Blog: Ask A CPA

FAFSA Tips and Post-Harvey Aid

It’s time to be thinking about Federal Student Aid. If you need help filling out the FAFSA form, please read on or give me call. Also below, I unpack a few of the tax implications of a House bill designed to provide hurricane and wildfire relief.

Let’s begin.

Helpful Tips on the FAFSA

Do you have children in college? Then the Free Application for Federal Student Aid is the form that you will complete if you want to enter the federal financial aid system. Go to to electronically file if you want a Stafford Loan, a work-study job for your student on campus, a federal grant, or maybe even a little scholarship money from the endowment. You will need your 2016 Form 1040 and a list of your assets. If you need help, please give me a call at (713) 785-8939.

U.S. House Approves $36.5 Billion Aid Package

Last Thursday, October 12th, the House approved a bill that will provide Hurricane Harvey, Irma, and Maria relief as well as wildfire relief, and will bail out the financially troubled National Flood Insurance Program. The bill now awaits consideration by the Senate.

The bill also includes a few tax changes that might benefit you. This legislation allows you to take a casualty loss from these storms without having to itemize. You will also be able to deduct your uninsured personal losses in excess of a $500 threshold without regard to the 10% of adjusted gross income offset that generally applies to get that deduction. I don’t need to tell you how big that could be.

Also of note, the 10% penalty on pre-age-59 ½ withdrawals from retirement accounts is waived, as long as the IRA or retirement plan withdrawals are not greater than $100,000. The regular income tax due on these distributions can be paid over three years. You can also borrow more from your 401(k), up to $100,000, and loan repayments can be deferred. These are some of the changes that may affect you.

Tax Records Lost During Harvey?

If you lost your tax records during the hurricane you can use the Get Transcript tool on to print a summary of your W-2, 1099, and 1098 information. A tax transcript is a summary of key information and not a copy of your return. If you want a copy of an actual return, you must file Form 4506. If you want a copy of your transcript by mail, then you must file Form 4506-T. To expedite the processing and waive the customary fees, write “Hurricane Harvey” on the top of the form.

9 Tips for Reconstructing Records after Hurricane Harvey

Taxpayers who are victims of a disaster might need to reconstruct records to prove their loss. Doing this may be essential for tax purposes, getting federal assistance, or an insurance reimbursement.

Here are nine things individual taxpayers can do to help reconstruct their records after a disaster:

  1. Taxpayers can get free tax return transcripts by using the Get Transcript tool on, or use their smartphone with the IRS2Go mobile phone app. They can also call (800) 908-9946 to order it by phone.
  2. To establish the extent of the damage, taxpayers should take photographs or videos as soon after the disaster as possible.
  3. If a taxpayer doesn’t have photographs or videos of their property, a simple method to help them remember what items they lost is to sketch pictures of each room that was impacted.
  4. If you lost your car, there are several resources that can help you determine the FMV before the loss. These resources are all available online or at the library: Kelley’s Blue Book, National Automobile Dealers Association, or Edmunds.
  5. Taxpayers can contact the title company, escrow company, or bank that handled the purchase of their home to get copies of their destroyed documents.
  6. If you bought furniture or appliances with your credit card, then you should contact your credit card company or bank for past statements.
  7. Homeowners should review their insurance policy as the policy usually lists the value of the building to establish a base amount for replacement and starting point for determining FMV before the loss.
  8. Absent that, you can go to the HCAD website for a record of the value of your property, both land and improvement.
  9. You can also support your loss with cancelled checks, credit card receipts, photographs on your phone, and videos.

I hope this helps!

Robert T. Stevenson, CPA

Three Easy Ways to Report Your Property Damage

Harris County homeowners who suffered damage from Hurricane Harvey can report their damage to the Harris County Appraisal District (HCAD) through the following ways:

  1. The HCAD’s upgraded app, available for Apple and Android phones.
  2. By phone at (713) 812-5805. You will need to provide your name, address, phone number, and account number, if you have it, along with the type of property damage and amount of water you received.
  3. You can also email that information to

Reporting property damage now will help the appraisal district identify the most damaged neighborhoods and properties to help homeowners next year when property is reappraised.

