This year conversions from Traditional to Roth IRA’s were way up due to the elimination of income limitations that were previously applied to the conversions.  But is converting to a Roth IRA a good idea when it comes to your income taxes?  In some cases it is a smart move to convert now and in others the tax implications are far too great.

Conversion is attractive mainly because withdrawals from Roth IRAs, unlike those from traditional IRAs, are tax-free.

Moreover, Roth IRAs also have no withdrawal requirements; traditional IRAs require investors to begin making withdrawals at age 70½.

Basically contributions to a Traditional IRA can create a current tax savings while Roth IRA contributions can save you money in taxes later.  So the decision lies in the ability to save on your income taxes and this can be a tricky formula to figure out.  You should always consult a Financial Advisor before making these decisions; if you do not currently have one or are interested in finding a new advisor follow this link to find out about all the Financial Services offered at R&G Brenner.

“The biggest question advisers have to ask is whether paying taxes is feasible for the investor right now,” says Michele Grant, a Roth IRA expert at Wells Fargo & Co.

Investors “don’t want to use funds from the IRA to pay the taxes,” she says, because that eats into retirement savings. “So do they have the funds elsewhere? And if so, what does that do to them liquidity-wise immediately?”

Ms. Grant says that given the economic downturn, a lot of investors simply don’t have the money to pay the taxes up front. But that needn’t nix the idea of a conversion altogether, she says. For some investors, converting to a Roth IRA gradually, over a number of years, might spread out the tax impact enough to make it affordable.

The tax rates are anticipated to go up over time and this is the reason why some people would prefer to pay the tax now at what is believed to be a lower rate.  For many this is not the case because adding to taxable income increases the taxpayer’s current tax bracket.

… taxes for the wealthy are going up, but very few people have as much income in retirement as they do in the height of their working years,” says Thomas Wiggins, a financial adviser with Rehmann Financial who is based in Troy, Mich. “Even if taxes do go up, investors will likely be in a lower income bracket once they start taking distributions from their retirement fund.”

So there is no simple answer as to which would be better for you.  The fact is that taxes will never go away so planning is important to make sure that the decisions made will have the most beneficial outcome when it comes to tax savings.

Source: Wall Street Journal

The IRS has confirmed that the proposed New Requirements for Federal Tax Return Preparers will begin by the end of this year and will be enforced for the coming tax season in 2011. Tax Return Preparers will be required to register with the IRS by obtaining a Preparer Tax Identification Number (PTIN) which is unique to each Tax Preparer and will allow the IRS to track how many returns and which returns each individual tax preparer prepares each year.  Return preparers will be charged an undetermined fee to register a PTIN which will be used toward covering the cost of the registration program.  Tax Preparers who already have a PTIN will be forced to refresh or re-register them and those who do not have a PTIN will have to get one.  This is just the beginning phase of what ultimately will lead to Required Competency Exams and Continued Education.  The IRS has stated that all Paid Tax Preparers will be required to take at least 15 hours of continuing education and pass a competency exam by 2013 in order to continue preparing returns with the federal government.

We are happy to hear about these new requirements as we have always been greatly aware of the value of Education and Testing.  At R&G Brenner all Tax Consultants are required to pass a rigorous exam which includes a complex federal tax return that is done by hand and a section regarding NYS taxes as well prior to employment.  We also ensure that our preparers are up to date by requiring they attend our annual Tax Updates Seminar each year.  In addition to this we require our Tax Consultants to have a minimum of 2 years work experience in the field of tax preparation.  Professional tax preparer’s understand the need for education as tax laws change annually; in addition to our in house educational seminar the vast majority of our preparers also take seminars and training through other professional organizations.

This new regulation will truly professionalize the field of Tax Preparation by weeding out those tax preparers who do not have the proper training.  We see this as a step in the right direction and welcome the change as this may even help tax practices like ours grow by displaying the value of tax preparation assistance and the importance of having a professional on your side.

