How Confident are you When Researching Tax Questions?

Where will you find one sentence that is nearly twice as long as the entire Gettysburg Address? The Internal Revenue Code, of course. The Gettysburg Address is 278 words, while one whopper of a sentence in the IRC exceeds 450 words. And this isn’t the only instance of a long and confusing sentence! The IRC, with its 4 million words, is full of mind-bending sentences about limitations that hinge on combinations of multiple variables. Think algebra!

There are, however, some secrets to breaking the Internal Revenue Code, says Annette Nellen, CPE Link instructor on tax research (and San Jose University professor). “The Internal Revenue Code is not an easy document to navigate, read and effectively use. But there are tactics that knowledgeable researchers use.” The first, says Nellen, is to understand the structure of the code, so you can narrow your search.

So say you have become intimate with the code structure and have zeroed in on the relevant sections, subsections, and paragraphs. You’ve read carefully, paying close attention to the and’s and or’s; to the less than’s, more than’s, and at least’s (and to the words in parentheses.) You’ve scoured the code for relevant definitions, and you’ve checked out cross-references looking for clarifications or conflicts.

But even after all the reading, rereading, and reading again, the IRC hasn’t yielded a clear answer to your tax question. That’s not surprising, says Annette Nellen. “The IRC is the place to start and you may find your answer there, but that’s not usually the case.”

Your next step: the Federal Tax Regulations.

 

Professional Ethics Scenario: What Would You Do?

“What if” scenarios are good for thinking about and practicing personal and professional ethics. Here’s one that CPE Link instructor, Art Berkowitz, CPA likes to use.

As part of your accounting services, you provide limited financial planning services to your clients. One of you new clients (a middle-aged married) asks you to review their portfolio and make recommendations for investing an additional $100,000 they have in cash. In reviewing their portfolio you note the following:

• The client is adequately diversified for their age between fixed income and equities
• Approximately 35% of the equity portion of the portfolio is in one investment with a private money manager
• The securities with this manager have outperformed all the other investments by 3 to 4 percent per year
• The client tells you that this money manager waived his $1M minimum and accepted their investment of $250,000 because several friends invested at the same time.
• The money manager has a track record of over 25 years of beating the S&P 500.

You check out the money manager and find that he does indeed have a long-term track record and is considered something of guru on Wall Street.

What recommendations would you make about

• The 35% invested with the money manager
• The $100,000 in cash your client would like to invest

Bernie Madoff—the money manager in question—has, by this time, served a little over 2 years of his 150-year prison sentence for fraud. But, remember, in this scenario, that hasn’t happened yet. Without the wisdom of hindsight, what would you, or should you, do?

 

Productivity—How Do You Rate?

According to CPE Link instructor and productivity expert, Laura Stack, “Success will come to those who can accomplish more in less time and consistently perform at their productive best.”

Let’s see how you rate. The more of the following statements that ring “true” for you, the more productive you probably are!

• I know exactly why I work hard and what I’m trying to achieve.
• I create systems to perform tasks more efficiently, so I can leave the office on time.
• I regularly rest and recharge my batteries, so I can be productive and creative when I return to work.
• I accomplish the day’s most profitable and valuable tasks
• I refuse requests when appropriate; I know how to say no graciously.
• I push tasks down to the lowest level of responsibility, trusting others to do their jobs.
• I weigh the results of attending each meeting against the alternative results I could produce instead.
• I do not live in my email inbox and stay focused on my work.
• I know I can only focus on a few items at a time, so I limit my multi-tasking in order to maximize my productivity.
• I know technology and my handheld are tools to help me be more productive—no addiction here.
• My email is organized, and my inbox is regularly emptied.
• I keep careful track of my contacts and my communications with them; I can tell you what was said in a meeting a year ago.
• When I have all the information I need to proceed, I make decisions quickly.
• I understand the difference between being busy and being productive: results.
• I keep an eye on my stress level, realizing it would be a mistake to ignore my emotional health.
• Even when a task is monumental, I keep working at it until I whittle it down to size.
• I am a positive person, even in negative circumstances.

Didn’t rate well? Get some guidance from Laura Stack and launch into 2012 at your productive best!

 

Mobile Learning is Here!

Over the past three years as an online CPE provider, CPE Link’s national webcast audience has grown, mobile learning has also advanced.

Mobile learning (or m-learning) allows the student to access the information from virtually anywhere—which supports today’s widespread work-from-anywhere lifestyle. It is an especially good fit for today’s accountant.

