Resources

The Managing Member of PRP & Associates writes a bi-weekly article on tax related topics that is published in the Lake County News Herald. This link provides you some of the most recent articles that have been published for your perusal.   

Setting up an Installment Agreement with the IRS - Paul Pahoresky

Sunday, April 23, 2024

So, you find yourself owing the IRS and not being able to pay? Sometimes, due to unforeseen circumstances a taxpayer is unable to pay their entire balance due to the IRS. Rather than failing to file and avoiding the issue and hoping that the IRS does not catch up to you, there is a better way to handle this. The IRS has set up a provision whereby a taxpayer can arrange to have an installment payment plan established to help pay off the taxes owed to the IRS. 

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Time to File an Extension - Paul Pahoresky

Sunday, April 7, 2024

Many of you may have procrastinated until the very end and need to get something filed by the Monday, April 15, 2024 tax filing deadline. Whether you are missing certain documents, had some medical challenges or other issues that prevented you from completing the return, you must take certain steps by the slightly extended deadline this year of Monday, April 15th to avoid additional interest and penalties. 

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Should I Make Estimated Tax Payments? - Paul Pahoresky

Sunday, March 24, 2024

As I work through tax season, a question often comes up around the topic of estimated tax payments. This question may be from me as to whether the taxpayer made the 2023 estimated tax payments, we had set them up with, or it may be from the taxpayer as to why we have set them up with estimated tax payments for 2024. In either case, there is often a great deal of confusion surrounding estimated payments and when and why they need to be made. 

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What Triggers an IRS Inquiry? - Paul Pahoresky

Sunday, March 10, 2024

I sometime get questioned by clients about the likelihood of their return being selected for examination.   A relatively straight forward return where most or all your income is from W-2 wages is less likely to be audited than a return with numerous investments or with other complex situations. The more complex your return and the more information that the IRS cannot cross check in their own data base from W-2 forms and 1099 forms that they have received the more likely an examination may occur. 

As you prepare your return this year there are a number of items to be aware of that could increase your risk of being audited. Some of these items may be unique to self-employed individuals, while others apply to a wider audience. The IRS evaluates your tax return against statistical averages for a number of areas to identify returns that appear to diverge significantly from the average return. Some of this analysis is based on percentages of income and such. 

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Beware of Tax Scams! - Paul Pahoresky

Sunday, February 25, 2024

As tax season gets underway tax preparers are gearing up for the busy season. People are starting to receive their tax forms including W-2s and 1099s. Unfortunately, another group of less than honorable individuals are also busy at work and those are the tax scammers. The tax scams have definitely been on the increase throughout my career and the methods of these fraudulent scams continue to expand as the use of multiple communication methods has exploded. 

One of the more common scams that has moved into the area of income taxes is that of phishing. Taxpayers should be aware that the IRS NEVER communicates with a taxpayer for any reason via email. I am not certain the IRS even has email as I have never communicated with anyone at the IRS via email and I communicate with IRS personnel frequently. Do not open or respond in any fashion to anyone claiming to be from the IRS in an email. 

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Business Tax Compliance Can Be Overwhelming - Paul Pahoresky

Sunday, February 11, 2024

Owning your own business is a goal of many Americans. To be your own boss and to be in charge and run a business in the manner that you desire is something many people aspire to. Businesses are sometimes started when a hobby becomes a business, or someone is sick of working for someone else and decides to start their own business. Businesses often start out small, but some grow quickly. 

Regardless of where it starts and how big it grows, owning a business brings about new and additional tax compliance responsibilities. From determining the legal structure of the business at startup, to determining the method that the business decides to be taxed, there are numerous decisions that people starting a business are often unaware of and fail to consider the ramifications of the decisions. 

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Local Taxes Can Be Confusing - Paul Pahoresky

Sunday, January 28, 2024

With the 2023 tax filing season upon us I thought a discussion on our very confusing local tax system. I recently added a seasoned tax professional to my team who moved here from Texas. He is very experienced but is getting up to speed with this complex portion of our taxing system.  Deciphering the rules and properly filing these local taxes as well as making appropriate estimated tax payments can be confusing. 

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Make Sure You Have All of Your Information - Paul Pahoresky

Sunday, January 14, 2024

With tax season upon us some of my clients are anxious to get their returns filed. For those taxpayers wanting to get a jump on their tax filing obligation the challenge comes in making sure that they truly have accounted for all forms of income received throughout the entire year. 

