tax question

[singlemalt]

Nothing sets my heart a flutter like a letter from the IRS!

 

[jive1]

Really? That is still how we do it up round these parts. I thought they gave you a cheque to cash at the bar so it worked like a pay stub, it's proof you got cash. Do you guys just get a cheque you have to take to a bank or what? Sorry to go off topic...

Yes, that's what we get. A check that you cash at the bank.

On the rare occassion, we will get a check cashed at the bar, but I rarely accept it. When I gigged in Colorado, it was pretty standard practice except at a couple of corporately owned establishments. But, when I first moved here, I would always try to get a check cashed at the bar, and I would get funny looks like I was asking them to do something illegal. Once in a while, I'll work somewhere where they have a majority of the sales by credit card, and they may not have enough cash in the register to pay us out.

I'll always try to get paid in cash, or cash the check at the bar, but I don't always expect it.

 

[onosson]

if you sit down and enter your taxes honestly, and the auditors find an issue, they may audit you. Its not a death sentence, its a re-verification of what you stated, and if you have the documentation to back up your claims its not even that painstaking.

...

So to me personally, the argument for or against a tax pro is that of opportunity cost: your time to do it yourself vs. your money to have someone else do it. If you assume the results would be the same either way, the argument is which you value more, time vs. money.

Sounds like a very reasonable approach and is basically the way I look at it - the main reason I've stuck with my accountant is that he gives me such a reasonable rate for his services.

 

[jive1]

You know what dude, you're quick to tell everyone how to live their life (don't do any work or learning yourself, allow people to cradle you like a helpless newborn) but maybe, maybe, just maybe not everyone goes to tax professionals. Maybe some people see the need to consult a "tax professional" as simple exploitation. I mean, its as simple as you said, right? Make $$$, tax out a certain %, and you're done. No, it must be more complicated than that if you need to pay even MORE of your hard earned $$$ to a professional with multiple accounting degrees to figure it out for you.

Luckily we have things like Turbo Tax and TaxAct to do some of this grunt work ourselves, along with alittle education provided by the great Internet. So when you pretty much have all your taxes in the bag yourself, but only have one small question to find an answer to, you do what OP does and FIND THAT INFORMATION. You don't necessarily throw in the towel and drive to your local HR Block. So stop being so condescending just because you can't figure out your own taxes. Some people can.

EDIT: I read through the rest of this thread, and see pretty much everyone depends on tax pro's for their stuff these days. How much do you guys pay these guys??? I have no issue with the act of using a tax professional, just the above quoted guy's position that thats what EVERYONE should do... but for me personally, my employer sends me the forms I need, the government establishes the rules, TaxAct / TurboTax update their software according to the rules, and I just get real drunk and punch in numbers (tax day is fun day in Toastfuzz house!) And you know what, it works out, and the one time I DID go to HR Block to do my return, TaxAct found more credits and deductions I was eligible for than they did. My issue, if I can get alittle ranty here, is that I already work 40+ hours per week just to see 25% of my earnings stripped from me, everything I buy has additional taxes on top, some specialty items I buy (liquor, tobacco, gasoline) have specialty taxes on top of normal taxes, and just to be a functioning human being I pay for health insurance / car insurance / renters insurance. Of the money I make, at the end of the day about 40% is in my pocket and the rest is sucked into taxes and government-mandated expenses. So the last thing I'm gonna do after this global slap in the face is pay some guy who picked "Business" as his major because bonging beers wasn't an option to do my taxes for me.

For context, I'm 25 yrs old /IT degree/IT job, so probably have more "F the system" mentality than you guys too. So excuse me if my rant sounded rash. But I did just graduate from a state University (not to brag, just to express the diverse culture there) so I got to see how alot of Business/Accounting majors picked their field of study, and it wasn't a passion for numbers.

Sorry to rain on your rant, but I suggest that you grow up a little and see what the rest of your adult life will hand you before getting on the soapbox.

