David Burton CPA, LLC

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T A X   Q U E S T I O N S

Q:  A friend on Facebook said that Obamacase is gone and that I won't be penalized for not having health insurance anymore.  Is that accurate?
A:  Obamacare (a.k.a. The Affordable Care Act) is not gone, but, yes, beginning in 2018, the newly-signed Tax Cuts and Jobs Act repeals the individual mandate requiring folks to have minimal essential health insurance coverage, effective 1/1/19.

 

Q:   My sister's fiance told me that, with the new tax laws, everybody's tax rate has been lowered, so we will all be getting biggers refund on our 2018 federal tax returns.  Is that really true?
A:  Maybe.  While it is true that the Tax Cuts and Jobs Act lowers the tax rates for essentially everyone, the withholding tables were also adjusted in February of 2018 in order to give folks some of that tax break in their paychecks, rather than having them wait for their tax refunds in 2019.  So, on your 2018 tax return, while the tax liability will almost certainly be less, the size of the refund will depend on how accurate the adjusted withholding tables really are.

 

Q:  I received an email from a coworker that said we won't be to deduct property taxes, state income and sales taxes, home equity loan interest, or unreimbursed work expenses anymore on my 2018 tax return!  Is this right?
A:  Partially.  Beginning in 2018, the new Tax Cuts and Jobs Act takes away the deductions for interest paid on home equity lines and all miscellaneous deductions (including unreimbursed work expenses).  Property and state taxes are still deductible, but total deduction for this category becomes limited to a total of $10,000.  Donations will still be deductble.  But keep in mind that the standard deduction has been nearly doubled starting with 2018 tax returns, which means millions of taxpayers will now no longer choose to itemize their deductions anyway.

 

Q:  I received an email from a coworker stating that, because of Obamacare, my health insurance benefits at work are going to be taxed this year!  Is this true?
A:  No.  While it is true that IRS now requires employers to disclose on each employee's annual W2 the value of the employee's health coverage, it is not subject to any actual tax.  The value of the employer-provided health insurance benefits is for informational purposes only.

 

Q:  What is the difference between an ordinary dividend and a qualified dividend?
A:  A qualified dividend meets certain criteria and "qualifies" for lower capital gains tax rates.  Most dividend distributions currently qualify for the lower rates, but depending on time frame, source, and type, some dividends are taxed at higher "ordinary" rates.  Generally, the dividend payor will identity qualified dividends in box 1b of the 1099-DIV they issue to payees at year-end.

 

Q:  I need my refund quickly this year, but I haven't received my W2 yet.  But my brother-in-law told me that tax preparers can still file my return by taking information from my last paystub - is that correct?
A:  No.  In recent years, one large aggressive tax preparation firm tried to get the tax season jump-started earlier than usual by claiming they could prepare your tax return using your end-of-the-year paystub.  Already aware that this was a somewhat complicated and risky methodology to employ, many CPAs saw where this was going right away - a big firm using non-CPAs to prepare tax returns using paystubs was just asking for trouble.  Sure enough, the IRS saw a big jump in income reporting errors and amended returns, and subsequently threw the "false start" penalty flag, now prohibiting tax preparers from completing and electronically filing tax returns with anything other than the proper tax documents - Forms W2, W2-G, or 1099-R.

 

Q:  Some guy at Starbucks said we won't be able to take our kids as personal exemptions on our taxes anymore!  Is this true?
A:  Yes, as part of the new Tax Cuts and Jobs Act, personal exemptions are a thing of the past, effective in 2018.  However, the Child Tax Credit has been increased signficantly.  To read more on this subject, click here.
 
 

Q:  Wow, this new tax reform act seems to have taken away all of our deductions and credits! Is there anything left?
A:  One of the main goals of The Tax Cuts and Jobs Act was to simplify the tax code, and thus many deductions and credits were eliminated, while others were kept or embellished.  The standard deduction was nearly doubled and the child tax credit was significantly increased.  The earned income credit and dependent care credits have remained intact.  Also, deductions/credits for home mortgage interest, charitable contributions, higher education, and student loan interest are still there.

Q:  I owe Uncle Sam some money, but one of my friends told me I can't erase this debt by filing for Chapter 7 bankrupcy.  Is that true?
A:  No.  While most bankruptcies do not eliminate accumulated federal income taxes in arrears, if a tax debt is from a tax return with a due date over three years before the bankruptcy filing, the debt may be discharged if four other rules are met.  1), the tax return was filed at least two years ago, 2), the tax assessment is at least 240 days old, 3), the tax return was not fraudulent, and, 4), the taxpayer is not guilty of tax evasion.

