DARRIN T. MISH: Welcome, welcome, welcome this is Darrin T. Mish your IRS Solution Attorney.
KATRINA MADEWELL: And I’m your co-host welcome to the show I’m Katrina Madewell.
KATRINA MADEWELL: Thanks for joining us today.
DARRIN T. MISH: How are you doing?
KATRINA MADEWELL: I’m doing great.
DARRIN T. MISH: Me too.
KATRINA MADEWELL: I can’t complain
DARRIN T. MISH: It’s kind of gloomy outside so we have to be the sunshine inside.
KATRINA MADEWELL: St. Patty’s day and you forgot your green. That’s why I’m pinching you.
DARRIN T. MISH: She literally just pinched me.
PAT: Yes she did.
DARRIN T. MISH: And it hurt too.
KATRINA MADEWELL: I just noticed that, Charlie had green you had green, he didn’t get the memo.
DARRIN T. MISH: Well I kind of have a limited closet right now.
KATRINA MADEWELL: Yes you do. So our topic for today is 5 Tax tips for Millennials and if you would like to call in and ask a question like if you owe the IRS money or you got a letter or something funky. You can call at 888-404-1010, 888-404-1010.
DARRIN T. MISH: What’s that number?
KATRINA MADEWELL: 888-404-1010 same as your phone.
DARRIN T. MISH: So I thought I would do this show today about tax tips for Millennials.
KATRINA MADEWELL: Why Millennials?
DARRIN T. MISH: A lot of the time we just focus on you know the older folks who have more money and who have bigger tax problems. But younger people can have tax problems too and although they seem to be a little bit rarer when they come in because their problems tend to be smaller but my big question is?
KATRINA MADEWELL: Maybe their tax debt just hasn’t seasoned yet.
DARRIN T. MISH: I certainly wasn’t saying the people were smaller but because there income tends to be stereotypically smaller.
KATRINA MADEWELL: Well cause your average client is what 10 years from not filing or more?
DARRIN T. MISH: And they tend to be you know 40 years old or older, kind of takes a while to screw up your life, spoken by somebody who has done it a couple of times. But one of my questions and I’m going to ask you because I don’t know, I guess I could ask Google but what age range are Millennials? I just know that it is a hip sort of term.
KATRINA MADEWELL: All I know is they are younger than me so (inaudible)
PAT: Yeah I think they are 24ish.
KATRINA MADEWELL: I mean you have Gen X and Gen Y and like all these other age brackets.
PAT: Yeah between 25 and 30 Millennials.
DARRIN T. MISH: Ok just looked it up and it says a person reaching young adulthood around the year 2000.
KATRINA MADEWELL: Yeah my daughter was born in 2000.
DARRIN T. MISH: So that could be like…
KATRINA MADEWELL: So she, I thought she was considered Millennial but I guess not.
DARRIN T. MISH: So like I think it’s a little older Pat like 30-35.
PAT: Well if they were born in 1980.
DARRIN T. MISH: Something like that. Anyway it’s for people who are younger than us, younger than all 3 of us actually.
KATRINA MADEWELL: Unfortunately you are right about that.
DARRIN T. MISH: So the 1st tip is going to be you know make sure you are filing all your returns and schedules like you are supposed to. It’s very common….
KATRINA MADEWELL: I have a technical answer for that.
DARRIN T. MISH: For Millennials?
KATRINA MADEWELL: Yeah so it says 1987 they coined the term around 82 born children were entering preschool when they first identified there perspective link to the Millennial year 2000.
So 1982 till 2004 does that sound right?
DARRIN T. MISH: Ok sure so.
PAT: The new one’s generation X, that’s the new one.
KATRINA MADEWELL: See my daughter’s a tail end of a Millennial because she was born in 2000.
DARRIN T. MISH: Ok so could be like anywhere from 34 to age 12.
KATRINA MADEWELL: Yeah.
DARRIN T. MISH: Ok fascinating.
KATRINA MADEWELL: Well not 12 she is almost 16.
DARRIN T. MISH: 12 year olds don’t have a lot of tax problems so lucky for them although they do owe a lot of debt already.
KATRINA MADEWELL: You know it’s funny though because you hear all the time about these kid’s that create apps, they create companies and there are like you know.
DARRIN T. MISH: Yeah my son whose almost 14 he is in 8th grade, he would like to just quit school now and just you know go for it. And…
KATRINA MADEWELL: Tell him as soon as you can make enough money to go for it you might have that option.
DARRIN T. MISH: Always busy studying like you know language arts and Spanish and math and things like that.
KATRINA MADEWELL: Stuff that we don’t think is important we have that argument in my house regularly.
DARRIN T. MISH: I’m not thoroughly convinced anymore that that stuff is all that important but you know there is a law about graduating. I guess you don’t have to graduate.
KATRINA MADEWELL: According to the plumber a couple of weeks ago right you have to know Trig. Just to be a plumber.
PAT: That’s an advance job now with a lot of people having to get knocked out of that.
KATRINA MADEWELL: I had no idea that you had to know trig to be a plumber.
DARRIN T. MISH: Isn’t there an app for that?
KATRINA MADEWELL: Probably.
