Feature Article

“Timalyn, Alyssa and I filed for divorce, and we will finalize everything before Thanksgiving. Does this change things for our taxes?” “No! Can we wait until January 1?” were my initial thoughts. But then I realized that if this news blindsided me, the seemingly happy couple was probably also scrambling for answers. They were looking to me to be calm during an upcoming storm. To give you some context, I had helped this family lower their back taxes by $16,000 and get a payment plan that worked well with their cash flow. Then, by implementing a few strategies they had just saved an extra $20,000 on their last tax return. We were planning on saving them even more money in upcoming years. Then, that is when it happened. Divorce. I never saw this happening, so I never prepared for it. But if it happened to me, it will happen to you. Clients divorce. Some of the things we are going over today may seem obvious to you. But remember what is obvious to us as tax experts is not obvious to our clients, especially if they are going through a life-changing event such as divorce. Here are four things you need to inform your client about when it comes to their divorce and taxes...

When an individual sells a stock for a loss, it is a capital loss, and Congress makes it difficult for individuals to use their capital losses. The tax law only allows capital losses to the extent of capital gains. If capital losses exceed capital gains, the individual can only use up to $3,000 per year against ordinary income ($1,500 if married filing separately). However, there is a way around this rule: Losses on Section 1244 stock are ordinary losses, and claiming this valuable tax benefit allows an individual to save thousands of dollars in tax in the year of sale compared to the standard capital loss treatment. Let’s review what qualifies as Section 1244 stock, what benefits a taxpayer can get from Section 1244 stock, and how to claim those benefits on a tax return.

My attitude toward 1099 compliance changed radically about fifteen years ago. The type of 1099 compliance I am talking about is for business to business services. If you are running a bank or a brokerage house, this will not be any help. I was a partner in a regional firm and frankly I never gave 1099 compliance much thought until I was called in to consult on an audit. Then I got this really scary wake-up call...

Although Form W-9 has some other purposes, a company will usually ask you to fill it out if you are a business-to-business service provider . If you don’t provide a TIN to your customer, they may have to subject you to backup withholding . If it is my company that asks you for the W-9, I am not going to do backup withholding if you don’t send me the W-9. I’m just not going to pay you until you cough it up. I believe in learning from experience. But it is better if the experience you learn from is other people’s experience. That is why a very large percentage of my tax writing is from court opinions, most often the United States Tax Court. This piece is my own experience.

Every Spring there is some point in the tax season that I have to remind myself why I chose to become a tax professional. I am often comforted to find out that I am not the only person questioning my career decision. Tax pros nationwide share on social media that they are thinking the same thing. So let me ask you. Why did you choose to do this to yourself again? You promised yourself to fire problem clients and improve systems. Yet we’re here in March, how did you do with keeping your promise to yourself? My first busy season Thomas Reuters released a video that I found funny, at one of their tax conferences. There are children that talk about why they want to be a tax accountant. A few reasons they give are: • To work 22-hour days; • To work with numbers that are changing all the time; • Having lots of turnover with burned out employees. My personal favorite is to have 3 people do the work of 8. In hindsight it almost sounds like they were describing the tax industry during 2020 and 2021. When I first watched the video, it was hilarious. But 12 years later I still smirk, but for different reasons. I can totally relate to the sarcasm. Nobody goes into this industry for those reasons yet here we are each Spring on the verge of burnout. Did you think of your why? I want you to write it really big and post it somewhere that you will see it every day when you are working at your desk. I want to share with you 10 things that you can implement to protect you and your why. I like to call them the Tax Professional Self-care 10 Commandments.

I remember trying to explain the dealer versus investor concept to a would-be real estate entrepreneur. I asked him whether he was holding the property for sale. He kind of looked at me and smiled and said “Everything is for sale. It just depends on how much.”. If there is any ambiguity it is easy to know what the answer is after the fact. If there was a big gain relative to expenses then you were an investor. If there was a loss, then you were a dealer. Unfortunately, you really are not supposed to practice that way. I am going to assume that you want investor status and that you are blessed with a gain. What can you do to make sure the IRS respects your investor status?

The tax law disadvantages gamblers with its treatment of gambling gains and losses. Add that to the fact that gamblers often aren’t the best recordkeepers, and you have a recipe for years of overpaying taxes. How most tax professionals attempt to reconcile gambling reporting on the tax return can cost gamblers thousands of dollars a year in increased taxes and Medicare premiums (if over age 65). We’ll discuss how to calculate gambling gains on the tax return, which in many cases reduces or eliminates the excess taxes many gamblers could pay.

In society, bankruptcy no longer carries the humiliating stigma of failure ; which is why there are hundreds of thousands of bankruptcy filings each year. Interestingly enough, filings have been dropping dramatically since 2018. The total individual and business filings for fiscal year 2022 are nearly half of those from 2018. The statistics don’t include specific information about how much tax debt was extinguished in bankruptcy. Filing bankruptcy is not for everyone. It can be a viable option for those people whose tax debt meets certain criteria. The following is a basic overview of the concept...