Given the popularity of tablet devices for both work and play, it was a natural evolution that we use tablets for learning as well. They are portable and so easy to use. To participate in one of CPE Link’s live webcasts using a mobile device, the user simply downloads the “Adobe Connect Mobile” app onto his/her device—Apple iOS or Android. On the day of the webcast, the learner logs in to join the class. The Adobe Connect app launches automatically. There are minor differences for the mobile user–such as the way to answer a polling question and toggle back to the main presentation view. But, overall the webcast experience is the same using the mobile app as it is on a PC.

Seeing the number of mobile users in its webcasts grow, CPE Link quickly responded by gearing up to support these attendees. Webcast hosts tested both Apple and Android devices, added instructions for mobile participants to the FAQ web page, and primed the customer service team to answer questions.

Mobile learning is here and CPE Link is ready!

 

Are you the Sherlock Holmes of Tax Practitioners?

Sherlock Holmes’ uncanny knack for solving cases actually comes from a combination of broad knowledge, keen logic, and a close attention to detail. Similar to the consulting detective of 221B Baker Street, the Sherlock Holmes of Tax Practitioners would combine equal parts deep knowledge of tax law and strong research skills, says Annette Nellen, San Jose State University professor and CPE Link instructor on tax research.

So don your deerstalker cap and get your magnifying glass. Here’s a mystery for you to ponder. A new internet company, which we’ll call Printers to Go, has formed to sell computer printers on line. What method of accounting should the company adopt on its first tax return?

You discern the following facts:

• The form of operation and business plan has already been created.
• The company has arrangements with several printer manufacturers.
• It has a website where customers can search for printers by features, obtain product specs, and place orders.
• Manufacturers might set some limit on pricing and other sales terms.
• Printers to Go expects first-year sales of $1.5M.

So what method of accounting is best for the company’s first tax return? How would you go about solving the mystery? What questions would you ask? What tax issues are involved? What do you already know about the topic and issues? What general rules are relevant? What IRC sections apply? And if you don’t get an answer in the Code, where else might you need to look for answers?

The client is waiting for your solution.

 

From Dreaded “Bean-Counter” to Valued Advisor

Every accountant prepares the basic financial statements—balance sheets, income statements, cash flow statements. But do your clients know how to read them? Do they understand how to use them to make decisions and drive their business success? In short, do they love their financial statements? And, by extension, do they love you, the accountant who provides them?

All accountants present data, but the way to the client’s heart and a long-term relationship is through the way you present the data, says CPA Geni Whitehouse, a CPE Link instructor and expert in client communications. Aptly, she teaches a course called, How to Present Financial Statements Your Client Will Love.

“The secret is to think like the client and understand what they want. Typically, financial statements give clients a rear view mirror when they really want a crystal ball,” says Whitehouse. Accountants can build client loyalty and give themselves a competitive edge by adding value to the difficult-to-comprehend financial statements. Ways to add value include:

Interpret financial metrics in a language that the client understands
Connect financial statements to operational metrics
Perform financial projections and “what-if” scenarios
Show how the client’s business compares to competitors in the industry

Do this and you become more than a bean counter to your client; you become an advisor.

What response do you get when you deliver a financial statement to your client?

 

Sneezing at the Changes to Flexible Spending Accounts

How are you feeling? In any group of four people are you the one sneezing and wheezing? 2011 has been a particularly bad year for the estimated 60 million Americans with allergies, who collectively spend $3 billion on over-the-counter allergy medicines. The fall allergy season in the northern states was about 27 days longer than in previous years, and runny noses ran well into November. More bad news: Spring allergies will start in February. This is distressing news, but what has it to do with taxes?

Just this, reminds CPE Link instructor, Albert Grasso who teaches individual and corporate tax updates: “Beginning in 2011, only insulin and doctor-prescribed medicine qualify for tax- free reimbursement through flexible health spending accounts.” People with chronic illnesses, such as allergy sufferers, who depend on drugs that have gone from prescription-only to over-the-counter, are going to feel some added pain at tax time.

Then in 2013, the chronically ill and others who make maximum use of flex-spend accounts will be squeezed by another change. The maximum contribution will be lowered to $2,500 a year. (Heads up to taxpayers with kids who need braces!)

The thinking behind these changes goes like this: health coverage will be more affordable, so people won’t need flex-spend accounts so much. Then the additional tax revenue collected will help to fund further healthcare reform.

If the flex-spend changes–or other legislative and non-legislative developments in individual taxes–give your clients heartburn, remember, they’ll have to buy Tums with after-tax dollars.

 

Law Basics for Accountants: How to Write Better Contracts

As certain as death and taxes, accountants are sure to brush up against the law in the daily practice of their profession. “Every accountant needs a good working knowledge of the every-day legal matters that affect their clients financially,” says CPE Link instructor, Paul Jorgensen, founder of a Washington, DC law firm specializing in intellectual property and contract law. “A basic knowledge of the legal concepts involving contracts, intellectual property law, and the Internet makes you a more valuable financial professional. It helps you know when to enlist a lawyer and to recognize bad or wasteful lawyering,” says Jorgensen.

