Tax-Poetic

New 1099-K Reporting Requirements

2012-02-12T20:14:00.003-05:00

Credit card companies are now required to issue 1099-Ks to merchants. The IRS has some updated information here.

Recipients of the new forms will have to separately report the funds received as part of their gross income beginning in tax year 2012 to be filed in 2013. Forms such as Schedule C and 1120S have a separate line for 2011 forms, but the requirement to separate the information doesn't take effect until next year.

Georgia's Effort To Collect Taxes Due On Internet Sales

2012-02-11T14:23:00.002-05:00

Jim Galloway of the AJC reports on the inevitable fight that is forming in regards to Gov. Nathan Deal's announcement that he is ready to go after the sales taxes that should accompany purchases Georgians make over the internet.

Deal's announcement got a response from Grover Norquist, president of Americans for Tax Reform, who refined his definition of what constitutes a tax increase. According to Norquist, if a government expands its tax collection system, and takes in more cash as a result, then it's a tax increase. That seems like a poor definition of a tax increase. I'm of the opinion that broad base and low rates are the best ways to tax and an increase in the base while lowering the rate would not necessarily be a tax increase.

Deal's office resonded by reiterating that this isn't a tax increase but an effort to collect taxes that are already law. "It's current law that all retail sales are supposed to pay a sales tax", said Deal spokesman Brian Robinson.

Robinson is referring to the Georgia Consumer Use Tax. The use tax applies when sales tax has not been charged for goods purchased for use or consumption in the state of Georgia. Purchases made over the Internet, by phone or out of state are some examples of transactions that would be subject to the use tax.

I don't have a strong opinion one way or the other whether companies that have no physical presence in Georgia should be tasked with collecting and remitting sales tax for sales to Georgians, but I feel it is misleading if not downright incorrect to label Georgia's attempt to collect such already enacted taxes as a tax increase.

2011 Deductions and Credits

2012-02-11T13:36:00.003-05:00

CBS Moneywatch has a list of 18 deductions and credits for which you may qualify. The article also gives the current year amounts for inflation adjusted deductions such as personal exemptions. Readers are also reminded that the filing deadline is April 17th this year.

IRS Releases Tax Gap Information

2012-02-11T13:20:00.004-05:00

Earlier this year, the IRS released tax gap estimates for the tax year 2006. The link shows a comparison of tax years 2001 and 2006. The compliance percentage is similar between the two years even though the raw "tax gap" has risen from $290 billion to $385 billion.

The IRS release breaks the 2006 tax gap into three categories of under-reporting, non-filing and underpayment. The tax gaps for those categories are $376 billion, $28 billion and $46 billion, respectively.

The release also sheds light on compliance relative to third-party reporting. Items such as wages which are reported on a W-2 only have a result of 1% misreporting. Income amounts that have no third party reporting requirements have a 56% misreporting rate for 2006.

As a result, look for the IRS to look for additional ways in which income items will be reported by third parties in an attempt to narrow the tax gap.

Home Office Deduction

2011-08-15T11:44:00.004-04:00

The IRS provides tax tips via YouTube videos. The tax tips concerning home office deduction can be viewed here.

Here is a summary of the home office deduction that self-employed and employees who use a portion of their homes for business purposes may be able to take.

Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly as your place of business, or as a place to meet with customers or in any connection with your trade or business where the business portion of your house is a separate structure not attached to your home.

For storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
The amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.
Special rules apply to qualified daycare providers and for people storing business inventory or product samples.
Form 8829, Expenses for Business Use of Your Home is used by self-employed people to figure the home office deduction. That deduction is then reported on Schedule C, Profit or Loss From Business.
Additional rules apply to an employee such as the regular and exclusive business use of the home must be for the convenience of the employer.

Additional information can be found in IRS Publication 587, Business Use of Your Home.

Congress Retroactively Reinstates Airline Excise Tax Then Provides Relief For Retroactively Reinstated Tax

2011-08-13T12:10:00.003-04:00

This week Congress extended the Federal Aviation Administration's authority to collect federal passenger air transportation excise taxes ("ticket taxes'). On the brink of a possible government shutdown, the FAA budget authority expired on July 22, 2011. Airline tickets purchased between July 23 and August 5 were not assessed the ticket tax. The Congressional action retroactively reinstated the tax. However, the IRS is providing relief to purchasers of tickets and will not attempt to collect any unpaid taxes from the purchasers or the airlines.

Even the IRS recognizes that assessing and collecting taxes retroactively is foolish and nearly impossible to enforce.

All In The Family

2011-08-12T17:52:00.002-04:00

If you own a trade or business and have a child under 18 that are capable of providing services, hiring him could provide a tax benefit for both you and the child. Payments to a child under age 18 are not subject to social security and medicare taxes if the business is a sole proprietorship or a partnership that both parents are the only partners. The payments are also not subject to federal unemployment tax.

Wages to a child are subject to social security , Medicare, and FUTA taxes if he or she works for:

A corporation, even if it is solely owned by the child's parent,

A partnership unless each partner is a parent of the child,

An estate, even if it is the estate of a deseased parent.

If you own your own business and have minor children that could work for you, now would be a great time to plan ways to minimize taxes for both you and your children.

Casualty Losses (Tornado/Storm Damage)

2011-04-29T16:09:00.003-04:00

With the storms that ripped through Bartow County, GA Wednesday night and the aftermath I saw on Thursday, I thought I would post the rules for deducting casualty losses. Hopefully, my friends and neighbors won't have to exercise this information.

The definition of a casualty loss is loss as a result of the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption. It does not include normal wear and tear or progressive deterioration.

For personal use property the casualty loss is the lesser of the adjusted basis of the property or the decrease in fair market value of the of the property as a result of the casualty. The loss is reduced by any insurance or other reimbursement you receive or expect to receive.

You claim the casualty loss on Schedule A Itemized deductions. After you have subtracted any insurance reimbursement you must then subtract $100 for each event. Then subtract 10% of your AGI to determine your allowable casualty loss for the year.

To take a casualty loss, complete Form 4684.

If you are located in a federally declared disaster area you have the option of taking the loss on the tax return for the year it occurred or the preceding tax year. If you have already filed your preceding year's tax return, you can take the loss by filing an amended return. Once you have filed to take the loss in a prior year, you have 90 days to revoke that election if it is later determined to be more advantageous to take the loss in the current year.

If you have any questions about this, please consult your tax professional.

Checklist Of Employer Responsibilities

2011-04-22T19:29:00.003-04:00

With the upcoming quarterly payroll filing deadline looming, here is a checklist of responsibilities to help employers meet deadlines. More information can be found in IRS Publication 15.

New Employees:

□ Verify work eligibility of new employees 4
□ Record employees' names and SSNs from social security cards
□ Ask employees for Form W-4

Each Payday:

□ Withhold federal income tax based on each employee’s Form W-4
□ Withhold employee's share of social security and Medicare taxes
□ Deposit:
• Withheld income tax
• Withheld and employer social security taxes
• Withheld and employer Medicare taxes
Note: Due date of deposit generally depends on
your deposit schedule (monthly or semiweekly)

Annually (By January 31 of the current year, for the prior year):

□ File Form 940 if required (pay tax with return if not required to deposit)

Quarterly (By April 30, July 31, October 31, and January 31):

□ Deposit FUTA tax if undeposited amount withholding is over $500
□ File Form 941 (pay tax with return if not required to deposit)

Annually:

□ Remind employees to submit a new Form W-4 if they need to change their withholding □ Ask for a new Form W-4 from employees claiming exemption from income tax withholding
□ Reconcile Forms 941 (or Form 944) with Forms W-2 and W-3
□ Furnish each employee a Form W-2
□ File Copy A of Forms W-2 and the transmittal Form W-3 with the SSA
□ Furnish each other payee a Form 1099 (for example, Form 1099-MISC, Miscellaneous Income)
□ File Forms 1099 and the transmittal Form 1096
□ File Form 940
□ File Form 945 for any nonpayroll income tax withholding

A New E-file Record

2011-04-22T14:15:00.002-04:00

The IRS is announcing that taxpayers set a new record for e-filing with 101 million returns being e-filed as of the April 18th tax deadline. This is an 8.8 percent increase from the 2010 e-filed returns. This is attributable to the requirement that paid preparers must e-file the returns of clients.

Also, the IRS announced that the milestone of 1billion e-filed returns since the e-file program began is within reach.

Will the local IRS offices start have signs like this one?

The IRS Will Be In Charge of Defining 'Relatively'

2010-04-03T10:14:00.003-04:00

CNN reports that some may face a penalty for failing to purchase health insurance. The article covers most of the points about who would be penalized and by how much as well as who may be exempted. As I wrote earlier, opponents of the health care reform bill are leary of giving the IRS more responsibility in addition to more authority. The following passage is telling:

The Democratic position is that similar worries were heard before the IRS was instructed to implement the Earned Income Tax Credit, yet the program ended up running relatively smoothly.

If you define 'relativley smoothly' as only slightly better than a coin flip in regards to accuracy then read no further.

This Department of the Treasury compliance study reveals that 49.5% of all returns filed claiming EITC overreport the amount of credit entitled. This results in $9.9 billion (with a B) in unrecovered claims. Anecdotally, there are numerous stories of taxpayers 'buying' social security numbers of children they don't have in order to falsely claim the credit for which they don't qualify.

Statistics back this up. According to The Earned Income Tax Credit and Illegal Immigration - A Study in Fraud, Abuse, and Liberal Activism, the EITC which originated as an anti-poverty program, has seen returns claiming benefits grow at a rate 25 times faster than the poverty population over the past two decades. That strongly suggests that this program is anything but realtively smooth.

Than again, maybe that coin the IRS uses is 'Heads the government wins, Tails the taxpayer loses'!

No Mathematician Left Behind

2010-03-25T13:32:00.002-04:00

US News & World Report has an article to help determine if you are middldle class. In it, we learn that the middle-class task force headed by Vice President Joe Biden found the median two-parent family spends $5,100 per year on health insurance and non-covered health expenses.

The Health Care Reform Bill which became law this week will give a tax credit to those middle-class families who earn $81,000 a year (the median according to the article above) to ensure that they pay no more than $7,695 in premiums. Those families that fail to purchase insurance will be assessed a fine of around $2,000.

So the shell game in Washington is to rally the base talking about out of control healthcare costs, mandate that middle class families must by insurance or pay a fine and then only ensure that premiums will be no more than $2,500 more than current levels.

Contact your representatives! We need a government takeover of math education!

Because Health Care Decisions Should Be Between You and Your IRS Auditor

2010-03-22T09:52:00.003-04:00

Last night the House passed the Senate version of Obamacare.