Source:  IRS Webinar

Thanks to the efforts of Mr. Charles Freret, the following fax was sent by the Vice President of TurboTax.  If you are a taxpayer that has used Turbotax and filed with a 1099R for tax years 2007, 2008 or 2009, you should contact Mr. Meighan via fax at 858-408-2714

Last week, I did a blog post about Mr. Charles Freret who went on a one-man crusade to expose a flaw in the popular do-it-yourself tax program: Intuit’s TurboTax.  You can read that article & post here.   After Mr. Freret read the aforementioned post, he contacted R&G Brenner and agreed to sit down for an exclusive interview.  Mr. Freret’s story of persistence to discover the truth is incredible.  What he uncovered along his journey is TurboTax is miscalculating tax returns on a large scale.  And upon further investigation, the TurboTax flaw was present not only in the current tax year program, but tax years 2008 & 2007 as well.  Coverups, Lies & Government disinterest all will eventually lead to more money out of TurboTax users pockets.  Here is his story:

R&G Brenner (RGB): How long have you been preparing your own taxes?

Charles Freret (CF):…over 40 years

RGB: So you’re pretty well versed in preparing your own taxes, and you have been doing them by hand!?

CF: Yes

RGB: Was 2010 the first year you used TurboTax?

CF: No, I used it once before in 2004

RGB: But this tax year, you discovered a problem with the calculation of your taxes using TurboTax?

CF: That’s correct, and the only reason I used it this year…was because I had a free [e-file] submission

RGB: In order to get your refund a little faster?

CF: Yes

RGB: Ok…and you discovered that there was a problem with TurboTax increasing your refund.

CF: Yes, by [giving] a deduction twice.

Continue reading »

Well tax day is finally here!  It’s been a rough year for all american taxpayers due to the economic crises; including the employees and associates of R&G Brenner.  Therefore I would like to thank all R&G Brenner associates for their hard work, 12 hour work days and tireless efforts.  Without these experienced professionals, as well as all of our valued and loyal clients, R&G Brenner would not and could not be what it is today.  Thank you all.

Here are some last minute tips:

• If you owe taxes and are mailing in your returns, be sure the envelopes are postmarked by 11:59pm on April 15th.  If they are not, you will be subject to late filing penalties and interest
• If you owe taxes and need to file an extension because you are not ready to submit your returns, we can help you.  Remember, an extension does not preclude you from paying your taxes.  They must be sent along with the extension before 4/15
• Be sure to put primary & secondary (if applicable) Social Security numbers on any checks sent as payments
• Keep all personal return back up documentation of your deductions for a minimum of 7 years.  Keep all documentation for Business Tax Returns FOREVER.
• If you have not filed a 2006 tax return, or plan on filing an amended 2006 tax return, they also must be submitted before 4/15.  Any 2006 return submitted after this date will not be accepted, and all potential refunds will be forfeited
• If you are due a refund, no worries!  You have three years to file.  So don’t kill yourself trying to get your taxes filed by the 4/15 deadline
• If you filed your taxes yourself R&G Brenner is offering a free review of your self-prepared tax returns.  If your return can be amended to your benefit, we will reduce your quoted fee by the retail amount you spent on your software.  This is especially pertinent for TurboTax filers as it has come to light that their program is miscalculating tax returns.

If you have any other questions, please do not hesitate to contact us.

Thanks again and see you next year!

Benjamin K. Brenner, PRESIDENT

TurboTax–the leading do-it-yourself tax software estimated to be used by 40 million taxpayers in 2010–is miscalculating tax returns:

A flaw in the most recent version of TurboTax, the nation’s most popular tax-preparation software, may have caused thousands of retired federal employees to overstate their medical deductions and unwittingly underpay the Internal Revenue Service, according to federal officials.

Overstating your deductions–knowingly or unknowingly–can lead to large penalties and interest since it could take years before the IRS contacts the taxpayer alerting them of an adjustment.

Officials for Intuit, the Mountain View, Calif., company that produces the program, were alerted to the problem last week, after a retired federal worker from Virginia noticed that TurboTax had automatically double-counted his medical insurance premiums as deductions.

When questioned about the problem by a reporter last week, Intuit said it had begun working with the I.R.S. to revise its computer-prompted instructions on TurboTax and prevent such errors in the future.

The program has nonetheless been troubled by occasional glitches and security breeches, notably in 2007, when so many last-minute filers overwhelmed the TurboTax servers that many returns failed to make it to the I.R.S. by the filing deadline.

Both I.R.S. and Intuit officials were scrambling to gauge the scope of the problem involving the federal retirees, but said only a limited number of returns appeared to be involved.