If all you have is a single wage, as a single guy without a whole lotta of assets you should be able to do your own 1040EZ in a few hours and be done with it. But, if you have rental properties, multiple homes, dependents, one or more businesses, lived/worked in multiple states or countries, own various investments, own a farm, and/or any myriad things that complicate your life your taxes can get a little complicated. Not something you get drunk and do in an evening.

Even someone who does their own taxes can benefit from a tax pro. There are times when everything is cut and dry, but sometimes there's some grey areas you want cleared up. Rather than ask questions on a message board where there is obvious misinformation, it's better to consult someone that actually knows what they are doing. That's what I meant by consulting a tax pro. Sure you can look up information, but it's also nice to talk to someone about your particular situation and how the tax laws can work to your benefit.

And for those who say an audit is no big deal, for some it isn't. For some it is. Either way, it will involve some of your time, and there's a million more things you can better use your time on than dealing with your taxes after you are already "done" with them. I see an audit like a gun pointed at you. It might be as simple as just stepping aside to avoid getting shot, but it's still stressful to be in that situation.

 

[Febs]

Luckily we have things like Turbo Tax and TaxAct to do some of this grunt work ourselves, along with alittle education provided by the great Internet. So when you pretty much have all your taxes in the bag yourself, but only have one small question to find an answer to, you do what OP does and FIND THAT INFORMATION. You don't necessarily throw in the towel and drive to your local HR Block.

I know that your post was not directed to me, but the reason I strongly recommend a tax professional in this particular case is because it appears based on the original post that the band leader has already gotten it wrong once, so he not only needs to figure out how it should have been done, he also needs to determine whether he can file an amended return to correct the mistake. He will also need to take into consideration the fact that it the amount he paid to the other band members exceeded $600, he failed to provide 1099s to them as required by law. Those are the types of issues that (IMO) are better addressed by a tax professional than by Turbo Tax or the like.

And he needs to 1099 them, not claim them as expenses.

He needs to claim them as expenses. He may need to 1099 them, depending on the amount that he has paid them. You make it sound like these are two mutually-exclusive options, and they're not.

 

[Steve]

And for those who say an audit is no big deal, for some it isn't. For some it is. Either way, it will involve some of your time, and there's a million more things you can better use your time on than dealing with your taxes after you are already "done" with them. I see an audit like a gun pointed at you. It might be as simple as just stepping aside to avoid getting shot, but it's still stressful to be in that situation.

Here's my "I got audited" story and it's about as easy as it gets:

A few years ago, I got audited. Someone sent me a late 1099 form for about oh, $400. I had sent my return in a few months earlier and figured what the heck, it's $400 so, it should be under the limit...if I did file the amended return form it's only going to add another $80 or so to my taxes...the heck with it. They'll never come after me for $80, right?

Wrong.

They sent me a nice little letter in 2010 saying they had issue with my 2007 return over a $400 undocumented income.
they did their calculation and figured with 3YEARS of interest / penalties and a general spanking fee...I owed therm $1600 more dollars.

I set up a payment plan with them, sent the money into them religiously and the next time taxes came around,,,they took the money I owed them and had set up a payment plan for...they took that money straight out of my wife's tax return.

Lord God she was capitol Pee Oh'd.

Over a $400 1099....

 

[Febs]

There seems to be a misconception in this thread that the law only requires you to claim income if you receive a 1099 for it, and therefore, if you are under the $600 1099 threshold, you do not need to claim the income. That is not correct. You are required to report all income, regardless of whether or not you receive a 1099.

 

[michael_atw]

Here's my "I got audited" story and it's about as easy as it gets:

A few years ago, I got audited. Someone sent me a late 1099 form for about oh, $400. I had sent my return in a few months earlier and figured what the heck, it's $400 so, it should be under the limit...if I did file the amended return form it's only going to add another $80 or so to my taxes...the heck with it. They'll never come after me for $80, right?

Wrong.

They sent me a nice little letter in 2010 saying they had issue with my 2007 return over a $400 undocumented income.
they did their calculation and figured with 3YEARS of interest / penalties and a general spanking fee...I owed therm $1600 more dollars.

I set up a payment plan with them, sent the money into them religiously and the next time taxes came around,,,they took the money I owed them and had set up a payment plan for...they took that money straight out of my wife's tax return.