This most likely will expand the powers of the IRS and require 16,500 additional IRS auditors and revenue officers. According to the Republicans of the House Ways and Means Committee the following will additional authority will be granted to the IRS:

IRS agents verify if you have 'acceptable' health care coverage
IRS has the authority to fine you up to $2,250 or 2% of your income (whichever is greater) for failure to prove that you have purchased 'minimum essential coverage'
IRS can confiscate your tax refund
IRS audits are likely to increase
IRS will need up to $10 billion to administer the new health care program this decade
IRS may need to hire as many as 16,500 additional auditors, agents and other employees to investigate and collect billions in new taxes from Americans
Nearly half of all these new individual madate taxes will be paid by Americans earning less than 300 percent of poverty ($66,150 for a family of four)
IRS will be prohibited from imposing these taxes and penalties on illegal immigrants.

If you are concerned about the Internal Revenue Service's overarching powers, this bill should be very worrisome to you.

Waste 3 Hours of Your Life Watching Lousy Basketball, Get Free Tax Services

2010-03-03T10:34:00.002-05:00

That's the promotion the New Jersey Nets are running this Friday night as they get beat by the Orlando Magic.

Tax Attorney Roni Deutch will be giving vouchers for a free state income tax return for those in attendance. That's a $29 value and all you have to do is subject yourself to some of the worse basketball being play. Of course, you can get a similar voucher here and save yourself the frustration.

On second thought, make that the second-worst basketball being played.

Wanted Dead or Alive?

2010-03-02T17:25:00.002-05:00

CNNMoney reports on ways you can received a bounty by reporting tax evaders. To be an information use Form 3949.

Be forewarned: If you hear a low-flying plane heading for you house, get out quickly!

Ogden, UT IRS Building Evacuated

2010-03-02T11:07:00.002-05:00

A suspicious substance was found at the Ogden, UT IRS Building on Monday. Officials say the substance was not hazardous. Part of the building was evacuated and two people were removed on stretchers. They were treated for medical issues unrelated to the substance. The Ogden, UT IRS office is where many corporate tax returns are filed.

There Is Still One Thing Governments Do Efficiently

2010-02-27T10:39:00.002-05:00

Eric Felton writes in this Wall Street Journal piece that by making taxes and fees less visible, it makes it much easier for those taxes and fees to be raised.

I began advocating when I entered the profession more than a decade ago that if payroll withholdings were eliminated without any other change to the tax law, there would be another Boston Tea Party. That is, if working Americans had to physically write a check at the end of a pay period and submit it to the government, those people wold be so aggrivated that politicians would no longer be able to treat the tax code the way they do and still hold office. Ironically, as it turns out we have a tea party movement but still have withholdings. Maybe some of those Americans who are fed up with the current levels of tax and spend policies from both parties will finally see some results.

The next time you are irritated at how inefficiently government operates just look at your most recent paystub.

What Could Be Worse Than The IRS?

2010-02-26T19:50:00.003-05:00

People who say ridding the world of the IRS is a valid point in favor of the Fair Tax should see this report.

Yes, whatever agency is charged with enforcing the National Sales Tax or Value Added Tax or whatever could be even worse to deal with than the IRS.

We Just Help Create Tax Law Not Comply With It.

2010-02-25T08:37:00.002-05:00

This AJC political blog says that one member of the Georgia House of Representatives has not filed a 2008 income tax return. That is down from 19 a year earlier. This seems to be a dangerous time for a politician to not file returns with the state facing revenue shortages.

Dusting off The Package X - 1981

2010-02-24T09:21:00.002-05:00

1981 - Ronald Reagan was in the Oval Office, the Iran Hostage Crises ended, Lady Di and Charles wed, Major League baseball had a 50 day work stoppage an individual income tax return looked like this.

Fast Facts

Filing requirements
Single $3,300
MFJ 5,400
MFS 1,000
Qualifying widower 4,400
The age of 65 and over afforded you an additional $1,000 before the filing requirements were met.

Tax rates.
There are no fewer than 15 tax brackets ranging from 14% to 70%. These rates take into account a rate reduction that was new for 1981. Not all tax statuses have the same bracket structure. Single taxpayers making over $108,300, heads of household over 161,300 and MFJ over 215,400 only kept 30 cents of each additional dollar they earned. I would be afraid to see what some state income taxes did to these earners.

New Changes for 1981
The rates were changed as mentioned above. Also, more people could qualify for the 1040A short form because the interest and dividend ceiling was removed. For those 55 and over, $125,000 of gain from the sale of your principal residence could be excluded. If memory serves correctly, I believe this was a once in a lifetime exclusion.

Sectional Overview

The 1981 1040 looks similar in form to the modern day version. It is two pages in length and broken down into the following 10 main sections: Filing Status, Exemptions, Income, Adjustments to Income, Adjusted Gross Income, Tax Computation, Credits, Other Taxes, Payments and Refund or Balance Due.

The Filing Status has the same five choices as the 2009 1040. The main difference in the Exemptions section is the box for being over the age of 65 and blind is contained here whereas the 2009 version has these boxes in the Taxes and Credit section.

The main difference in the Income section is the omission of Social Security benefits. Social Security benefits won’t become reportable until 1984. The Adjustment to Income has grow over the last several decades. The one thing deductible above the line in 1981 that is now below the line is an adjustment for employee business expenses (Form 2106). Employee business expenses are now an itemized deduction on schedule A subject to 2% of adjusted gross income.

Adjusted Gross Income earned Its own section on the ‘81 form. It also contained a reminder for the ‘Earned Income Credit’ if the amount was under $10,000. That seems low by 1981 standards.

Two things earn mention in the Tax Computation section. First, there is no standard deduction. Itemized deductions are reduced by an amount corresponding to the taxpayer’s filing status. The other thing about this section is the Schedule G check box. This schedule is for ‘Income Averaging’. If your income fluctuated from one tax year to the next, you could calculate your averaged income over multiple years if it saved you taxes. This was important when marginal tax rates were 70%.

There was actually a credit for contributions to candidates for public office! Granted the credit was for only one-half of your expenditures up to 50$ ($100 MFJ). For those of us rankled by ‘spending disguised as a tax credit’, having politicians subsidize the giving to their campaigns from their constituents is somewhat surprising. At least, it wasn’t refundable.

The other taxes, Payments and Refund or Balance Due sections are similar in function to the 2009 form. In 1981, there were refundable credits for taxes on special fuels, Regulated Investment Company credits and Overpaid Windfall Profit taxes.

In the coming days a weeks I hope to give a brief overview of changes to each year’s tax forms. Next up 1982.

Payroll Tax Reprieve?

2010-02-23T17:43:00.002-05:00

Thomas Oliver writes in the AJC that the Senate shold propose a payroll tax holiday for six months as a means to stimulate jobs. There is a current version of this that only applies to new hires who have been unemployed for 60 days. Oliver makes some very valid points.

Oliver references George Mason economist Russell Roberts who would eliminate the payroll tax altogether, end corporate welfare and make small across the board rate increase for all earners. This should effectively broaden the base, stabilize rates and eliminate targeted special interest credits.

Let me be the first (or millionth) to support the idea of eliminating payroll taxes and corporate wellfare.

No Wonder I Never Understood Norwegian

2010-02-22T14:40:00.002-05:00

A former colleague of mine was married to a girl from Norway. He would vacation to Norway to see her parents, stink up the office with Norwegian cuisine and inform coworkers of various Norwegian customs. He also spent a great deal of time learning Norwegian to help with his visits to his in-laws, as they spoke little English.

He never told me if the Norwegian words for hero and lunatic were similar but if this story is accurate they must be.

Tax-protesting pilot Joe Stack's daughter is caling her father a hero for his anti-government views. Sure, she gives the obligatory denounciation of his final act, but it's hard to reconcile her statement "Yes. Because now maybe people will listen." with anything resembling sorrow for the life lost in Austin last week.

It seems like the Norwegians give a pretty big award to people who advance the cause of 'peace'. Joe Stack's destruction seems minimal in comparison to Yassar Arafat, so maybe the committee ought to give him consideration.

Return Processing Unaffected By Austin Incident

2010-02-20T14:51:00.003-05:00

On Friday, the IRS issued a statement saying that the tragedy involving the Austin federal building would not affect filing season activities. The IRS does not process returns at the Austin location.

Administratively, Joseph Stack's 'pound of flesh' had no bearing on IRS operations. Sadly, victom Vernon Hunter was not so fortunate.

God Bless Texas

2010-02-18T17:24:00.002-05:00

A plane crash into a federal building in Austin, Texas appears to be the intentional work of a disgruntled taxpayer.

I haven't yet seen a number of injuries or deaths, but the pictures look terrible.

Signature Requirements on First-Time Home Buyer Documents

2010-02-16T09:37:00.002-05:00

The IRS is advising buyers who qualify for the First-Time Home Buyer Credit to sign all settlement statements. The instructions to Form 5405 indicate that a properly executed settlement statement should show signatures of all parties. However, not all settlement documents contain a signature line. The IRS has conceded that it will accept a settlement statement that is complete and valid according to local law. Still, the IRS is advising taxpayers to sign the documents.

Anytime the IRS (or any state departments) issue these advisories to avoid processing delays, expect processing delays regardless to the precautionary steps you take.

Schedule M for Memory

2010-02-15T11:38:00.002-05:00

The IRS is reminding people that other agencies are responsible for reporting the one-time payment of $250 that was given in 2009 to recipients receiving benefits from the Social Security Administration, disabled veterans receiving benefits from the U.S. Department of Veterans Affairs, and Railroad Retirement beneficiaries. If you can't remember whether or not you received the $250 you should contact your respective agency. This should be done prior to filing your 2009 tax return.

Information about the Economic Recovery Payment can be found here.

The form used for Making Work Pay and Government Retiree Credits is Schedule M.

Thank You For Waiting....

2010-02-12T14:11:00.002-05:00

The Georgia Department of Revenue is notoriuos for being difficult to reach. This year may be the worst of all. The recorded message that assures you that your call is very important routinely warns callers that the wait time is greater than 45 minutes and urges you to seek information in some other manner.

For those of us that need to speak to a human directly, a 45 minute wait would be welcomed. So far this tax season I have had waits of 3 hours, 1hour 45 minutes and 1 hour 15 minutes. To be fair, speaker phones allow me to continue working so that my day isn't ground to a halt.

There are several other recorded messages with general information such as:

If you have a question about a payment made through e-file and e-pay systems, please call 1-800-272-9829. This is a third party vendor that handles procesing payments for Georgia as well as other states.
If you have questions about withholding on non-resident distributions, submit those questions in writing via fax to 404-471-4326. Be sure to include your FEIN or Georgia withholding identification number. The form to use for non-resident withholding is G-2-A. It's funny that they request questions to be submitted in writing. My experience is that you can almost never reach anyone by phone with the knowledge or authority to answer any questions of substance. The best you can usually do is find an unpublished fax or phone number of someone who can.
For questions about withholding refunds submit form IT-550 to fax number 404-417-2426. Please allow 6-8 weeks for processing. Form IT-550 is used to request a refund for Georgia withholding that was erroneously submitted. This form as well as the form for amending sales taxes has a link in the e-file/e-pay system which should allow you to submit these electronically. However, the link always seems to be broken, and the time or two I've asked a DOR employee about this they admit that the electronic system doesn't work as well as it should.
If you have received a notice regarding unpaid taxes and have proof of payment, please submit a copy of the front and back of the check along with the notice to fax number 404-417-4327. This is may favorite recorded message. For some time, Georgia has had difficulty with properly crediting tax payments to taxpayers' accounts. No fewer than 10 times a year, I have a client who receives a notice regarding a tax liability that has already been paid. In almost all cases, the proper identification number is clearly written on the front of the check and the back is endorsed by the Georgia DOR. It's as if the DOR is so overwhelmed around deadine days that it's all it can do to deposit the checks. It leaves the burden of proof for payment on the taxpayer, once again raising the cost of compliance.