DARRIN T. MISH: We are going to talk about Apps in a minute here, there is an app for almost everything else. I can remember taking Algebra and I had to take it more than once when I was a kid because it didn’t quite stick because I thought it was really boring. But I can remember back then thinking you know if I need these if I need this stuff when I grow up if I take a job like that I’m just going to hire somebody to do this.
KATRINA MADEWELL: I can hear your son saying that.
DARRIN T. MISH: You know that’s been like 40 years ago that was my attitude and it remains. I can hire somebody in Bangladesh to do that algebra for like $3.
KATRINA MADEWELL: Yeah and now there is an App for that.
DARRIN T. MISH: Yeah exactly you carry it around in your pocket.
KATRINA MADEWELL: So the first tip for Millennials is to make sure you are filing all your tax returns and your schedules that you are supposed to be sending taxes are more complex than ever so it’s easy to do it if you are not careful. So let’s elaborate on that.
DARRIN T. MISH: Give you an example so let’s say you get a 1099 so you are technically self-employed, you are an independent contractor that’s the phrase that we use. So you are supposed to file a Schedule C, I mean everybody knows that you are supposed to file the Schedule C that is where the gross income goes and you take your business deductions off the Schedule C. But occasionally you will see people forget their Schedule SE, SE stands for self-employed and SE the Schedule SE is sort of evil because what it does is it calculates your self-employment tax which is 15.3% off the top not off the top of your gross.
KATRINA MADEWELL: It’s a high bracket for somebody that doesn’t even look at them self as being self-employed.
DARRIN T. MISH: Yeah pretty routinely I see people that say well you know I’m not making much money I’m not going to owe that much tax when I file this tax return and you go well you might be surprised you know if you only had $10,000 net income from your self-employment activity you are looking at you may not have much income tax at all but you are going to owe self-employment tax owe at least $1500.00 so…
KATRINA MADEWELL: What other things like that have you seen with Millennials? Because we talk about that right the kid that had a job putting out signs and you got a 1099 what other instances can you think of?
DARRIN T. MISH: Well we are going to get to some more that have to do with selling things on the Internet. You know before, in the 90’s I mean I’m dating myself, in the 90’s after the internet, it was really new and these sites like EBay and PayPal, things were really new. I mean there was no mechanism, the IRS had no mechanism to trace that income but now these sites now are especially PayPal are issuing 1099’s because PayPal is a bank you know we don’t really think of PayPal as being a bank but they are a bank.
DARRIN T. MISH: So you want to make sure that you…
KATRINA MADEWELL: I guess they have to be classified as something so that would make sense.
DARRIN T. MISH: So you are going to want to make sure that you report your income for things that you sell on EBay, Craigslist or those types of things. Craigslist as far as I know doesn’t issue 1099’s because that is just a site to connect people but EBay definitely does in fact I’m handling an audit right now where the gentleman, what he does he just has a knack for the value of old car parts so he go to junk yards and he will pull parts off of vehicles that he knows that he can make a buck on and then he will go ahead and put them on EBay and he will ship them, he focuses on things that are smaller that you can ship and he wins sometimes and he loses sometimes and so in this gentleman’s particular instance it’s going to be really important that he keep track of his basis and we talk about that sometimes on the show.
DARRIN T. MISH: The basis for this gentleman would be if he buys a car widget for $10 and sells it for $20 he is going to pay tax on the profit of $10 so the problem that he had was he didn’t keep any of the purchase records so he had no basis he just figured he would leave it off the tax return but when that 1099 came into the IRS from EBay then you know the computer at the IRS matched up there was no matching..
KATRINA MADEWELL: Never would’ve thought about that had no idea that you got 1099’s from EBay but I don’t sell anything on EBay.
DARRIN T. MISH: If he had bought car parts let’s say he just had a pile of old junk cars out back and he had paid for those cars with after tax income and he was just parting them out then he wouldn’t actually owe tax because he would have basis and he wouldn’t be recovering the entire basis.
KATRINA MADEWELL: EBay was originally supposed to be an auction site so how did they get into sending out 1099’s?
DARRIN T. MISH: Well EBay is more like a… it is an auction site but it’s almost more like a marketplace site like Amazon.
KATRINA MADEWELL: Right it’s become that way.
DARRIN T. MISH: Because there are so many EBay you know power sellers and what not.
PAT: Now if you sell like that can you deduct the packaging and things like that from the taxes, you put car parts in boxes?
KATRINA MADEWELL: Why couldn’t you it’s an expense, it’s a real expense.
DARRIN T. MISH: So that is one of the things that we had to help him calculate was what the cost of the shipping was and what the cost of all the packing material and what not and it did turn out that he didn’t have much income after all from that activity but the IRS sure thought that he did.
KATRINA MADEWELL: You have to justify everything I guess. Right like at the end of the day you probably didn’t make much at all. That’s what the paper said.
DARRIN T. MISH: I think the key is to just when you are going to go off in business you are going to want to make sure you set up some system for keeping track of your expenses and you know your profit, your revenues because what often happens is we go into business is because we are good at a particular thing and then things, as you become more successful things sort of get out of hand you get busier and busier and then if you have no system at all then you are going to create problems for yourself.
KATRINA MADEWELL: Even just a separate bank account that a bookkeeper can come in and keep track of all that would be extremely helpful.
