DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...
Mike's weekly post usually concentrated on tax saving strategies.

Renters Miss Out on Homeowner Benefits

If you rent rather than own a home, you could be missing out on tax benefits that favor home ownership. The current low interest rates make the cost of getting a mortgage relatively inexpensive, despite U.S. house prices at record highs.

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Triple Tax: aka The Lottery

Most everyone enjoys dreaming of winning it big in the lottery. News media outlets publicize the large unclaimed pots of money on the evening news and they put a spotlight on the lucky multi-million dollar winners. Ever wonder what the tax math looks like?

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The Standard Deduction May Be Costing You: This technique could save you plenty

Only about a third of Americans file income tax returns using itemized deductions. Unfortunately many of those who don't itemize are overpaying their taxes. Don't wait until tax time to figure out if itemizing your deductions yields a lower tax bill. Start now to review your situation and plan for a reduction in your taxes by the end of the year.

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Avoid a Debt Settlement Tax Surprise

The number of Americans struggling with high debt is increasing, according to the U.S. Federal Reserve. U.S. household debt reached a new record this spring, the central bank said, with the average indebted household owing more than $16,000 on their credit cards.

Seeking debt forgiveness from lenders is one option to try to deal with the burden of high debt. But there is an important tax consequence:

Any amount of cancelled debt is generally taxed as ordinary income.

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Avoid the 10% Early Withdrawal Penalty

Avoid the 10% Early Withdrawal Penalty... What every Traditional IRA owner should know

It is one thing to be taxed on retirement contributions and their related earnings when you withdraw funds from your Traditional IRA, it is quite another when you pay the tax PLUS a 10% penalty for early withdrawal. Need funds prior to retirement and want to avoid the early withdrawal penalty? There are cases when this can be done:

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Understanding Tax Terms: Casualty Losses Does your loss qualify?

Volcanoes, earthquakes, and sonic booms. Fires, floods, and storms. Terrorism, vandalism, and car accidents. All of these fall under the U.S. tax code definition of “Casualty Losses,” and your losses due to these events may be tax-deductible.

Tax Code Definition

According to the IRS, a casualty loss is the “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.”

As you can tell from the lists of events mentioned above, this definition covers a lot. It’s usually easier to describe what casualty losses are not:

  • Not sudden: Things that progressively deteriorate over time are not casualty losses. Damage from mold, pests or just the passage of time don’t count under IRS rules. For example, your water heater breaking down after years of use is not a casualty loss, but any sudden water damage to your carpets as a result is.
  • Not unexpected: If willful or negligent behavior caused the destruction, that’s not a casualty loss. For example, a fire caused by playing with matches is not unexpected, nor is a car accident caused by drinking and driving.
  • Not unusual: The typical breaking of fragile items like china or glass is not a casualty loss; nor is the common destruction of property by a family pet.
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Reminder. 2nd Quarter Estimated Taxes are Due

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The second quarter due date is now here.

Normal due date: Thursday, June 15th 2017

Remember you are required to withhold at least 90% of your current tax obligation or 100% of last year’s federal tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment might be necessary. Here are some other things to consider: Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. So a quick payment at the end of the year may not help avoid the underpayment penalty. Who is impacted. If you paid additional tax last year with your tax return filing, have a business that flows profits to your personal tax return, or have a change in your filing status pay attention to this reminder. You may be a candidate for potential estimated tax payments. W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.

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2018 Health Savings Account Limits Time to plan your 2018 deductions

The savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2018. The new limits are outlined here with current year amounts noted for comparison purposes.

What is an HSA?

An HSA is a tax-advantaged savings account to pay for qualified health care costs for you, your spouse, and your dependents. When contributions are made through an employer, they are made on a pre-tax basis. There is no tax on the withdrawn funds, the interest earned, or investment gains as long as the funds are used to pay for qualified medical, dental, and vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a high deductiblehealth plan (HDHP)as defined by HSA rules.

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Social Security Announces New Online Security

In 2012 my Social Security was launched to allow online access to your Social Security account. To date, over 30 million Americans have created an account. Effective June 10 there will be a second way to authenticate your identity and gain access to your online information using your e-mail account.


Given the increased risk of identity theft, the Social Security Administration (SSA) recently required you provide a cell phone number in addition to your username and password to access your account. After tremendous backlash from users, the SSA rolled back this additional authentication procedure.

Current situation

To solve this problem the new SSA login protocol adds authentication through EITHER a one-time-use code sent to your cell phone or a one-time-use code sent to your requested e-mail.

To access my Social Security after June 10 you will first enter your username and password. You will then be required to enter your security code sent to you via cell phone or your email address.

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Chances of Audit Continue to Drop What you need to know

You can be audited the later date of either three years after the filing deadline of your tax return or when you actually filed your tax return. However, there are two main exceptions to this rule that can extend the risk of being audited;


If the IRS audits a tax return and discovers an error of more than 25% of your claimed tax obligation they can go back six years.


 If the IRS deems there is fraud involved, they can go back indefinitely.

Every year the IRS publishes their examination statistics. Provided here are three years of published information to help you identify trends:

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Income the IRS Can't Touch

Wouldn't it be nice to have a source of nontaxable income? You may be more fortunate than you realize. Listed here are a number of income items that the IRS does not tax.