None of this is going to get any better in the very near future, as the state is downsizing the DOR in the midst of declining revenues. If you must make a phone call, make sure you have a couple hours worth of something productive to do while you wait.

Tax Tips From The IRS

2010-02-12T09:24:00.002-05:00

If the inclement weather leaves you with nothing to do this weekend other than your taxes, the IRS is ready with several tips.

Here is a link with the February tax tips thus far.

Sorta Like Christmas - If You Believe the Federal Government Is Santa Claus

2010-02-09T18:00:00.002-05:00

According to the AJC, Georgia House Bill 1069 is a bill that would allow a $2,500 credit for Georgia residents who install energy efficient heating and cooling systems.

Everyone is happy according to sponsor Joe Wilkinson (R-Sandy Springs) who says, 'It's sorta like Christmas.' The problem is that the availability of the funds to do this depends on Georgia receiving more stimulus funds from the federal government.

At least, no one is trying to pass this as one of those tax credits that pays for itself.

Unemployment Taxes Slam Employers for Having Employees

2010-02-09T11:54:00.003-05:00

CNN Money reports that employers in 35 states are now facing a tax hike at a time most cannot afford it. Unemployment taxes are on the rise. The median increase is 27.5%.

As I wrote yesterday, many politicians suggest that targeted tax credits would give businesses an incentive to hire. Wouldn't it make even more sense if the existing barriers to employment were removed first?

Tax Credits Aren't The Same As Tax Cuts

2010-02-08T12:04:00.003-05:00

The Atlanta Business Chronicle (subscription required) has an article about proposed Georgia House Bill 1023. Most of the article has been reproduced on Rep. Tom Graves campaign website.

This quote caught my attention: "“Some folks believe that you grow government in order to create jobs,” Graves said. “We believe that you grow the private sector to create jobs.” I certainly agree with the premise of this quote. I disagree with those who believe a larger government is needed to create jobs, in fact, I believe that a larger government is a hindrance to job creation. I agree with the 'we' that the private sector is where job creation occurs.

Where I disagree on this issue with Rep. Graves and many Republican lawmakers is the use of targeted tax credits. Tax credits are not the same as tax cuts whether the Democrats or Republicans are advocating them. In fact, tax credits like the 'angel investor' credit effectively expand the government, exactly the opposite of what supporters intend to do.

For example, suppose a corporation calculated its income tax (currently 6% of net income in Georgia) and submitted that amount to the Department of Revenue. If that corpoartion later received a check from the Department of Corporate Welfare for 50% if its initial investment in a company with fewer than 20 employees, people would recognize that payment for what it is. And it ain't a tax cut. But for some reason when that same corporation calculates its income tax and deducts the 50% investment as a 'credit' on its tax return, people seem to feel as if taxes are cut.

Now reasonable people could certainly believe that this targeted spending would be beneficial for creating jobs and stabilizing unemployment, but it is unreasonable to think this is anything that resembles a tax cut.

Here is the way governments should be be administering tax cuts: lower the RATE!

IRS Notice concerning Haiti Relief

2010-02-06T14:42:00.002-05:00

Contributions made to Haiti after January 11th and before March 1 can be deducted on 2009 tax returns. Other bloggers have written about the preferential treatment Haiti contributions have received, with which I agree.

However, I am excited to see an IRS notice translated in Haitian Creole! Many cell phone companies offered a way to designate a contribution via text. Unfortunately, the IRS hasn't translated this notice to any text language. You can go here to do that.

Just In Case Every Other Website Ceases To Exist

2010-02-05T19:25:00.002-05:00

The IRS is reminding taxpayers that they have videos on YouTube. These videos aren't as funny as watching Hitler go nuts because the Cowboys stink, but they do give some general information.

IRS Debunks Frivolous Tax Arguments

2010-02-05T13:50:00.002-05:00

The IRS has released its rebuttal to the growing list of common frivolous arguments made by people who oppose compliance with federal tax laws.

The IRS advises that anyone contemplating on legal grounds against paying their fair share of taxes should first read this 80-page report.

I'm not sure that 'fair share' is a legal term. I'm sure that sounds better paying your legally determined amount of tax.

Once again, this report highlights injunctions against preparers and promoters of these phony schemes. Once again, the IRS acheived this without the proposed prepare regulations in place.

This Just In: The IRS Already Has The Tools To Catch Cheating Accountants

2010-02-05T12:41:00.003-05:00

We all know the benefit that H&R Block, Jackson Hewitt and the like will receive from the IRS proposed preparer regulations. Will these new regulations protect the public or increase proper compliance?

If today's IRS news release is any indication, these new regulations are unnecessary. The IRS today suspended a Houston, TX tax preparer for 12 months for providing false and misleading information in connection with the filing of tax returns.

This CPA, according to the news release, instructed clients to forward funds to two corporations that he controlled. There was no business purpose, other than to get rid of the cash. The funds were then rebated to the clients. A deduction was taken and fully expensed on the client returns. IRC sec. 162 requires business and trade expenses to be ordinary and necessary in order to be deducted.

The crazy thing about both the new regulations and any scandal involving a tax preparer is that the compentency of the individual involved is rarely in question. This guy was a licensed CPA and I see no reason why he would not be able to pass any test the IRS could formulate. (As a CPA, he would not be required to pass the competency exam.)

Hopefully, a few more of these stories will break before any new regulations take affect and people will recognize the regulations for what they are: barriers to entry in the tax preparation profession.

We Are Marshall!

2010-02-05T09:56:00.002-05:00

The Georgia Department of Revenue doesn't publish how much the film tax credit costs the state. The Tax Foundation, however, writes that on average for every dollar a state spends in film credits, the state only receives back 19 cents.

So when Matthew McConaughy and his studio received the free handouts back in 2006, 81% of those credits never made it back into the state or 'paid for itself' as the politicians would tell you.

But hey, didn't Sonny look good on the big screen!

Corporate Welfare Available In Georgia

2010-02-04T11:31:00.002-05:00

The following is a list of credits available to corporations from the state of Georgia.

Employer's Credit for Basic Skills Education.
Employer's Credit for Approved Employee Retraining.
Employer's Jobs Tax Credit.
Employer's Cridet for Purchasing Child Care Property.
Employer's Credit for Providing or Sponsoring Child Care for Employees.
Manufacturer's Investment Tax Credit.
Optional Investment Tax Credit.
Qualified Transportation Credit.
Low Income Housing Credit.
Diesel Particulate Emission Reduction Technology Equipment.
Business Enterprise Vehicle Credit.
Research Tax Credit.
Headquarters Tax Credit.
Port Activity Tax Credit.
Bank Tax Credit.
Low Emission Vehicle Credit.
Zero Emission Vehicle Credit.
New Facilities Jobs Credit.
Electric Vehicle Charger Credit.
New Manufacturing Facilities Property Credit.
Historic Rehabilitation Credit.
Film Tax Credit.
Teleworking Credit.
Land Conservation Credit.
Qualified Education Expense Credit.
Seed-Capital Fund Credit.
Clean Energy Property Credit.
Wood Residuals Credit.
Qualified Health Insurance Expense Credit.
Quality Jobs Credit.
Alternate Port Activity Tax Credit.

I'll comment further in future posts about a few of these credits. Don't count on many of these going away as a means of avoiding future furloughs in education.

You Don't Drink It, You Legislate It!

2010-02-03T17:08:00.002-05:00

The AJC.com reports that state Rep. Tommy Benton wants to introduce legislation that would require antifreeze to not taste so good.

Among all the sordid details of the goings-on under the Gold Dome, drinking antifreeze seems normal.

Lenin Was Wrong!

2010-02-03T15:25:00.003-05:00

The socialists aren't going to hang the capitalists with rope. The capitalist pigs will be shot!

The IRS intends to purchase sixty Remington Model 870 Police RAMAC #24587 12 gauge pump-action shotguns for the Criminal Investigation Division. You can learn more about this opportunity here.

Just remember to properly report the income from sale of your gun. Tax compliance greatly increases when staring down a loaded weapon, I'm sure!

That 'Free' Service Cost Americans $800 Million In 2008

2010-02-03T11:38:00.003-05:00

According to a joint report from the Consumer Federation of America and the National Consumer Law Center, 8.4 million taxpayers were sucked into a refund anticipation loan. It amounted to an average of nearly $100 per transaction. These fees are in addition to any fees for the preparation of the tax return itself.

The annual percentage rate of these RALs can range anywhere from 50% to over 500%.

Because Obama hasn't outlawed stupidity, these APRs aren't affected by any changes to the credit card industry. So when you see the clown juggling by the side of the road advertising free tax loans, make sure you understand his defintion of free.

What Do Free Tax Loans, $3.99 Pizza Buffets and Going Out of Business Jewelers Have In Common?

2010-02-02T17:37:00.004-05:00

They use underemployed people to stand near traffic, waving signs and otherwise make fools of themselves. This guy is obviously waving the sign for a CPA. The tie gives it all away. I wonder if he has casual 'sign waving' Fridays?

Nice Seasonal Tax Practice You Have Here. Be Ashame If Something Happened To It!

2010-01-07T14:06:00.002-05:00

That something may be happening in the form of IRS regulations regarding paid preparers. This proposal appears to have the support of outfits such as H&R Block (or H&R Blockheads as the WSJ identifies) and Jackson Hewitt. I've written before about Jackson Hewitt.

Are these firms truly trying to make the world a better place by ensure fair and accurate tax preparation or are they engaged in rent seeking?

This proposal is bound to make it cost prohibitive for some small shops to comply with the rules. If cost isn't a factor, the bureaucratic nightmare will be. That would cause some preparers to close shop, thereby providing a nice competitive advantage to the H&R Crocks of the world.

I've never been much for protectionists and now that it has come to my industry, I feel no differently. If the Treasury Department believes there is a revenue gap created by fraudulent returns it should use its existing resources and systems to address that problem rather than creating more bureaucratic red tape which may be difficult to enforce anyway.

And even better, how about simplifying the code, removing targeted tax breaks and reduce tax rates? Sound good? Don't hold your breath!

Obama Back High-End Health Plan Tax

2010-01-07T10:03:00.002-05:00

Remember all the campaign stops in 2008 when Joe Biden said McCain was tax people with employer sponsored health insurance for the benefits? Yeah, I'd like to forget the 2008 election also.

Now, Obama supports taxing those benefits, but don't worry it's just for those with 'Cadillac Plans'. That's right now the federal governmoent is proposing that it knows the right amount of insurance for you to carry to stay healthy and anything more than that will be taxed to the point of not being economically sensible.