DARRIN T. MISH: I’m nodding vigorously here yeah of course a separate bank account is important, you want to make sure you have a business account and a separate personal account. Very often you see co-mingling and that just causes headaches and problems down the road for the accountant or the bookkeeper.
KATRINA MADEWELL: Well you are listening to the IRS Solution Attorney show with Darrin T. Mish, I’m your co-host Katrina Madewell we will be back in a couple of minutes if you would like to call we will answer your tax questions live 888-404-1010. 888-404-1010 todays show is 5 Tax Tips for Millennial’s. Back in a minute.
KATRINA MADEWELL: Welcome back you are listening to the IRS Solution Attorney show with Darrin T. Mish,
I’m your co-host Katrina Madewell thanks for sticking around.
DARRIN T. MISH: Yeah we are talking about 5 Tax Tips for Millennials today. Just talking about ways that people can avoid problems in the future coming up and make sure they are getting the maximum refund’s that they are entitled to.
KATRINA MADEWELL: And if you or someone you know has received an IRS letter feel free to call the show because we are here live 888-404-1010 and Darrin would love to answer your question, 888-404-1010.
DARRIN T. MISH: I live for questions it’s not like I answer questions all day long at the office but yes I absolutely would love it if you would call in and we could answer your questions that are just plaguing you with regards to taxes and the IRS today.
KATRINA MADEWELL: We were talking about how much fun it is for the show to go sideways as opposed to the agenda.
DARRIN T. MISH: Yeah it’s a lot more fun to just kind of talk about things that just come up as you know spontaneously then you know stick to the program or stick to the outline that we have here today. But the next point I wanted to make was to go ahead and use technology when it makes sense and I don’t know if that statement even makes sense without a little bit of elaboration.
KATRINA MADEWELL: I don’t think it does.
DARRIN T. MISH: There’s some really cool, well let me talk about this first if you earn less than $62,000 a year. The IRS actually provides free file which is a program where you can electronically file you tax returns for free.
KATRINA MADEWELL: Wow.
DARRIN T. MISH: It’s kind of cool it’s not that great for tax preparers and all thing.
KATRINA MADEWELL: But imagine if the IRS prepared it, it might not be in your favor but….
DARRIN T. MISH: Well you know do you remember filing a 1040 EZ back in the day probably when you were 15 or 16 or something like that. I think the program was primarily aimed at those folks. If you have a 1040EZ type situation which means you are a wage earner, you’re not married, no kids, earn under $62,000 a year. There’s not a lot to calculating your taxes or generating a tax return so that is why I think this free file you know program from the IRS is available, it’s really for those folks and it’s not really fair to ask those people to pay really anything to do there taxes because it is literally you know what’s your income on your W-2, how much tax is withheld you know and it’s done.
KATRINA MADEWELL: It’s pretty simple.
DARRIN T. MISH: It’s fast tot.
PAT: You know I had a question about the new health care deal apparently I’ve been told or I’ve heard that you know if you bought health insurance it’s going to save you some money on your taxes this year can deduct that stuff.
KATRINA MADEWELL: Health insurance is not usually deductible.
DARRIN T. MISH: Well yes and no we’ve talked about on the show many times how the Obama care penalty which is called the Shared Responsibility Payment which I absolutely love because it sounds like something out of George Orwell’s 1984 this is your Shared Responsibility Payment. Which is really just a penalty but if you’re employed and you are paying for health insurance then no it’s not deductible. Is your wife self-employed by any chance?
DARRIN T. MISH: Ok well that makes a whole different ball game you know.
KATRINA MADEWELL: Completely different scenarios.
DARRIN T. MISH: Health insurance premiums for self-employed people can be deductible not always but they can be deductible and so that could save you some money on your taxes and I think that is actually good government policy because if as a society we are trying to encourage people to get health care coverage so that you know society doesn’t have to pay for it when you get sick. I think that it does make sense to make those you know payments deductible and they are a legitimate business expense in my mind.
PAT: Yeah and how much of that is deductible 70, 60 or 100?
DARRIN T. MISH: No up to a 100% so another thing…
KATRINA MADEWELL: So they sock it to you if you are self-employed buying health insurance.
DARRIN T. MISH: Well for sure I can remember when we first started my law practice I mean this was years ago, probably close to 20 years ago, we went out searching on the marketplace for health care for a family of 4 and the premiums were over $1000 a month you know 15-20 years ago and I can remember just kind of hollering at my wife not really at her but just about the situation saying “Who in the world can afford that?” You know and now I think it’s fairly common for health insurance premiums to be a $1000 a month.
KATRINA MADEWELL: It wasn’t that long ago that was probably more than a lot of people’s mortgage payment.
DARRIN T. MISH: Oh for sure and so you know when you are young and in good health it’s tempting not to go with health insurance, it is it’s really tempting but I in my practice I’ve seen many, many people who I’ve encouraged to get health insurance for tax problem resolution reasons cause it is a deductible, allowable expense on a monthly basis and I have had at least 2 people did not have health care for many years, we encouraged them to get them, get the health care for all for compromise purposes so we can make a better deal with the IRS and subsequently they came down with a life threatening illness and it saved there life and so…
KATRINA MADEWELL: Well if they have like cancer or something, gosh
DARRIN T. MISH: Yeah it gives you goosebumps just thinking maybe that’s why they maybe that’s why they had the tax problem in the first place.
