Phyllis Jo Kubey EA CFP ATA ATP NTPI Fellow, Author at Think Outside the Tax Box

AUTHOR SPOTLIGHT

Phyllis Jo Kubey EA CFP ATA ATP NTPI Fellow

Phyllis Jo Kubey, EA CFP®, NTPI Fellow, has prepared tax returns and offered tax planning, representation, and consultation services since 1986.

A strong advocate for IRS/practitioner dialogue, she served on the Internal Revenue Service Advisory Council (IRSAC) from 2017-2020 (subgroup chair 2018-2020) and has testified before the U.S. Senate Finance Committee on IRS reform.

She serves as President of the New York State Society of Enrolled Agents (NYSSEA) and as a director/officer of Voices of Ascension.

You can find Phyllis talking about taxes on Twitter (@PkubeyEA). She’s been recognized as one of the top must-follow Tax Twitter accounts for 2021 and 2022, and was recently featured in Bloomberg Tax & Accounting’s Spotlight. She’s also been quoted frequently in the tax press.

A woman of diverse interests, Ms. Kubey holds a Master of Music (voice) from Juilliard and is a Certified Teacher of the Alexander Technique. She loves long walks and sharing photos of her journeys.

READ MORE BY Phyllis Jo Kubey EA CFP ATA ATP NTPI Fellow

Who You Gonna Call? Not the IRS – A Guide to IRS Online Tools

You don’t have to be a tax geek to know the IRS has trouble picking up the phone. Old habits die hard. If you have a tax question, what do you do? You call the IRS. Good luck with that. You’ll be on hold for a long time if you can get through at all.

The IRS initiated a call-back feature, but it’s not always available. The hold music is uninspiring; sometimes, after holding for hours, you get the dreaded “courtesy disconnect.” Yikes! Let’s face it. The IRS has a full plate; years of doing more with less have crippled the agency.

Congress is quick to excoriate the IRS for poor service but keeps piling on more tasks (without necessary funding). Luckily, the IRS is working hard to provide more and better online applications and resources. There’s a lot out there, some well-known, some not so well-known, click here to take a tour and discover which shortcuts will help you most.

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The Tax Lives of Performing Artists

Performing artists are everywhere. Whether you’re a fan or indifferent, they’re tough to ignore. They color our world with print, broadcast, and social media coverage. We have actors, musicians, newscasters, and podcasters performing live, streaming online, captured on film/radio/television, and just about everywhere in an expanding online universe.

We celebrate their triumphs, empathize with their trials, feel shocked at their gaffes, and grieve for and with them. We may not think we have much in common with performers, but we do have one commonality: We’re all taxpayers!

A performer’s life may seem glamorous, but it’s hard work and not always financially predictable. The tax lives of performers are complicated. They have income and expenses, but with many twists and peculiarities.

Twists and peculiarities can make it both interesting and complex when navigating the Tax Code, but performing artists need tax reduction, too. Tony Nitti said, “It has to suck to make your living as an artist.” But paying taxes as an artist doesn’t have to suck when you have a great tax plan.

To read more about the unique tax planning opportunities available to performing artists, continue reading.

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The Bucket List (Part 2): Living Large in Retirement While Minimizing Your Taxes

In Part 1 of this series, we took a deeper dive into IRMAA planning and minimizing tax on your Social Security benefits. You play a large role in shaping your retirement years in terms of lifestyle and financial health. Think of taking advantage of the many techniques to lower your tax during your retirement years as another aspect of self-care. By treating your financial health and well-being as carefully as you treat your mental and physical well-being, you can ensure that you have resources to attain your financial goals and support yourself in the style for which you’ve planned. In my practice, I see a wide range of client behavior surrounding retirement – from no planning to thoughtful, long-range planning. Looking ahead, whether you’re working with your tax professional and financial team or whether you’re planning on your own, pays off enormously.
Please read on for some additional tips and techniques for tax savings involving charitable giving, Roth IRA conversions, and minimizing capital gains taxes – and two more examples.

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The Bucket List (Part 1): Living Large in Retirement While Minimizing Your Taxes

We’ve all heard the messages to pay yourself first, save a percentage of your income, build your nest egg, and some of us heeded the messages. Whether you’ve saved a lot or a little, we have many ways to reduce taxes in retirement, and by doing so, we maximize the power of our retirement savings.

Accumulating retirement funds is step one. And there are tax-advantaged ways to save for retirement: employer plans (401(k), 403(b), 457), individual retirement accounts (IRAs), self-employed retirement plans (Keogh, SEP, SIMPLE, Solo 401(k)), and non-retirement accounts. While you’re saving, you may have accumulated multiple “buckets” of assets, some in taxable accounts, some tax-deferred, some nontaxable.

Looking ahead toward retirement withdrawals/distributions (the funds you’ll need for essential and discretionary living expenses) adds tremendous value, and tax planning is a big part of the picture. Read on for more specifics and stay tuned for Part 2 with additional tips and examples.

