I am looking forward to answering your tax questions tomorrow. See you at 11 am!!

Questions for Hank Levy:

1) How should one approach choosing a tax preparer to work with? What are the right questions to ask and how can can one verify that the preparer is current and creative (without being corrupt)?

2) What are circumstances under which you’ve seen DIY solutions, such as TurboTax, underperform? put another way, how complex does an educated, numerate person’s return have to be before they really ought to hire a professional preparer? I’m not asking about people who don’t want to bother with preparing a return — I am curious about people who are perfectly willing to do it but who you think would miss opportunities without professional guidance.

3) If an employer offers a salary deferral plan, under what circumstances do you advise using it?

4) Do RSUs have special “gotchas” that one should think about in tax planning?

5) Suppose you have a client who does not need to make estimated tax payments. Suppose that this person wants to take advantage of the Form 8888 option to buy $5000 worth of I-Bonds (above the $10K annual cap) with a tax refund. Is there any reason why such a person couldn’t make a 4th quarter estimated tax payment of $5K for the sole purpose of getting a refund with which to buy the tax deferred bonds?

6) What has finally happened with Coverdell ESAs?

7) What can/cannot be deducted on a Berkeley property tax bill?

8) Do any of your clients actually pay state use tax on internet purchases?

9) Any advice on reducing the AMT hit?

10) Some investment advisors recommend putting foreign stock holdings in taxable accounts so as to capture the foreign tax credit. Your thoughts?

11) Some investment advisors suggest putting interest bearing emergency funds (cash) into tax deferred accounts and holding low turnover stock index funds in taxable accounts. The argument is that the stock fund dividends will be qualified and taxed at the qualified dividend rate; the yield on the cash (possibly laddered in CDs or short bonds) will be tax sheltered instead of being taxed at higher income rates. If emergency funds are needed, one sells the stock fund and uses the tax deferred cash to buy the same fund (preserving the asset allocation). Does this seem worth doing? Obviously the sale of the stock fund could generate a taxable gain or loss, but if an emergency never arises, the rate on qualified dividends beats the rate on income. Your thoughts?

12) Tax loss harvesting on investments in taxable accounts — do you advise your clients to do this?

Thanks for fielding these questions! (And no, I don’t expect answers to all of them)

Let me take these one at a time: Obviously, most tax preparers are not corrupt. The only way you might know is if they suggest deductions you don’t have. One hears of tax preparers taking positions which give someone back too much money, so in that case you would want to check the final return with your original numbers you gave to the preparer. More often I see where a client and their preparer should agree on “how aggressive” they want to be. A client should expect their preparer to warn them if a position is getting into a grey area, and then the client should be prepared to decide how far they “want to go.”

Yes, absolutely, but one has to understand the nature of what the fees were for. For instance, I do a lot of work with divorces. So legal fees pertaining to child custody–not deductible. Legal fees pertaining to obtaining spousal support–deductible! Voila.