Frequently Asked Questions

Frank P. Skinner’s Services

Tax Rules

Out-of-California Taxes

Frank P. Skinner’s Services

I’ve always completed my tax return in the past. Why should I hire a CPA to do it for me?

Tax law is constantly changing. Every time Congress acts to “simplify” tax law, it ironically becomes more complex. A CPA will help you sort through it all and find deductions you might have missed doing your own return. In addition, a professional tax preparer can offer advice to help you plan your finances in such a way as to reduce your tax liability.

How much do you charge?

My fees are based on the amount of work that goes into preparing your tax return. The basic fee for an individual return is $550, and $800 for a business return (partnership, LLC, or corporation). If your return is unusually complex, or an inordinate amount of time is needed to prepare it, your fee will be somewhat more. At no time do I ever charge a client based on the amount of their income or the size of their refund or balance owing.

I live in Idaho [… or Arkansas… or South Carolina…]. Can you help me with my taxes?

Yes! Although I am naturally most familiar with California, I have the resources available to prepare out-of-state returns. I can also help clients who need to file in more than one state.

Do you do bookkeeping?

Yes, I do. In most cases, I can easily do bookkeeping for you in-house. Of course, some clients already have their own bookkeepers, and I can work with them as well.

Do you do payroll taxes?

Not in-house. I refer all payroll work to a payroll service, as they tend to be more geared toward efficiently and affordably providing this specialized service. I have a long-trusted contact person I can refer you to for this service.

When do I have to pay for your services?

When your tax return has been completed, I will include a bill for my services with your tax return package. It is due and payable upon delivery of your return. I generally expect to be paid within 30 days of delivery.

I can buy a copy of Turbotax for about $50. Why should I pay you $550?

No matter how good it is, no tax software is able to effectively ascertain a taxpayer’s unique situation. If a client doesn’t even know that a deduction exists, he won’t be able to enter the information into any tax program, no matter how sophisticated it might be. In addition, the software won’t be able to advise you what to do when you receive a letter from the IRS.

Tax Rules

What should I do if I can’t pay what I owe in taxes?

File your return anyway. The IRS imposes a stiff penalty for late filing, so don’t put it off. If you cannot pay, the IRS will be willing to work with you to set up a payment plan.

I haven’t filed a tax return for several years. What should I do?

File all past returns as soon as possible. I am able to assist clients in preparing tax returns for past years, as well as for the current year.

Can I get away without paying my taxes?

The short answer is No. If you refuse to file your return and pay what you owe, you run the risk of being penalized, or even criminally prosecuted.

What do I do if I get audited?

There is a tax lawyer in my office who can provide assistance if you are audited, or if you have any trouble with the IRS, Franchise Tax Board, or any other taxing agencies. He has the expertise to deal with these agencies, as this is his specialty.

What types of income are tax free?

Welfare benefits, worker’s compensation payments, state and local government bond interest, certain disability pensions, and combat pay for military personnel. At least 15 percent of your Social Security benefit is also free of tax. In addition, only investment income is taxed – you are not taxed on the portion of your proceeds that represents your initial investment.

What types of income are taxable?

Generally, any type of compensation you receive for performing services or selling products is taxable. In addition, you are required to report earnings from almost any type of investment. You should be aware that different states have different definitions of what constitutes taxable income for state tax purposes.

My home just got foreclosed. Are there any income tax consequences?

A foreclosure is considered a disposition of property, and the normal rules for selling a personal residence apply. If you qualify, up to $250,000 of capital gain ($500,000 for married couples filing jointly) is excluded. A loss from selling a personal residence is not deductible. If all or any portion of the mortgage is forgiven, it would normally constitute taxable income, but if it is your personal residence, the tax may be waived.

What is the difference between a traditional and a Roth IRA?

You get to deduct your traditional IRA contributions when you make them, but all distributions become taxable when taken, even when you retire. A Roth IRA is just the opposite – you don’t deduct your contributions, but when you retire and start drawing on it, all distributions are tax-free.

Where is my refund?

You can go to the IRS website (irs.gov) and find out by clicking the “Get Your Refund Status” link on their homepage. Be ready to provide your social security number, filing status, and exact dollar amount of your refund. You will need to wait 72 hours after your return is electronically filed and received, or four weeks after you mailed in a paper return to utilize this service.

Somebody told me I should incorporate in Nevada (or Delaware) so that I won’t have to pay tax to California (or some other high-tax state). It sounds too good to be true.

It is. A foreign (i.e., out of state) corporation doing business in, say, California, is required to register with the Secretary of State and file a California return. It will still be subject to any filing requirement in the state of incorporation as well. You might as well keep it simple by just incorporating in the state where you live. The only exception to this is if you are doing business exclusively in another state from the one where you live, or if you are forming an entity to hold and lease real estate located in the other state.

I keep hearing people claim that income tax is actually illegal, and that the government has no authority to impose it, or that it is really voluntary, or that the sixteenth amendment was not properly ratified, etc. Some practitioners claim that they can get you out of having to pay. Is this true?

No! People have been trying for years to file frivolous claims about this, and the courts have consistently shut them down. The federal income tax has been legal and constitutional since 1913. The sixteenth amendment was properly passed and ratified; therefore, Congress is fully empowered to impose tax on income.

I read somewhere that the notorious Al Capone went to prison for, of all things, tax evasion. How did that happen?

As it turns out, the Feds were never able to convict Capone of racketeering, bootlegging, or murder. The only crime they were able to make stick was income tax evasion. Capone’s biggest mistake was to not report and pay tax on all of the income he made from his activities. Income earned illegally is still considered to be income by the IRS, and is fully taxable.

What is the difference between tax evasion and tax avoidance?

Tax Avoidance is defined as the practice of using every LEGAL means to reduce or eliminate your income tax liability. As your CPA, I can help you to do this. Tax Evasion, on the other hand, is defined as going beyond this and refusing to pay tax that you are legally obligated to pay. This includes such practices as omitting or underreporting your income, taking phony deductions or exemptions, and simply refusing to file a return. Tax evasion is a federal crime; committing it may land you in prison, so I strongly recommend against this.

I own my own business. Should I incorporate?

It depends on your situation. There are definite tax savings to be had from running your business as a corporation if it makes more than a nominal profit. If you are or become a client, I can provide a consultation to discuss your particular situation.

Out-of-California Taxes

Why don’t you do taxes for people in Quebec?

Residents of most provinces and territories of Canada file their federal and provincial taxes together on the same form, attaching a schedule for their particular province of residence. Quebec has its own provincial tax system, with which I am not familiar. Also, Canadian taxpayers file their returns for the province where they are resident on December 31, as if they had lived there for the entire year. Thus, if you lived in Quebec at the beginning of the year, but established residence in another province before December 31, I will be able to help you with your taxes (but not the other way around).

What happens if I live in California, but have income from another state?

Usually, the income is first taxable to the state where it originates. In most cases, your home state will allow an “other state” tax credit for tax you pay there to alleviate the double taxation that would otherwise apply.

I am a citizen of the United States working and living in a foreign country. Do I need to file a return?

Yes. U.S. citizens and lawful permanent residents living overseas must file, even if they have no income from U.S. sources. They must report their worldwide income using the same rules as for domestic source earnings. You may elect to exclude all or a portion of your foreign EARNED income from U.S. tax if you meet the criteria for doing so. This election must be made on a properly filed return – it is not automatic.