As a reminder the United States taxes all worldwide income, so a taxpayer has an obligation to report all of this worldwide income earned during the year.   

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IRMAA Charges are going up for 2024 - Paul Pahoresky

Sunday, December 31,  2023

One of the big mysteries for me has always been how does Medicare and Social Security work when I go to actually start utilizing them. We pay into them for decades of our working life, but most Americans including myself have little knowledge of how you actually start receiving the benefits that you pay into. Many of us also have been led to believe that once you reach age 65, your health insurance is free as a result of Medicare. As a result of working in the field of income tax preparation, I have come to realize that Medicare is ultimately not free when you begin to receive benefits. 

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Help Others and Save Taxes at the Same Time! - Paul Pahoresky

Sunday, December 17,  2023

As the year is rapidly winding down there are a number of tax saving strategies that I take advantage of this time of year. One of these is the new Ohio Scholarship Fund contribution. 

Beginning with tax year 2021 individual taxpayers and pass-through entities can claim an Ohio tax credit for financial contributions made to an eligible scholarship granting organization (SGO). The credit equals the lesser of $750 or the total amount contributed per individual to the SGOs during the year. A married couple can claim up to $1,500 as well. 

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Residency Considerations - Paul Pahoresky

Sunday, December 3,  2023

With the first snowfall in full force, I thought it would be a good opportunity to discuss residency matters regarding tax filings. Some of my clients use this time of year to escape to warmer weather areas. For Northeast Ohioans Florida seems to be the warm weather destination of choice. 

Some of us are limited to merely vacationing in Florida, while other more fortunate folks are able to escape our cold weather for even longer periods. 

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A Treasure May be Awaiting  -  Paul Pahoresky

Sunday, November 19,  2023

The Ohio Treasury wants Ohioans to recover money that is rightfully theirs. Every year 200,000 Ohioans lose track of their funds. They either put money in financial institutions and forget about it, or simply cannot track it in their records. This could be a deposit with a utility, or unclaimed insurance proceeds. Whatever the case the State of Ohio may have money waiting for you to claim. 

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What Generates Tax Notices?  -  Paul Pahoresky

Sunday, November 5,  2023

From time to time taxpayers will receive a notice from a taxing authority. When this happens the taxpayer is often concerned and frustrated and wants to know what generated the notice. The notice generally does not mean that the taxpayer is under audit. Rather, the notice means that the taxpayer has not filed a required return, or the information on the return that was filed does not correspond with other information received by the taxing authority. 

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Long Term Care Insurance and Income Taxes -  Paul Pahoresky

Sunday, October 22,  2023

As the pages of the calendar continue to turn and I get older I am very thankful that I purchased long term care insurance over a decade ago. Most people think about insuring their house or their car, but few think about or even know what long-term care insurance means.  With people living longer and longer and families becoming more spread out and smaller the possible need for long-term care insurance continues to increase. 

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Should I Amend My Tax Return? -  Paul Pahoresky

Sunday, October 08,  2023

Every year I must amend several clients’ returns that were previously filed for various reasons. This year as the October 16^th extension deadline for individual tax filing approaches I am faced with a new dilemma. I have about 10 returns that are essentially complete but are missing some key documents because the issuer of those documents has not issued them by their September 15^th deadline for that respective filing. We have decided it is better to file with the information we have already received and then later file an amended tax return once that additional information is received. This helps reduce any late filing or late payment penalties that may incur. 

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100 Days Left!  -  Paul Pahoresky

Sunday, September 24,  2023

Can you believe it? We have just about 100 days left in the year! Time is flying by, and before we know it, we'll be celebrating the arrival of a new year. 

Making the most out of the remaining days of the year financially will serve you well in the future. The good news is if you pay attention to these tips now, you can make the transition to the new year as smooth and easy as possible

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Have You Considered a Roth IRA Conversion?  -  Paul Pahoresky

Sunday, September 10,  2023

The current reduced tax rates are set to expire at the end of 2025. There are a number of tax strategies that are worth exploring for the next several years before these reduced tax rates may expire.   Many economists believe that the current lower tax rates are not sustainable given the ongoing federal government deficit, and that ultimately these low rates will need to be increased substantially.

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Why You Need to File a Tax Return  -  Paul Pahoresky

Sunday, August 27,  2023

Mandatory filing of a tax return is based on gross income for the year. There are numerous reasons to file a return for a taxpayer even when filing of the return is not mandatory. Failure to file these returns could leave money on the table or cause future problems down the road. Although the need to file a return is ultimately based on income, it is often a good idea to still file a return even when the filing is not required. 

