Jeffrey B. Kahn, Esq. and Windus A. Fernandez Brinkkord Discusses Financial Planning With Robo-Advisers, Taxes and the IRS On ESPN Radio – August 14, 2015 Show

Topics Covered:

1. Surface Transportation And Veterans Health Care Choice Improvement Act of 2015 – Watch Out For The Hidden Tax Pitfalls!

2. Beware Of The Robo-Adviser!

3. IRS’ Summertime Tax Tips and what they mean for you.

4. Questions from our listeners:

a. I have been hearing a lot about ETF’s and always wondered what they are?

b. I just moved from Chicago to Los Angeles. How do I notify the IRS my address has changed?

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Jeff states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states:

And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Vice President Of Investments at Trilogy Financial Services.

You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states:

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states:

And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states:

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states:

For today’s show we have coming up:

Segment 2 material: Beware Of The Robo-Adviser!

Windus states:

Also coming up is:

Segment 3 material: our continuation of the IRS’ Summertime Tax Tips and what they mean for you.

And of course towards the end of our show, we will be answering some of your questions.

Jeff starts chit chat with Windus.

Surface Transportation And Veterans Health Care Choice Improvement Act of 2015 – Watch Out For The Hidden Tax Pitfalls!

Windus states: On July 31, 2015, President Obama signed into law the Surface Transportation And Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236). While getting any legislation through Congress nowadays is momentous, this Act is no different from many others whereby Congress is faced with a funding expiration (in this case maintaining our highways) and instead of passing something that is long term, they merely pass a “stop-gap” measure which will require them to revisit this issue much sooner. In the case of this Act that will be October 29, 2015.

Jeff states: The difficulty that Congress faces each time it must pass legislation to fund something, it must find a revenue source to pay for it. No lawmaker (either Democrat or Republican) wants to fund the cost by raising taxes so instead lawmakers find more creative ways to generate the additional revenues without having to call it a tax increase. Usually, this is done by limiting tax deductions and phasing out tax benefits but in the case of this Act Congress turned to “tax compliance” measures for revenue. And over a 10 year period, these measures are projected to generate $5 billion in revenues.

Windus states: Commerce Clearing House (a publisher of tax information) recently issued a special report on the tax provisions that were included in this Act.

http://www.cchwebsites.com/content/pdf/tax_brief/us/2015_July_Highway-Bill_7-31-2015.pdf

Windus continues: We are going to point out a few of them that would have the greatest impact to most of us taxpayers.

Jeff states:

RETURN DUE DATES $314 million revenue raiser over 10 years.

Under the Act, the due date for partnerships to file Form 1065, U.S. Return of Partnership Income and Schedule K-1s, Partner’s Share of Income, will move from April 15th to March 15th. This will be the same filing deadline now in place for S corporations.

Windus states:

IMPACT. The shift to a March 15th deadline will better enable partners, like current S corporation shareholders, to receive their Schedules K-1 in time to report that information on their Form 1040 before its April 15th due date and thus hopefully avoid the need to file an extension. Thus having individual taxpayers file their tax returns sooner and pay sooner (which Congress can take credit as a revenue generator).

Jeff’s comment:

1. Taxpayers will still likely avail themselves of filing an extension even though they may have all the information needed to file their Form 1040 by April 15^th especially if they will end up owing with their tax return. That surely goes against the perception that there would be less extensions if all Schedule K-1’s have to be issued by March 15^th.

Windus states:

When is the change effective:

The changes to the filing deadlines are generally applicable to returns for tax years beginning after December 31, 2015. For calendar-year taxpayers, that means the new deadlines will first apply to the 2016 tax returns filed in 2017.

Jeff’s comment:

1. Taxpayers and their tax professionals will still utilize extensions to avoid missing deadlines and for tax professionals help even out the workflow.

Jeff states:

REPORTING OF FOREIGN BANK ACCOUNTS

The Act also aligns the FBAR (Report of Foreign Bank and Financial Accounts) due date with the due date for individual returns, moving it from June 30th to April 15th.

There has been a lot of publicity surrounding foreign bank accounts over these last few years especially since Congress passed into law the Foreign Account Tax Compliance Act (“FATCA”) in 2010.

If you have foreign accounts that in the aggregate topped $10,000.00 at any time during the year, you must electronically file a return called a FinCEN Form 114. This filing must be taken very seriously as the penalties are substantial and could involve criminal prosecution. Just by failing to timely file an FBAR, you can be hit with a $10,000.00 penalty – per violation (that is per account!).