As stated in a previous post here, there are many risks associated with preparing ones own taxes; particularly the prospect of miscalculations due to a failure to apply updates which are released frequently throughout the tax season.  This is not the first time TurboTax has had a calculation error in it’s software, and it won’t be the last. What is disturbing is the amount of persistence the discovering taxpayer had to exert for Intuit & the IRS to acknowlege and correct the problem:

The man who reported the problem, Charlie Freret of Chantilly, Va., stumbled across the error while using a free version of TurboTax to e-file a tax return he had already prepared on paper. Mr. Freret, who retired as a lawyer in the Department of Veterans’ Affairs in 2004, said he had hoped that e-filing would allow him to get his refund more quickly. But the tax return calculated by TurboTax promised him a refund $600 larger than he was entitled to because it automatically added his medical insurance premiums to his deductions — after the computer-generated prompt had instructed him to enter his health care expenses manually.

Mr. Freret reported the problem to Intuit officials and, when the company acknowledged the error but did not issue a broad warning about how to avoid it, decided to report it to the I.R.S. and the Treasury Department. But auditors at the Treasury Inspector General for Tax Administration were unable to duplicate the error when they tested versions of the software, so Mr. Freret contacted members of the news media, including The New York Times.

So it was not until Mr. Freret contacted the media that corrective action was taken by either Intuit or the IRS! Something is not right here.  The IRS & Intuit contends that this calculation error is limited to a small subsection of federal employees, however, judging from the “scrambling” going on, and launched investigations, I wouldn’t be so sure:

J. Russell George, the Treasury’s inspector general for tax administration, said his office was planning to begin a thorough review of TurboTax and similar software, which has become far more widely used than when last audited in 2005.

“This is especially troubling given the fiscal constraints that the nation finds itself in because this problem could allow people to pay less money than they owe,” Mr. George said. “It is truly incumbent upon us to let taxpayers have confidence that the software they use to prepare their returns will be accurate.”

How is it that the last time that the nations largest tax program was audited was 5 years ago?!  That doesn’t seem right.  Bill Singer of Stark & Stark law firm was recently interviewed by Forbes and had this to say:

…what I would say is that if there’s a winner in this mess and, you know, keep in mind that I think the tax code is something like 70,000 pages at this point, I think the winner is clearly TurboTax. I don’t know whether long term that’s a wonderful development because I suspect a lot of folks are going to make mistakes in doing their own taxes. But clearly there’s a trend in everything in life today toward going online and using a computer. And I don’t think that that necessarily bodes well for H&R Block or Jackson Hewitt. So that’s another issue.

If you would like a free review of your self-prepared tax return (TurboTax or other brands), contact us today. R&G Brenner will ascertain if your calculations are correct and check for deductions that the software missed and you deserve.  If your tax return was calculated incorrectly, contact the company and inquire how they intend to compensate you.  Most reputable companies will reimburse any potential penalties or interest assessed due to a calculation error on their part.

Sources: NY Times & Forbes

All is not well at the IRS.  According to the Tax Policy Center–and what is surely to exacerbate the Federal budget crisis-47% of American households will pay ZERO federal income taxes this year.

Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability…In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Even if you do not have to pay federal taxes this year, it is recommended that you still file a return as this is the only way to receive money back that was withheld by your employer.  If you are unsure if you are required to file a tax return or if you are due money back from your employer, contact us today.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners – households making an average of $366,400 in 2006 – paid about 73 percent of the income taxes collected by the federal government.

The number of households that don’t pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.

Obama’s Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.

There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.

“All these things are ways the government says, if you do this, we’ll reduce your tax bill by some amount,” said Roberton Williams, a senior fellow at the Tax Policy Center.

The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.

The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.

Here’s how they did it, according to Deloitte Tax:

The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.

Source: Huffington Post

The States are getting desperate.   New York & Connecticut (among others) are gearing up to enforce a tax law usually reserved for the rich and famous.  Athletes, for example, make millions upon millions of dollars and their travel schedules are well known. Therefore, when they travel to another state to play, that particular state taxes a prorated share of their annual income.  Due to the financial crisis and state budgets crises, now the Joe-the-Plumbers of the world can expect to be taxed just like the Joe Mauers of the world (who just signed the richest contract for a catcher in MLB history).