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Reviewing Your Social Security Statement  -  Paul Pahoresky

Sunday, August 13,  2023

Most Americans will rely on Social Security as a significant portion of their retirement income. Most working Americans are paying into Social Security throughout their working years. Those that are employed at a job pay into social security through social security withholding of 6.2% of their gross wages. The employer is also matching this amount and paying in an additional 6.2% of gross income on behalf of the employee as well. Those that are self employed pay the entire 12.4% into Social Security through self-employment taxes which are a part of their annual 1040 income tax return calculations. 

It is a good idea to review and check your estimated Social Security Benefits on an annual or biannual basis. Checking the social security benefits allows for more accurate retirement planning as well as helping the person check and correct any errors that may have occurred. The Social Security Administration (SSA) maintains a record of an employee’s earnings and work credits by tracking both through your social security number. The SSA will also provide a statement of the estimated future benefits you will receive at various retirement ages which is very useful for future financial planning. or less. 

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Annual Sales Tax Holiday is Next Weekend!   -  Paul Pahoresky

Sunday, July 30,  2023

With the cost of everything continuing to rise any chance to save money is a welcome relief. The annual sales tax holiday begins Friday August 4h at midnight and ends at midnight on Sunday August 6^th.  This is the time to take advantage of this tax savings opportunity whether it be at a traditional brick and mortar store or online. Although these savings are intended to help families with school supplies and clothing for children, it is not limited to just items for children. 

During the holiday, the following items are exempt from both sales and use tax:

·       An item of clothing priced at $75 or less;

·       An item of school supplies priced at $20 or less; and an item of school instructional material priced at $20 or less. 

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Tax Benefits of Being Self-Employed   -  Paul Pahoresky

Sunday, July 16,  2023

As the tax laws continue to change and evolve the need to evaluate the best method to be compensated arises. Although most people are compensated as W-2 wage employees of an organization and may not have an ability to change this, the current tax law at the Federal level as well as enacted legislation at the State of Ohio level make it such that it may be much more tax advantageous to be taxed as self-employed if that option exists. 

First off, the current tax law eliminates the deduction for unreimbursed employee expenses. So, for those employees such as truck drivers, sales people and others that previously deducted significant expenses that they incurred related to their job that were not reimbursed by their employer this deduction is no longer available. Previously this deduction was taken on Form 2106 as part of Schedule A. With these deductions no longer being allowable the taxable income of those taxpayers that previously took these could be higher. 

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Tax Impact of Where You Live and Work  -  Paul Pahoresky

Sunday, July 2,  2023

I recently moved from Willoughby Hills to Eastlake Ohio. My wife has always wanted to live on the shores of Lake Erie since she was 11 years old. We found a beautiful property along the shores of Lake Erie at the end of Eastlake on the border of Willoughby. As a result of this change in address my income taxes are being impacted. In fact, my income taxes will go down because of the difference in reciprocity that Eastlake provides as compared to Willoughby Hills. 

Tax rates and tax credits can vary significantly from one location to another. Ohio municipalities are allowed to set their own tax rates, and rates can vary from as low as 0% to as high as 2.85% for just the employment tax portion. In addition to employment taxes the municipalities also charge residence tax rates that can also be at these same rates. 

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What Triggers an IRS Audit?  -  Paul Pahoresky

Sunday, June 18,  2023

Recently I had a client provide me with their documentation to prepare their 2022 income tax returns. As I was working through their return, I realized that some of the information provided, if submitted in the manner provided, and with the values provided, would trigger an IRS inquiry. Since my signature as the preparer is also on these returns, I requested that they review their figures and get back to me with more accurate and realistic figures rather than the guesstimates that they provided. 

In this specific return the taxpayer was using numbers that were rounded to the nearest thousand or hundred rather than an actual total based on a computed value. They were claiming noncash charitable contributions because they moved and cleaned out their house. They had numerous noncash charitable contribution receipts with estimated dollar amounts of between $1,000 to $5,000. They had no supporting details for these noncash charitable contributions other than the blank receipt from the recipient organization. 

