Yesterday, I got my annual J.K. Lasser’s Your Income Tax Professional Edition. You should, too. The non-professional version is sold real cheap in places like grocery stores. I paid $55 for this from Target. Amazon wanted more.
The difference between the two editions is the Professional Edition is hard cover and has the relevant legal citations. There is no soft cover Professional edition.
Please do not tell me your accountant takes care of all that, Mr. Big Shot. It makes me and the readers of my book Aggressive Tax Avoidance for Real Estate Investors (over 100,000 sold) wince.
The late Leigh Robinson was the author of the Landlording series of books. When he read the first edition of my tax book, he immediately fired his long-time accountant and started doing not only his own taxes but those of his relatives.
I am currently writing the 20th edition, but I am selling the 19th edition which applies to your 21017 tax return. The Trump law does not change how you fill out your return until you do your 2018 taxes in 2019.
Ferraro’s husband’s long-time CPA was incompetent or lazy
Democrat Geraldine Ferraro was the first female VP nominee of a major party in 1984. Upon hearing that her husband was long-time, small-time real estate investor, Republicans salivated over getting their tax returns. When they got them, they had tax lawyers who know the stuff in my book to go over them.
The Republicans were totally deflated when the lawyers said not only are their no improper deductions, Ferraro’s long-time CPA failed to take advantage of all sorts of LEGAL deductions.
Are you starting to see a pattern here, Mr. Big Time “My accountant takes care of that. I don’t bother my pretty little head about it?”
Very pretty, but does it minimize my taxes?’
My brother-in-law died October 16, 2016. He got into real estate years ago following my example. When we were cleaning out his house my son Steve going through his desk found a file marked “taxes” and another marked “real estate” and gave them to me.
My BIL used the same accountant for many years. Beautiful documentation. Nice little folders with my BIL’s name on them for each year. I focused on the last three years because of the statute of limitations on amended returns.
I often say that experts have X-ray vision. That is they can look at the same thing with a layman, like a football game or a tax return, and see two totally different things. Two items jumped out at me from the tax returns.
1. He did not list property taxes on his winter house in FL on his Schedule A itemized deductions. And he itemized every year.
2. He also had a rental house in Naples that he had purchased something like eight years ago. But the only depreciation deduction for it was $80 per year. “$80,” I said, “that sounds like the depreciation on a new refrigerator. Where are the deductions for the whole building and the other appliances?
I called the CPA. He said Art claimed the standard deduction; did not itemize. “I am holding three years of Schedule A’s prepared by you in my hand right now. He itemized.”
Then I asked about the lack of depreciation on the rental house. He did another song and dance that I rejected. Then he said He could not discuss it with me because it was confidential and I was not the client. I had not mentioned that I had any tax knowledge. When he began to suspect it, he ran away from the phone call.
We hired a different MA CPA
Because it was in MA and state taxes were also involved, my wife the executor hired another accountant recommended by our MA probate lawyer. She agreed wit me on the deductions, filed the Amended 1040X’s and got us thousands of dollars in refunds. I have never hired a tax preparer or CPA in my life.
Seeing that pattern yet?
Read at least one book about it
You should learn the tax law to the extent of reading one book about it. Only then are you qualified to tell whether you have a good CPA. Or other tax preparer.
The first year I owned rental property, I was in Vietnam when the taxes came due. My mom had them done by H&R Block. The Block preparer chose a longer than normal “useful life” on the duplex. (Choosing a useful life was the law in 1969.) And used straight-line depreciation. Why? It made the calculation of the depreciation deduction simpler. Agh!
Later, when I researched my first edition of the tax book and re-looked at that tax return, I hit the roof! H&R Block had no interest in minimizing my taxes within the law. She only cared about making her math easier. It should have bene a 20-year life and accelerated depreciation.
Fundamentally, the vast majority of taxpayers are so militantly ignorant of tax law—“My accountant takes care of all that”—that perhaps a majority of tax preparers just bullshit their clients and do what is easiest for them including overpaying the taxes to avoid having to go to an IRS audit and discouraging the use of perfectly legal deductions like the home office.
Don’t even think about telling me that’s a “red flag.” My readers will pounce on you right here and now if you do.
Read my book or another like the pertinent parts of J.K. Lasser. I met J.K. by the way. Simon & Schuster wanted me to write a book called “Aggressive tax Avoidance for Everybody.” Two different agents there independently discovered my book on real estate taxes. They invited me to their Manhattan offices.
I declined to write it on the grounds that “everybody” did not have access to all the real estate deductions and that books like J.K. Lasser’s Your Income Tax already covered the everybody stuff adequately.
I did not meet J.K. himself. He was dead. I met the tax lawyer who had replaced him. I pointed out an error in his book. He agreed, but said they did not get as aggressive as I wanted because it would hurt their sales if someone did what they said and lost an audit.
‘Is that all there is?’
A common result of people reading my book is they fire their long-term accounting and start doing their taxes themselves with Turbotax, as I do. Another common reaction after they read my book is to say, “Is that all there is to U.S. income tax law. I thought it was like brain surgery.”
Ever met an H&R Block tax preparer who reminded you of your doctor?
I didn’t think so.
Another huge mistake
One more grievous mistake: Do not ever tell your accountant, “All I care about is that I do not get audited.” He or she will then do your taxes in the most conservative way causing you to pay much more than you owe. They only audit .6% of returns for Chrissake. If you are that afraid of an audit, I’ll bet you’re also scared that some Russian is going to decide who the next president of the U.S. is.
What percent of taxpayers who use accountants make that “whatever you do save me from even being audited” mistake? Oh, about 99%.