Do you know what the IRS Form 3115 is? No? Good. Now you don’t have to.

Guess what, the IRS made a boo-boo again.

What about, this time? Trying to force almost anyone with a business or rental income to file form 3115 with their 2014 tax returns.

What’s that, you say? Never heard of that form? It is only for corporations, you’ve heard? Only for big business?

Well, guess what – until last Friday anyone with a rental or a business was required to file this form for the tax year 2014. Yes, that tax year for which we all have started preparing our tax returns.

The form is for changing methods of accounting, not something any of you individual tax payers ever heard of or thought you’d need to deal with. And the reason it was required is because the IRS had issued new and revised regulations regarding handling maintenance, repairs and capital assets on your tax return.

As of 2014, the new rules are in place, and the IRS required, in the original regulations, everyone to file a formal change of accounting methods to adopt the new rules. Not just adopt them from now on – but adopt them retroactively, calculating the difference in your income between your original treatment of the covered issues and the new regulations. Basically, this means going over your depreciation schedule and repair and maintenance expenses, and checking which of the capitalized expenditures should have been expensed per the new regulations, and which of the expenditures that were expensed should have been capitalized. For how long? Technically – since the beginning of your business/rental activity. That could be decades! That’s what the form 3115 is for, in this case. The resulting difference goes on that form, and from there to your tax returns in form of sec. 481(a) adjustment (positive or negative).

Learning how to fill this form and filling it is estimated by the OMB at about 60 hours. Imagine paying your accountant for 60 hours of work for doing that. Having a heart attack yet?

Obviously, accountants don’t charge every client for the 60 hours, but still – each client would add $100 (at least, per my CPA) to his tax preparation expenses. Those of us who would rather prepare themselves were forced to pay to a professional, since this is not a form you can do by yourself and is not supported by the major tax preparation software providers anyway.

So what happened last Friday?

The IRS backpedaled on the requirement and issued a new guidance exempting those with less than $10M of assets and $10M of revenue from the requirement to file the form 3115 and adopt the regulations retroactively. Those “small taxpayers” (mom-and-pop businesses and people with rental income) can now adopt the regulations going forward (without the need to audit/fix prior capitalization/expense decisions).

While the decision is good for taxpayers in general, it is a tad too late for those who had already hired accountants to deal with this mess, and those who wanted to file early (after all, the season started a month ago) and already filed their paperwork. These people have already paid thousands of dollars to tax preparers for a service they no longer need. Same goes for the tax preparers themselves, who spend the entire year preparing for this mess (widely anticipated, and warned about by the AICPA and NTPA) and paying hundreds and thousands of dollars for training which many of them no longer need.

Who is going to compensate the tax payers and tax preparers for all this mess the IRS got us into? Well, I hope my CPA won’t charge me extra for this…

Your Little Advisor.

PS: It may be worth your while to do the whole form 3115 thing, if the sec. 481 adjustment for you will be negative (i.e.: you can get a current tax break instead of continuing depreciating small assets). Talk to your tax adviser.

NOTE: This is not a tax advice and please don’t rely on this blog for any tax-related matters. In case of doubt talk to a licensed tax adviser - EA/CPA licensed in your State.

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The IRS now allows verifying credentials of your tax preparer!

I’ve written before about selecting your tax preparer. I’ve received several requests from people to write about how to verify the preparer is actually good.

While quantifying the quality is a difficult task, verifying that the preparer is properly licensed is now a very easy task, thanks to the IRS.

Using this site, you can look up any tax preparer and see what kind of license he/she has. You can also search for preparers with a specific license based on area/name, however the search results do not provide any contact information.

So now you can verify that the preparer who’s working on your tax return is a) properly licensed and b) can provide services advertised.

For example, only Enrolled Agents (EA), Certified Public Accountants (CPA) and attorneys can provide tax advice, i.e.: suggest you course of action, tell you what action will trigger which tax consequences, do tax planning, or provide authority for tax opinions adverse to the current regulations. Anyone else can only prepare tax return and make decisions only limited to the scope of such preparation.

Keep in mind however, that the IRS tool only provides information about professionals registered with the IRS. CPA/Attorney who doesn’t prepare tax returns – can provide tax advice without being registered with the IRS. So if you can’t find the name of your adviser – check with your State accountancy board or bar. However, that adviser cannot prepare a tax return for you, even if a duly licensed CPA/Attorney, without being registered with the IRS and appear in that listing. Enrolled Agents are registered with the IRS by definition, so they should always appear in the listing.