KATRINA MADEWELL: Serendipity all of it.
DARRIN T. MISH: So that we would encourage them to get health care and they did not pass away so I think that’s kind of an interesting cool story.
KATRINA MADEWELL: I think that’s awesome I mean really wow.
DARRIN T. MISH: Yeah you are never happy to hear that somebody came down ill after you come in contact with them.
KATRINA MADEWELL: Yeah but they didn’t have health insurance all that time and then they did.
DARRIN T. MISH: Absolutely. So another thing I wanted to talk about with regard to technology I see this all the time particularly with self-employed people is that they have no effective way to keep track of their mileage and so they just spitball it at the end of the year and they just guess and if you are audited that is going to be one of the biggest issues is how did you drive this mileage figure and so there’s a couple of cool apps that I know of for your smart phone, with Android and…
KATRINA MADEWELL: I know for people like me like real estate agents that is a pain in the you know what.
DARRIN T. MISH: Yeah!
KATRINA MADEWELL: You know how many times we have our schedule set and then it just gets sideways like you will get a call that will go hey by the way were adding in the property for so and so and then the next thing you know there is 4 more on top of it you know it’s a 100 more miles away something like that.
DARRIN T. MISH: Absolutely and you know the law says that you have to have a Contemporaneous Mileage log. That means you are supposed to be keeping track as you go, you are not supposed to be going back and recreating your mileage log and so one of the coolest apps for this is actually called Mile IQ. It’s a little on the pricey side it’s about $59.99 a year I think but this app is so cool. What it does is it can sense every time that you are in the car and I think that’s by speed, I mean you can’t walk 20 mph and so it knows if you are going over a certain speed that you must me in the car and what it does is tracks every single trip that you take in a car and then at the end of the day or the week or the month even you just swipe left to right and you can see you can see all the trips and you are just like ok this one is from home to the office that’s personal it’s not deductible we’ve talked about commuting mileage is not deductible.
DARRIN T. MISH: In the past so but then when you know when you went from the office to go show a house for example now that would be definitely business mileage and it adds up really, really fast and so that’s a really cool app and there’s a couple of other ones. Theirs is a couple of other ones, there’s one called Tax Mileage, there’s one called Mile bug, Track my drive , there’s a few and I think that since we are all walking around with these smart phones in our pocket or purses we want to go ahead that we utilize that technology and maximize our tax refund.
KATRINA MADEWELL: We have a call from T can we take that? Welcome to the show.
DARRIN T. MISH: Hey T
T: Hey how are you doing today?
DARRIN T. MISH: Good how are you?
T: Oh I’m good. Quick tax question I say about 2 years ago I had a car loan with Chase and I gave the car back and everything and so after I get the car back, when I first bought the car first of all I paid the taxes on the car then after that 2 years later Chase I get a get information from the IRS that I owe taxes on this car that I gave back to Chase after they sold the car. Is that legal?
DARRIN T. MISH: I’m going to go ahead and try and fill in…
KATRINA MADEWELL: So you had a car and you probably gave it back as a voluntary repossession and then they sold it at auction and they you got an IRS letter?
T: Yeah saying that I owe $8000 on that.
DARRIN T. MISH: I’m going to fill in some blanks here. I think what you probably got was a 1099C for cancellation of debt does that sound right?
T: I believe so.
DARRIN T. MISH: So they cancelled some, it sounds like if you have an $8000 tax bill they cancelled some significant you know debt, I don’t know maybe $20 or $30,000 and then…
DARRIN T. MISH: So you supposedly, the theory is that since the debt was cancelled you got the benefit of that money like it had run through your bank account and so they want you to pay taxes on it, I mean that’s the theory.
KATRINA MADEWELL: That’s how the IRS is thinking which doesn’t make sense.
DARRIN T. MISH: But there’s a pretty good pretty big exception to that rule and that is if you were insolvent at the time of the cancellation of the debt then you don’t actually have to pay taxes on the cancellation of debt.
KATRINA MADEWELL: So explain what insolvent means.
DARRIN T. MISH: Ok insolvent means at the time of the cancellation of debt you had more liabilities, you had more bills then you had asset which is stuff. Ok and so most people, this happens the most common scenario that we see this is in homes, people figure there upside down in a house and so they walk and then they get a big 1099C at the end of the year for cancellation of debt, you know I’ve never heard of one in a car situation but it makes perfect sense so the way you are going to..
KATRINA MADEWELL: So Chase is notorious for pursuing bad debt you see it all the time.
DARRIN T. MISH: Ok go ahead T.
T: What bothered me is when I first bought the car I paid the taxes in the beginning, I was just wondering how can they come back after me after I gave the car back?
DARRIN T. MISH: Different kind of taxes, when you buy a car you are paying sales tax and when you got the 1099 that was theoretically on income tax because you had bad debt that was forgiven what tax year was that for T?
T: I think that was probably 2013.
DARRIN T. MISH: You still have time to go back you can amend that tax return you got to look up for 982 file an amended return and..
T: But here is the deal I am already agreed I’m already paying taxes on it now. I already set up a payment with the IRS, but I was wondering can I go back and…
KATRINA MADEWELL: I tell you what T hold on just a second and will continue your question we have to take a hard break. At the bottom of the hour you are listening to the IRS Solution Attorney show with the attorney Mr. Darrin T. Mish I’m your co-host Katrina Madewell just keeping the show and the conversation moving along we will be back in just a minute hang tight.