  1. Tax-free interest. The federal government does not tax municipal bond interest. This includes bonds issued by a state or municipality. The tax-free benefit increases the higher your income, but caution must be taken to ensure the underlying municipality is not in dire financial condition.
  2. Health insurance premiums. For now, most health insurance premiums are tax free. This could change in the future to help pay for health care reform, but for most this benefit can be paid in pre-tax dollars.
  3. Income from Roth IRA and Roth 401(k) accounts. While the amounts contributed into these retirement savings accounts are taxed, any earnings made on the contributions are federal tax free as long as holding period and distribution rules are followed.
  4. Health savings accounts (HSA). Contributions and earnings in health related savings accounts are tax free as long as the proceeds in the account are used to pay for qualified health care expenses.
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Understanding Tax Terms: Basis Covering the bases on basis

Basis is a common IRS term, but probably does not enter into your everyday conversation. This IRS term is important because it impacts the taxes you pay when you sell, exchange or give away property.

What basis is

The IRS describes basis as:

The amount of your capital investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange or other disposition of the property.

In plain language, basis is the cost of your property as defined by the tax code.

There are a few different types of basis that apply to different situations, including "cost basis," "adjusted basis," and "basis other than cost."

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Tax Facts Without Political Spin New non-profit makes unbaised data readily available to all

The Internet has put virtually unlimited information at our fingertips. And yet, much of the information about our government and tax system available online often reflects the bias of one group or another. If only there was a way to see important data uncolored by spin, gossip or a partisan bent.

Just the facts

Enter USAFacts.org, a website launched in April that makes a wide variety of data about life – and taxes – in the United States easily available. It centralizes and organizes publicly available statistics about population, finance, and the economy from dozens of government bodies, such as the Agriculture, Treasury and Justice departments. It’s a nonprofit site whose goal is to present the data without a political agenda or commercial motive.

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Private Agencies Now Collecting for IRS Your scam alert should be on high

In a recent announcement, the IRS notified all taxpayers that outside collection of past-due tax bills is now beginning in mid-April 2017. This is a direct result of Congressional action in late 2015 requiring the IRS to turn over to outside companies billions in uncollected taxes it is no longer pursuing. This will impact all of us. Here is what you need to know.

Turn up your scam alert. Rest assured the tax-related identity theft epidemic is going to hit a new high as scam artists now will try to impersonate collection agencies. Never pay a collection agency directly for any tax owed. If you do not think you owe money to the IRS, ask for help.

Only four agencies have been authorized. Only four collection agencies have been authorized to collect unpaid taxes for the IRS. They are:

  • ConServe, of Fairport, New York
  • Pioneer, of Horseheads, New York
  • Performant, of Pleasanton, California
  • CBE Group, of Cedar Falls, Iowa
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Tax Tips for Those Getting Married Know someone getting married? Send them this tip now.

Tax Tips for Those Getting Married

Know someone getting married? Send them this tip now.

If you recently got married, plan to get married, or know someone taking the matrimonial plunge, here are some important tax tips every new bride and groom should know.

Notify Social Security. Notify the Social Security Administration (SSA) of any name changes by filling out Form SS-5. The IRS matches names with the SSA and may reject your joint tax return if the names don’t match what the SSA has on file.

Address change notification. If either of you are moving, update your address with your employer as well as the Postal Service. This will ensure your W-2s are correctly stated and delivered to you at the end of the year. You will also need to update the IRS with your new address using Form 8822.

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Weekly Tax Tip Five Steps to Take if You're Audited

Getting audited is no one’s idea of a good time, yet you can minimize the stress if you take the right approach.

Step 1: Understand why and when. While it's possible you were selected randomly, it’s more likely you were selected for a specific reason. One example might be if your deductions for charitable donations or business expenses were greater than is typical for your income or profession. Before proceeding, make sure you understand what is being challenged and when you must reply.

Comment: Your chance of being audited “randomly” rises along with the size of your income. With $200,000 a year in income your chance of being audited nearly doubles (1.01% in FY2016) compared with a person who has half of that income. People with more than $10 million in income have a nearly 1-in-5 chance of an audit every year.

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Reminder: 1st Quarter Estimated Taxes Due

If you have not already done so, now is the time to review your tax situation and make a 2017 estimated quarterly tax payment using Form 1040-ES. The first quarter due date is now here.

First-quarter due date: Tuesday, April 18, 2017.

Remember, you are required to withhold (pre-pay) at least 90 percent of your current tax obligation, or 100 percent of last year’s federal tax obligation throughout the tax year.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a quarterly payment might be necessary in addition to what is being withheld from any paychecks. Here are some things to consider:

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Your next audit may be an "audit lite"

Your next audit may be an "audit lite"

The IRS is handling more reviews with form letters

In-person audits with an IRS agent are becoming more uncommon. The IRS is instead handling many routine reviews through form letters called correspondence audits.

These IRS letters are a kind of “audit lite” the agency uses to ask for clarification and justification of specific deductions on your tax return. Common issues that trigger a correspondence audit are large charitable deductions, withdrawals from retirement accounts and education savings plans, excess miscellaneous deductions, and small business expenses.

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Taxpayers to forfeit more than $1 billion in refunds Are you one of them?

The IRS disclosed there will be more than $1 billion in federal tax refunds forfeited this year if taxpayers don’t claim them by April 18.

Refunds have to be claimed within three years or they are forfeited to the government. The unclaimed $1 billion comes from about 1 million taxpayers who still haven't filed returns for the 2013 tax year. Often the people who leave these refunds behind are young adults, college students, senior citizens and low-income taxpayers.

Why refunds go unclaimed

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Tax Credits versus Tax Deductions

Tax Credits versus Tax Deductions... Which is worth more to you? 

Every industry and profession has common terms that are used so often those of us in the business often forget that most people do not have the depth of understanding that a person working within the tax code might have. One of these areas is understanding the differences between the tax terms "deductions" and "credits". Is one better than the other?

If it were simple

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