Also, tax preparers who have no credentials and haven’t joint the AFSP program will not appear in the listing despite being allowed to provide tax preparation services. If your tax preparer is in that group – you can verify the credentials by asking the preparer to show you the PTIN card. PTIN card is provided annually by the IRS to anyone who’s registered to prepare tax returns for others for that year. A preparer with PTIN card only can only prepare tax returns, and only during the period the PTIN card is valid.

Have a safe tax season!

Your Little Advisor

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A quick follow up on Turbo Tax Deluxe edition

As a follow up to my recent article, it appears that Turbo Tax Deluxe has been reduced in functionality from what you may have been used to from prior years. If you need to fill Schedules C, D or E you’ll need to buy either the Premier or the Home and Business version of the software.

However, if you have already paid for the Deluxe version and you do need these forms, you can either upgrade, or take the H&R Block on their offer and get their version which includes all the relevant forms - for free. Note – proof of purchase of the Turbo Tax Deluxe version is required. To redeem – follow the instructions here:

How do I take advantage of the no-cost upgrade offer?

To get the free H&R Block deluxe program, you must provide proof, such as an invoice, that you bought a TurboTax basic or deluxe program and email it to switchtoblock@hrblock.com. The company will then send a link for a free download. (Block’s deluxe software sells for $44.95 as a download on its website).

Your Little Advisor

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Getting ready to filing your taxes?

This is the tax season again, and many people are starting to prepare their tax returns. Some are preparing the documents to provide to their tax preparers (you might want to read this post on how to chose your tax preparer), others are trying to do it themselves.

This year I’m joining the ranks of those in the latter category. I will be using Turbo Tax to prepare my own tax return. I’ve mentioned Turbo Tax before on this blog, and it is my opinion that while may be more expensive – the Turbo Tax program is much better than the competitors (H&R Block was also reviewed here).

However, this year I have another suggestion to you. The US tax law is convoluted and extremely complex. Sometimes, the preparation software guidance is not enough to understand the terms or to answer the questions it presents. Many times, it suggest to go to the IRS instructions, which are notorious for not being very clear or helpful.

So what is my solution?

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The free speech and the Streisand effect.

“The Interview” (available on XBox and Google Play) has proven, once again, that in the age of Internet it is very hard to suppress information you do not like to have published.

There’s a thing called “the Streisand Effect”. It is called after the famous singer and actress Barbara Streisand. Why, you ask? Because at some point of time, circa 2003, Barbara wanted a picture of her house taken off of some web site.

No-one cared about the website or the picture until then and no-one actually really knew it was there or cared to look.

Until Barbara started making noise about removing it.

That’s when the traffic started flowing and the picture became famous and one of the most viewed at the time. Just a picture of a house on a beach. You can read more about it here.

What is the point? The point is that people are like little children, as a whole. You tell them “you cannot do that” – and it only encourages them doing that thing you have just forbidden them to do. Someone took a picture of your house? Who cares! You say we cannot see it? But we want to! Lets all go and see that picture!

Same with “The Interview”. The movie got a perfect score on Rotten Tomatoes even before it got released. Not because it is such a great movie (it is not, and the score went down significantly after people had actually watched it). But because of the publicity it got with the North Koreans trying to suppress it and Sony yanking it.

Some say that the Sony hack was a false flag attack (i.e.: they did it themselves and blamed the Koreans, as a publicity stunt), but I don’t buy it. Too much damage was inflicted to too many people (and Sony itself) to believe Sony would do it to itself.

But this has proven to us, once again, that the Streisand effect is going to happen any time someone tries to pull such a stunt. As log as we have the free and uncensored Internet, removing information from it by any single party is essentially impossible, and will only lead to that information being spread wider and talked about louder.

And that’s a good thing. And that is why we need to continue opposing legislation like SOPA or PIPA.

May be we should start renaming the Streisand Effect into the “Un Effect”?

Your Little Advisor

Who watched the stupid movie, and unless you really like Seth Rogen’s comedy – wouldn’t advise spending money on it.

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It’s that time of the year again!

We’re at the end of another year!

Usually at this time I’ll remind you of stuff and explain you some stuff. So instead of repeating myself, I decided to put together a least of my prior articles that are relevant to the end of the year time and the start of the tax season.

So… Here it is:

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No more “free loans” from your multiple IRAs

Starting with 2015, the IRS will start enforcing the new interpretation of the law which forbids the practice of taking “free loans” from multiple IRA accounts.

What does it mean?

For a long time there’s been a practice of taking distributions out of an IRA, keeping/using it for up to 60 days, and then depositing back to an IRA. A kind of free short term loan.

If a taxpayer had multiple IRA accounts, it has been the IRS position that the taxpayer could do this “trick” once a year per account.  This changed this year.

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