KATRINA MADEWELL: Welcome back you are listening to the IRS Solution Attorney show thanks so much for sticking with us through the break. We have T on the line he actually called in so I’m going to recap his question he got an IRS cancellation of debt or a 1099C because he had a car he gave it back to Chase, Chase basically resold it for less and they sent him a 1099 bill and he said that he paid taxes on it already but he was talking about the sales tax is that right?
DARRIN T. MISH: Yeah that is what I’m thinking or seeing T.
KATRINA MADEWELL: Ok so pick up your question like backtrack just a little bit T where we left off.
T: So what I was saying is I got the bill and there saying that I owe $8000 I mean since I went ahead and agreed to it.
KATRINA MADEWELL: And you already started a payment plan didn’t you say that?
T: Yeah I already started a payment plan can I go to the table with IRS and say you know try to amend that or something or is it too late since I agreed to it?
DARRIN T. MISH: No you actually can go back and amend that so if it was a 2013 tax return you still have 3 years to amend so 2013 was due April 15 2014 and so we still have time so you are going to want to go ahead and download for 1040X. Ok and basically that’s an amended tax return form and what you do is you show the old return, the new return and the changes you want to make and so the change is going to be just to take off the cancellation of debt. This might be a little bit above your ability so any tax preparer can do this or you can call our office at 888-Get-Mish that’s 888-Get-Mish, 888-438-6474 you can call our office and we can help you with that and you are going to want to add a form 982 you are going to just have to look it up and download it.
KATRINA MADEWELL: Isn’t that a 982C?
DARRIN T. MISH: I don’t think so it’s a 982 and you are going to check the box that says I was Insolvent at the time of the cancellation of debt and there’s a worksheet that you don’t have to file but we’ve noticed in the last year or so that in a situation like yours the IRS is going to want to see the worksheet so they are going to want to see all of your assets, all of your liability and they are going to want to see you know they are going to want to see the proof that you were Insolvent that you were broke but you know people don’t usually give up stuff unless you are broke.
KATRINA MADEWELL: Here’s the thing you get this big hairy scary letter from the IRS saying that you owe $8000 that’s enough to scare the daylights out of anybody so of course….
T: I just kind of just threw me off loop and everything I didn’t know what to do so that’s the reason why I wanted to call the show today and see if I could get help.
KATRINA MADEWELL: They didn’t tell you about the 982 form.
T: Ok well I sure appreciate answering my question for me.
DARRIN T. MISH: Thanks T.
KATRINA MADEWELL: So did you have more to add to that Darrin because…
DARRIN T. MISH: No that’s about it I mean you just have to go through the program and go through this process and either you are going to file that form and I would encourage if you want to be protected from levy’s and wage garnishments and liens and bad stuff go ahead and just keep making the payments that you’ve agreed to and the amended return is going to be processed in somewhere between 6-12 months and then it will just zero it out. I just handled a case that was similar but a slightly different facts but a cancellation of debt issue and it took me 14 months to get it wiped out but it was pretty cool because the lady owed $29,000 and we wiped it out to about 2 or 3 grand.
KATRINA MADEWELL: Were they making payments the whole time or not after you filed the amendment?
DARRIN T. MISH: Well she was my client so no she wasn’t making payments but.
KATRINA MADEWELL: So you would have to call Darrin at 888-Get-Mish like fish.
T: I will probably just get with your company and we will sit down behind scenes and we will just go from there Ok?
DARRIN T. MISH: Yeah we can try to probably figure something out.
KATRINA MADEWELL: Thanks for the call today T great call great question.
T: Appreciate it you have a good day.
DARRIN T. MISH: Alright you to take care. So where were we, we were talking about technology and apps and different ways to keep track of your business expenses.
KATRINA MADEWELL: Using it when it makes sense.
DARRIN T. MISH: Yeah using it when it makes sense and you know we talked about mile IQ’s a really cool app that tracks your mileage on your smart phone.
KATRINA MADEWELL: And reporting income from the stuff you sell, Craigslist or EBay.
DARRIN T. MISH: You know I made the comment the app was kind of around the pricey side it was $59.99 I think, but guess what that’s tax deductible.
KATRINA MADEWELL: There you go.
DARRIN T. MISH: You are going to want to make sure you keep track of that.
KATRINA MADEWELL: See and a good tax preparer will remind you of all that stuff.
DARRIN T. MISH: This is true and there is another service that you and I have talked about on the show before called Shoebox.com.
KATRINA MADEWELL: I just love Shoebox. It was a kid by the way that created that company.
DARRIN T. MISH: Is it, it makes sense. I mean it figures.
KATRINA MADEWELL: It was yeah.
DARRIN T. MISH: Shoebox is really cool for those people that are just good bakers so they open a bakery, or they are plumbers so they open a plumbing company. Shoebox is service where literally usually if you are that kind of entrepreneur you know sort of small you keep all your receipts in a shoebox so what you do is they have envelopes, I think they are blue envelopes.
KATRINA MADEWELL: Yep they are blue, I put mine in the metal box then they go to the blue envelope then they go to the bookkeeper and then she mails them off.
