Frequently Asked Questions

Click on a question from the list below to go straight to your question. Or, just page down and start reading.

 

How big is the Tax Code administered by the IRS?

  • In 1913, when our current income tax system began, only 11,400 words were needed to administer it. Currently, we have over 7 million words in the Tax Code. Folks, no matter how experienced you are, no one can know it all. Research is frequently required, especially since significant portions of it change every single year.

The IRS just called me on the phone–Watch out for this SCAM!

The IRS will NOT call you on the telephone.

 They use the United States Postal Service, and for important notices they will use certified mail.  Legitimate IRS agents provide badge numbers that you can verify with our local IRS office at 721-0333.  Thieves trying to steal your money through a scam use private phone numbers with a Washington, DC area code. The IRS will NOT call you up to tell you they are ready to arrest you. There is a lengthy legal process involved before anybody starts talking about going to jail.  The IRS will NOT ask you to go to your ATM and withdraw money or go to a local drugstore and buy gift cards to pay any amounts owed.  But thieves will.  HANG UP THE PHONE!  Do not talk to scammers.  Report the call to the IRS at IRS@tigta.gov as well as your local law enforcement.

What tax records do I need to keep?

  • The IRS maintains an excellent page on that very question. Follow this link to read it, then come back here for more details below.

How long do I need to keep copies of my tax returns?

  • It depends. The standard answer is 7 years for keeping copies of tax returns and all supporting documentation. HOWEVER, if you have a Net Operating Loss, you have to keep all the paperwork back 2 years and forward 3 years past when the loss is used up. This could be more than 20 years altogether. If you have business property (rental, etc.) I would keep any return that shows depreciation taken as long as you have the asset plus 3 years. Any return that shows an adjustment to property basis (example: energy credit on home) for a credit on the return must be kept as long as you have that property. Ask me BEFORE you shred those returns.

Do I need to keep my checkbook register and monthly bank statements?

  • Yes, as supporting documentation for your tax return. (See above) You can order copies from the bank, but there is usually a charge for this.

Do I need to keep those monthly statements from my broker?

  • Yes. If you bought or sold a stock during the year, the broker may or may not provide you with the cost basis. If you have reinvested dividends in your stocks or mutual funds, we need to keep track of that as well for your cost basis. If you have the monthly statements, we can look it up. Some brokerage houses charge a significant amount of money to replace these statements if you throw them away. If the statement shows no activity in your account, saving the year-end statement MAY be all that’s necessary. Ask me BEFORE you shred those statements.

What do I need to keep track of when I invest in stocks or bonds?

  • You need to be able to provide me with WHEN you bought the investment and HOW MUCH you paid for it. “How much” includes the original purchase price plus commission and fees, any reinvested dividends and capital gains, and the commission and fees upon selling it. Congress has mandated that brokers must provide you with this information for any investment they sell you. HOWEVER, the mandate does not cover any investments you transfer in to a broker or any investments prior to 2011! Most of the big brokerage houses already provide some of this information, but many financial advisors don’t. Reconstructing your cost basis is expensive and time-consuming. Don’t assume someone is keeping track of this for you. We charge $75 an hour to do this work. Keep your records.

Why do I have to pay income tax on “capital gains” in my mutual funds? I LOST money last year!

  • Any trading (buying and selling stocks) that your mutual fund manager does during the year generates gains and/or losses. You don’t get to use the losses, but any gain gets parceled out to the mutual fund shareholders, usually in December, on a 1099-DIV. This information is also sent to the IRS, who will be looking for this income on your tax return. Doesn’ seem fair, but who said taxes were supposed to be fair?

Do I need to make estimated income tax payments?

  • For the federal, only if the balance due on your tax return is going to be greater than $1,000.00. For New York, only if the balance due on your tax return is going to be greater than $300. For Pennsylvania, only if you have at least $8,000 of income on the return and no Pennsylvania withholding. Underpayment penalties are assessed if you exceed these amounts. Some exceptions apply, and we always try to use them if possible.

When are my estimated tax payments due?

  • April 15, 2020
  • June 15, 2020
  • September 15, 2020
  • January 15, 2021

Where do I mail my federal estimated tax payments?

  • New York residents:
    Internal Revenue Service
    PO Box 37007
    Hartford, CT 06176-0007
  • Pennsylvania residents:
    Internal Revenue Service
    PO Box 37007
    Hartford, CT 06176-0007

Where do I mail my New York estimated tax payments?

  • New York Estimated Income Tax
    Processing Center
    PO Box 4122
    Binghamton, NY 13902-4122

Where do I mail my Pennsylvania estimated tax payments?

  • PA Department of Revenue
    Bureau of Imaging and Document Management
    PO Box 280403
    Harrisburg, PA 17128-0403

I want to start a business–do I need a DBA (doing business as)?