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Reporting of Foreign Bank and Financial Accounts 2023  -  Paul Pahoresky

Sunday, June 04,  2023

In recent years the IRS has gotten quite aggressive in tracking down any foreign bank accounts and other foreign assets that American citizens may have. Even if the taxpayer fully reports all of the interest, dividends and capital gains there are additional reporting requirements related to foreign accounts. The penalties for failing to report all of the required information can be onerous and the reporting rules are quite complex. 

If you have a financial interest in, or signature authority over, a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

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Who is My Dependent for Tax Purposes?  -  Paul Pahoresky

Sunday, May 21,  2023

I spent this past weekend attending my 22-year-old daughter’s graduation from college. It was a joyful celebration as she begins her “adult” life. The impact on my wife and I is significant. One of the impacts is that we can no longer claim my daughter as a dependent and receive the credit for other dependents. 

A frequent question is who can be claimed as a dependent by a taxpayer. The IRS categorizes dependents as either a qualifying child or a qualifying relative. The requirements to be a qualifying child are that the person be a son, daughter, stepchild, foster child, sibling, half sibling, step sibling or a descendant of any of the above. As of December 31, the qualifying child must be under the age of 17 or, if a full-time student for at least 5 months of the year, under the age of 24. If the child is disabled, they can be any age. The qualifying child must live with the taxpayer for more than half the year. A child attending college in another city is considered to be living with the parent. The qualifying child may not file a joint return with another person.   

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Why You Should Use a CPA to Prepare Your Taxes  -  Paul Pahoresky

Sunday, May 7,  2023

Tax preparation services are one of the few professionals in the market place that do not require a state license to begin providing services. A license is needed to practice law or to practice medicine. A license is even required to cut someone’s hair, or to drive a bus. However, to be entrusted with personal information of an individual to prepare an accurate income tax return that minimizes the tax liability for an individual does not require any type of professional licensing. As a result of this, and with the availability of personal tax preparation software at the retail level there are quite a number of ways that someone can have their tax returns prepared. 

Some of these methods may not end up with the lowest tax liability and the maximum tax return for the taxpayer as they do not have the knowledge level and experience to be aware of all of the tax laws impacting the individual taxpayer. Individuals who are licensed as a CPA must first pass a rigorous series of tests on a number of subjects including taxation in order to obtain their license. In addition, these licensed CPAs are required to attend ongoing continuing education in order to maintain their professional license. 

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Tax Season Observations | Paul Pahoresky

Sunday, April 23 2023

The tax preparation community is breathing a sigh of relief now that we have survived another tax season and made it past April 18^th of this year. For this tax season there were not a whole lot of new laws, but several changes did have a significant impact on the refunds and balance due by taxpayers. 

It is fascinating to me that many taxpayers automatically assume that their tax balance due or refund should be the same as the prior year. However, every year there are numerous changes that impact the overall income tax situation. From tax law changes, to overall income changes, to changes in withholding tables and amounts, to type and makeup of the income no two years will ever be identical from a tax perspective for a taxpayer.     

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Don’t Forget Your to File your Extension! | Paul Pahoresky

Sunday, April 9 2023

Spring is in the air. To me that can only mean the end of tax season is near and I switch my focus from filing returns to filing extensions for my clients. Many of you may have procrastinated until the very end and need to get something filed by the Tuesday, April 18, 2023 tax filing deadline. Whether you are missing certain documents, had some medical challenges or other issues that prevented you from completing the return, you must take certain steps by the slightly extended deadline this year of Tuesday, April 18th to avoid additional interest and penalties. 

The first step is to make sure that IRS form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return is filed either through mailing or electronic filing. This needs to be completed by April 18^th to prevent you from being charged a late filing penalty. This form can be filed electronically, or it can be mailed in as the payment voucher for an extension payment.   

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You Need Your Cost Basis | Paul Pahoresky

Sunday, March 26th 2023

Every year as I prepare tax returns I have to put a return on my hold pile and reach out to a client for the cost basis of an investment. Inevitably this investment was purchased decades ago, or was gifted to them by a parent or relative. This lack of a cost basis can also occur if the investment was transferred from one investment company to another. As such, taxpayers sometimes struggle to determine what they actually invested in that security. 

Whenever you make an investment into stocks or bonds it is critical to keep track of your basis in the investment. The basis may sometimes be referred to as cost basis, adjusted basis, or tax basis but regardless of the name that is used it is very important to accurately track this information. Without tracking the basis you have no idea of what you truly invested in the item and you could ultimately pay taxes on the entire sales proceeds without adequate cost basis records.   