The State Doesn't Evaluate the Benefits Probably Because They Are Largely Nonexistent

2010-01-06T10:44:00.002-05:00

Last month, the Georgia Department of Audits and Accounts issued a report charging the state legislature with issuing corporate tax credits without evaluating their costs and benefits. You can download the full report here.

The AJC reports that there is a little blame casting on who should ultimately have authority to monitor accountability. It appears that the Governor's office does a back of the napkin calculation for credits it vetoes and does nothing for credits that are signed into law. The legislature obviously does nothing, after all, what's the use once the press release, ribbon cuttings and photo ops are over? The Department of Revenue says it doesn't have the job of providing cost benefit analysis on tax credits, with which I agree. The DOR should only be charged with compliance and enforcement issues related to existing tax law not legislative policy decisions.

I've written before about tax credits in general. If the legislature wants to lower the cost of doing business it should lower tax rates for all businesses and not offer targeted tax credits only to those businesses that have the politicians' ears.

I suppose it could be worse. I could live in Iowa as Joe Kristen reminds me on an almost weekly basis.

IRS Proposes New Regulations Regarding Tax Preparers

2010-01-05T17:25:00.002-05:00

On Monday the IRS announced the findings of its six-month research project.

The main recommended steps are:

1. Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.

2. Requiring competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.

3. Requiring ongoing continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.

4. Extending the ethical rules found in Treasury Department Circular 230 -- which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS -- to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.

I will have more thoughts on this to share later this week.

2010 Mileage Rates

2010-01-04T15:31:00.002-05:00

Since today is most everyone’s first working day of the new year, I thought it might be appropriate to list the 2010 standard mileage rates that took effect January 1.

For 2010 the rates will be:

50 cents for business miles driven
16.5 cents for medical miles driven
14 cents for miles driven for a charitable organization

Standard mileage rates can’t be used if you have taken any depreciation under MACRS or for any vehicle you have taken a section 179 deduction. You also can’t use the standard deduction for vehicles held for hire or for more than four vehicles at once.

You do have the option of calculating and deducting the actual cost of operating the vehicle in lieu of the standard rate.

Each time these rates are announced, I am reminded that many years ago an automaker attempted to help taxpayers keep track of their mileage by having a button on the dash before the driver began his trip to indicate whether this was business, medical or charitable. At the end of the year the miles would be tallied.

There would be a couple of problems with this. First, this probably would not satisfy IRS record keeping requirements of keeping a log that indicate where and for what purpose you were traveling.

More importantly, this would mean that every time Elliot Spitzer picked up Kristen for a date, he would have to hit the ‘business’ button and every time Steve Phillips picked up his girlfriend Brooke he would have to hit the ‘Charity’ button.

Itemized vs. Standard Deductions

2009-12-31T08:47:00.002-05:00

Each year taxpayers have the choice to take a standard deduction or to itemize their deductible expenses. This is usually a pretty simple decision. If your itemized expenses exceed the standard deduction for your filing status, complete schedule A and deduct the itemized amount.

For residents of Georgia (and possibly other states), the state’s standard deduction has largely remained constant with little or no adjustment for inflation. This creates a widening gap between the federal and state amounts for standard deductions. A Georgia resident who itemizes on their federal return must itemize on their Georgia return and taxpayers who take the standard deduction must also take the Georgia standard deduction. The quirk is that while Georgia allows 100% percent of the itemized deduction to reduce Georgia’s taxable income, Georgia only gives a standard deduction that amounts to one-quarter of federal deductions for most filing statuses (Single taxpayers are afforded about 40% of the federal amount).

This means that some taxpayers whose itemized deductions exceed the state but fall short of the federal standard deductions may save a few dollars by taking the smaller itemized deduction in lieu of the federal standard deduction.

The following chart shows the ‘break-even’ points at which residents of Georgia may prefer to itemize for each filing status and federal tax rate. The chart assumes a flat 6% rate for Georgia taxes and disregards any additional deduction for age or blindness.

Federal Rate - Dollar Amount (rounded to nearest dollar)

Single ($5,700 Fed - $2,300 State standard deductions)

10% - $4,425
15% - $4,729
25% - $5,042
28% - $5,100
33% - $5,177
35% - $5,202

MFS ($5,700 Fed - $1,500 State standard deductions)

10% - $4,125
15% - $4,500
25% - $4,887
28% - $4,959
33% - $5,054
35% - $5,085

MFJ ($11,400 Fed - $3,000 State standard deductions)

10% - $8,250
15% - $9,000
25% - $9,774
28% - $9,918
33% - $10,108
35% - $10,171

HOH ($8,350 Fed - $2,300 State standard deductions)

10% - $6,075
15% - $6,621
25% - $7,179
28% - $7,282
33% - $7,419
35% - $7,464

Tax software makes this easy to see which method is more advantageous. If you have any questions, you should contact a tax professional.

Year-End Housecleaning For Individuals

2009-12-30T08:12:00.001-05:00

Yesterday I explained the recommended holding periods for documents as it applies to businesses. For the most part, the statute of limitations is similar for individuals. The result is that supporting documents should be kept for 7 years.

There are a couple of additional pieces of information that merit mention. It is advised that you keep a copy of your W-2s until you begin receiving social security benefits in the event that there is some question about your work record as it relates to your benefit calculation.

For capital gain and loss calculations you need to be able to establish your basis as it relates to capital assets. This means all purchase information regarding your investments need to be retained for as long as you own the asset and for 7 years after disposition.

As always, if you have any questions about the length of time to maintain adequate records, consult your tax professional.

Year-End Housecleaning

2009-12-29T09:15:00.001-05:00

This time of year I am often asked about record keeping requirements. As people are cleaning out offices and storage space a common question is ‘How long should business owners keep their supporting documents for tax purposes?’

For income tax purposes, the minimum amount of time a business should retain its documents is 3 years. This 3 years period assumes all tax returns were timely filed, were not fraudulent and there is no understatement of income in excess of 25% of the gross income shown on the return. The statute of limitations does not begin until a return is filed, so if a business is not filing returns those records should be kept until 3 years after the return is filed.

If there is an understatement of income that is more than 25% of the gross income shown, the IRS has 6 years to audit assess additional tax. If a business is claiming a loss for worthless stock or bad debt, the period of record retention is 7 years.

For this, reason it is advised that businesses keep all supporting documents a minimum of 7 years.

There are some other items that should probably be kept even longer. For example, items of support for depreciable property should be kept for 7 years until after the property has been disposed. After all, if your 2008 tax return is audited you may have to prove that current depreciation is being properly calculated for assets placed into service more than seven years earlier. Businesses will also want to be able to prove that sold or disposed assets are properly reported until the stature of limitations expires.

For payroll tax purposes, all supporting documents (timesheets, employee W-2’s, form 940s, 941s, etc.) should be kept for 4 years past when the tax comes due or is paid whichever is later. So for unpaid payroll taxes the clock doesn’t start ticking until the balance due is paid in full.

Electronic records are acceptable, so if space is the main issue of concern converting paper documents to some electronic medium may allow businesses to free up space.

As you wind down your 2009 activities, I hope this helps you make space to have a worry free 2010.

What Should Employers Do With Unclaimed Wages?

2009-09-21T14:42:00.003-04:00

Recently, I have been asked what employers should do with an employee's final paycheck when that employee has quit, moved away, or otherwise can not be located. The Georgia Department of Revenue provides guidelines on what to do with those unclaimed wages as prescribed by The Disposition of Unclaimed Property Act.

In Georgia, if an employer still holds a paycheck and has lost contact with the employee, the employer must remit the paycheck to the state after one year. The employer must submit Form UP-2C which lists the employees name, address and social security number as well as the amount of wages being remitted.

Some basic information about unclaimed property can be found here.

The forms used by employers to submit to the state along with the wages are found here.

Stop Dieting. Start Paying Taxes.

2009-09-17T08:48:00.002-04:00

No, that's not Weight Watchers' new slogan. A new soda tax proposal was put forth in the New England Journal of Medicine. This proposal calls for a 1 cent tax per ounce on sodas and other sweetened drinks. The proposal author estimates that the tax would generate $15 billion in new revenue. That requires 1.5 trillion ounces of soft drinks to be sold. That's a lot of soda!

The authors also suggest that the tax would result in a 2-pound weight loss for soda drinkers. At $16.95 a month Weight Watchers really is a bargain.

Should Tax Credit For First Time Homebuyers Be Extended?

2009-09-16T15:43:00.002-04:00

Henry Unger has a blog entry about the First Time Homebuyers Tax Credit which is set to expire in November. Interestingly, he also has a blog entry discussing that foreclosures have hit an all-time high in the city of Atlanta.

Census.gov has some homebuying statistics that certainly aren't indicative of the credit serving its intended purpose. If it doesn't appear to be working, why does the National Association of Realtors insist on having us urge Congress to extend it?

Maybe Big Daddy Kane Was Wrong.

2009-09-15T16:01:00.002-04:00

I posted earlier this year how prophetic the rapper was about Pimpin'. However, according to ACORN pimpin may actually be easy.

What Should Obama Do?

2009-09-15T15:32:00.002-04:00

According to a recent poll conducted by market research firm Synovate, more than one-third of those polled that the Bush tax cuts which are set to expire should be extended. Obama most likely will allow these cuts to expire based on his campaign and recent speech before Congress.

I am unfamiliar with Synovate, but the question posed seems strange. The question posed was: Pollsters say the President Obama is on the verge of losing control of his presidency. What should he do to get it back on track? The four possible responses were all over the place.

35% said he should continue the expiring Bush tax cuts.

33% said whatever it takes to pass healthcare reform.

17% said propose another major stimulus spending package.

15% said immediately withdraw all troops from Iraq.

I find it interesting that one-third think he should do whatever it takes to pass healthcare reform since this proposal is so widely unpopular and may be viewed as what is putting Obama on the verge of losing control of his presidency. The most recent Rasmussen polls indicate that 40 percent of Americans strongly oppose Obama's healthcare reform plan while only 30 percent strongly favor the proposal.

Maybe if Obama wants to get his presidency on track he should stop trying to be the world's most powerful insurance salesman.

State Revenue Down 14% in Georgia

2009-06-05T16:04:00.002-04:00

Gov. Perdue is citing the state's grim economic picture for the loss of 25% of many of the state's agencies. The AJC reports that revenues for May 2009 were about $212 million less then May 2008.

Is the beast finally starving? Don't hold your breath.

The Pitfalls of Paying Taxes on Income Earned Illegally

2009-06-04T15:29:00.003-04:00

No, this isn't another posted about pimping or prostitution. The AP reports that a prosecutor has seized thousands of tax records from an income tax preparer popular with Hispanics in Greeley, Colorado. In the search of 4,900 tax returns as many as 1,300 suspected illegal immigrants were discovered and now face deportation.