DARRIN T. MISH: Yeah so all you have to do is take all these receipts that have been banging around in the truck for a while you just go ahead and put them in the blue envelope, you drop it in the mailbox and they put it all on some system and it comes back to you in some organized fashion.
KATRINA MADEWELL: We are so paperless now that literally you can put everything in there so like if you have correspondence or a letter that you wanted to keep like for example we are getting an assessment to have our roads repaved, but I really didn’t want to keep that paper hanging around but I wanted to keep it so I stuffed it into my Shoebox envelope, business cards, all kinds of stuff.
DARRIN T. MISH: So you kind of using Shoebox almost like someone else would use Evernote or Dropbox or some other cloud storage.
KATRINA MADEWELL: I do use both of those but this is like you know it’s searchable, you know you just search for it and it comes up.
DARRIN T. MISH: Yeah very cool it makes a lot of sense, and that service is not terribly expensive for you know a small business entrepreneur person, it’s a lot cheaper than hiring a bookkeeper actually and you will have all the proof of all your expenses to.
KATRINA MADEWELL: Well I hire the bookkeeper so I don’t miss the deductions because I know that I’m missing plenty by not having her.
DARRIN T. MISH: Yeah but you are not your typical small business person you are not a one woman show, you have employees and independent contractors and staff and all that stuff.
KATRINA MADEWELL: Small team behind me.
DARRIN T. MISH: Yeah so you know you are a little bit more sophisticated and I’m really kind of talking about the people who are really just starting out here or maybe they are not just starting out but just still really on the small side.
KATRINA MADEWELL: But I still remember that I remember how much hanging onto those receipts stuff sucked and just trying to organize that and…
DARRIN T. MISH: Yeah for sure. Getting back to technology it’s amazing how many questions I get in any given day or I actually turn to a search engine or I turn to Google and I type in the question and I get the answer now does that, is that like Googling how you are feeling every time you feel sick and that’s in lieu of going to the doctor. I don’t think so but if you do have a tax question often times you can go ahead and stick that in a search engine and you are going to get at least pointed in the right direction towards getting an answer.
KATRINA MADEWELL: So number 4 on our list is a pretty good point “Find out if you have additional deductions you can take because of your job.” You probably should elaborate on that one.
DARRIN T. MISH: I will give you a couple of examples: Job seeking expenses so if you can document what it costs you to get a new job. For example if you had to fly someplace I would suggest that the plane ticket is probably going to be deductible because if you had to fly in for an interview I think most companies would probably pay for that plane ticket but there are going to be incidental expenses with that trip as well you know there is going to be hotel rooms and meals and things like that. Think about this moving expenses in particular for a new job if you have to move I believe it’s over 50 miles away, I could be mistaken on that but if you have to move to take a new job then there are going to be some deductions available to you as well. This is probably something that well this is something that gets abused a lot so be careful and it’s unreimbursed employee business expenses.
KATRINA MADEWELL: So what’s an example for someone that there a W-2 employee you know they are having regular taxes taken out, they usually wouldn’t have a whole lot of unreimbursed employee expenses. What is an example of what is?
DARRIN T. MISH: I will give you a classic example from my firm. I have an attorney that works with me for me and he gets a paycheck but he goes to court like practically every day and so he has to pay for parking and he has to drive his own car to court because he is certainly not going to drive mine and I’m not going to have a car service for him so he is going to have some mileage you know from the office to the court house 5 miles, 10 miles whatever it is and then he is going to have some parking expenses while he is there.
Now actually he gets reimbursed for those things, he gets sort of an allowance for those things on a monthly basis.
KATRINA MADEWELL: But there is companies that don’t.
DARRIN T. MISH: But if he didn’t have that allowance then that would be an unreimbursed employee expense. Another one would be sometimes employee uniforms are actually not provided by the business even though it’s required that you wear this you know especially in like automotive that’s the thing you think about you go in to get your car serviced at the dealer, there is a service adviser named Bob and he is wearing this white shirt and he has got a name tag that says Bob. Now I don’t doubt the dealership did not pay for that shirt and they don’t pay for the laundry on that shirt you know things like that but that uniform shirt is required and if he is paying for those that would be an unreimbursed employee business expense.
KATRINA MADEWELL: So the laundering of it as well?
DARRIN T. MISH: Potentially so the dry cleaning could be in that scenario so you got to be careful though cause unreimbursed business expenses go on Schedule A
KATRINA MADEWELL: If you have too much on a W-2 they are probably not going to like that.
DARRIN T. MISH: Exactly and I see audits all the time where people, there is that saying right pigs get fat and hogs get slaughtered. So be a pig don’t be a hog. A hog in this example is people just start claiming all kinds of things and it’s because they are using tax preparation software doing their own return has a running total of how big the refund is or how much money they owe so it encourages them to fudge a little and just be careful on that line you are going to get whacked if you go over that line you are going to get whacked, you are going to get audited.
KATRINA MADEWELL: You know it made me think of something that’s so random but it’s not exactly on point but like you know Florida realtors and like our local board they have these things where continuing education, we have continued education requirements. Different things we have to have, different designations you can get and so they, a couple times like once or twice a year we will book a cruise and have like dedicated hours that you have to do for your CE time isn’t that cool, Pat?
KATRINA MADEWELL: I’ve never done it because I’m like gosh I would love to cruise but would have to fly and it’s totally a business expense. How much of that is expensible like if I’m hanging out with my peers drinking is that expensible?