  • You do not need a DBA if you are operating under your own name (John Smith). If you want to have a business name (Smith Contractors), you need to go to the courthouse and obtain a DBA.

I want to start a business–do I need a tax ID number?

  • You do not need a tax ID number if you are operating as a sole proprietor with no employees. If you hire employees, you will need a tax ID number from the IRS, and you’ll need to do a slew of other paperwork for New York State. You need to see an attorney if you want a partnership, corporation, LLP or LLC (limited liability entities). Caution: once you create that entity, you are stuck with filing the entity tax return until you dissolve that entity. Just like a child, you can’t abandon it willy-nilly.  We do not prepare corporate, LLP, or LLC tax returns in our office, but we can refer you to a good preparer.

I want to start a business–do I need to collect sales tax?

  • Good question, and out of my expertise. Contact the New York State Sales Tax Department at www.tax.state.ny.us and use their Online Tax Center. You can also call them at 1-518-485-2889. They can tell you if you need to collect sales tax and assign you a sales tax vendor number.

Do I have a business or a hobby, and what’s the tax difference?

  • According to the IRS, a hobby is engaged in for personal pleasure, with little or no profit motive. Hobbyists keep lousy (if any) records. Hobbyists would do their activity regardless of whether they made any money or not. Hobby INCOME is reported on your tax return, but hobby EXPENSES are taken only if you can itemize your deductions and subject to a 2% income limitation. Hobby expenses CANNOT be netted against hobby income.A business, on the other hand, is engaged in for profit. The income is shown on the tax return and the expenses are netted against it. The standard rule of thumb is to show a profit in 3 of the last 5 years (2 out of 7 for horses). But there are other considerations. Here are 9 factors listed in Treasury Regulation sections 1.183-2(b) that the IRS considers:
    1. The manner in which the taxpayer carries on the business–good records.
    2. The expertise of the taxpayer or his or her advisors.
    3. The time and effort expended by the taxpayer in carrying on the activity.
    4. Expectation that assets used in the activity may appreciate in value.
    5. The taxpayer’s success in carrying on other similar or dissimilar activities.
    6. The taxpayer’s history of income and losses with respect to the activity.
    7. The amount of occasional profits earned (an occasional LARGE profit).
    8. The taxpayer’s financial status (is this your only income).
    9. Elements of personal pleasure or recreation. Activities such as collecting, racing, raising animals, creating music or art are ripe for suspicion as to the existence of a genuine profit motive.
    10. Whether you have a written business plan.

Are there any advantages to E-Filing?

  • Accuracy: E-filed (electronically filed) returns have less than 1% errors, while paper returns have a 25% error rate. Your chance of being audited increases by 40% with a paper return. So, e-filing greatly reduces the chance of receiving error notice from the IRS.
  • Security: The IRS keeps your information private, and you choose a five-digit PIN as your electronic signature.
  • Proof of Acceptance: the IRS sends either an electronic acknowledgement of acceptance, or rejection notice with explanation, within 48 hours.
  • Fast Refunds: you’ll get your refund about twice as fast as with a paper return.

How exactly do I E-File?

  • To e-efile your return, it must be prepared using tax preparation software. So, we do it for you. In fact, we e-file every return in our office that is eligible for electronic filing.

Why isn’t my return ready?

  • We have over 500 clients, and although we try to space them out accordingly during tax season with pre-scheduled appointments, sometimes we get buried with information pouring in all at once through mail, faxes, email, phone messages, and personal drop-off. If we’re waiting for information from 50 clients, and they all call it in on the same day, we cannot immediately finish all 50 returns! Recalling our mother’s time honored adage of “Haste makes waste”, we concentrate on accuracy, not speed. Our goal is to provide you with a 100% accurate tax return. You have our mothers to blame for our internalized attitude of “Anything worth doing is worth doing well.”

What do you charge for a tax return?

  • It depends on how complicated and how labor intensive your tax returns are. Our fee is based on a “fee per form” Schedule, modified by any additional work (cost basis, research, sorting papers, etc) that we have to do. Because every tax return is different, it is impossible to quote a fee over the phone to a new client. However, we can review your previous year’s tax return and tell you what we would have charged to prepare it. We try to keep our fees reasonable for the work we do for you.

Where’s My Refund?

  • The IRS provides a web site, Where’s My Refund?, to help you track your incoming refund. To use this tool, you’ll need your Social Security Number, your Filing status, and the exact amount of your refund.
  • New York State provides Income Tax Refund Status. Beginning in February you may use it to track your NYS refund.

What if there’s a mistake on my return?

  • If the error is ours, we fix our mistakes at no cost to you. If the information provided to us is erroneous, we do charge to amend the tax returns because the 1040X and IT-201X are completely different forms from the original tax returns and take a significant amount of time to complete and process.  They are also paper returns (cannot be electronically filed), which take significant time to copy and assemble for mailing.