Lord God she was capitol Pee Oh'd.

Over a $400 1099....

There's a difference between never sending one in and sending one in with errors. You picked the very wrong choice. I would venture a guess audits happen much more frequently on people who avoid to file something that is already on file (they have that 1099 on file, ya know) than someone who files their taxes but has a few exaggerations or errors. It wasn't really an "audit" because you didn't have anything to examine. It was the easiest money they ever made.

 

[Toastfuzz]

Sorry to rain on your rant, but I suggest that you grow up a little and see what the rest of your adult life will hand you before getting on the soapbox.

I keep regretting puking reactionary rants on forums, I admit its easy to interpret... my taxes aren't all that simple, and without getting too detailed, my contractor status means quarterly estimates + annual tax return, I still add in some salary income from before I was a contractor in 2011, I lurk around a tax bracket where properly deducting expenses has a HUGE impact, and have some nice complicated education / college loan related items to tally in. So while not the myriad of activity you mentioned, its still not a straight single-guy W2.

I just don't want people to think that doing their own taxes is impossible, or that if it starts to get alittle challenging to immediately throw in the towel. If I was in your position, then yes, the cost of paying a professional outweighs the time/risk of doing it yourself. Especially if you have properties at risk.

I agree with everyone that you can't believe everything you read on the internet, however you have to admit that there is alot of helpful tax advice in this thread for OP's situation, and with proper research you can parse out the misinformation and find what you need. Going to forums is great because someone may input an idea that you didn't have, and researching that idea could prove profitable.

Jive1, not going to get into an age debate, but you have to realize that my generation is entering adulthood with tools that previous generations didnt have. I also look at things from a systematic perspective (working in programming and all) so I would argue that a tax program such as Turbo Tax is SMARTER than your average tax guy.

This program is updated annually by a large team of tax law consultants, accountants, IT programmers, and tax professionals. To try to be the best product on the market they will formulate your tax return with as much money coming back to you as possible. They also are on the hook to cross every T and dot every I in their processes as they can't afford that kind of liability of being responsible for tax errors.

Not to bash tax pro's, but they are human and can make human mistakes. They can fall behind on their education and miss new updates to the tax law. They can be lazy/ignorant and not dig for all of the deductions and credits you're entitled to. Also, I don't know any one single tax professional who services millions of tax-payers. I do know of one software tool who can say that.

Nevermind that the more fallible tool costs an extra charge while the more refined and supported tool is mostly free (charges to do state, right?)

I dont know if anyone's annoyed at our off-topic tangent and if so I'll shut my mouth. To the OP's point, yes one answer is to go to a tax pro, but I'm pretty sure the correct answer is somewhere in this thread by now (can't be sure, I'm no tax professional )

 

[michael_atw]

Here's my "I got audited" story and it's about as easy as it gets:

A few years ago, I got audited. Someone sent me a late 1099 form for about oh, $400. I had sent my return in a few months earlier and figured what the heck, it's $400 so, it should be under the limit...if I did file the amended return form it's only going to add another $80 or so to my taxes...the heck with it. They'll never come after me for $80, right?

Wrong.

They sent me a nice little letter in 2010 saying they had issue with my 2007 return over a $400 undocumented income.
they did their calculation and figured with 3YEARS of interest / penalties and a general spanking fee...I owed therm $1600 more dollars.

I set up a payment plan with them, sent the money into them religiously and the next time taxes came around,,,they took the money I owed them and had set up a payment plan for...they took that money straight out of my wife's tax return.

Lord God she was capitol Pee Oh'd.

Over a $400 1099....

I'm trying to use the IRS penalty/interest calculator but I have absolutely no idea how $80 can turn into $1600 in 3 years. No clue at all. There's no way. According to what I've calculated, you would have been penalized with interest roughly $120.

Are you sure someone didn't scam you? I've heard of IRS scams..

 

[Toastfuzz]

I see an audit like a gun pointed at you. It might be as simple as just stepping aside to avoid getting shot, but it's still stressful to be in that situation.