When he teaches accountants about basics of law, Jorgensen likes to start with contracts. Non-lawyers often think that contracts have to sound legal and the more legal-sounding the better. Nothing could be further from the truth, says Jorgensen. There’s a lot of bad legal writing out there and bad writing should send up red warning flags.

When it comes to the language of contracts, several rules apply. One is that “Simple words are best.” Start is better than commence. If is better than in the event that. Later is better than subsequent.

Another is “Always reject the passive voice.” Passive voice leaves too many questions, never a good thing in a contract.

Bad: “Use of Services shall be paid for by Tenant. Payments shall be received monthly for such Services.” Who uses the services? Who provides them? What are the payments for? Who receives them? How much are they?

Better: “Tenant will pay Landlord $65 for the Services on the third day of each month during the term of the contract.”

Once you cut through the bad legal writing, it’s easier to understand the essential contract provisions, not only in the contracts that accountants review for clients, but also in the contracts they make.

How often do you review contracts in which your client is a party? Do you always understand them?

 

Tax Update Adventures, Episode IV

It seems there is no rest for our hero Super Tax Preparer. Fresh from exploits with business tax changes, Federal payroll changes and business retirement plans, “Super” rolls up her sleeves and dons her cape emblazoned with her IRS-issued PTIN, to do battle with the onslaught of recent changes in the realms of corporate tax, partnerships, and audit issues.

New! HIRE Act provides a payroll tax credit for keeping HIRE workers for 52 weeks. What if a worker left voluntarily in week 51? What if an employer paid a worker less in the second 26 weeks than in the first 26 weeks? Does the employer still qualify for the $1,000 credit in 2011?

New! IRS introduces amnesty program for employers who’ve misclassified employees as independent contractors.
New! National Research Project (NRP) audits begin for employment tax returns—and they’ll be vigorous! The IRS wants know whom to audit and what issues to focus on.
New! Employee and self employed Social Security rate is decreased for 2011.

New! The built-in gains (BIG) recognition period for S Corporations is temporarily reduced to 5 years. Will a company that elected S corporation status effective June 1, 2006 have to pay any BIG tax on assets sold in 2011?

New! Percentage exclusion of gain for qualified small business stock purchase is increased. What percentage of gain can a noncorporate taxpayer exclude from income on the sale of small business stock issued on October 11, 2010? That depends on the gross assets of the small business and the length of time that the taxpayer holds the stock.

New! Form 1099 Reporting Requirements for Payments to Corporations are repealed.
New! Form 1099-K Credit Card Income must be reported on a separate line from cash and checks.
New! IRS wins first case on S Corporation More Reasonable Compensation
New! Registration is required of all tax return preparers in your office. Not just those who sign returns.
New! IRS can’t interview our clients after POA is signed; four IRS agents reprimanded.
New! Economic Substance Doctrine kills tax shelters. Be very careful.
New! IRS clarifies reasons for demanding QuickBooks (and other accounting software) files.
New! Reporting requirements required by Health Bill.
New! IRS eases collection practices.
New! Signed consent before releasing any tax info to third parties.

Ready to conquer these Federal Tax Updates, “Super” strides confidently into current Tax Season. And we wish you safe travels into yours!

 

The Tax Update Adventures, Episode III

The 2010-11 is a tax season to beat all tax seasons. “This year has brought us some of the most interesting tax changes we’ve seen in years—at least interesting to us tax accountants,” says Vern Hoven, CPA, EA and CPE Link instructor, who specializes in demystifying tax legislation.

Who can keep up with all the changes? In the continuing saga of Tax Update Adventures, our hero, Super Tax Preparer, takes on general business updates.

A teashop owner also collects and sells vintage teapots. Is her collecting activity a business or a hobby? Is she engaged in a unified business enterprise? Super Tax Preparer figures it out.

A film writer, director, and producer amasses an extensive collection of materials, including books, magazines, and photos related to the life a famous person, about whom he plans to make a movie. Since these items deteriorate over time, he wants to depreciate them. Super sets him straight.

Leonard wants to buy an SUV for his Ski Lodge business. Should he do it now or wait until January 2012? He’s thinking of a GMC Yukon or a Ford Excursion. Super Tax Preparer has tax-saving information about expensing and depreciation rules that could help him decide.

Mary, a self-employed architect, and her husband Joe each paid $1,200 of Medicare B premiums in 2011. In addition they each paid $3,000 of Medigap insurance premiums to AARP in 2011. Can Mary deduct $8,400 as self-employed health insurance? Super knows the answer.

These and millions more tax adventures await the special powers of our hero.