As I posted earlier, the IRS expects income from all sources, including illegal activity, to be reported. What is not granted is immunity from further prosecution in regards to those illegal activities. To be clear, most (if not all) of the 1,300 suspects were not involved in criminal careers such as pimping and prosecution. They are accused of being undocumented or using someone else's identity. The AP dispatch mentions that 70 people face charges of identity theft in the sting.

The other issue in this story is the means the prosecutor used to secure his evidence. The ACLU likened it to a 'house-by-house search of innocent homeowners in order to find a suspect believed to be in the neighborhood'. This is scary for me personally. It marks the first time I have ever agreed with the ACLU. Two judges also agreed which lessens the blow to my paradigm for understanding legal issues. The judges ruled that the prosecutor had no probable cause to seize the records. That decision has been appealed.

It will be interesting how the appeals are decided for two reasons. First, will this give prosecutors in other jurisdictions a tool to use against illegal immigration. Secondly, will the federal and state governments notice a decline in tax revenues. From 1996-2003 filers who used ITINs (numbers assigned by the IRS to those without Social Security Numbers) paid $50 billion in taxes.

My favorite part of this story is Maria Eugenia Rey's comment, 'If it's a crime to pay taxes, then the IRS should also be charged because they're the ones who gave us the ITIN.' To be clear, the crime involved is not paying taxes. It makes me wonder if this will give the tax protestor crowd any ideas.

The Memory of Filing the Proper Paperwork is Seared, Seared into Him

2009-06-03T17:24:00.003-04:00

The AP is reporting that John Kerry has an IRS tax lien filed against his 2004 presidential campaign. The campaign was notified by the IRS that it failed to filed payroll tax forms for 2004. Spokeswoman Whitney Smith says, 'This is a clerical matter, nothing more, nothing less.' She said the IRS must have lost the payroll forms since the Kerry campaign filed them in 2005.

If Kerry says he filed, how could one argue? After all, filing tax documents are memories that become 'seared - seared into me' just like that Christmas in Cambodia.

$60 Million for 3,000 Jobs

2009-06-03T11:19:00.002-04:00

It was announced Monday that NCR will move its headquarters to Georgia from Dayton, Ohio. The AJC also reveals that the state will spend $60 million dollars in tax credits to lure them here. In order for those tax credits to be triggered, NCR must have a payroll in excess of $150 million dollars.

State officials are downplaying the role of the $60 million tax incentives. Gov. Perdue spokesman Bert Brantley said it was a matter of treating NCR like a customer. When's the last time you felt treated like a customer by your state government.

NCR executives also downplayed the role tax breaks played in the decision. CEO Bill Nuti said the skilled labor force is the number one reason for the transition.

So if the state and the company both agree that the tax breaks weren't significant in the decision making process how did they arrive at $60 million? Ohio's best offer was $31.1 million. The income tax that employees will pay on $150 million in salaries will take nearly seven years to reach $60 million. If the 3,000 jobs are filled by Georgians that will help with the unemployment rate. More likely many of those jobs will be filled by people from outside Georgia which will not help the unemployment rate but should help a struggling housing market.

Luring businesses to your area has become a focal point of state and local politics, but $60 million seems a high price to pay. After all $60 million doesn't grow on trees.

The Ox is Getting Credit For Saving Gwinnett County Residents From Increased Property Taxes..For Now

2009-06-01T14:11:00.002-04:00

The Gwinnett Daily Post reports that Gwinnett Commission Chair Charles Bannister decided to table the milage rate vote after consulting with current Insurance Commissioner and candidate for Governor John Oxendine. The Oxendine camp is quick to seize the opportunity to make people forget about his campaign problems. 'That's the kind of leadership John would provide statewide as Georgia [Governor]' Oxendines' chief strategist Jeff Breedlove said.

The tax protest is still scheduled for 7 p.m. tonight in Suwanee and will feature Oxendine and gubernatorial candidates Karen Handel and Eric Johnson as speakers.

It's Only A Tax Increase If the Republicans Recommend It.

2009-05-29T12:00:00.002-04:00

This WSJ editorial discusses the post-November change the Obama administration has made concerning the taxation of health insurance benefits.

I can hardly wait for the pearls of wisdom coming from Joe Biden's mouth about this.

Gwinnett County Commission Backs Down

2009-05-28T15:29:00.002-04:00

Jim Galloway reports that Gwinnett County Commission Chairman Charles Bannister is going to table the proposed 25% increase in property taxes. Bannister said 'We have heard the message sent to us by the citizens.' However, if the June 1st Tax Protest has not been tabled he may not have heard anything yet.

Fun With Deficits

2009-05-28T10:14:00.002-04:00

The Center on Budget and Policy Priorities has some tables showing the current and projected budget gaps for states that face budget deficits.

Interesting to me is the 9 states with no income tax have a combined projected budget gap of $15.2 billion. The three states (New Jersey, New York and California) with the highest tax burden as determined by the Tax Foundation also have the three highest projected budget gaps for 2010. California's projected deficit of $33.9 billion is more than double the combined gap of the states with no income tax. New Jersey and New York face more modest deficits of $7.0 billion and $17.9 billion, respectively, though that still places them 2nd and 3rd in size.

At what point do states stop to think if high taxes are really the solution to overspending?

If You Don't Like Rich People Just Tax Them Out Of Your State II

2009-05-27T15:56:00.002-04:00

Maryland has lost one-third of its millionaires from a year ago. In 2008, Marland had 3,000 million dollar income tax returns filed by the end of April. In 2009, that number dropped to 2,000 according to a WSJ editorial. For sure, many of these taxpayers are still Maryland residents whose incomes dropped below one million dollars because of the recession, but it is bad policy to depend more and more on the wealthy to fund bloated governments.

It's interesting to note that three of the most heavily taxed states (California, New York and New Jersey) are experiencing huge budget deficits while the 9 states with NO income taxes are largely faring well.

State governments need to consider three things when they adopt a 'soak the rich' tax policy:

Do you want to create an environment where the wealthy are inclined to move out?
Do you want to create an environment where wealthy out-of-state residents are discouraged from moving in?
Do you want to create an additional incentive for residents to legally shelter or deferr income recognition?

Each of these three scenarios would also adversely impact a local government's ability to collect tax revenues related to property and sales taxes.

If You Don't Like Rich People, Just Tax Them Out Of Your State

2009-05-27T12:05:00.002-04:00

There may be a battle forming in the New Jersey GOP primary for Governor. According to this WSJ editorial, Steve Lonegan is proposing a flat tax in lieu of the existing graduated income tax. New Jersey has one of the highest tax burdens in the country. Lonegan's plan would at the least make it one of the least burdened states in the northeast which is important to note considering the ease with which residents can move. The editorial says that New Jersey has suffered the nations 4th highest rate of out-migration of all the states. Lonegan doesn't want residents who are expected to fund many of the tax revenues to move out of the state's tax reach which is the main idea behind a low (2.98%) rate on each taxpayer's first dollar of income.

It will be interesting to watch how the current frontrunner Chris Christie will continue to attack the flat tax as a tax on the poor without being perceived as Republican engaged in the typical Democratic strategy of class warfare.

I Thought You Were Republicans...Whatever Those Are.

2009-05-27T10:00:00.002-04:00

The AJC reports on another county that is proposing a tax rate increase. This time it's Gwinnett County resident's turn to complain about a possible 25% increase to property tax rates. The county is claiming it has lost revenues of $839 million dollars over more than a decade by not raisng the millage rate. The county doesn't mention that new construction and increased assessments have occured during the same time.

The best quote comes from Peter Henrickson of Duluth, 'I thought you were Republicans.' The fact that any members of the commission are Republicans means they will spend other people's money like a drunken sailor while they hold office and then bemoan any spending or tax increases when they are voted out.

Oddly, neither this article nor last week's article mentions anything about a county financed baseball stadium. You can read how the stadium (and a 25% increase in property taxes) will pay for itself from day one here.

Tax Increases to Lobby for More Tax Increases?

2009-05-26T16:16:00.002-04:00

The Atlanta Journal-Constitution reports that taxes are paying $25 million in lobbyists salaries. Almost one-fourth of the more than 1600 peopled registered to lobby during the 2009 session represented either state funded agencies or local governments. As Rep. John Lunsford of McDonough says, 'The only person without a damn lobbyist is the taxpayer.'

I have no problem with lobbying in general. I do not believe that spending money to petition the government is tantamount to 'buying' politicians. There is something, however, that rankles me about taxpayers' money being used to lobby positions that are often against the taxpayers best interest. As Jared Thomas of the Georgia chapter of Americans for Prosperity says, 'Essentially what you've got is tax dollars being used to send people to the state Capital to lobby lawmakers to raise their taxes again.'

There were many valid reasons to oppose Glenn Richardson's plan to eliminate local property taxes in the state of Georgia. Local governments using taxpayer money to ensure property taxes were not cut shouldn't be one of them.

More Property Tax News

2009-05-22T08:50:00.002-04:00

Pickens County Chief Tax Appraiser Roy Dobbs says the property tax value freeze is confusing and will be a long term disappointment to property owners. According to Dobbs there are a few 'nothing is set' and 'wait and see' items creating confusion for tax offices across the state. I think this can be interpreted as we know how much money we have to collected, now we have to do the 5th grade math to calculate our millage rate. The lawsuit filed against DeKalb county may give other counties an indication of how much leeway they have.

He freely admits that "Property taxes are not frozen....it's only the assessments." It probably is reasonable to believe that most Georgians will not see a decrease in their property taxes and many in fact may pay more than prior years.

The most frustrating thing about the tax appraiser's comments is this: 'Tax bills are dictated by budgets.' This isn't really news, but it still is frustrating. Every business and household starts with projected available resources and budgets how to spend, but local governements create a spending plan and then work backwords to shake the revenue out of the taxpayers' pockets.

Is it any wonder that surveys typically reveal property taxes are the most hated of all other types of taxes?

Collapse of Real Estate Values Equals 4% Decline in DeKalb County

2009-05-21T09:17:00.003-04:00

According to the AJC, the DeKalb County Tax Assessor is being sued for failure to follow to new laws relating to property tax values. The Georgia Legislature recently enacted a law mandating that the effect ofproperty foreclosures are to be considered when valuing a property's appraisal and instituted a freeze on increased property values on unimproved homes.

When the original report was released in April the tax assessor had values rising apparently in violation of the mandated value freeze. The newer report released had a decline of 4%. I have no strong opinion on whether this is accurate or not but if the world is ending and real estate has 'collapsed' it seems it would warrant a larger than 4% decline. Also, I'm not sure if a lawsuit is the appropriate means to solve a disagreement over property values although the tax assessor should be in compliance with the law.

This illustrates one of the pitfalls of property taxes in general. Historically, property taxes have been universally hated even more so than income taxes. This is partially explained by a lack of transparency. Tax jurisdictions pat themselves on the back for maintaining low rates. However, those jurisdictions often institute 'backdoor taxes' by arbitrarily raising the base value to which those millage rates are applied.

The DeKalb County School System's tax base is almost entirely dependent upon the property taxes collected. The 2010 school budget assumes a 1.7% deline, but it is probably very likely there will be deeper cuts.