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TAX PLANNING FOR CLERGY

“The hardest thing to understand in the world is the income tax” – Albert Einstein

You may have spoken to clergy members about many things, but I’ll bet you never spoke with them about their tax issues. Did you ever wonder whether and how clergy are taxed and how they pay taxes? Clergy taxation has some surprising twists and turns. Are they employees or self-employed? Is their income taxable or exempt from income tax? Can they deduct their business expenses? If these were multiple-choice questions, you might need an “all of the above” option. Or, as is often the case with tax-related questions, an “it depends” option. Tax compliance pitfalls and tax planning opportunities abound. Read on for more.

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TAX PLANNING – IT’S NOT JUST FOR THE WEALTHY – Part 2

In Part One of this series, we looked at strategies to reduce adjusted gross income (AGI). But the planning doesn’t stop there. We call deductions that reduce AGI “above the line” deductions. But wait, the tax saving opportunities don’t stop with AGI.

Even with the higher standard deductions courtesy of the Tax Cuts and Jobs Act (TCJA), there are many opportunities for taxpayers of modest means to find “below the line” tax savings. Let’s explore the many ways you can reduce your taxable income and whether you maximize your tax benefits even more with tax credits.

Keep in mind that a tax deduction reduces your taxable income A tax credit reduces your tax dollar for dollar and, in some cases, the credits are refundable, meaning you can get additional tax benefits even after reducing your taxable income to zero .

Read on for some tax planning tips reducing taxable income and maximizing credits that may work for you.

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Tax Planning – It’s Not Just For the Wealthy – Part 1

It’s hard to escape the news covering numerous methods high net-worth clients use to minimize their taxes. A ProPublica (June 8, 2021) headline trumpets, “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.”

CNBC (September 20, 2021) highlights, “The wealthy may avoid $163 billion in taxes every year. Here’s how they do it.” Even Teen Vogue dives into the topic.

If you’re a taxpayer of more modest means, you may think, Hey, what about me? I can’t afford the team of high-priced tax advisers or consider many of these tax reduction techniques. Are there ways I can minimize my taxes that are legal, easy to implement, and affordable? The answer is a resounding YES. And how do I qualify?

Read on for some tax planning tips that will work for you. Part One (of this two-part series) covers strategies to reduce your adjusted gross income.

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IRS MATH ERROR NOTICES – WHAT ARE THEY AND WHY DOES IT MATTER?

The Internal Revenue Service (IRS) mission statement is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.” The IRS provides forms and instructions, publications, robust web-based resources, and other tools to help taxpayers prepare and file their tax returns – an exercise relished by few. But what happens after you file your tax return? For many, the IRS accepts their tax returns as filed and processes them quickly, which is the end of the process. Others get “post-filing” correspondence from the IRS. The IRS may need additional information to process your tax return or, worse, may examine your tax return (asking you to document some or all parts of the return). There’s a middle ground where the IRS adjusts your tax return without the “courtesy” of requesting documentation first. These are the math error notices.

Read on to discover more (including that it’s not always about math).

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I Won! Now What? What Is the Tax Price of Success?

Lucky and talented folks win all sorts of prizes and awards. Often, the winnings have nothing to do with the winner’s business or profession, but sometimes there’s a professional or business connection.

You might view your career arcs as a series of applications, interviews, hirings, promotions with one or multiple employers. But some career paths – musicians (both instrumental and vocal), songwriters, and composers come to mind – involve frequent auditions with a healthy dose of competition.

The renown and visibility afforded to competition winners often open doors to career advancement – more and better engagements, management contracts, and media/recording opportunities.

Competition prizes and awards are taxable. But these winnings might also be subject to self-employment tax that can be up to 15.3 percent on the taxable amount. While most professional musicians are in the business of being musicians, very few consider themselves in the business of being competition participants. The distinction is important and allows for tax planning and savings opportunities.

To learn which is better for tax planning, keep reading.

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Avoiding Underpayment of Estimated Tax Penalties – Non-Traditional Strategies for Individuals

Paying your income taxes is a fact of life for most taxpayers. The annual dance of gathering, reconciling, and reporting income/deductions/payments/credits (a.k.a. filing a tax return) keeps taxpayers and tax professionals hopping during each annual filing season and beyond.

If you’re a W-2 employee, your employer takes care of your tax compliance by withholding and remitting federal, state, local, Social Security, and Medicare taxes from your salary. You may also have taxes withheld from pensions, unemployment compensation, gambling winnings, and other income. It may feel as if you’re not paying taxes because all you see is your net pay after taxes. Often it’s a direct deposit, and your payslips may be available only online.

If you’re self-employed or have other income not subject to withholding, you prepay your taxes by making estimated tax payments. The traditional schedule for estimated tax payments is quarterly (4/15, 6/15, 9/15, 1/15). If not followed, steep penalties can exist, even if you pay them all by April 15. But some folks have trouble with the quarterly payment schedule, cash can be tight and that estimated tax payment money you’ve set aside might really come in handy.