Remember, your property tax liability is based on the appraised value as of January 1 of each year. Therefore, your tax bill for 2017 is based on your appraised value at January 01, 2017. And likewise, if your home has not been completely repaired as of January 1, 2018, then you should become eligible for a reduced value for 2018.

3 Common Tax Return Myths

Nobody wants to be the target of an IRS audit. Fear of an audit leads taxpayers to believe myths about what may or may not catch the eyes of the IRS. Unfortunately, these misconceptions could steer taxpayers toward greater audit risk and a higher tax liability. Below, I unpack three widespread individual tax return myths — and reveal the truth behind them.

Myth #1: Extending an Individual Return Increases Your Chances of Being Audited

The IRS offers an automatic six month extension to all individuals with no explanation necessary. If the IRS viewed extended returns as risky, then there would be rules in place to restrict extensions. Quite the opposite is true — the IRS makes it very easy for individuals to file extensions.

Individuals may rush to file their personal returns out of fear that they will be penalized for an extension, even if their returns are incomplete or inaccurate. This behavior may result in higher audit risk if the IRS catches the inaccuracies. Instead, taxpayers should take the time to collect and review their tax information to ensure they have included everything. If that involves filing an extension, then it is better to extend than to file without all of the information.

While an automatic extension extends your time to file your income tax return, it does not extend the time you have to pay your tax. If you expect to owe additional money with your income tax return, then you will need to pay all tax due when you file your extension.

Myth #2: Getting a Large Refund Means You Are Maximizing Deductions and Minimizing Risk

A large income tax refund may simply mean that you are over withholding on your Form W-2 or overpaying your estimated taxes. That refund is actually interest-free money that you overpaid to the government.

Be leery of those who brag about their IRS Refunds. Rather than optimizing deductions, they may be getting back money that they had over withheld. Discuss your personal circumstances with your CPA to ensure that you maximize your deductions.

Large refunds have now become potential red flags for the IRS. With the drastic increase in identity theft, the IRS is now on the lookout for returns seeking large refunds to ensure that those returns are legitimate.

Myth #3: Individuals Should Not Take the Home Office Deduction Due to Audit Risk

Unlike in the past, working from home is very common today due to technology and the savings to companies in office space. Therefore, remote employees and the self-employed do not necessarily increase their audit risk.

There are some rules to consider. First, individuals can only claim space used exclusively and regularly for business. Also, the home office deduction is available only to individuals who do not have nearby access to a physical office location. Also, the deduction is only allowed to the extent of profit in the business.

If you have additional tax questions, give me a call at (713) 785-8939. I’d love to hear from you.

5 Tips for Tax-Smart Charitable Contributions

The generosity of the American people is never more evident than during a disaster event. Houston has experienced widespread devastation as a result of Hurricane Harvey. In its aftermath, hundreds of relief funds are being set up and promoted to aid those impacted by the storm. You clearly want to help, so how do you ensure that your generous donation will not only benefit those in need but also be tax deductible?

Here are a few things to consider.

1. Verify Tax Exempt Status

Make sure your recipient organization has been granted 501(c)(3) tax exempt status by the Internal Revenue Service. These organizations have been established for charitable purposes and donations to them are tax deductible as allowed by law. They also are required to file annual tax returns reporting their charitable contribution income, their unrelated business taxable income, and their business expenses. These returns are available for public inspection, usually upon request. You can confirm an organization’s exempt status on the IRS website.

2. Get a Receipt

Organizations that are eligible to receive tax deductible donations are required to provide a receipt to donors for any gift of $250 or more. The receipt acknowledges the donation amount, the date of donation, the organization’s tax exempt status, and their tax ID number. You should obtain and keep the receipt as additional support for your tax deductible donation.

3. Be Wary of Crowdfunding

Crowdfunding sites such as GoFundMe or YouCaring are popular ways to raise money for various types of causes on social media. Since crowdfunding websites are open for use by anyone, many of the funding pages are not established by qualified charitable organizations. Before giving through such sites, do your homework to ensure that your support is going to a charitable organization with qualifying tax-exempt status.

