it take so long to match things up? If they can’t match things up within a few weeks after receiving the info how are they going to operate a “real-time” system?
Can You File Your Tax Return Using Your Last Pay Stub?
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One question tax preparers frequently get asked is “Can I file my return using my last pay stub?”
There are really two questions here: 1) Can an individual file their own return using a pay stub instead of a w-2? And, 2) Can a paid tax preparer prepare and file a return based on a pay stub instead of a W-2?
First, let me deal with the issue of paid preparers. The IRS states that it is “against e-file rules” for preparers to file with a pay stub instead of a W-2. This is on their web-site here. When they say “against e-file rules” I’m not sure exactly what rules they are talking about or if they are specifically referring to paid preparers or individuals filing their own return. I’ve read through the entire Handbook for Authorized e-file Providers and the only mention of preparing returns from a pay stub is on page 48 where it talks about advertising. But, on page 30 it states that paid preparers must retain “Copies of Form W-2, W-2G and 1099-R”. How can you retain a copy of it if you never saw the W-2 in the first place? Do you really think that the client is going to bring back the W-2 later just so that you can keep a copy? I don’t think so. Paid preparers need the W-2 up front in order to protect themselves. In addition, one of the questions that must be answered in all professional tax software when e-filing is “Check if this is hand written, altered or appears not to be a true W-2″. So, how would you know if you haven’t seen it?
Now, the issue of an individual filing their own return. I cannot find any specific rules against this. However, here are a couple of things to keep in mind:
1. Not all information is on the pay stub. The Employer EIN, for example, isn’t. Got it on last year’s W-2? Not so fast. Sometimes employers change their EIN. Also, the categorization of retirement contributions isn’t clear on the last paystub. For example on the W-2 in Box 12A, 12B, 12C or 12D it usually has the letters A,B,C,D, etc. denoting what kind of retirement contribution it is. There are other items as well that might appear on the W-2 that are not on the last pay stub.
2. Your YTD info on your pay stub might be wrong. This could be for a variety reasons, like your employer changing software or payroll services during the year. Sure, they should have reconciled everything and made it accurate but they may not have done that yet when you got the last pay stub. Some payroll preparers double check all the numbers before sending out W-2′s and if they find an error and then correct it on the W-2 it would be different from the last pay stub.
In summary, paid preparers definitely need to see the actual W-2 and taxpayers filing their own return would be best served to wait for it as well.
Soda tax could prevent 26,000 premature deaths, study finds
The LA Times reports that the Health Affairs Journal has determined that “a penny-per-ounce tax would reduce soda consumption by 15%” which would result in “95,000 fewer instances of coronary heart disease, 8,000 fewer strokes, 26,000 fewer premature deaths, and more than $17 billion in savings from medical expenditures averted across the U.S. population,”.
No, this is not a joke. They really did study this. It amazes me that there are people in the world that spend time and money on a study like this.
I have a better headline, “History Has Determined That Free Market Capitalism Causes Millions and Millions Fewer Premature Deaths”.
Or, “The North Korean Department Of Health Has Determined That Big Government Intrusion On the Free Market Causes Millions and Millions of Premature Deaths.”
Why Do We Demand To See Presidential Candidates Tax Returns?
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As you know, it has become commonplace for presidential candidates to release their tax returns to the public. Of course, they are under no obligation to do so. But, if they don’t, they are accused of hiding something.
The real question for me is, why do we feel like we have a right to see their private information? Let’s think about the possible reasons for this.
1. We want to make sure they know how to prepare taxes. Ummm, no. They don’t prepare their own taxes.
2. We want to make sure they give money to charity. This seems silly to me because any politician who is planning on running is going to make sure that they give to charity in advance, right? Unless you’re John Kerry, Al Gore or Joe Biden. John Kerry hardly ever gave anything to charity until 2003, the year before he ran for president and then he suddenly gave over $40,000. Al Gore gave $353 to charity in 1997, while he was VP. I guess things were just that tight for him. And, of course, Joe Biden gave less than $1,000 per year to charity the ten years leading up to 2008 when he ran for president. He didn’t bother bumping it up in 2007.
3. We want to see how much their medical expenses are so we can make sure they are healthy. This information is probably whited out and most people don’t go over the 7.5% threshold anyway, but even if they did and it wasn’t whited out you wouldn’t be able to tell for sure if the medical expenses were their’s, their spouse’s or their dependent’s.
4. We want to make sure they aren’t cheating on their taxes. This also doesn’t make sense because how would you know? You can’t tell by looking at someone’s tax return whether or not they cheated. You would have to audit them and ask for backup documents. Also, anyone who is planning on running for Governor, Senate, etc. is most likely not going to cheat on their taxes. And, when they decide to run for President they certainly aren’t. Most of these candidates have been in the public eye for years and years and know better than to try and cheat. And, of course, they don’t do their own taxes anyway so in order to cheat they would have to lie to the tax preparer.
5. We just want to know how much money they make. Aha! That’s it. We want to know how much money they make compared to the percentage of tax that they pay so we can play class warfare. But, does a presidential candidates income have anything to do with their potential ability to be president? If success in your career is determined by the size of your income, wouldn’t we want a president to be extremely successful and have a very high income? If that is the case, then why is it viewed as such a negative thing by the left that Mitt Romney has a high income?
I don’t really care how much money Mitt Romney makes, what percentage of it he paid to the U.S. Treasury, how much he gave to qualified 501(c)(3) charitable organizations, how much he spent on medical expenses or anything else that is suppose to be private. I do care about what positions he takes on issues.