Anyone who crosses a state border for work — to make a sales call, say, or meet with a client or do a road show on Wall Street — probably owes income taxes in that state.

If you live in Boston but spend one out of 250 workdays this year in New York, you owe New York income taxes on 1/250th of your salary. And vice versa if you are a New Yorker visiting Boston — or Anywheresville, for that matter — for business.

Such laws have been on the books for decades, and they vary by state. But it is only recently, accountants and tax lawyers say, that many states appear to have picked up enforcement, expanding it beyond the wealthiest celebrities and athletes.

“The states are all hungry for revenue,” said Alan Clavette, an accountant in Newtown, Conn. “We are certainly seeing states like New York and Connecticut looking more and more for executives and everyday taxpayers who may be spending time across the border.”

Former NY State tax commissioner James W. Wetzler said aside from imposing this tax on the rich, it was largely a “don’t ask don’t tell” type of deal.  The amount of time and recourses required to go after the lawyers or traveling salesmen simply did not warrant the expense.  However, governing bodies now have access to tax data they never had before and this all appears to be changing:

But now states have greater access to data warehouses that help them better track taxes owed. Real estate transactions, federal data from the Internal Revenue Service, commercial license plates, traffic tickets, bids for government construction projects — all this information, newly digitized and dumped into a computer system, can help states find tax scofflaws.

“We’re sort of getting into ‘1984’ land here,” said Kenneth T. Zemsky, an accountant and partner at Ernst & Young. “A lot of the reason they went after athletes and entertainers is that they couldn’t find the other people. Now they’re able to get those people, too.”

Failure to file in accordance with this tax law can have serious consequences.  Most states take multiple years to investigate and come to final determinations on returns that they audit. Depending on the amount they claim you owe, it could lead to garnishment of wages and/or future refunds.  Also,  penalties and interest continue to accrue for the entire period of non-payment. Depending on the state, the penalties and interest could be greater than the amount of taxes.

It appears that the states best enforcement tactic may be requiring employers to withhold additional state taxes from employee’s paychecks:

State auditors may not be able to monitor every border-crossing, but with corporate payroll managers as their enforcers, they don’t need to…In some cases auditors check to see if, say, an employee who was reimbursed for airfare to California also had California income taxes withheld from his paycheck. If not, the company can be fined.

The bigger burden associated with distributing your taxes to more state governments is the administrative effort it requires, for both employee and employer. Many states require filing a return for a single day’s work. For peripatetic workers like salesmen or consultants, filing a pile of additional state tax returns can become prohibitively expensive, not to mention frustrating.

In other words, this all boils down to enforcement.  Even with all the new technology at the state’s fingertips, they may not have enough to gain with a full court press on this issue.  The future will surely reveal which states are the most aggressive.  The most aggressive states stand the most to gain, and reciprocally, they are the states that are more desperate to close their budget gaps.  The state of New York appears to be desperate, and thus we would not recommend that NY taxpayers take a “wait-and-see” approach.  If recent history is any guide, NY State will tax first and ask questions later.  If you think you will be affected by the enforcement of this tax law, please contact us.  An experienced R&G Brenner tax consultant is ready to guide and advise you through this process.

Source: NY Times

Tax time is one of the most stressful times of year for everyone. Besides worrying about possibly owing even more than you’ve already paid, there’s always the question of figuring out exactly how you’re going to get your taxes filed. Aside from a few whiz kids, I don’t know very many people who feel comfortable doing their own taxes from scratch. Some depend on a personal accountant, some depend on a calculator-savvy friend, and some just walk into the nearest H&R Block, Jackson Hewitt or R&G Brenner with an envelope stuffed full of receipts and a look on their face that says, “HELP ME!”

Lots of people have gotten the hang of using tax-prep software like TurboTax or Quicken, and these programs have become a reliable and easy way to get your taxes out of the way. But could going to a tax professional get you a bigger refund? Hiring a professional to do your taxes can be expensive, so how do you know whether it’s worth it?