4. Appreciated Securities

Consider donating appreciated stocks, bonds, or mutual funds to a charity or a donor advised fund. When you donate appreciated securities held longer than a year, you are able to deduct the fair market value of the security as a charitable contribution. This also avoids the capital gains tax because the security is being donated instead of being sold.

5. Autos and Boats Worth More Than $5,000

In most cases you will need a written appraisal, which will be attached to the return. You will also need a written acknowledgement from the donee organization which will include any proceeds from the disposition of the vehicle by the donee organization. This acknowledgement must also be attached to the return.

In addition, you will need a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, from the donee organization. Most charities will use the Form 1098-C to fulfill the written acknowledgement requirement. And yes, you will attach the Form 1098-C to your tax return.

If you have additional tax questions, give me a call at (713) 785-8939. I’d love to hear from you.

9/12 Weekly Tax Letter: Casualty Loss Deduction and New Filing Deadline

Dear Taxpayer,

I would like to send you my weekly tax letter to keep you informed and also to stay in touch.  I will try to keep it to the point and informative.  If you have questions, please feel free to call me at 713-785-8939.  If you think a friend would benefit then pass it on.  Let’s begin.

Casualty Loss Deduction from Hurricane Harvey

I promised that I would explain the rules and the math behind this deduction in my last letter.  I will try to give you the most important things you need to know in a simple example.  Remember to take photographs of the damage and to use your HCAD appraisal for your allocation.  This example will have a family that had their home and their car flooded.

For each asset, you are allowed to deduct the lower of the fair market value (FMV) before the storm or your cost basis, less insurance proceeds, less the FMV after the event, less $100 per item, and for each event subtract 10% of your adjusted gross income (AGI).

Example: Your home was flooded by Hurricane Harvey.  The FMV of your home before the event was $300,000, of which $100,000 was land and $200,000 was improvement.  You bought the home in 2010 for $150,000.  The FMV of the improvement after the event was zero, your insurance proceeds were $40,000, and your AGI was $120,000.  Your car was a total loss.  Your cost was $21,000 and the FMV before the storm was $10,000, the insurance proceeds were $7,000.

Your Casualty Loss Deduction would be $50,800.  Computed as follows: ($100,000 less $40,000 less $100 plus $10,000 less $7,000 less $100 less $12,000 equals $50,800).

This example is very simplified and does not include personal property.  I would combine your personal possessions such as furniture, clothing, and household items into one amount.  Remember, you deduct the lower of FMV or cost.  Also remember that you may amend your 2016 tax return to take the deduction or wait and take it on your 2017 Form 1040.  You will also need to provide the date you acquired the property and the date you incurred your casualty loss.  The casualty loss deduction is taken on Form 4684 Casualties and Thefts.  I imagine this leaves many of your questions unanswered, so please give me a call if I can be of any further assistance.       

New Filing Deadline

The filing deadline for income tax and payroll tax returns and estimated tax payments due on or after August 23, 2017 and before January 31, 2018 have been pushed back to January 31, 2018.  It includes taxpayers who had valid extensions to file their 2016 return that would have been due on either September 15, 2017 or October 16, 2017.  It also includes the quarterly estimated tax payments originally due on September 15, 2017 and January 16, 2018, and the quarterly payroll tax returns normally due on October 31, 2017.  Please don’t wait until January 31, 2018.  Come and see me as close to the original due date as possible – you will be glad you did.  Thank you.  See for more details.

Till next week,
Robert Stevenson, CPA
September 12, 2017








Three Tax Issues to Watch For in 2017 and Beyond

Between now and April, I’ll use my blog to periodically answer client questions and spread awareness about some of the biggest tax issues that could affect your 2017 return. Let’s begin with a brief overview of three potential changes with large implications.

Health Care

The individual and employer health insurance mandates remain the law now that the Senate has rejected GOP proposals for a repeal of  Obamacare. The Affordable Care Act remains in force unless and until changed by Congress. Uninsured individuals must pay a penalty tax if they don’t qualify for an exemption. Employers with 50 or more full-time employees but no affordable health plan owe a penalty tax if their employees opt to buy insurance on an exchange and qualify for the premium tax credit. Trump’s executive orders on Obamacare do not change the law, per the IRS. Don’t be surprised to see more exemptions to the individual mandate. There are several now.

