'Tis the (Tax) Season
Kranacher, Mary-Jo, The CPA Journal
Another holiday season is over and a new tax season has begun. CPAs all over the country are sharpening their pencils and revving up their calculators. EHd I just write that out loud? What I meant to say was: They're installing their tax preparation software. Things have changed considerably over the past 30 or so years.
For example, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, taxpayers will see a rise in personal exemptions and standard deductions, an escalation of tax brackets, and an increase in income limits for IRAs in 2007.
One thing that hasn't changed is the preference of most taxpayers to receive a refund. Most don't comprehend the fundamental premise that receiving an income tax refund is tantamount to giving the government an interest-free loan during the year. Nevertheless, my guess is that most CPAs have experienced this pressure at some time during their career from their clients. Some may have even felt the need to use creative means to accomplish this goal. Beware-the IRS is watching!
The 1RS is also keeping a closer eye on charitable donations. The recently passed Pension Protection Act of 2006 changed the recordkeeping requirements for taxpayers who claim a deduction for cash contributions. If the contributions are made by payroll deductions, the taxpayer needs to retain a paystub, Form W-2, or other employer-provided document. The document should show the total amount withheld for payment to the charity and include a pledge card indicating the name of the charity. For calendar-year taxpayers, application of this rule begins in 2007.
Abusive tax shelters have been a hot item on the IRS's "naughty" list These schemes often use multiple flow-through entities, such as trusts, limited liability companies (LLC), or limited liability partnerships (T J -P), to conceal the true nature and ownership of income or assets for the purpose of evading taxes. "Form over substance" should be the effective guideline here. An arrangement that promises to eliminate or substantially reduce tax liability should be reviewed carefully. As the adage says, "If it sounds too good to be true, it probably is."
A Potential Pandora's Box
But the most interesting development in 2006 was the issue of patenting tax advice. You're probably asking yourself, How could this happen? …