And thats a common thought and a fear I'd hate to live in. I see an audit as my boss coming to me at the end of the month saying "are you sure these timesheets are accurate?"

If they are, no problem. If they aren't, well...

 

[SteveHeissner]

Get a tax professional to file for you. That in itself will cost you money, so hopefully you'll make enough playing music to pay someone else to do your taxes. My tax preparer files a schedule C for me. I keep track of every $$ I earn, every mile driven to the gigs, and depreciate the cost of equipment. It sometimes makes me want to quit playing music. We make so little $$ doing it and then have to pay the IRS and a tax preparer.

 

[jive1]

I agree with everyone that you can't believe everything you read on the internet, however you have to admit that there is alot of helpful tax advice in this thread for OP's situation, and with proper research you can parse out the misinformation and find what you need. Going to forums is great because someone may input an idea that you didn't have, and researching that idea could prove profitable.

And that's why it's good to consult outside of the forum. There's misinformation on this thread with probably none of it being intentional. How do you know who is correct, or not? Who is going to lead you down a rabbit trail that will waste your time or cause greater liability? That's the main issue. Not whether someone can do their own taxes.

Jive1, not going to get into an age debate, but you have to realize that my generation is entering adulthood with tools that previous generations didnt have. I also look at things from a systematic perspective (working in programming and all) so I would argue that a tax program such as Turbo Tax is SMARTER than your average tax guy.

This program is updated annually by a large team of tax law consultants, accountants, IT programmers, and tax professionals. To try to be the best product on the market they will formulate your tax return with as much money coming back to you as possible. They also are on the hook to cross every T and dot every I in their processes as they can't afford that kind of liability of being responsible for tax errors.

Not to bash tax pro's, but they are human and can make human mistakes. They can fall behind on their education and miss new updates to the tax law. They can be lazy/ignorant and not dig for all of the deductions and credits you're entitled to. Also, I don't know any one single tax professional who services millions of tax-payers. I do know of one software tool who can say that.

I've worked with tax software since 1996. I have seen bugs in the initial ones that would have cost me money or potentially raised a flag. Even with all their dotting Is and crossing Ts, they still need to release updates and fixes after the product release. I work in IT, so I know it's not uncommon. But because I know that, I know it's not 100% failsafe. And from a legal standpoint, the software doesn't have the same liability as a tax preparer.

Lots of times the software will do just fine, but it still has it's limitations. I've also used the "talk to a pro" feature on tax software, and that also has limitations. I've ran into situations where I had to consult someone, and I was glad that I did. Which is my main point - rather than try to find the answer on a message board, find it from a more reliable source. The misinformation on this thread alone confirms that as the prudent thing to do.

 

[jive1]

And thats a common thought and a fear I'd hate to live in. I see an audit as my boss coming to me at the end of the month saying "are you sure these timesheets are accurate?"

If they are, no problem. If they aren't, well...

More like "Were your time sheets from 3 years ago accurate? I would need some written documentation or evidence that you worked the entire 8 hours a day over a course of a couple months to verify it, or else you would need to repay us for the unaccountable hours with interest"

 

[jaywa]

I'm just a "weekend warrior" whose musical pursuits only net me a few grand in a good year... so all I do is take all my band income/expense documentation in to the person I already use for the rest of my personal tax prep. It literally costs me no more than about 20 extra minutes of her time so I figure since I'm there already anyway, why not?

 

[Toastfuzz]

More like "Were your time sheets from 3 years ago accurate? I would need some written documentation or evidence that you worked the entire 8 hours a day over a course of a couple months to verify it, or else you would need to repay us for the unaccountable hours with interest"

Touche. This must be why the IRS gets such a bad rap. However, if you worked in an environment that you knew scrutized your time that sharply, you would be tracking and submitting detailed logs of your time and activity, your boss would sign off his approval at the end of each pay period, and then you'd get paid. As long as you had kept the record of those logs and signoffs, knowing there was a chance they'd be scrutinized years later, you'd be fine, which is exactly what I'm trying to say.

But if we're gonna pick apart each other's analogies...

I see an audit like a gun pointed at you. It might be as simple as just stepping aside to avoid getting shot, but it's still stressful to be in that situation.