Property owners have until June 19 to file an appeal based on their property's assessment. Expect a bottleneck of appeals this summer. In the end, it may not matter since the millage rate doesn't have to be set until June 23.

Maybe Glen Richardson was onto something.

The Tax Men Cometh

2009-05-20T16:42:00.002-04:00

The May issue of CFO has an interesting article about the aggressiveness of some states to make up budget shortfalls by going after out-of-states businesses. Of particular interest (to me at least) is Georgia's revenue policies and systems are influencing companies to locate or expand operations here (#5 nationally). I also notice that many of the northeast states, Michigan, Illinois and California are viewed very negatively and causing concern for future operations by survey participants. It will be interesting to see how future legislation and tax enforcement affects economic performance in many of these states with negative reputations.

I hope to have more information on this subject in future posts.

Pimpin' Ain't Easy

2009-05-18T13:53:00.005-04:00

In edition to Big Daddy Kane's list of the perils of pimpin' you can add paperwork and payroll compliance.

This should serve as a reminder to all associated with the world's oldest profession that the IRS wants its payroll and income taxes to be paid. In fact, the Internal Revenue Code explicitly states all income from illegal activity is taxable. In the case of prostitution it most probably belongs on Schedule C although it is less clear what the line for 'Principal business or profession' should contain.

The Adulation Is So Loud - It's Like Three Cheerleading Squads

2009-05-06T12:52:00.002-04:00

There was a three-for-one special at the Associated Press this week. The following headlines were used to describe the same news story (in order as they appeared):

Obama To Target Tax Evaders

Obama To Close Tax Loopholes

Obama To Raise Taxes On Multinational Companies

The first headline which was changed by mid-morning on Monday is terribly inaccurate. Sure, Obama is going to increase the number of IRS agents by 800 according to the story, but this is nothing more than editorializing in a poorly written manner. Imagine you argue there should be no federal deduction for state income taxes paid, as the Heritage Foundation has. You could base your arguments on the fairness between taxpayers in states with income taxes and those without. (Note: As a result of this argument, Congress began allowing a deduction for either state income tax or state sales tax several years ago.) You could also argue that the federal government should not subsidize state budgets and in this manner force states to be judicious with their residents' money. (Note: Many states actually argue along the lines of 'Well, sure we are taxing you at 10% but for those in the 25% federal bracket it is effectively only 7.5%) What cannot be claimed, however, is that all taxpayers who deduct state income taxes on their federal return are tax evaders. A tax evader is someone who illegally minimizes his income either by unreported income or falsely reporting expenses. See Tim Geithner, Tom Daschle or Charles Rangel for examples.

The second headline isn't quite as bad as the first, but is still misleading. It calls the current tax policy a loophole. Tax loopholes generally discribe ambiguities in the tax code which have unintended consequences. These ambiguities generally occur to the chagrin and embarrassment of lawmakers. An example was found in Arizona around 2000. Due to pressure from environmentalists, the state gave a tax credit for vehicles that ran on alternative type fuels. What the state didn't initially expect was for every golfer in the state (and some non-residents) to purchase golf carts for their hobby and receive the credit. I beleive that loophole has been closed through more specific language. What this AP article describes isn't a 'loophole' because a lawmaker or committee used some vague terminology but a law in which the AP disagrees.

The final headline calls Obama's plan for what it is - an increase of taxes. Did a capitalist infiltrate the AP? By the way, no industrialized nation has a tax on income similar to what Obama is proposing. The article notes that most corporations pay an effective rate of about 25% on domestic activities but only a 4% rate on foreign activities. You have to love the disclaimer that notes this doesn't take into account foreign taxes paid. I suppose the AP is arguing that companies should pay 25% overseas and another 25% to Washington and if the company operates in many nations there could potentially be a greater than 100% tax rate. That would turn the 'loophole' into a noose for most companies.

Tax Increases Aren't the Only Way to Eliminate a Deficit

2009-05-05T10:20:00.003-04:00

Kelly McCutchen at the Georgia Public Policy Foundation reminds Georgians that it could be worse; we could be residents of New York or California. McCutchen writes that the state's spending for 2008, 2009 and 2010 is projected to be $38.5 billion, $37.7 billion and $38.8 billion, respectively. At a time when so many are calling for increased government spending, Georgia has been able to avoid uncomfortable tax increases due largely to restricted spending.

Readers are given charts detailing state spending by revenue source, state spending against population and inflation and state education spending per student. A study by the American Legislative Exchange Council is referrenced in which the following conclusion is reached: 'The historical evidence is clear. States that keep spending and taxes low exhibit the best economic results, while states that follow the tax-and-spend path lag far behind.'

Keep that in mind the next time a politician advocates a tax increase as the only solution during a down economy.

You Mean All the Raindrops Aren't Lemondrops and Gumdrops?

2009-05-04T13:28:00.002-04:00

The last sentence in this AP dispatch reads as if it's newsworthy if Obama fails to garner 100% support for his agenda. The first seven paragraphs lead one to believe that Obama is some sort of superhero for raising taxes. The final sentence admits that 'Congress is expected to resist significant portions of Obama's plan.'

One probably shouldn't be surprised that acknowledging there may be resistance to a proposal is what passes as 'hard-hitting journalism' with displays such as this. Unfortunately, you can't see Helen Thomas waiving her pom-pons because everyone is standing. But just think what a happy place it will be when Obama makes all the raindrops lemondrops and gumdrops!

Ve Have Vays Ov Making You Talk.

2009-05-04T12:58:00.005-04:00

Imagine if George W. Bush during the past eight years had said the following: 'If countries and institutions won't cooperate with us, we will assume that they are harboring terrorists and act accordingly.' If that had been said you would imagine a Keith Olbermann-type to say something like:

We have handed a blank check drawn against our freedom to a man who may now, if he so decides, declare not merely any non-American citizens "Unlawful Enemy Combatants" and ship them somewhere -- anywhere -- but may now, if he so decides, declare you an "Unlawful Enemy Combatant" and ship you somewhere - anywhere.

How long will it be until Olbermann goes on a similar rant now that Barack Obama has said, "If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly."

Just remember the burden of proof now falls on you to prove your innocence.

Does Jackson Hewitt's Claim Comply With the Law?

2009-01-23T10:31:00.002-05:00

9 out of 10 customers receive a refund, according to Magic Johnson. I'm not sure if that claim is accurate. It may, though, be in violation of the law.

According to Reg. §301.7216, tax return preparers are generally not allowed to disclose tax return information even in a statistically compiled manner that would not identify any taxpayers directly. The limited purposes for which disclosure may be made are compliance with financial accounting or regulatory reporting requirements. It also allows for anonymous disclosure in the attempt to sell the tax return preparation business.

In 2009, there is some temporary guidance that eases some of the restrictions. It still prohibits disclosing information related to refund, credit, or rebate amounts, or a part thereof, for purposes of advertising or marketing.

How does Jackson Hewitt's pitch fit within the guidelines? My guess is the company will be forced to stop airing the ads, but no other sanctions will be imposed.

The only thing I am sure of is this: 9 out of 10 Jackson Hewitt customers are so bad at math they give the government an interest free loan!

If 9 Out Of 10 Jackson Hewitt Customers Receive a Refund, Do 9 out of 10 Jackson Hewitt Preparers Receive an Indictment?

2009-01-21T13:57:00.005-05:00

Magic Johnson has been peddling the services of Jackson Hewitt this season. The ads claim 9 out of 10 customers receive a refund. The ad doesn't mention the Department of Justice's investigation into tax fraud of any of its franchise operators.

Saving Retirement in the Face of America’s Credit Crises?

2008-10-24T19:48:00.005-04:00

An idea currently being pitched is to nationalize everyone’s 401(k) account. The logic goes something like this: Financial Markets are volatile, if you measure from the high water mark to the low point of the markets it appears the world is coming to an end, therefore the government must intervene. (Sarcasm mine)

The government intervention comes in the form of having people to trade in their existing 401(k) for a Guaranteed Retirement Account (GRA). The GRA would pay a guaranteed return of 3%. So people would trade an investment vehicle that has averaged returns of around 10% since 1978 for a guaranteed return of 3%.

The examples used indicate someone with $50,000 in a 401(k) could trade that in for an additional $500 per month from Social Security upon retiring. One problem with this is that if a retiree passes away within 8 years 4 months of retirement the government keeps the excess in its own coffers whereas in a 401(k) account the retiree’s heirs receive the money.

Historically speaking, an investor that contributed $1,667 per year since 1978 would see his 401(k) grow to over $182,000. (I used 1978 because the author claims the 30 year experiment with 401(k) accounts has been a failure. $1,667 is used because the author uses a principal of $50,000 in the example.) This includes losing almost 40% of the overall value in the current year. To be sure the GRA is the name implies would gave a guaranteed return. Instead of losing 40%, retirees would have gained 3%. However, the increase of 3% would only bring the value to $81,000. In this scenario, a retiree would have traded over $100,000 for stability. That would be a terrible trade. A disciplined approach to 401(k) contributions doesn’t seem to be a failure.

Another issue I take with the author is her disregard of 401(k) history. She makes the assertion that 401(k) accounts are cheaper for employers but earn subpar returns. Obviously, the returns from well diversified 401(k) accounts are better than 3%, but she makes this statement as if 401(k)s were designed by employers who no longer wanted to fund defined benefit plans. However, 401(k)s were actually the result of demands by employees who didn’t want to spend 40 years of their lives with one company in order to receive a retirement even if the employee didn’t have to fund it.

My guess is that instead of trying to save retirement in the midst of a crises, these advocates are just using the fear of uncertainty to move the financial markets closer to socialism.

How Can a Man Who Doesn't Even Know How Many Degrees He Holds Be Expected to Understand the Tax Code?

2008-09-12T22:45:00.001-04:00

The St. Louis Post-Dispatch reports that Joe Biden committed a common tax error while criticizing John McCain's tax plan. Biden used average health care costs of $12,000 per year to give an example of the effects of the McCain proposal of a $5,000 credit.

According to the Post-Dispatch, Biden said $7,000 would still be taxable. This indicates Biden is confusing tax credits with tax deductions. A credit reduces a tax liability dollar for dollar. A deduction reduces taxable income before the tax rate is applied.

A taxpayer in the 25% bracket would incur tax of $3,000 on $12,000 of taxable income. The $5,000 would be applied directly to the tax liability. Biden, apparently, would incorrectly deduct $5,000 from $12,000 income and then apply the tax rate. Fortunately for Biden, Delaware has the highest per capita rate of CPA's in the United States.

As bad as that is, it gets worse. It seems that Biden believes that McCain is making economic sense and that is bad for America! (Video is here at 5:25).

Obama-Biden's new slogan: Vote for us, the party that believes Economic Sense is Bad for America!

Read My Lips: Disagreeing Politicians Aren't Lying Politicians

2008-09-10T21:33:00.003-04:00

There is a kerfuffle brewing in the political world concerning proposed tax policies of the Presidential candidates.