DARRIN T. MISH: I’m not going to get into the details of how much I deducted but there was a time several years ago beyond the audit stature at this point where I took 3 cruises in 3 months and they were all for business and actually by the time…
KATRINA MADEWELL: You didn’t get flagged, there was no red flag hot topic?
DARRIN T. MISH: Knock on wood no now I will tell you what after that 3rd cruise I did not want to go back on another ship.
KATRINA MADEWELL: No Pat’s getting ready to go on a cruise so he can relate.
DARRIN T. MISH: You know one cruise is cool but 3 in 3 months, way to many and actually one of them was really not fun cause we literally spent the entire, 8 hours a day in a conference room on the cruise ship, I mean not my idea of a good time you know it’s rocking and rolling and you are talking about tax law, I mean I can think of better venues so. The wife and kids had a good time.
KATRINA MADEWELL: The rest of it can be fun.
DARRIN T. MISH: Actually the ship was really nice but it was just not my idea of a vacation.
KATRINA MADEWELL: No at least you can write it off I mean you can’t write your cruise off any other time unless you are getting CE hours so.
DARRIN T. MISH: Exactly.
KATRINA MADEWELL: So number 5 on our list is don’t cheat on your taxes. Do we really have to say that, don’t cheat on your taxes. That was directed at you Pat.
DARRIN T. MISH: I’m sure glad people do cheat on their taxes or I would have to get a different job but yeah you don’t want to do that because now a days there is such sophisticated software and methods for the IRS to determine whether or not you are being less than truthful when you file your tax return. There is matching programs to where if you have you know EBay back to our example you made 5 grand on EBay there is going to be a 1099 there you are going to want to make sure that shows up on your tax return somewhere otherwise you are going to get audited.
KATRINA MADEWELL: Let’s talk about some of those things when we come back like what is fudging too much like what is cheating that’s probably a good question right on point don’t you think Darrin? You hate my questions.
DARRIN T. MISH: I’m going nowhere near what is cheating or how far can you go.
KATRINA MADEWELL: I’m going to make him talk about some stuff anyway. I’m your co-host Katrina Madewell for the IRS Solution Attorney show keeping it fun, I’m keeping Mr. Darrin T. Mish from being boring talking about IRS tax stuff, how am I doing back there Pat?
PAT: You are doing good.
KATRINA MADEWELL: Alright stick around if you got a question we will answer it 888-404-1010, 888-404-1010 back in a minute.
KATRINA MADEWELL: Welcome back you are listening to the IRS Solution Attorney show with Mr. Darrin T. Mish.
DARRIN T. MISH: I’m digging the bumper music who is that?
KATRINA MADEWELL: That’s my hubby’s band.
DARRIN T. MISH: What’s the name of the band?
KATRINA MADEWELL: Don Gates and company so he is the “and company” cause he cannot sing you would not want to hear him sing.
DARRIN T. MISH: Do they have a website or CD or something?
KATRINA MADEWELL: I have no idea honey that’s for you, you can call him. I know April 15 they are doing a CD release party. The Brass Mug with a bunch of other bands.
DARRIN T. MISH: The brass mug is where?
KATRINA MADEWELL: North Tampa like they moved it it’s not on Fletcher anymore it’s like by the Army Navy surplus store off of Skipper and Livingston Bears area.
DARRIN T. MISH: So you can tell that this was not a planned plug for the band since she doesn’t hardly knows the name, doesn’t know if they have a website or where they get their music.
KATRINA MADEWELL: Well he’s like talk about it don’t talk about it I’m like what do you want me to do.
DARRIN T. MISH: Well I like it so I want to keep playing it.
KATRINA MADEWELL: They tell me it’s kid friendly we’ll see.
DARRIN T. MISH: Yeah we’ll see. Lots of bars are kid friendly.
KATRINA MADEWELL: So so just to wrap up our last thought we were talking about don’t cheat on taxes and one of the things we talked during the break which is probably relevant just to touch on really quick is you talked about writing off cruises and CE credits and stuff but it’s all relative so if you are making $20-$25,000 a year you don’t want to write off 5 grand.
DARRIN T. MISH: Right you know we had, I want to be clear on this I’m not encouraging anybody to cheat on their taxes or take inappropriate deductions.
KATRINA MADEWELL: Well number 5 is don’t.
DARRIN T. MISH: Ok don’t cheat, don’t take inappropriate deductions but there is a different scenario if your business is a corporation and is pulling in a half million dollars a year and you want to write off a $300 coach brief case right which it could be a deductible expense or you know if you are making 27 grand doing network marketing and you want to write off a $300 coach brief case. There both probably deductible but you know.
KATRINA MADEWELL: Pigs get fat hogs get slaughtered.
DARRIN T. MISH: Yeah exactly so you want to make sure that you are careful about those types of things.
KATRINA MADEWELL: We did get some questions and we want to make sure we answer them. One of the questions we got is from Missy and she says on a past episode you mentioned you had a client who hadn’t filed a tax return in 20 years you also mentioned that a client only had to file the last 5 years on back tax returns, why not all 20 years?