Windus states:

IMPACT. Under prior law no extension was available for the June 30^th deadline and your Form 1040 extension did not apply to the FBAR. Although the Act makes the FBAR due earlier than under prior law, it now has a filing date that is the same as individual income tax returns and you can now get an extension of time to file this return.  The Act allows a maximum six-month extension for filing this information return to October 15^th.

Jeff’s comments:

1. Putting the filing obligations of the FBAR on the same parity as income tax returns makes good sense. Helps taxpayers maintain compliance and add the flexibility of providing more time if needed.

Windus states:

When is the change effective:

Applies for FBAR’s for taxable years beginning after December 31, 2015.   This means that Form 114 for the 2016 calendar year will be the first year impacted by this new rule.  The Form 114 due for the 2015 calendar year will still be due June 30, 2016. The Form 114 due for the 2016 calendar year will be due April 15, 2017.

Jeff’s comments:

1. Given the change in the law effective with the 2016 FBAR, I would not be surprised if the IRS were to issue regulations that would waive late-filing penalties of 2015 FBAR’s due June 30, 2016 where a taxpayer filed an extension for the 2015 Form 1040 and filed both the 2015 Form 1040 and 2015 FBAR by October 15, 2016. Of course, we will keep you informed if the IRS should implement this.

Jeff states:

MORTGAGE REPORTING $1.8 billion revenue raiser over 10 years

Under current law, mortgage servicers are generally required to report to the IRS (Form 1098, Mortgage Interest Statement) how much you pay in mortgage interest each calendar year. The Act imposes additional reporting, including the amount of the outstanding principal balance, the address of the property, and the loan origination date.

Jeff states:

IMPACT. The modifications are intended to boost compliance but also impose new burdens on mortgage servicers.

Jeff’s comments:

1. With this additional information reported to IRS, the IRS computers can run additional analytics on each tax return to uncover tax returns that are suspect in overstating mortgage interest deductions.

Jeff states:

When is the change effective:

To give mortgage servicers time to reprogram their systems for the new reporting requirements, the Act will apply to returns and statements the due date for which (determined without regard to extensions) is after December 31, 2016.

Jeff states:

SIX-YEAR LIMITATION PERIOD FOR OVERSTATEMENT OF BASIS $1.2 billion revenue raiser over 10 years

In UNITED STATES v. HOME CONCRETE & SUPPLY, LLC, 132 S. Ct. 1836, a tax case decided by the U.S, Supreme Court in 2012, the Court held that an overstatement of basis does not result in an omission of income for extended statute of limitations (SOL) purposes.

Windus states:

In plain language that means that unless you understate your income on your tax return, the IRS has only three years to select it for audit.

Jeff states:

Well now the Act provides that the six-year limitations period applies where any overstatement of basis results in substantial omission (in excess of 25%) of gross income stated in the return.

Windus states:

When is the change effective:

This legislative override of the Supreme Court’s decision in Home Concrete is effective for all returns for which the normal assessment period remained open as of the date of enactment (July 31, 2015), and for returns filed after that date.

Jeff’s comments:

1. This is a great example of what happens when the IRS looses in Court – they go to Congress and have the law changed!

2. Under Code Sec. 6501(a), the IRS ordinarily must assess a deficiency against a taxpayer within three years after the return is filed. Code Sec. 6501(e) (1)(A) extends the three-year period to six years if a taxpayer “omits from gross income an amount properly includible therein” which exceeds 25% of the amount of gross income shown on the return.

3. Until now, overstating basis so that you have less income to report was only subject to the standard three-year statute for audit – now it is 6 years.

4. But still if you overstate your deductions and accurately reported your income, the statute remains at 3 years that the IRS has to audit your return.

Windus states:

AND FOR THOSE ITEMS THAT DID NOT MAKE IT INTO THE ACT…

Now there were controversial amendments that lawmakers tried to push through to get into Act and for good reason they did not make it into the final version.

1. Allow the IRS to reinstate the use of non-government bill collectors to collect tax debts.

Jeff comments.

2. Allow the State Department to revoke or deny a U.S. passport if you have unpaid taxes.

Jeff comments.

Well it’s time for a break but stay tuned because if you are looking to start some financial planning we are going to tell you about Robo-Advisers.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Beware Of Robo Advisor!