Change Things Up In 2012
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My family and I just got back from a fun and relaxing trip to Snowshoe Mountain, WV. There is something special about being on the ski slopes high up in the mountains that is unlike any other vacation. The freedom and excitement of choosing your own route down the mountain. The coziness you feel in front of the fireplace at night with your family. The removal of all of the daily distractions that we all experience. The memories you create with your family make it well worth it.
Taking vacations also helps you to re-focus on your business with a new energy. I think one of the reasons that vacations help you to re-focus and dive back into your business with excitement and energy is because you have changed up your routine. For me this is especially important to do right before tax season. The next few months are going to be very busy so getting renewed and refreshed is a great way to start off the year.
One of the worst things you can do in your business is the same thing – over and over. Successful businesses are constantly changing and adapting.*
We all fall into the trap of redundancy. We’re just wired that way. Most of us do the exact same things, the exact same way, day in and day out. The problem is, doing this causes us to create blind spots which makes it hard for us to improve.
Take your web-site for example. How many times have you looked at your web-site/blog? Hundreds, thousands? At some point, you can’t tell anymore if it looks good. You’ve looked at it too many times and you can no longer be objective.
Or, if you own a restaurant or a salon, you’ve walked through it hundreds, maybe thousands of times. You are there so much that you can no longer see what the customer sees when they walk in. You are blind from overexposure.
Change Things Up
In 2012 one of my resolution is to Change Things Up. I’m going to start doing things differently. My goal is to do one thing differently each day. Maybe I’ll take a different route to my office. Maybe I’ll start off my day differently. By doing this, we train out brains to think differently.
Another way to change things up is to ask for objective opinions from independent parties about your web-site, business cards, marketing materials, store image, etc. And, the more people you ask the better. For example, let’s say you own a restaurant and you are wondering what your customers think and feel when they walk in. Find at least 5 – 10 people who would be willing to help you by coming in to your business and writing down everything that they notice, good and bad. Then compare the results and you might be surprised by what you find out. Make sure that you tell them that you are open to constructive criticism. You could also offer them a gift card for $25 or something like that for their help.
These are some things I plan to do in my business in 2012 and I hope you do to. Have a Happy and Prosperous New Year!
*This seems to work even with successful products, like whenever Coke changed to New Coke. At first, the people at Coke looked like complete idiots. But, when they changed back to Coca-Cola Classic their sales increased dramatically. It was as if the whole thing was just a marketing ploy.
New Year’s Resolutions
Happy New Year everyone!
The “In Thing” right now is to not do resolutions. Instead we hear things like “goals”, “words for the year”, etc. That is fine. Whatever works for you. Personally, I think the problem with most New Year’s resolutions is that they set you up for failure. For example, if you say, “I’m going to go to the gym at least twice a week in 2012″, that is great. The problem is, the first week that you don’t make it twice, you feel like a failure. Once you feel like you’ve failed the “resolution” seems pointless from that point forward. I think a better idea for your resolution would be something like, “I’m going to make it to the gym 100 times in 2012.” That way you have all year to do it and the average will still be about 2 times per week.
One of my resolutions for my business is to talk to 250 business owners this year, in person, about using my firms services. That may sound like a lot but in reality it is only 5 per week. In the second half of 2011 I spoke to nearly 100 business owners in person about using my firms services so I know I can speak with 250 in a full year.
Another resolution for my business this year is to “Change Things Up.” I’ll be sharing more specifically what that means in the coming days.
Stay safe and God bless!
There Is Still Time!
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- Mortgage/Loan Payments
- Rent
- Charitable Donations
- Business Gifts
- Pay Contractors
There is a longer list here: Santa’s Year End Business Tax Tip’s and also Should You Borrow Money To Increase Year-End Expenses
Happy New Year!
Should You Borrow Money To Increase Year-End Expenses?
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If you’ve read Santa’s Year-End Tax Tips you know that spending money in your business at year-end is a great time to reduce your tax liability. But, what if you don’t have the money? Should you use a credit card or a line of credit?
Let’s look at the numbers. Let’s say that you spend $5,000 using a credit card or a line of credit in order to increase your year-end expenses. And, let’s say that you are in the 25% tax bracket. The $5,000 in expenses will reduce your tax liability by $1,250.
Now, how much will it cost to borrow the $5,000? Well, let’s say that your business line of credit charges 10% annually. If you borrowed the $5,000 for one month it would cost you $41.67 in interest. If you had to borrow it for 1 year it would cost you $500. Since you would get the tax deduction the following year anyway I don’t think it would be worth it to finance the purchases for an entire year. Of course, you’ll need to crunch the numbers to see exactly how you would come out.
As you can see, it could be worth it to borrow the money to increase your year-end expenses for your business on a short term basis. If it ends up being a long term debt it could end up costing you more money in interest in the long run than the short term tax savings. And, you should only do it if the items you purchase are necessary items for your business and you plan on purchasing them anyway.
What I Learned From Watching “Elf”
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Elf is hilarious. No matter how many times I watch it I find myself laughing out loud at the same silly scenes. I think the funniest part is when he first gets to New York and screams “Santa! Oh, My God!” when they announce that Santa is coming to the department store the next day. The part where he mistakes Miles Finch for one of Santa’s elves is pretty funny too.
If you haven’t seen it, I don’t want to ruin it for you so continue reading at your own risk. But, as you know, Read more 
Santa’s Year End Business Tax Tips
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It’s that time of year again. Time for Santa Claus to start thinking about his tax return for the new year. Here are some items to help Santa minimize his tax bill for 2012. Read more