Also, keep an eye out for a bipartisan plan with significant changes to Obamacare. A new proposal by the 30 plus members of the House’s Problem Solvers Caucus sets forth solutions intended to help stabilize the individual health insurance market. It includes two tax provisions: First, repeal of the 2.3% tax on medical device sales; second, an easing of the employer mandate so it would only apply to businesses with 500 or more employees, up significantly from the current 50-employee threshold. In addition, the 30 hour per week threshold to qualify as a full time employee would be hiked to 40 hours.  

Identity Theft

The incidence of reported individual tax identity theft is on the decline, but an increase in business tax identity theft is causing concern. This occurs when fraudulent individuals file bogus corporate, payroll, or excise tax returns, Schedule K-1s, and others, using stolen tax ID numbers and claiming false tax refunds. The IRS has flagged 10,000 suspicious business tax returns filed thus far in 2017. To help alleviate the problem, the IRS is asking more from tax return preparers. Beginning next year, tax preparation software will be updated to require additional data, such as the name and Social Security number of the executive signing the return and the company’s payment and filing history. The IRS anticipates that these questions will help it identify suspicious returns. Be ready for this. This would become a requirement by way of an internal IRS administrative ruling.    

Tax Reform

Tax reform is a priority in Congress, and GOP tax writers and their staff are busy working on a proposal to overhaul the federal tax system, which they expect to release after the August recess. In the meantime, those in the know are making the following forecast.

Will the business tax rate be cut to 15%? No. Despite President Trump’s promise to slash the current 35% corporate rate to 15%, this won’t fly with moderate congressional Republicans. There just aren’t enough revenue raisers to offset such a low rate, they argue, especially now that the projected savings from the repeal of Obamacare is no longer in the mix. GOP lawmakers will aim for a 20 to 25% rate in their plan which will also apply to owners of pass-through businesses such as partnerships and S Corporations and self-employed business owners, such as those filing on Schedule C with their personal tax return.

If you have tax questions, I’d love to hear from you. Feel free to call me at (713) 785-8939 or email me at – I may even feature your question in a future blog post.

Until next time,
Robert Stevenson, CPA

A By-Product of the Affordable Care Act

I don’t know if anyone has noticed, but healthcare – and the Affordable Care Act in particular – has been in the news quite a bit lately.

That got me thinking about employer responsibility requirements.

Maybe you’ve already heard about these requirements. Under the ACA, “large” employers with 50 or more full-time or full-time equivalent employees are required to offer healthcare to all of their full-time employees. If they fail to comply, the employer must pay a $2000 penalty per employee.

For most companies, this isn’t too big of a deal. Either you’re a small business and don’t need to worry about this mandate, or you’re large enough that you can afford to offer your employees health insurance. (In fact, the Kaiser Family Foundation reported back in 2013 that more than 9 out of 10 businesses with over 50 full-time or full-time equivalent employees already offered healthcare before the ACA took effect.)

But I have a number of business clients hovering right around 50 full-time employees. They exist in an unfortunate sweet spot – they’re too big to be small, and too small to comfortably afford to offer comprehensive benefits. Some of these businesses can barely make payroll every two weeks as it is – there’s no way they could take on the added expense of paying for health insurance for their employees and their dependents. What’s more, every person they have in their employ is vital. There are no excess employees.

It puts me in an uncomfortable position. I feel a professional obligation to my clients to advise them to get below 50 employees. But even though that’s the best business decision, it’s not a very nice human decision. I don’t want anyone to lose their livelihood. To make matters worse, the first people to go are usually younger or less skilled workers, often on the first rung of the ladder of success. People like my kids. And by losing their jobs, they’ll lose their means of support and could end up living with their parents or depending on social programs.

