Monthly Archives: April 2014

Implications Of Filing An Extension For Your Tax Return

Implications Of Filing An Extension For Your Tax Return


Tick… tick… tick…

That’s the sound of the tax-filing clock winding down to April 15. What if you don’t think you’ll make the deadline? The consequences may not be as serious as you fear — if you take some simple steps before the deadline.



About 6 million people file tax extensions each year.


In past years, there were a couple of different applications you could file, but most recently there is just one. The extension is 6 months long, giving you until October 15th to file your taxes.


What’s most important, is that these extensions are meant to give you more time to FILE your taxes, not to pay them! When you request your extension, try to send an estimated payment along with it. If you don’t pay 100% of your taxes by April 15th, you WILL get hit with penalties and interest for the underpaid amount when you do finally file.This penalty can go up to 1% per month.


If you plan on making quarterly estimated tax payments for the following year, you should send in your first payment for the following year, along with your extimated taxes by April 15th. That way, you will have an overpayment on this years taxes, and can apply that over payment to the following years return, in place of your first quarterly payment. The benefit in doing this, is that it provides cushion against an underpayment penalty in case your estimate is too low.





If you do not complete the steps above before April 15th, the IRS will penalize you 5% per month, up to 25%. They will also charge you interest.





The penalty for not filing at all, is much worse than filing and paying what you can. The penalty for not paying is only 0.5% each month until you pay it off.






Call me if you have any questions or wish to discuss your taxes further. I’d be happy to do so without any charge or obligation.


Tax Implications of Investor or Trader Status

Westchester NY accountant Paul Herman has all the answers to your personal finance questions!

Tax Implications of Investor or Trader Status

Most taxpayers who trade stocks are classified as investors for tax purposes. This means any net gains are going to be treated as capital gains vs. ordinary income. That’s good if your net gains are long term from positions held more than a year. However, any investment-related expenses (such as margin interest, stock tracking software, etc.) are deductible only if you itemize and, in some cases, only if the total of the expenses exceeds 2% of your adjusted gross income.

Traders have it better. Their expenses reduce gross income even if they can’t itemize deductions, and not just for regular tax purposes, but also for alternative minimum tax purposes. Plus, in certain circumstances, if they have a net loss for the year, they can claim it as an ordinary loss (so it can offset other ordinary income) rather than a capital loss, which is limited to a $3,000 ($1,500 if married filing separate) per year deduction once any capital gains have been offset. Thus, it’s no surprise that in two recent Tax Court cases the taxpayers were trying to convince the court they qualified as traders. Although both taxpayers failed, and got hit with negligence penalties on top of back taxes, the cases provide good insights into what it takes to successfully meet the test for trader status.

The answer is pretty simple. A taxpayer’s trading must be “substantial.” Also, it must be designed to try to catch the swings in the daily market movements, and to profit from these short-term changes rather than from the long-term holding of investments.

So, what counts as substantial? While there’s no bright line test, the courts have tended to view more than a thousand trades a year, spread over most of the available trading days in the year, as substantial. Consequently, a few hundred trades, especially when occurring only sporadically during the year, are not likely to pass muster. In addition, the average duration for holding any one position needs to be very short, preferably only a day or two. If you satisfy all of these conditions, then even though there’s no guarantee (because the test is subjective), the chances are good that you’d ultimately be able to prove trader vs. investor status if you were challenged. Of course, even if you don’t satisfy one of the tests, you might still prevail, but the odds against you are presumably higher.

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Alert: Beware of Phishing Scam Mentioning TAS

Westchester NY accountant Paul Herman has all the answers to your personal finance questions!

Identity Theft

ALERT: Beware of Phishing Scam Mentioning TAS


The Taxpayer Advocate Service (TAS) recently learned of an email phishing scam currently circulating in which taxpayers are receiving emails purporting to be from TAS and bearing the TAS logo. The email contains a link to a fraudulent website that solicits personal information including names, personal contact information and income details. Please be advised that this is a scam and should be immediately reported to the IRS.
The email message reads as follows and includes a link to false contact information for the “advocate” assigned to their case and a false case number:
“Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”
If you receive this message, do not click on the link or follow any of the instructions in the email. You should immediately forward the email to the IRS’s designated address for these scams – You can also find instructions for forwarding the message on
*     *     *

Each year, millions of consumers have their identities stolen. In the course of a day, you may write a check at the grocery store, use your credit card to purchase tickets to a ball game or rent a car, change service providers for your cell phone, or apply for a credit card. These are all opportunities for identity theft.