 

Q:  I'm sick of working and want to retire.  My 401(k) is pretty fat, and I'd like to live off that for awhile, but I'm not 59.5 yet and it just kills me to think I'll have to pay a 10% early withdrawal penalty.  Is there any way around that?
A:  Yes.  There is a "loophole" is called a 72(t) (after the IRS Code section it is contained in), and it allows taxpayers to take penalty-free distributions from their IRAs.  This is accomplished by using what the IRS calls "substantially equal periodic payments", which is essentially a fancy way of saying you must withdraw money at least once a year.  The catch is, you have to keep making withdrawals for five years or until you reach 59.5, whichever comes last.  If you have a 401(k), you must roll that over into an IRA after you terminate your employment (yes, retiring is another requirement of a 72(t)).  There are other requirements as well, and if all of them are not met, the IRS will grab their 10% and then hit you with retro interest as well, so you really need a qualified financial advisor to set you up properly on this one.  And if you're still reading, check out this 72(t) calculator.

 

Q:  I love having our tax refund deposited directly into our bank account, but is there a way to split the refund between our checking and our savings accounts?
A:  Yes.  Individual tax filers can designate up to three separate bank or investment accounts to receive direct deposit tax refunds. Taxpayers who opt to split their refund between two or three accounts should provide account information on Form 8888.

 

Q:  How can I get a copy of a previously filed federal tax return?
A:  If you filed the return yourself, and you need an exact copy of a previously filed federal tax return, you will need to complete Form 4506 and mail it, along with a $57 fee for each tax year requested, to the address listed in the instructions.  If you had your return prepared professionally, your accountant should be able to provide you with a copy for a nominal fee.  However, most needs for tax return information can be satisfied with a computer printout of your return called a transcript, which may be obtained free of charge from the IRS by either calling 1.800.829.1040 or by filing Form 4506T-EZ.

 

Q:  Should I file my return electronically?
A:  The vast majority of tax preparers, including myself, highly recommend filing your tax returns electronically for a number of reasons.  First, unlike mailing your return, a receipt is generated upon filing, so not only is there no risk of the return getting lost in the mail, the taxing body in question can never say they didn't receive your return.  Second, your refund generally arrives much faster.  And third, these days, it's usually offered by most tax preparers who are also authorized EROs (electronic return originators) - like me - at no additional charge.

 

Q:  When should I expect my refund?
A:  If you file electronically utilizing the direct deposit option, your federal refund will likely appear in your checking or savings account in 7 to 10 business days (the fastest refund I've heard of to date was 4 days after e-filing).  If you file electronically, but choose to have a check mailed to you, that appears to take 2 to 4 weeks these days.  And if you choose to mail your return, the refund check takes 4-6 weeks on average.

But please remember - there are no guarantees on exactly when you will receive your refund (they do get hung up sometimes), so don't spend it until you are sure it is there!

And if you wish to check the status of your pending federal tax refund, click here.

 

Q:  What is the difference between a credit and a deduction - and which is better?
A:  A tax credit is a direct reduction in tax liability, independent of tax bracket. For example, a $2,000 tax credit lowers an individual's tax liability by $2,000, resulting in a bigger refund (or a smaller tax due) of $2,000.  Common credits are the earned income credit, educations credits, and child tax credits.  A tax deduction is an adjustment to income, like home mortgage interest, state income taxes paid, or charitable contributions, and, in contrast to a tax credit, will only result in lowering an individual's tax liability by the tax deduction multiplied by that individual's tax bracket.  Thus, for a taxpayer in the 15% tax bracket, a $2,000 tax deduction will result in a bigger refund (or a smaller tax due) of only $300.  So you can see why that, in general, it's much better to get a tax credit than a tax deduction.

Q:  Is there a "standard and acceptable" amount of charitable contributions I can deduct?
A:  Due in part to the "vagueness" of this particular line on the Schedule A (for itemized deductions), interpretations and myths have circulated and flourished through the years, which gave way to all kinds of wild methodologies for calculating the exact amount of a taxpayer's charitable contributions.  However, somewhat recent tax laws have redefined and clarified exactly what can and cannot be deducted for charity.  Essentially, every single dollar claimed for "cash" contributions must now be supported by documentation (bank records, receipts, etc.).  The IRS has promised to step up their reviews of all returns containing deductions for charity and to disallow deductions for unsupported donations.  For another perspective, check out this article.

Q:  What is the current standard mileage deduction?
A:  For 2018, the standard mileage deduction rate for business up by one cent - to 54.5 cents per mile (from 53.5 cents per mile in 2017). 
For 2019, the rate is 58 cents per mile.  For the complete table of standard mileage rates, including charity, medical, and moving, click here.

 

 


A B O U T   T H I S   O F F I C E


Q:  What are your credentials?
A:  I am a certified public accountant, certified by the state of Illinois in 1992.  I am registered with the Illinois Department of Financial and Professional Regulation.  I have 26 years experience preparing tax returns professionally, and I meet annually all continuing education requirements of my profession to stay abreast of the latest changes in taxation law.  Also, I am a member of the AICPA (American Institute of Certified Public Accountants) and the NSTP (National Society of Tax Preparers), as well as several other professional affiliations.  And I'm a taxpayer too!