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Can I Work and Still Receive Social Security Benefits? | Paul Pahoresky

Sunday, February 26th 2023

I sometimes receive questions as to whether an individual can receive Social Security Benefits and continue to work. Like many things in life there is not one straight forward answer and there are a number of factors that impact this answer.

You are eligible to receive Social Security retirement or survivors benefits and work at the same time. The effect of working while receiving social security benefits depends on whether you are older or younger than your full retirement age (FRA). For those born previous to 1943 your FRA is 65 years old, for those born between 1943 and 1954 your FRA is 66, if you were born in 1960 or later your FRA is 67. If you were born between 1955 and 1959 your FRA begins at 66 and adds 2 months for each year, thus if you were born in 1955 your FRA is 66 years and 2 months, born in 1956 your FRA is 66 years and 4 months; 1957 is 66 years 6 months, 1958 66 years 8 months, 1959 66 years 10 months.

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What is a Decedent’s Final Return | Paul Pahoresky

Wednesday, February 8th 2023

Since my father passed away this past year and I am now completing his final part year 1040 individual income tax return for 2022 I thought it would be a good opportunity to discuss the filing of a final return for a decedent. As the saying goes, “the only things certain in life are death and taxes.” Because the person has passed away this can often be the most difficult return to

A decedent’s final income tax return includes income and deductions through the date of death. This return cannot be electronically filed and must be paper filed. Any income or deductions beyond the date of date would be reported on the estate income tax return if necessary. The date of the earnings can be especially problematic for income such as interest, dividend, and capital gains. Only that portion of income that was earned prior to the date of death should be reported on the decedent final return.   

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You Might Have a Smaller Tax Refund for 2022 | Paul Pahoresky

Wednesday, January 25th 2023

There is saying that the only thing certain in life is death and taxes. I would like to add another thing that is certain in life that I have found through my many years of preparing individual income taxes. From my experience it is also certain that tax laws will change from one year to the next. Some years those changes are massive and have a significant change in how your tax returns are prepared. Other years the tax law changes are more subtle and include only small changes to very obscure tax provisions. It is certain, though, that there will be changes in the IRS tax code.

These tax code changes in turn have an impact on the individual tax obligations and corresponding refunds. For 2022 the changes did not involve a massive rewriting of the tax code, but they certainly were more than subtle changes to minor tax provisions. As such, taxpayers should expect to have their refunds impacted, and for most the resulting refunds will prove to be smaller and disappointing. 

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What is the Ohio scholarship donation credit? | Paul Pahoresky

Wednesday, December 21st 2022

Having an opportunity to reduce your income taxes and benefiting a charitable organization at the same time is a welcome opportunity for many taxpayers. Several states offer tax credits for charitable contributions to targeted charitable organizations. This tax credit becomes a win-win for both the taxpayer and the charitable organization alike. This type of charitable tax credit at the state level is new to Ohio but several states have had this type of incentive for years. 

Beginning with tax year 2021 individual taxpayers and pass-through entities can claim an Ohio tax credit for financial contributions made to an eligible scholarship granting organization (SGO). The credit equals the lesser of $750 or the total amount contributed per individual to the SGOs during the year. A married couple can claim up to $1,500 as well. 

This dollar-for-dollar state tax credit will offset the 2022 Ohio income tax liability for qualified donations made by December 31, 2022. The taxpayer will receive a 100% tax credit for contributions claimed on the 2022 tax return. In other words, the taxpayer’s state tax can be reduced dollar for dollar up to $750 for an individual filer and $1,500 for a married couple on these qualify SGO contributions.

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Tax implications of selling your home | Paul Pahoresky

Saturday, November 19th 2022

The housing market has been very hot for quite some time. Due to recent increases in interest rates it has cooled off significantly. However, for a number of reasons I still receive numerous questions related to the tax consequences of the sale of a primary residence. Since this is often someone’s largest asset there is a great deal of concern surrounding the tax consequences of selling that house whether it is to move, downsize, or some other reason.   

The tax implications of selling your home depend in part on whether you sell your home for a profit or for a loss. A gain or loss is computed by subtracting the basis in your home from the net proceeds received on the sale of the home. The net proceeds are the sale price less commissions and other fees charged to the seller as a result of the sale. The basis of the home includes the purchase price plus any closing costs when you purchased the home. In addition, significant improvements that you made such as an addition to the home or a complete remodeling of the kitchen would add to the basis of the home. 

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