Jeff asks Windus: Until you brought this up to me, I never heard of a Robo Advisor. What is this?

Windus replies: It is computer generated financial planning.  Essentially, you work through an online portal, typically, to set up the account and investments and utilize mostly ETF strategies.

This was something I found discussed in the August 9, 2015 edition of the Wall Street Journal. http://www.wsj.com/articles/why-investing-robots-dont-march-the-same-1439172128.

The Article goes on to state what I consider to be the best description for what/how a Robo-Advisor attempts strategic asset allocation. You know that in rolling periods of the markets, sometimes active managers win and sometimes Index strategies win.  We are coming out of a period in time where the index strategy likely would have been better.

It is my belief, this is creating energy around the Robo-Advisor concept, but that this will not ultimately best serve most clients.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Jeff asks: So what are the advantages of Robo-Advisors?

Windus replies:

1. Less in costs.

2. Designed by experts in behavioral finance. 

3. They are over seen by professionals with years of experience and diversified typically using modern portfolio theory.

4. Eliminates conflicts of interest between what is being recommended to the client.

Jeff asks: So what are the disadvantages of Robo-Advisors?

Windus replies:

1. Ultimately somewhere a person is deciding the one plan fits all. 

2. How do you know that this is really what is in your best interest?

3. Mutual fund companies allow you to do this online directly with them, without the additional fee of the robo-advisers firm.  Obviously only utilizing their funds though.

4. A financial advisor bases advice on someone’s goals and risk tolerance, but also their needs.  When these are not aligned, they can talk to the client about how to over come this.

Jeff asks: So what is the big picture that people should see here?

Windus replies:

Positive over all:  it is better that someone is working with someone, Robo-adivsor or not, to build wealth and take an interest in their long term plan.

Eventually, if you feel like you need more advice, you are not stuck on the robo-adivsor platform.  You aren’t stuck with an advisor either. 

The best thing to do is think about what your needs are before you make a decision on which route to go.

1.  Do you have complex needs for full service financial planning?

2.  Do you need accountability to save and encouragement to stay the path in volatility

3.  Do you need help understanding what you are buying and if you should be taking more risk or less risk on specific goals. 

Just like traditional financial advisers, not all Robo-Advisor firms are the same.  Make sure you interview and go with a route that you are really comfortable with.

Robo Advisor doesn’t replace your financial advisor. It is simply another route or option that may be good for you to explore.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Stay tuned because after the break we have Amy Spivey joining in to tell you some important summertime tax tips that can help you avoid tax problems with IRS.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states:

Starting July 1^st, the IRS began offering its Summertime Tax Tip series which include useful information in English and Spanish. Tax Tip subscribers receive a new Tip via email three times a week during July and August. They also get a Tax Tip each weekday during the tax filing season. The IRS also issues Special Edition Tax Tips on important tax topics throughout the year. Taxpayers can sign up for the IRS Tax Tips subscription through a free service on www.irs.gov. For this segment we have pulled some of these tips which we want to share with you and add our comments to them.

Jeff states: And like Windus talked earlier about Robo-Adviser in the financial planning industry, it looks like IRS is trying to establish the same for taxes.

IRS Summertime Tax Tip 2015-17, August 10, 2015 – IRS Offers Easy-to-Use Online Tools

Amy states: That’s true. The main reason IRS is doing this is to alleviate the need to maintain higher levels of staff at IRS walk-in centers and call centers to answer questions and instead devote those personnel to enforce the tax laws.

Windus states: Well I would also guess that as a matter of convenience, it would be a lot easier to look something up on line whenever you have the time then drive to a distant IRS office and wait in line or be put on hold on the phone for hours.

Amy states: And in that spirit when you need tax help, the IRS has many online tools that are easy to use. You can e-file your tax return free, check your refund’s status or get your tax questions answered. 

Jeff asks: So what are some of the most popular self-help tools that taxapyers have used to get free tax help?

Amy replies: Well there are 4 tools that I find most useful in an on-line environment:

• IRS Free File.  You can use IRS Free File to prepare and e-file your federal tax return for free. Free File will do much of the work for you with brand-name tax software or Fillable Forms. If you still need to file your 2014 tax return, Free File is available through Oct. 15. The only way to use IRS Free File is through the IRS website.
• Where’s My Refund?  Checking the status of your tax refund is easy when you use Where’s My Refund? You can also use this tool with the IRS2Go mobile app.
• Direct Pay.  Use IRS Direct Pay to pay your tax bill or pay your estimated tax directly from your checking or savings account. Direct Pay is safe, easy and free. The tool walks you through five simple steps to pay your tax in one online session. You can also use Direct Pay with the IRS2Go mobile app.
• IRS Select Check.  If you want to deduct your gift to charity, the organization you give to must be qualified. Use the IRS Select Check tool to see if a group is qualified.