In Obama's acceptance speech, he promised to give tax cuts to 95% of working people. McCain says that President Obama will raise everyone's taxes.

Now it seems commentators are calling McCain a liar. While it is difficult to defend any politician when called a liar, it seems illogical in this instance to use the moniker.

For McCain to be a liar, he would have to say Obama will raise taxes while he knows not only that Obama promises to cut taxes but will also be able to cut taxes.

Twenty years ago, a Presidential candidate asked Americans to read his lips. He promised no new taxes in his acceptance speech. By the logic used today, anyone who said the lip-reading President would raise taxes would be a liar. During his administration, however, George H.W. Bush did allow for tax increases.

So it is far too soon to know if McCain is a liar or a prophet.

It's As If I Don't Exist

2008-09-09T20:29:00.003-04:00

I have either been Terminated or Totally Recalled!

In a posting that discusses taxation of 501(c)4 organizations (civic organizations devoted to charitable, educational or recreational purposes), Linda Beale goes off on a tangent. I traded posts several times on it and had an entry that remained for about 12 hours. Then, all of a sudden my final post disappeared. I don't believe I was rude or obnoxious but I have all of the entries saved. You can read all entries but my final one here.

Here is my final response:

Linda

I am not a ‘fan’ of smear campaigns, but I am rather fanatical about the 1st amendment. From this post and others similar in nature, I am inclined to believe that you wish these people weren’t allowed to say what they have to say and that the tax code may be a viable way in which to shut them up. Otherwise, in issues like this you may balance your opinion with equal criticism of PAC groups such as Brave New PAC which disputes much of John McCain’s POW experience. As an aside, I believe Philip Butler, the man who served with McCain and used in the ad poses a serious problem for Obama. Whether true or not, I believe many Americans will find Butler’s ad in poor taste, but I would rather Butler have the freedom to state his claims.

I don’t object to your word choice. I only mentioned it because language such as ‘anti-progressive’ ‘right-wing’ ‘Bush regime’ ‘Rovian’ ‘swift boat’ are typically used by people who haven’t exercised a ‘careful weighing of the facts’. Yet you write of William Ayers of the Weatherman as if that organization is your garden variety civic organization. You also stress ‘long ago’ in an apparent attempt to minimize the impact of the Weatherman though from Ayers own statements he is unrepentant and believes the group didn’t go ‘far enough’. You then feel it necessary to state that Obama has in no way indicated that he thinks violent action against the US is appropriate. That’s a relief. The terminology you chose leads me to believe that you are left of center, have long ago decided to back the Democratic nominee and will be critical of any tactics from those who oppose that nominee. All of that is perfectly acceptable, but again doesn’t ‘reflect a careful weighing of the facts’.

Specifically as for Swift Boat Veterans for Truth and others similar the IRS issues will always be of facts and circumstances. It could be argued that the Swift Boat Vets didn’t intend to engineer an election but to directly refute John Kerry’s 1971 testimony in which he said, “they had personally raped, cut off ears, cut off heads, tape wires from portable telephones to human genitals and turned up the power, cut off limbs, blown up bodies, randomly shot at civilians, razed villages in fashion reminiscent of Genghis Khan, shot cattle and dogs for fun, poisoned food stocks, and generally ravaged the country side of South Vietnam”. It certainly seems Kerry may have ‘smeared’ them 33 years prior and they were only responding in a manner to educate people that they did not in fact commit the crimes of which Kerry accused them.

Once again, I appreciate your blog and find your non-political posts informative (I actually find your political posts both entertaining and informative, though not for the reasons you intend). I am, however, inclined to believe you have long ago made up your mind about this Presidential race as well as many other issues. Rather than drawing a conclusion from the information present, you seek to find information to support that conclusion.

Regards – Dave.

I don't know. It doesn't seem to be out of line. Here is a list of 501(c)4 organizations that have been accused of engaging in political campaigns on behalf of or in opposition to candidates for public office that Ms. Beale chose not to mention: MoveOn.org, Democratic Leadership Council, Brave New PAC, The Media Fund, America Coming Together and America Votes.

Tax Credits are Not Tax Cuts

2008-09-07T15:01:00.002-04:00

95% of working families can expect a tax cut under Presidential candidate Barack Obama's tax plan. Obama has not been very specific about the mechanics.

In 2006, taxpayers in the 5% tax rate paid on average of $362 in taxes for the year. People in the 10% bracket paid on average of $519. These figures were derived from IRS statistics.

If he cut these rates to zero, it would only save this group of taxpayers $362 and $519, respectively. My guess is instead of a cut in the tax rate, he will propose targeted tax credits. Which means Obama will really be advocating spending increases.

Form 1040, page 2, shows a series of non-refundable (lines 47-55) and refundable (lines 66a and 68) credits. These include child care, elderly, education, energy credits and others. A simplified explanation of tax calculation would be to sum your income, subtract your exemptions and deductions to arrive at taxable income. Apply the tax rate schedule to your taxable income to calculate your tax liability.

Tax liability is your total amount of tax. To determine, your refund or tax due subtract tax credits and taxes already paid (typically through withholding). Every dollar of tax credit reduces your tax due be a dollar.

If, however, instead of subtracting from taxes owed your amount of credits, you paid the full amount of taxes owed and at another time from a different bureaucratic agency (Department of Earned Income Credit?) received a check for the amount of the credit everyone would recognize it for what it is....welfare....disguised as a tax cut!

Reasonble people could certainly argue the benefit of any and all of these credits. However, these can't be argued to be tax cuts but increases in federal spending. And my guess is Barack Obama's plan won't result in any real tax cuts.

I Don't Know Tax Law, I Just Write It.

2008-09-05T11:48:00.005-04:00

Charlie Rangel, chairman of the House Ways & Means Committee, the committee that has the responsibility of writing tax laws, has failed to report $75,000 in income.

The New York Times reports that this poses a political embarrassment for Rangel. I'll say.

Maybe the Democratic Messiah can spin this into a campaign slogan. "Vote for us. We'll cut 95% of people's taxes and the rest can do like us and not report your income!"

Increases in Tax Revenues Aren't Tax Increases

2008-09-04T10:42:00.003-04:00

People on a search to find something to destroy Vice Presidential nominee Sarah Palin are grasping at straws when they surmise that she must be a tax & spend bureaucrat such as this:

"Sarah campaigned in Wasilla as a “fiscal conservative”. During her 6 years as Mayor, she increased general government expenditures by over 33%. During those same 6 years the amount of taxes collected by the City increased by 38%."

Quote by Alaskan resident Anne Kilkenny

What Kilkenny fails to mention is that Wasilla grew from a population of 4,028 to 7,025 estimated for 2003 (Alaskan Department of Commerce and Economic Development). That’s a population increase of 74%. And the city only increased collected taxes by 38% and spending only increased by 33%. That means that each resident saw their tax burden cut drastically. The Democrats should have nominated someone with this kind of experience.

I guess this proves Gov. Palin correct; Community Organizers such as Anne Kilkenny truly don’t have any responsibilities, especially to the truth!

Tax Cuts for All!

2008-09-02T21:42:00.002-04:00

I will, listen now, cut taxes -- cut taxes -- for 95 percent of all working families. - Barack Obama's Acceptance Speech.

No specifics were given on how this would work. But 95% of working families means everyone earning about $700,000 and less will receive a tax cut according to Internal Revenue Service statistics.

I think Obama really thinks he is the tax cut Messiah.

Capital Gains Elimination?

2008-08-29T10:24:00.005-04:00

During last night’s acceptance speech from Barack Obama, I heard many generalities with few specifics. I may have heard a different speech than Keith Olbermann. Obama did give one specific proposal regarding taxes. He promised to eliminate capital gains taxes for the small businesses and the startups that will create the high-wage, high-tech jobs of tomorrow. This was an odd statement for a few reasons.

Corporations don’t have a preferential capital gains rate. Corporations are taxed on capital gains at regular tax rates to a maximum of 35%. So if he is eliminating the capital gains rate on small businesses, is he essentially reducing the tax rate to zero? What defines ‘small businesses’? The interesting thing is startups and small businesses rarely have capital gain transactions, regardless of the tax implications. Capital gains only arise from selling capital assets. Small businesses generally earn income from selling services or inventory. Both of those occurrences generate ordinary income and would not benefit at all from Obama’s buzzword banter.

Back in March, Obama said capital gains rates needed to be raised. He said he would not go higher than Bill Clinton’s 28% rate, but mentioned 20% and 25%. Does this mean that Obama believes individual savers should pay more in capital gains while businesses should pay nothing?

If reducing or eliminating capital gains for businesses would create jobs, wouldn’t reducing or eliminating capital gains for individuals create economic growth. It certainly did in the 90’s when the Republicans reduced the rates from 28% to 20% through the Taxpayer Relief Act of 1997. That directly led to 3 straight years of superb growth.

My cynical side says that the Democrats know the evidence is overwhelming that low capital gains rates lead to economic growth which actually leads to higher tax revenues. This, however, is an issue that they cannot go toe to toe with Republicans and win. So, they decide to use the ‘Cut Capital Gains’ terminology. That way when properly challenged on their proposal to raise capital gains taxes, they can reply ‘No. We’re going to cut capital gains taxes’, even though it is meaningless.

Now, I’m all for low capital gains. But I’m more in favor of politicians not using smoke and mirrors to hide tax increases like Obama advocated in March with a ‘tax cut’ that doesn’t exist because nobody will qualify for it.

The World's Oldest Profession Collides With the 2nd Oldest Profession

2008-08-22T14:27:00.004-04:00

James Smith of North Carolina pled guilty yesterday to tax evasion. The government charged Smith with mischaracterizing his transactions with Soft Touch Promotions, a prostitution ring. He deducted the payments as business deductions and classified them as meals and entertainment and advertising.

Now, I can see where someone might classify this as entertainment. But in that scenario you would only be able to deduct half of the $700 per hour charge and you would need to document who accompanied you and the purpose. I really don't want to think about any meals Mr. Smith was eating.

But Advertising? Unless Mr. Smith has a Red Clay Industries tattoo in a place only visible when the clothes come off, that seems destined to be discovered under audit. Although, since the Charlotte Observer says he is in the construction industry, maybe he felt it necessary to show off his wood.

I'll Gladly Give You a Tax Credit Today for a Mortgage Tomorrow

2008-08-18T14:36:00.006-04:00

I don't think Wimpy actually had anything to do with the lastest tax reform coming out of Washington. What is being packaged as a tax credit to spur activity in the housing market amounts to an interest free mortgage for up to $7,500 to be repaid over 15 years.

CNN has brief summary with comments from the usual suspects such as National Association of Realtors. I will comment on this in more depth very soon, but I certainly feel that what Congress is doing gets more and more bizarre everyday.

The Job

2008-08-16T08:50:00.001-04:00

It may not be long before this is a common sight.

http://www.youtube.com/watch?v=3XGJq8wrw5I

Sin Tax

2008-08-16T08:28:00.002-04:00

This Wall Street Journal Op-ed tells of the trouble the State of Maryland is having balancing the budget on the backs of smokers.