According to the Federal Trade Commission, identity theft occurs when personal information is used, without an individual’s permission, to commit fraud. The more you know about how to protect your identity by controlling your identifying information such as your Social Security number and what to do if a problem arises, the harder it is for identity thieves to make you a victim.

Identity theft is very serious and harms not only the victims, but also the companies (banks, credit unions, stores, medical services, etc.) that can’t recover the money and ultimately, consumers bear the increased costs. Victims of identity theft spend months, sometimes years – and possibly thousands of dollars – cleaning up the damage the thieves have done to their good name and credit record. Victims may lose job opportunities, be refused loans for education, housing, or cars, or even get arrested for crimes they did not commit.

Facts about identity theft

  • Identity theft was the number one cause of consumer fraud complaints (39 percent) in 2005, and statistics show that it continues to increase.
  • Identity theft is rarely a stand-alone crime. It is almost always a component of one or more crimes, such as bank fraud, credit card fraud, employment fraud or the use of counterfeit financial instruments.

How does identity theft happen?

Well organized rings of thieves often commit identity theft using
high-tech methods such as:

  • Phishing – The act of sending an e-mail to a user and falsely claiming to be a legitimate enterprise in an attempt to trick the user into providing private information and providing links to false websites that are used for identity theft.
  • Trojans – A program that presents itself as a useful computer program but damages your computer by downloading spyware and other malicious code to gather personal information.

Less sophisticated methods of stealing information include:

  • Dumpster diving – sorting through garbage cans or dumpsters looking for personal information.
  • Reading or stealing mail or putting in a change of address.
  • Stealing wallets/purses.

How can you prevent identity theft?

When it comes to identity theft, you cannot eliminate the possibility of becoming a victim. But there are steps you can take to minimize your risk.

  • Do not carry your Social Security number or card in your wallet or purse.
  • Use uncommon passwords on personal banking or financial accounts and do not share them.
  • Do not give a business, or anyone else, your Social Security number just because they ask; always challenge the request.
  • Protect financial information in your purse or wallet while at work.
  • Check your credit report every 12 months. Every U.S. resident can get one free credit report from each of the three major credit reporting bureaus per year.
  • Keep your personal information in a secure place in your home.
  • Don’t give out personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
  • Shred bills and other documents that provide personal information.
  • Carry only the identification and credit cards that you need.
  • If you make a purchase from a retailer with which you’re not familiar (restaurants, bars, convenience stores), consider making purchases with cash rather than a credit or debit card. If you use a credit or debit card, check to make sure you are given your card back.

What should you do if you are a victim of identity theft?

  • Report incidents of identity theft to the Federal Trade Commission (FTC) at or the FTC Identity Theft hotline at 1-877-438-4338 or TTY 1-866-653-4261.
  • File a report with the local police. Be sure to get a copy of the police report.
  • Contact the fraud departments of the three major credit rating agencies:
  • Close any accounts that have been tampered with or opened fraudulently.
  • Report misuse of your Social Security number to the Social Security Administration.
  • If you have previously been in contact with the IRS and have not achieved a resolution, contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.


Identity theft and your tax records

  • An identity thief may use your stolen Social Security number to get a job. Their employer would report the thief’s wages under your Social Security number to the IRS. This could cause the IRS to think you have not reported all your income.
  • If the thief files a tax return using your Social Security number, the IRS will think you have already received a refund or that you have filed a second copy or duplicate return.
  • Be alert to possible identity theft if you receive an IRS notice or letter that states:
    • You have filed more than one tax return, or
    • You have received wages from an employer you have not worked for.
  • If you receive this type of correspondence from the IRS, please respond immediately to the name, address, and/or number printed on the IRS notice.
  • The IRS does not initiate contact with taxpayers via e-mail. The IRS does not request detailed personal information through
    e-mail correspondence.
  • If you receive a bogus e-mail claiming to be from the IRS, forward it to or visit How to Report and Identify Phishing, E-mail Scams and Bogus IRS Web Sites on to get instructions on how to forward the e-mail message. Do not open attachments or click on the links found within the bogus e-mail.


Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.


Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.