Jeff states: Now if you have a tax problem, there likely is not a Robo-Adviser App that will be able to provide you with a solution which is why…

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

IRS Summertime Tax Tip 2015-12, July 29, 2015 – Tips on Travel While Giving Your Services to Charity

Jeff states: Do you plan to donate your services to charity this summer? Will you travel as part of the service? If so, some travel expenses may help lower your taxes when you file your tax return next year.

Amy states: Here are several tax tips that you should know if you travel while giving your services to charity.

• Qualified Charities.  In order to deduct your costs, your volunteer work must be for a qualified charity. Most groups must apply to the IRS to become qualified. Churches and governments are qualified, and do not need to apply to the IRS. Ask the group about its IRS status before you donate.

Windus asks: Amy, how do you know if the organization is a qualified charity and continues to be one when you make your donation?

Amy replies: The IRS used to have to publish a book listing all the qualified charities. Now though you can also use the Select Check tool on IRS.gov to check the group’s status.

Jeff states: Now giving up your time no matter how valuable is not deductible but what about any associated costs?

Amy replies:

• Out-of-Pocket Expenses.  You may be able to deduct some costs you pay to give your services. This can include the cost of travel. The costs must be necessary while you are away from home giving your services for a qualified charity. All  costs must be:

o Unreimbursed,

o Directly connected with the services,

o Expenses you had only because of the services you gave, and

o Not personal, living or family expenses.

Windus asks: So if I am planning a trip to Central America and happen to visit an orphanage for a day, can I write off the cost of trip as a charitable expense?

Amy replies:

• Genuine and Substantial Duty.  Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

Jeff asks: But if your trip does involve a genuine and substantial duty of charitable service, what can you deduct?

Amy replies:

• Deductible travel.  The types of expenses that you may be able to deduct include:

o Air, rail and bus transportation,

o Car expenses,

o Lodging costs,

o The cost of meals, and

o Taxi or other transportation costs between the airport or station and your hotel.

• Nondeductible Travel.  Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or a vacation.

Jeff states, so important to know how far you can push envelope and where you pushed it to far, you need to get with …

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

You should also know that the securities and advisory services are offered through National Planning Corporation (NPC) Member FINRA, SIPC, and a Registered Investment Advisor.  Trilogy Financial Services and NPC are separate and unrelated Entities.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Windus, what questions have you pulled for us to answer?

Nancy from Oceanside asks: I have been hearing a lot about ETF’s and always wondered what they are?

Jeff states, I think that is a great question for Windus to answer so I will let you respond. Windus responds.

Eric from Los Angeles asks: I just moved from Chicago to Los Angeles. How do I notify the IRS my address has changed?

Jeff replies: Well, Eric welcome to Southern California! There are different ways to let the IRS know you moved and its important that the IRS has your current address. First if the IRS needs to send you a refund check, you want to make sure it is going to the right address so it is not delayed. Second, if the IRS is sending out notices because you owe the IRS, you don’t want those to go unanswered especially if there is some limited right to appeal that runs from the date of the letter not from when you decide to accept the letter and read it.

So to change your address with IRS:

1. Do it through a tax return filing – Use your new address on your tax return.

2. Even better – use Form 8822, Change of Address, which can be filed at any time.

3. Alternatively to using Form 8822, send the IRS a signed written statement with your:

• full name
• old address
• new address
• Social Security number (or individual taxpayer identification number or employer identification number)

Mail your statement to the address where you filed your last return

4. Orally you can call IRS and if you get through to someone after they verify your identity, you can tell them the new address.

5. There is only one way to notify an address change via electronic notification and that is if your refund check was returned to IRS you can use the Where’s My Refund? Tool to complete your change of address online.

Remember, if you filed a joint return, you should provide the same information and signatures for both spouses. Also, if you filed a joint return and you and/or your spouse have since separated, you both should notify the IRS of your new addresses.

Jeff PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: Well we are reaching the end of our show.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Windus states: Have a great day everyone!