But if my clients can’t afford to offer health coverage, I can’t in good faith recommend that they suffer the consequences and pay the $2,000-per-employee fine. What’s more, the Affordable Care Act has effectively made tax preparers like me the compliance officers of the federal government. It is the tax preparer who must indicate on the return that the taxpayer did not comply with the law, and it is the tax preparer who will compute the shared responsibility payment.

I guess everyone in Washington is right: Healthcare is hard.

I’d love to hear what you think: Should the employer responsibility requirements stay or should they go?

Tax Tip: Long-Term Capital Gains Taxed at More Favorable Rates

Say you’ve held an investment for one year or less. Any profit from that investment is considered a short-term capital gain, and it’s taxed at your ordinary rate.

But now let’s say that you’ve held that investment for longer than a year – even just one year and one day. All of a sudden, you qualify for long-term capital gain (LTCG) treatment. Which is great news – LTCG tax rates can be as low as 0%.

If you are in the 39.6% tax bracket, your LTCG rate is 20%. If you’re in a tax bracket between 25% and up to the 39.6% bracket, your LTCG rate will be 15%. Finally, if you are in the 10% or 15% brackets, your LTCG rate will be zero.

Tax Bracket

Long-Term Capital Gains Tax Rate

10% – 15%


25% – 35%




In 2016, the 15% bracket ended at $75,300 for married couples. So imagine a married couple with $80,000 in taxable income – $70,000 from ordinary wages and $10,000 from a long-term capital gain. Together, their taxable income exceeds the $75,300 limit, but they pay no tax on $5,300 of their capital gain – the point at which the 15% bracket ends. The additional $4,700 in capital gains would be taxed at 15%, the rate of taxation for people in the 25% tax bracket.

But by claiming additional itemized deductions or making a deductible contribution to their IRA in an amount up to or exceeding that $4,700, the couple in the example above would qualify for two tax breaks. They’d get the tax break from their additional deductions, allowing more of their LTCG and Qualified Dividends would be taxed at the 0% rate.

The moral of the story? Hold on to your investments! The favorable tax rate for long-term capital gains makes it well worth the wait.

How Does a Uniform Gift to Minors Account Affect Federal Financial Aid?

I teach a free parent seminar called “Paying For College,” and parents often ask me about Uniform Gift to Minors Accounts. These accounts may sound like a good idea, and they’re fine for income or estate tax planning. But when it comes to federal financial aid planning, a Uniform Gift to Minors Account is a terrible idea.

Let me explain.

Generally, children cannot transact financial business on their own –other than a simple bank account – without the appointment of a guardian. So in the 1950s, the Uniform Gift to Minors Act (UGMA) was created. The goal was to draft a model law for states to adopt to provide a convenient way for people to make gifts of money and securities to minors. In 1986, the Uniform Transfer to Minors Act (UTMA) was created to expand the types of property that could be transferred to a minor, e.g. real estate and limited partnerships.

Under the UGMA/UTMA, parents can make gifts to children through the use of custodial accounts. Custodial accounts are basically simplified trusts that are created by statute instead of through trust agreements. In lieu of a trustee, a custodian is named to manage the property until the age at which control passes to the child. Parents making gifts to their children can name themselves or another adult as custodian. The custodian has a fiduciary responsibility to handle the assets in a prudent manner for the child’s benefit.

When the child reaches a specified age, he or she can claim all of the account assets – even if that is against the wishes of the parent donor or the custodian. In Texas, the age of majority is 21. Gifts to a child under UGMA/UTMA constitute completed gifts for gift tax purposes and qualify for the annual gift tax exclusion, which in 2017 is $14,000 per parent or $28,000 if from both parents. Income earned on the assets in the custodial account is taxable to the child and subject to the “kiddie tax” if the child is under 24.

What does that mean? For federal financial aid planning, gifts to a child under UGMA/UTMA count as that child’s income and assets for assessment purposes for the Expected Family Contribution. And of course, the higher the Expected Family Contribution, the less likely a child is to receive financial aid.

Questions? I’d love to hear from you. Please feel free to reach out to me via email, or call me at my office at (713) 785-8939. If you’re interested in learning more about my “Paying for College” seminar, I’d be happy to discuss it with you.

Thank you for reading,
Robert Stevenson, CPA