 

Q:  What services do you offer?
A:  My forte is tax preparation for individuals and small businesses, and therefore, most of the services I offer center around taxes.  Besides full-service tax preparation, I handle IRS inquiries (from letters received to audit representation), tax planning and tax law consultation, business start-up consultation, and taxation tutorial.  I also do accounting and bookkeeping for small businesses.  If you have any questions, please feel free to contact me.

 

Q:  Why should I choose you to prepare my tax returns?
A:  I hope you will consider me for your tax preparation and consultation needs, as I promise to apply all of my knowledge and expertise to minimize your tax liability to the fullest extent of the law.  I will offer you personalized, friendly, honest, and complete service year after year.  I am available even after the tax season ends to answer any pressing tax questions you may have, so you can make informed decisions as you go through your day-to-day financial life.  I have built up a solid and verifiable track record of outstanding customer service (click here to view reviews from my clients). 

One thing I do not offer is refund anticipation loans - also known as "rapid refunds" - as these loans are, in general, horribly imprudent financial decisions, which flies in the face of everything I preach to my clients.  Another thing I do not offer (and will not try to sell you) are gimmicks (i.e., add-on "warranties" that charge you extra for guaranteeing the accuracy of your return - I offer that on every return I prepare and I wouldn't have the nerve to charge extra for it!).

Another thing I do not offer is a different tax preparer every year; I feel it is important to have a preparer who knows you and your personal, unique situation, year after year.  Note that, when you choose me to prepare your taxes, you are guaranteed that the same CPA will be personally preparing your returns every year - me!...   

Lastly, in the unlikely event I make a mistake on your return, I will pay all penalties and interest you are liable for, and, even if I didn't make an error, I will be available to represent you and assist you in resolving any disputes with the IRS.

 

Q:  But I really don't have an overly complicated return - and those places in the strip mall are cheaper, right?
A:  B
ecause I have just a fraction of their overhead costs, my prices are always competitive with (and usually less than) the big tax prep franchises, even though I offer most of the same services as their commercials advertise.  Also, the IRS advises that you exercise caution when choosing a tax preparer - only CPAs, tax attorneys, and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals.  Before choosing a tax preparer, I'd advise you to check out the IRS's tips for choosing a tax preparer

 

Q:  How do I know what I am going to be charged for your services?
A:  I realize that one of the most uncomfortable aspects of seeking professional services like a tax preparer is getting an idea of the cost before the work begins.  This is why I offer a free no-obligation initial consultation and quote for my services.  I can generally give a fairly accurate quote in just 90 seconds by simply asking a small handful of specific questions to the taxpayer.  Please try me - I like to believe I am approachable, honest, clear, and never pushy.

 

Q:  Do you offer discounts to seniors and/or veterans?
A:  Yes, I offer a 10% discount to all senior citizens, veterans, and active duty military.  Further, my per-form rates stay "frozen" for all seniors from year to year - in other words, if you are a senior, and your tax situation is the same from year-to-year, your fee will never go up.

 

Q:  Do I need to be present while my return is prepared?
A:  No.  My "default" plan is to prepare your tax return while you wait (as this is generally considered the quickest and most accurate way to complete a return), but that is certainly not a requirement, as I understand and respect the value of your time.  If you would prefer to drop off, mail, email, or even fax your tax information and documents, I will gladly prepare your return and contact you via the medium of your choice (phone, email. etc.), either with any questions or upon completion of the return.

 

Q:  What forms of payment do you accept?
A:  I accept nearly all forms of payment, including cash, money orders, personal checks, and all major credit cards.

 

Q:  I need my refund as quickly as possible - what is the fastest option you offer and how much do you charge?
A:  The speed at which taxing bodies process tax refunds has come a long way in the past few years - taxpayers filing their returns electronically utilizing direct deposit into a bank account are waiting an average of less than 10 business days for their federal refunds to be processed.  I never charge extra for direct deposit or electronic filing. 

Q:  I hear alot about identity theft these days; how secure is my personal information?
A:  I assure all my clients that I take great care in the security of personal and confidential information.  Electronic files are stored on a secure network and are backed up to an external hard drive frequently.  Hardcopies of any documents in my possession are kept in locked file drawers and, for security reasons, I never print or store hardcopies of your actual returns.  I utilize cross-cut shredders and it is well-fed with any documents that have been revised or are no longer needed.  And you can rest assured that, unless it is subpoenaed by a court of law, I will never ever share any of your personal information with anyone else.

 


 David Burton CPA, LLC  *  805 Plainfield Road, Suite 116  *  Darien, IL  60561  *  630.615.8531