DARRIN T. MISH: Well Missy I think it was actually more like 40 years that she hadn’t filed and actually she had to file the last 6 years of tax returns back tax returns and the reason is the statute of limitations for the crime of failure to file is actually 6 years and the IRS has a policy of not prosecuting people for failure to file tax returns if they go ahead and file just the past 6 years. I just had this issue kind of come up in an offer of compromise that I’m handling. I’m handling an offer and were kind of not the preliminary stage but at the stage where we just entered negotiations and the offer examiner wanted my client to file some tax returns that were pretty old like 2006-07 and 08 and he had some deposits where he actually made some estimated tax payments during those years but when he came to me he said don’t worry about those you don’t have to file those tax returns and even this kind of client was kind of skeptical about that but when she called me and asked me to ask my client to file those returns I said well you know they are older than 6 years so he really doesn’t need to and it was amazing that issue just evaporated almost as soon as I said that and so it’s not an issue in that case anymore.
KATRINA MADEWELL: And we had one more question for Darrin and you can reach Darrin also at 888-get-mish you can ask your questions there to and we may bring them on the air but Jack wanted to know can I claim my garage as a home office? I do have a desk in it and I do use it sometimes for client calls, figured I would check with you first.
DARRIN T. MISH: It’s funny the home office comes up over and over all the time so you know it has to be an area in your home that is dedicated to business use. So could you claim your garage as a home office and get away with it because you have a desk in it? Maybe but what you really want to do is have photos of this area that you are claiming to demonstrate that it’s primarily no actually solely for business use.
KATRINA MADEWELL: At least 2 or 3 times a month.
KATRINA MADEWELL: See I actually do have a home office and I still don’t write it off because I’ve heard about the red flags so I said don’t do it.
DARRIN T. MISH: I’m not a big fan of it I think it causes more questions than it’s worth.
KATRINA MADEWELL: It’s probably not even worth the deductions sometimes.
DARRIN T. MISH: Yeah for most people if you have a really big house and you have a lot of square footage devoted to it and then right then you have a bigger issue and you have a higher chance of being audited. Jack I would say unless that garage pretty much only has a desk in it I don’t think I would claim it. Your garage probably has a car and you know oil and paint and all that stuff that we have, lawn equipment and I don’t think I would take that home office deduction Jack.
KATRINA MADEWELL: Not my garage you can’t fit a car in there.
KATRINA MADEWELL: Almost out of time for your train wreck of the week.
DARRIN T. MISH: So we’ve reached that time where the IRS train wreck of the week. So this case actually I’ve forgotten all about this one but this particular client this lady called today she, this week she had some other issue and she said you settled an offer for me and I had this question and I was like thinking I was trying to remember the name and I was scratching my head I don’t remember anything about it but when I did the research in anticipation that it might be a good train wreck story I mean it’s actually amazing, it’s absolutely astonishing. She is actually in Texas and that’s and I can represent clients in all 50 states and I do in fact and she’s in Texas and she owed $403,216.59 I would have spotted her the .59.
KATRINA MADEWELL: How is that for exact math?
DARRIN T. MISH: We filed an offer in compromise, it took a while it took a year or so to get worked out and we ultimately settled that case for $41,563.00 so a little bit more than .10 on the dollar, I didn’t do the math looks like probably .11 or .12 something like that and it worked out.
KATRINA MADEWELL: Even 41 grand they are usually making payments right? They are not writing a check?
DARRIN T. MISH: Yeah and this case I can’t recall if she paid that in a lump sum or if she paid that out over 2 years but in some cases you can go ahead and pay the amount of the offer over 2 years. We do so many low offers, you know low settlements that it just makes sense to pay it in cash.
KATRINA MADEWELL: Get rid of it.
DARRIN T. MISH: When the offer is a cash offer it doesn’t mean cash in advance and it doesn’t mean cash at the time that the offer is accepted it means cash within 5 months of the acceptance of the offer. Most offers are taken somewhere between a year and a year and a half to be decided upon and so it’s not as bad as it sounds.
KATRINA MADEWELL: So I want to tease your train wreck of the week for next week you had one that actually you got an offer and compromise (OIC) like a deal made with the devil the IRS and they actually came back after him again so tune in next week at 9am for that show.
DARRIN T. MISH: That’s actually a good story yeah there was actually a check issue back to the taxpayer after that case was over so yeah tune in next week and we will talk about that one on the IRS train wreck of the week.
KATRINA MADEWELL: Real quick headline story IRS says scammers changing tactics again what’s that all about?
DARRIN T. MISH: Well there is something that happens where we are getting these calls virtually every week man I’ve actually gotten these calls as well where there is usually a voice mail left on your machine or your phone and it’s somebody threatening from the IRS and they say we are going to file a lawsuit and we are coming after you and so you just have to be really watchful for that. The new scam is people are calling and saying that they are from the IRS and they have your tax return and they just need to verify a few details to process it all the way and those details just happen to be your name, date of birth and your social security number.
KATRINA MADEWELL: Everything someone needs to hijack your identity, don’t do it people don’t do it.
DARRIN T. MISH: So listen this is really important the IRS is not going to call you to ask you personal questions.
KATRINA MADEWELL: And if you have any questions and you are not sure you can always call Darrin Mish at 888-get-mish thanks so much for joining us this week.
DARRIN T. MISH: Website is getirshelp.com
KATRINA MADEWELL: This week we are out.