Are you saying if you got audited you'd have to leave the country?

 

[Freddels]

I wouldn't consider HR Block to be tax professionals.

 

[ric stave]

Oh stop. First off, I think it's something like 4/100 people who make less than 250k get audited. Second, most of the low-level audits of this kind are via mail, just asking for someone to substantiate the information on their tax forms. Generally, this happens when people deduct piles of stuff.

Third, the IRS has zero interest in chasing after someone for a $100 bill. That is an absolute waste of their time and money. A few times a year I would assume to equate to less than $1000. That means, roughly $200 in taxes and after deductions probably close to half of that.

Fourth, nobody gets "screwed by an audit". You fork over the books (in this case, the few gigs) and they look them over and administer the tax and penalty amount.


Making an audit sound like a death sentence over such a small amount of money is ridiculous.

{All of the following is not directed soley at this reply, just at this thread in general, and to the others who have issues with my post}

Guess I wasn't being clear - what I said was not directed at just the OP, it's that every time Tax Season comes up, there are similar threads, and similar advice that is so widespread and most of it is far from reality.

I MEANT ask someone who knows rather than ask for a bunch of anonymous opinions on the interwebz.

For a small amount of money, yes, it is not very complicated. For those who find themselves making a bunch more throughout the year, it can be.

And where in what I wrote did I say that 'consult a tax professional' means 'don't find out the real answers for yourself and pay HR Block (or someone else) to do everything for you'?

I've been through the band leader AND paid band member/sideman scenarios. I've been audited. And due to misinformation, I kinda felt I was screwed by the process - guess it was my own fault for not edjamacating myself better at the time. Further than that, I know a guy who also was audited, was told he needed to pay in the whereabouts of $18-20,000 to settle his 'mistakes' on his return. He challenged the 'ruling', and after 2 years of investigation into his case, the ruling stood, but at that point in time he then owed $80,000, just because of the time and interest (however the IRS calculates that...)



Sorry if my post offended anyone. I work hard for my $$ too, so I'm not willing to give up a chunk of it based on misinformation from a website, however well intentioned the givers of that advice are trying to be. For every post of solid, correct info, there are 2-3 more that are just completely misguided and wrong.

So, what's the best tax write-off for metal?

~ric

 

[Toastfuzz]

Hey, to anybody still workin on their taxes, TaxAct is, in my opinion, far superior to TurboTax and equally free for federal return. I just did mine last night, its very easy to follow the step-by-step questions they ask, and I'm confident I've covered all my grounds and the final amounts are correct. Also my tax return was far from simple... I had 6 months earnings as an employee, 6 months earnings as "self employed", I'd never paid my estimated tax on the self employed earnings so that got lumped into my return, along with the late fee, and I was able to enter all interest income / loan interest paid / additional income / etc.

Throughout the process I was trying to identify when and why a tax professional may have been a benefit to doing it on my own. Any portion I expected to be difficult was laid out before me very simply and was not difficult to go through. Any "unique" exceptions I was dreading figuring out was walked through in their question-answer process of entering information. The only thing I felt a tax consultant could have helped with is itemizing deductions, as the tax code is written with many grey areas. There were some deductions I feel I could have been eligible for but left off due to not being positive. I plan to do more research at the beginning of this year so I know what receipts to save for next years.

As for the fear of auditting... I could only advise to not claim anything you can't back up with paper. Filing cabinets are your friend.

 

[MiJaKo]

Hey, to anybody still workin on their taxes, TaxAct is, in my opinion, far superior to TurboTax and equally free for federal return. I just did mine last night, its very easy to follow the step-by-step questions they ask, and I'm confident I've covered all my grounds and the final amounts are correct. Also my tax return was far from simple... I had 6 months earnings as an employee, 6 months earnings as "self employed", I'd never paid my estimated tax on the self employed earnings so that got lumped into my return, along with the late fee, and I was able to enter all interest income / loan interest paid / additional income /...

Glad to hear that. I was wondering about TaxAct because it handles 1065s but was reluctant because of a Cnet review I read comparing it with turbotax.