Discussion:Telephone Excise Credit-clients and billing

Any better ideas?

Well form 8913 will help I guess.

I think that very quickly we tax preparers will start to get a feel for the cost/benefit of digging into the telephone refund information. I think we'll be able to ask our clients about their average monthly telephone bills, and advise them that if they are not more than some amount we come up with, that the work involved in getting more than the standard amount is not worth it.

I hope we keep on top of this issue in the next few weeks.

Example 2: Client has bundled service. (All calls one monthly price) Calculated percentage differential will be identical for all clients with bundled service.

Example 3: Client has standard bill. (Local and long distance together) Calculated differntial will be the same for all clients with standard bill. With the simplified method it doesn't even matter whether they changed type of service during the period. Whatever service they had in April governs. Jeesh. ♫

SCD, CPA

Remember that the Sch C, E, F, etc must have $25,000 in income to take the refund. To determine if it is worth the effort for businesses, I have been adding 03 thru 06 phone expense and multiplying by 1.5% to get a ball park number. The refund range from my clients have ranged from $40 to $360. Anybody doing anything different.

If an average of around 1/2 of the phone bills are long distance, and the tax rate was 3%, then I'm thinking that unless the phone bills have run more than about $150-$200 per month, I won't even request the bills ($150 x 41 months x 3% x 1/2 = $90).

As JR1 said, charging more for preparing the credit forms than the credit itself is no fair.

I'm thinking I'll separate the time I spend & if it turns out to be more than the credit, write off the excess, to show clients that I'm looking out for their best interest in my billing. I think gestures like this add a huge amount of credibility to all of my bills, which the clients have to take on faith, in terms of my time recording. Perhaps this is an opportunity in some ways.

Inside This Issue

Some Telephone Tax Refund Requests May Be Too High; IRS Will Deny Improper Requests

WASHINGTON — The Internal Revenue Service said today that early filings show some individual taxpayers have requested large and apparently improper amounts for the special telephone tax refund. The IRS is investigating potential abuses in this area and will take prompt action against taxpayers who claim improper refund amounts and the return preparers who help them.

Everyone should be read this issue.

- Tim Doyle, TaxAlmanac Moderator - Talk to me 07:39, 26 January 2007 (CST)

Q. I qualify to use the formula, but my telephone expense records are not broken down by month. Is there an acceptable method for me to estimate my telephone expenses for the 41-month refund period?

Yes. You can base your estimate on the amounts you reported as business-related telephone expense on your returns for tax years 2003 through 2006. Prorate the telephone expense amount for a particular tax year if part of the year falls outside the refund period (2003 and 2006 for most taxpayers).

For example, like most taxpayers, Company Z files its income tax return on a calendar-year basis. It operated continuously during all four years and claimed telephone expense deductions totaling $12,000 in tax year 2003, $11,000 in 2004, $12,000 in 2005 and $12,000 in 2006. Z estimates the amount of its telephone expense that falls within the 41-month refund period as follows. In tax year 2003, only 10 months (March through December) fall within the telephone tax refund period. Z estimates its telephone expenses for this period by multiplying the $12,000 telephone expense deduction for 2003 by 10/12 (10 months divided by 12, the number of months in the tax year) to arrive at a figure of $10,000. There’s no need to prorate the deductions for 2004 and 2005, because these tax years fall entirely within the refund period. In 2006, 7 months (January through July) fall within the refund period. Accordingly, Z prorates its $12,000 telephone expense deduction by multiplying it by 7/12 to come up with an estimate of $7,000. Z adds together the prorated telephone expense for 2003 ($10,000), the actual telephone expense deduction for 2004 ($11,000), the actual deduction for 2005 ($12,000) and the prorated expense for 2006 ($7,000). The result, $40,000, is Z’s estimated telephone expense for the 41-month refund period.

Given the above, using Smokey's Ex. above would it not be on the entire $200/mo rather than LD % as noted above so therefore the credit would be ($200 x 41 mos X3% = 246)?

The bigger the company the more likely they will be able to do the calculation in house, but I wanted to point out that the estimating method works pretty well. You get to determine a % that applies to your company by looking at only the two mos. Apr '06 and Sep '06. Even though the actual tax is a % of the long distance bill, the % you are calculating is the tax divided by the ENTIRE BILL so that you can then apply your % to the TELEPHONE deduction on the returns. Assuming a small business runs yellow pages, phones, cells, through the account you may get a very small % applied to a very large bill.

That's okay. As long as everything in the lump is the basis for determining your % from the Apr and Sep '06 bills you can still use that lump

-- Copyrighted material removed --

- Tim Doyle, TaxAlmanac Moderator - Talk to me 13:04, 26 January 2007 (CST)

You can read the IRS Information Release here: IR-2007-16.

- Tim Doyle, TaxAlmanac Moderator - Talk to me 13:05, 26 January 2007 (CST)

- Tim Doyle, TaxAlmanac Moderator - Talk to me 13:19, 26 January 2007 (CST)