Self-Employed? Call in the Pros

A good rule of thumb is that the more complicated your taxes are, the more likely it is that you would benefit from professional tax preparation. Ronald Seely, a senior tax preparer at Liberty Tax Service in San Francisco, says that professional help is best for “anyone who has income on a 1099 miscellaneous form … the self-employed, freelancers, and independent contractors.” Wages on a 1099 haven’t had any money withheld, so there are all kinds of taxes to pay — sometimes up to 40 percent of the total amount. That’s where a professional can help, Seely says. “We can find deductions to help with that.” You’ll be claiming deductions for business expenses, and it’s best to have a qualified tax preparer help you discover new deductions and find new ways to save money. If you’re a freelancer, going to a tax professional will help you get a refund that is well worth the cost of their service.

Higher Income = Higher Deductions

If you receive W-2 wages, you should think about professional help if you earn a large salary. If you earn $70,000 to 80,000 per year or more, it might be better to itemize your deductions in order to get the maximum refund and accountants can help you do that. People earning large salaries are also more likely to have taxes on investment income or rental property, as well as deductions like charitable contributions, all of which should be sorted out by a pro.

If you receive W-2 wages, but also have a significant amount of out-of-pocket expenses for your job, you’re a good candidate for tax help. If you do a lot of driving for your job, but are not reimbursed for mileage, if you have a home office, or have any other kind of legitimate business expenses, then you’ll want to claim those as deductions, and having professional help ensures that you won’t miss any opportunities to get money back.

Life-Changing Events Change Your Taxes, Too

Even if your taxes are usually pretty black and white, there are a few times in life when it’s a good idea to get a professional’s opinion. If you’ve just had a baby, bought a house, taken money out of a 401(k), or gotten married, there are tax implications that you’ll want to get help with and a professional tax preparer can help you become familiar with the kind of deductions you’ll be taking from now on. You’ll also get special consideration if you are in school or have recently moved for a job.

Source: Minyanville

The income tax refund checks will be in the mail, but with a two-and-a-half week delay.

Gov. David Paterson has temporarily halted income tax refund checks, with the last batch going out March 12 and no more scheduled to be sent until April 1.

“We paid all the way up until we hit $1.25 billion (in refunds)” Budget Director Robert Megna said Tuesday, explaining approximately $500 million is being delayed in order to get the state through the cash flow crunch that comes every March and is particularly bad this year.

About 1.35 million New Yorkers already have their income tax refunds in hand. Those who file from about now on should get their checks in about a month, Megna said.

But those who filed in late February and early March will likely have to wait about six weeks rather than the usual four weeks.

Paterson earlier warned the checks might be delayed due to the state budget crisis, which includes a drop in tax revenue and a budget deficit projected at more than $9 billion through the next fiscal year, which starts on April 1.

A number of large payments to localities for expenses such as schools and Medicaid are due in March, spurring the need for a delay.

“We know that’s an inconvenience to people,” said Megna. “We didn’t want to do it, but because we were put in this cash flow position we had to do it.”

Typically, more than 5 million of the 9 million New Yorkers who file get refunds, averaging about $1,000 each, Megna said.

The budget director downplayed the delay, noting that last year, $1.75 billion was paid before April 1, as compared to the $1.25 this year.

“We’ve always set a threshold,” he said.

Paterson earlier said some of the blame should rest with the Legislature which failed to make cut as deeply as the governor wanted during a special session late last year.

Lawmakers, though, noted the budget problems go back farther than that.

“This is not new,” said Sen. Roy McDonald, R-Saratoga.

Assemblyman Jack McEneny, D-Albany, said other states have been forced to adopt similar delays. He said he hasn’t heard complaints from the public about the refund delays.

“They need the money,” said Assemblyman Tim Gordon, of Bethlehem, who is in the Independence Party but caucuses with the Democrats. Gordon said he’s heard a few complaints from constituents waiting for their refunds.

Democratic and Republican lawmakers alike said they were frustrated with the lack of progress in completing the 2010-11 budget, due April 1 but which most observers say will be late.

Over the weekend, Democrats who control both the Assembly and Senate said they would set up bipartisan joint committees to work on the budget but as of early Tuesday evening that hadn’t happened.

Republicans, meanwhile, complained they were shut out of a meeting Paterson held with Democratic leaders Assembly Speaker Sheldon Silver and Senate Majority Conference Leader John Sampson.

Who pays

New Yorkers who file state income taxes: 9 million

Number of refunds due: 5 million

Average refund: Approximately $1,000

Source: The Times Union