In 2007, Maryland's legislature raised the cigarette tax to $2 per pack. Now that cigarette sales have plummeted by 25% the state is in fiscal crisis again. Many people would conclude this is a good sign and that behavior modification is the ultimate purpose of 'sin taxes'. The problem is that instead of 25% fewer cigarettes being consummed, most likely these cigarettes are being brought across neighboring state lines where the price can save as much as $15 per carton.

The Maryland lawmakers have now made it a crime to bring more than two cartons of cigarettes into the state that weren't purchased in Maryland. This blatantly says that Maryland isn't so much concerned for the health and well-being of its citizens as it is in making money on people's destructive habits.

Maryland isn't the only jurisdiction to encounter this problem, but it illustrates the problem with these taxes. Are state and local governments trying to keep Americans from sinning or just trying to become a financial partner in such behavior?

All the Incorrect Tax Information That's Fit to Print

2008-08-15T09:14:00.004-04:00

If your tax accountant ever worked for the New York Times change accountants as fast as you can! This correction (You'll probably want to bookmark this site. It's humor is priceless) indicates that people at the Times don't understand the difference between gross sales and net taxable income.

An article on Wednesday about a Government Accountability Office study reporting on the percentage of corporations that paid no federal income taxes from 1998 through 2005 gave an incorrect figure for the estimated tax liability of the 1.3 million companies covered by the study. It is not $875 billion. The correct amount cannot be calculated because it would be based on the companies paying the standard rate of 35 percent on their net income, a figure that is not available. (The incorrect figure of $875 billion was based on the companies paying the standard rate on their $2.5 trillion in gross sales.)

So, the paper publishes an article to rally the anti-corporate troops about industrial titans who make money hand over fist without paying any taxes. Then follows that with a correction essentially saying 'Never mind, we have no idea how to compute taxable income.' I'm sure there's no agenda here.

Your Honor, That Money I Paid to Have an IRS Agent Killed was a Deductible Business Expense and I Intend to Prove It!

2008-08-09T16:42:00.003-04:00

Randy Nowack of Florida reasoned it would be cheaper to pay $10,000 for murder than $300,000 in taxes. If convicted, he could face 20 years imprisonment and a fine of $250,000. Apparently, that information wasn't factored into this menace's decision model.

Enquiring Minds Want to Know

2008-05-30T18:01:00.006-04:00

According to the Cincinnati Enquirer, a tax examiner with the IRS has been arrested for illegally accessing personal information of 197 celebrities and professional athletes.

Examiner John Snyder was caught when authorities audited who was accessing personal and tax information stored on a federal database. Snyder had access to the database but had no legitimate reason to view individual taxpayer accounts.

If convicted of improperly accessing IRS data, Snyder could serve up to a year in prison and a $250,000.

Some of the celebrities named as victims include: Kevin Bacon, Alec Baldwin, Sally Field, Vanna White, Cincinnati Reds and Chicago Cubs players, Marvin Lewis, Penny Marshall, Randy Quaid, Tara Reid and Chevy Chase.

All the legal aspects of this dispatch make sense. What confuses me, though, is the mention of Chevy Chase. Is he still considered a celebrity?

What's 2+2?....What do you want it to be?

2008-05-30T17:44:00.003-04:00

A recent survey by the Ethics Resource Center found that rates of misconduct are increasing and management awareness is declining in Corporate America. It also found that compliance programs are beginning to deteriorate.

At the same time, another survey has more intriguing results. Junior Achievement found that 41 percent of teens believe one must act unethically in order to get ahead. Only 22 percent of teens expressed that view in 2005

What does this all mean? Hopefully, not much. However, with rising fuel costs, intense competition and early signs of inflation, and watchdog groups beginning to look elsewhere, this may be the beginning of a perfect storm for corporate failings of an Enron or WorldCom magnitude.

We're Number 2!

2008-05-29T17:40:00.002-04:00

According to The Tax Foundation, the United States now has the second highest corporate tax rate in the world, behind Japan.

The top ten:

Japan 39.5%
United States 39.3%
Italy 37.3%
Canada 36.1%
France 34.4%
Belgium 34.0%
New Zealand 33.0%
Spain 32.5%
Luxembourg 30.4%
Germany 30.0%

Unfortunately, the only talk I hear in this election year about corporate tax rates is how corporations aren't paying nearly enough. We'll see if the trend among European Union nations makes its way across the Atlantic.

Book Review: Vultures in Eagle’s Clothing: Lawfully Breaking Free From Ignorance Related Slavery

2008-05-29T17:34:00.001-04:00

Actually, I’m not going to review this pile of garbage as much as I’m going to allow the plight of James Ellett speak to the usefulness of this book. The book written by Lynne Meredith claims to instruct readers how to ‘lawfully stop paying income taxes’. In 1994, Mr. Ellett read the book and in the ten years that followed read it at least one hundred times. He also spent hours researching taxes in a law library.

Upon formulating a tax strategy, Mr. Ellett filed ‘In Lieu of Form W-4’ forms from May 1996 through 2004. These forms directed his employer to withhold zero dollars from his income. So even though he earned between $64,000 and $102,000 each year from the year 2000-2003, his federal withholding was zero.

In the middle of 2004, the IRS instructed his employer to begin withholding taxes from his wages. This resulted in $8,251 being withheld on income of $73,376 for 2004. Ellett did not file federal income tax returns for the 2000 through 2004 tax years. In total, he failed to pay $64,000 in income taxes for that period.

This brings to Mr. Ellett’s most recent court decision. He was indicted on September 14, 2006 for three counts of income tax evasion for years 2000-2002. On February 2, 2007, two additional counts were added: tax evasion for tax year 2003 and misdemeanor failure to file for tax year 2004. So all told Mr. Ellett is now on the hook for five tax years.

From this point forward there is not much excitement in this case. Mr. Ellett’s main defense for not filing is that as a native of one of the 50 states who worked for a private employer, he sincerely believed that he was exercising a ‘nontaxable right’ to engage in labor. Most reasonable people would conclude that this is pure nonsense. Even Mr. Ellett conceded under cross examination that this was ridiculous as any tax professional would have disagreed with him which is why he never consulted one and that the Supreme Court has upheld the constitutionality of the federal income tax.

However, there is one point that may be worth making. After the jury found him guilty on all counts, Mr. Ellett sought a new trial on the grounds that due process required that he be given the opportunity to litigate his tax position civilly or administratively before being prosecuted for tax evasion. Essentially, Ellet was arguing that since he was never audited, he could not be prosecuted. This is where Mr. Ellett and possibly many other non-filers misunderstand the tax deficiency element of tax evasion.

A tax deficiency arises when a tax return is due but not filed. The Internal Revenue Service is not required to make a formal demand or assessment. Therefore the government is not required to obtain a civil or administrative determination prior to establishing the existence of a tax deficiency.

So any non filers or tax protesters who are reading this should do themselves a favor and file any past due returns. Otherwise, you may have the same fate as Mr. Ellett; 18 months imprisonment.

Avoiding Penalties

2008-04-18T16:55:00.000-04:00

A recent “Fact Sheet” released by the IRS discusses tax penalties and ways to avoid them:

The most common penalties are for filing late or paying taxes late.

Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).

If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.

Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.

The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.

For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.

Since the penalties are lower for those who pay late than those who file late, it is wise to go ahead and either file or extend even if you can not pay the balance due. Bear in mind, however, that if you extend without making a good faith estimate of the taxes you owe, the IRS may disallow the extension. In practice, this rarely happens.

Additional Time to File

2008-04-18T16:06:00.004-04:00

By now, most are aware that Bartow County has been declared presidential disaster area by the federal government. This gives residents until May 19th to file and pay their taxes. Some confusion was created the way the local media were reporting the additional time to file. The media reported that those affected by the tornadoes had additional time to file. This is correct. However, the regulations define an affected person more broadly than having your home destroyed.

Treasury Reg. §301.7508A-1(d)(1) identifies four ways in which taxpayers will be considered affected taxpayers eligible for postponement:

• Reside in a county that is a declared disaster area.
• Operate a business located in a county that is a declared disaster area.
• Maintain your books, records or use a tax professional whose office is in the covered disaster area.
• Relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area are eligible for postponement.

In addition to filing a tax return and paying any tax owed, the declaration provides additional time make a contribution to a qualified retirement account such as an IRA.

Here are the links for the Federal and Georgia announcements.

When Rapid Refund Just Isn't Fast Enough

2008-03-03T20:18:00.003-05:00

A CPA in Cartersville lives by the motto that the best place for a CPA practice is beside either a liquor store or a pawn shop. For many tax pros who strictly target people who are desperate for cash, that is the case.

The Des Moines Register reports on a missed opportunity for those kind of preparers. It appears a man robbed a convenience store and left behind his jacket. Unfortunately for him what was in the jacket will make it rather easy for police to find him.

Police found the jacket — and, in a pocket, a W-2 form they are sure belongs to the man.

The line at Jackson Hewitt must have been really long for this to have been his best option for cash. Hopefully, he knows that all income from whatever source derived (illegal and legal) is taxable income and he budgets taxes for the $115 that he stole.

Ten Things to Consider When Selecting a Tax Pro

2008-02-27T19:55:00.004-05:00

From SmartMoney.com is a list of 'Ten Things Your Tax Preparer Won't Tell You'

The first point is a Big Name Won't Necessarily Mean Better Service. This seems rather obvious. In an industry that that hinges on presonal relationships, how can you expect to get qualified guidance and service from a part-time worker in a kiosk at Wal-Mart?

The General Accounting Office found that 'nearly all the returns prepared for us were incorrect to some degree' at the big chain retail tax places. Last year, Jackson Hewitt was accused of cheating the government out of $70 million with fraudulent tax returns mainly using phoney businesses. In the CPA community, the tax outfit in green is known as 'H&R Crock' because it relies almost solely on part-time seasonal labor with only a crash course educational training program.

In coming days a few of the other points will be addressed.

Wanted: Major League Athletes in Need of Tax Services

2008-02-26T09:19:00.008-05:00

Lenny Dykstra is being sued. That's no surprise. The circumstances surrounding the suit are surprising. As the New York Daily News reports, Dykstra is being sued by the accounting firm who prepared his 2006 tax returns. The firms claims Dykstra did not pay his bill of $111,000 for the preparation of 2006 tax returns. That's not a typo. That's One-hundred-eleven thousand dollars.

Dykstra naturally assumed the bill was an error and is willing to defend himself in court. "Somebody trying to charge $120,000 for a tax return and can't even file it on time, they've got some problem," he said. "Now they're going to get exposed. My attorney, he said he thought it was a typo when he saw the bill."

The former outfielder said he had numerous meals with his accountants and recalls paying for all of them. "Maybe they charged me for his steak and lobster, too," he said.

That's a lot of steak and lobster, even at Manhattan prices.

So in an offer to all of the professional ballplayers with Bartow County ties: Please contact me if you need any tax preparation assistance. I promise that I'll cap my fees at $80 grand.