Happily, there are strategies to keep in compliance in a way that meets your budget and cash flow needs; and there are ways to avoid those late payment penalties. Want to know how? Keep reading to learn more.

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CURRENT EDITION

The Safeguards Rule — Are You Compliant?

Tax professionals must take measures to prevent unauthorized access to customer information. For example, you should limit access to customer data to only those employees who need it for their jobs. Also, outsourcing tax preparation in your firm can impact this security.

In October 2019, the IRS added a new question about data security responsibilities to the form to obtain or renew a PTIN. As a tax professional, it’s important to understand what the Gramm-Leach-Bliley Act requires and how you can comply.

Keep reading to learn what steps you can take to help protect the confidential information of clients and ensure GLBA compliance.

Inflation Reduction Act — Up to $40,000 in Tax Credits with Clean Commercial Vehicle Credit

First, you need to get an EIN, then get an LLC, establish business credit, and then you can buy a car in your business name. That process may get you a new car but that does not make it a business expense or eligible for a credit. Friends, that is not how this works; that is not how any of this works.

I’ve noticed a recent obsession in the online business world with writing off car expenses. Especially clean vehicles since President Biden signed the Inflation Reduction Act in August.

There is a correct way to do so, and then, there are a variety of ways to do it incorrectly. If you don’t believe me, just scroll through TikTok and Instagram, it will make your head hurt.

Misinterpretations of Section 179 have set the internet ablaze. That is why I want to make sure we set the record straight on how the clean vehicle credit can benefit businesses. That is if your client follows the guidelines set by the IRS. *Hint, hint: It requires more than buying the car in your business name using your business credit.

Let’s look at the amendments and additions to the IRC that make this credit valuable to business owners too. You have an opportunity to help your clients save $7,500 to $40,000 when they buy a qualifying clean commercial vehicle from now until December 31, 2032.

Retirement Tax Planning — Retirement Plans for the Sole Proprietor

Many of the same tax advantages perceived as being only available with entity taxation are also available to Schedule C sole proprietors and that includes funding retirement plans. It’s perfectly OK to start and continue to run a business as a sole proprietorship filing a Schedule C for when it makes financial and administrative sense to do so.

There are a number of advantages to having a retirement account. Of course, when you contribute to a retirement account, you can deduct your contributions from your taxable income. This can result in significant savings come tax time. Additionally, the money in your retirement account grows tax-free. This means that you can potentially earn a lot more on your investment than you would if it were subject to taxation. A retirement account gives you the peace of mind that comes with knowing you have a cushion to fall back on in retirement. No matter what happens in the markets, you will always have access to your retirement savings. This can provide a great deal of security during uncertain economic times.

While retirement accounts can be a great way to save for the future, there are also some potential drawbacks to consider. For one thing, retirement accounts often come with strict penalties for early withdrawal. This means that if you need to access your savings before retirement age, you may be subject to significant fees. Additionally, retirement accounts can be complex and confusing, making it difficult to keep track of your progress.

While retirement accounts can be a helpful tool for saving, it’s important to be aware of the potential drawbacks before you decide as a sole proprietor whether or not to open one. Click here to explore the different types of retirement plans available to sole proprietors and the pros and cons of each.

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    Short-term rentals like AirBnb are becoming increasingly popular with taxpayers who invest in real estate. For many taxpayers, the appeal of these properties is the flexibility and cash flow potential. However, there may be an overlooked third tax benefit. In many situations these short-term rentals may not qualify as a rental activity to the IRS, and that may offer a big tax break. While many rental activities generate losses, this can leave taxpayers facing the frustrations of not always getting to deduct those losses right away due to the passive activity limitations.

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    My Client Stuck with a Mistaken C Corporation Election?

    My client formed three limited liability companies (LLCs) to hold his rental properties. Without consulting me, he filed Form 8832, Entity Classification Election, to elect C corporation treatment, effective January 1, 2020, for these LLCs. I want the LLCs to be disregarded entities, which is the most tax-efficient structure for his situation. What is the best way to undo these elections?

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    Quick Guide to Claiming Work-From-Home COVID-19 Expenses to Reduce Your Tax Bill

    This information is particularly important if you are the owner/shareholder of your own corporation – C or S corp. You can set up payroll and designate tax-free reimbursements for you to be working at home – as well other tax-free money for you and for your employees. (We will discuss employees momentarily. Yes, it’s essential.) If being an employee is your main source of income – watch out! The short answer to employees claiming an office in home deduction this year is... There is no deduction!

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    Five Tax Reduction Strategies for the Casual Cryptocurrency Owner

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    Extra Taxes on S Corporation Distribution?

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    Reduce Taxable Income Up to $25,000 with Passive Rental Losses

    You have likely heard that owning rental real estate provides great tax benefits. This is true for a multitude of reasons, but there’s one benefit that is arguably the best of the bunch: The Small Taxpayer Allowance for Deducting Passive Rental Losses. Based on average household income levels, more than three-quarters of taxpayers can potentially qualify for this fantastic tax benefit that offers taxable income reduction of up to $25,000.

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