Sacramento Tax Blog

The Super Bowl and Tax Planning

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 06 Feb 2012 19:35:00 +0000

A decade or more ago, the Super Bowl had become a bit of a joke. Fans looked forward to watching the commercials, sure. But the actual game itself had become a dreary series of lopsided blowouts. Super Bowl XXIV was perhaps the worst offender, with the San Francisco 49ers pounding the Denver Broncos, 55-10, in a game that wasn't nearly as close as that score suggested!

More recently, the game has been more competitive and more entertaining. The NFC champion New York Giants reached this year's "big dance" by defeating the 49ers, 20-17, in a game that came down to the final play — in a Cinderella playoff run that followed a middling regular season. The AFC champion New England Patriots made it by beating the Baltimore Ravens, 23-20, in a game that came down to the final play. That set up Sunday's contest, when the Giants defeated the Patriots, 21-17, in yet another game that came down to the final play.

Sunday's game proved the truth of the old cliche that "offense sells tickets, but defense wins games." Patriots coach Bill Belichick gambled by actually letting Giants running back Ahmad Bradshaw score in the final minute in hopes of keeping precious time on the clock. That gamble succeeded in giving quarterback Tom Brady 57 seconds to engineer a last-minute drive — but ultimately failed when Brady's desperate final heave to tight end Rob Gronkowski fell harmlessly to the ground.

That same cliche about defense winning games applies to your finances as well — especially when it comes to tax planning. If you want to put real money in your pocket, you've got two choices:

Financial offense means making more money. (As Charlie Sheen would say, "duh.") But that's not always easy, especially in a tough economy like today's. You can invest all sorts of time efforts into growing your business or your income, only to see them sail wide right like a missed field goal.

Financial defense means spending less money. That's often easier than making more. And when it comes to spending less, it makes sense to focus on the big expenses. For most affluent Americans, that means taxes, rushing you like the Giants' backfield. Maybe you can save 15% or more on car insurance by switching to GEICO. But in the long run, how much can that really do for you?

Financial defense is important enough that some financial moves which look like offense are actually defense in disguise. Wall Street is buzzing about Facebook's upcoming initial public offering, wondering if the company can really be worth $100 billion. But the company is raising "only" $10 billion in cash. And Facebook doesn't need the money. They're "engineering a liquidity event," in large part so founder Mark Zuckerberg can pay his own taxes! (We'll talk more about this as we get closer to the actual offering.)

It's easy to think of us as just "tax people" and focus on the forms we file for that April 15 deadline (April 17 this year, for you procrastinators). But focusing on just compliance misses thevalue you get from proactive tax planning, and misses the total value we offer as your financial "defensive coordinator." So call us when you're ready to "call an audible" and play real financial defense. We promise not to let the IRS just walk the ball across the goal line!

Owen S. Arnoff, Enrolled Agent
Admitted to Practice Before the Internal Revenue Service
http://www.April15th.com
Sacramento Tax Consulting
Sacramento Tax Preparation
Sacramento Tax Representation
IRS Tax Help, Bookkeeping Services, Payroll Services

Looks like the tax code is getting a lot simpler ... NOT!

noreply@blogger.com (Owen S. Arnoff, EA) — Sat, 04 Feb 2012 00:23:00 +0000

Courtesy of the S-Corporation Association of America (their opinions expressed):

“Buffett Rule” Bill Introduced

Legislation to enact the so-called “Buffett Rule” has been introduced in the United States Senate. The bill, entitled the “The Paying a Fair Share Act” was introduced by Senators Sheldon Whitehouse (D-RI), Tom Harkin (D-IA), Bernie Sanders (I-VT) and others. According to the authors:

Whitehouse’s legislation would apply only to taxpayers with income over $1 million – including capital gains and dividends. Taxpayers earning over $2 million would be subject to a 30% minimum federal tax rate. The tax would be phased in for incomes between $1 million and $2 million, with those taxpayers paying a portion of the extra tax required to get them to a 30% effective tax rate. The bill also includes language to preserve the incentive for charitable giving.

The Wall Street Journal has a few more details:

The legislation introduced Wednesday by Sen. Sheldon Whitehouse (D., R.I.) would ensure that anyone earning more than $2 million in income each year, including from capital gains, would pay a minimum 30% federal tax rate, Mr. Whitehouse said on the Senate floor Wednesday morning. Wealthy taxpayers who face a tax rate above 30% would still pay the higher rate.
The “fair share tax” would be gradually phased in for those earning between $1 million and $2 million in annual income. They would pay a portion of the extra tax needed to get them to the 30% rate, the lawmaker said.
“This way, we make sure that no taxpayer is ever in a situation where earning an additional dollar of income will increase his or her taxes by more than that dollar,” Mr. Whitehouse said in his remarks prepared for the Senate floor. The new tax would not affect anyone making less than $1 million.

We have several complaints with this effort. First, as we’ve pointed out before, the Warren Buffett’s of the world don’t pay a lower effective tax than their secretaries. Congressional Budget Office estimates make clear that the existing tax code is strongly progressive, with wealthy taxpayers paying significantly higher levels of tax – both in absolute terms and as a percentage of their overall income – than middle-class and low-income Americans.

Second, if enacted, this new legislation would impose a third tax code (and calculation) on individual taxpayers. We already have two codes, the regular income tax and the Alternative Minimum Tax. Now we would have three:

Regular Income Tax
Alternative Minimum Tax
Fair Share Tax

Third, the author takes pains to point out that no taxpayer will face marginal rates of more than 100 percent on additional earnings, but exactly how high would the effective marginal rates reach as a taxpayer’s income rises above $1 million? The dead weight economic loss imposed by a tax increases by the square of the rate hike, so the potential cost to the economy is significant.

Nor is it clear the Fair Share tax would successfully target the rich. The AMT was created four decades ago to ensure that the same taxpayers targeted by the Fair Share tax pay at least a “minimum” amount of tax. Over the years, however, the tax has morphed into a burden on middle- and upper-middle income taxpayers. Actual millionaires are less likely to pay the AMT than a middle-class family with three children living in a high tax state. What’s the guarantee that the Fair Share bill will not make the same progression into the middle class?

Finally, you’ll notice the bill contains an exemption for charitable donations. Think of it as the “Buffett Loophole” to the “Buffett Rule” since one of the more glaring ironies of the whole debate is that Warren Buffett has aggressively planned his estate to avoid paying any tax on most of his accumulated wealth. According to press accounts, he’s given most of his money away to foundations run by his children and Bill Gates. This new “Buffett Tax” won’t touch those transfers.

So we now have legislation to fix a problem that doesn’t exist in order to impose a new tax on a billionaire who’s already figured out how to avoid paying it. In the meantime, real taxpayers with real companies and real employees who aren’t in a position to hide all their wealth inside a foundation will be stuck paying the bill. Not helpful.

Romney Hot Seat

noreply@blogger.com (Owen S. Arnoff, EA) — Fri, 03 Feb 2012 20:48:00 +0000

Last fall, billionaire Warren Buffett ignited a firestorm in the tax world when he revealed that he paid just 17.4% in tax — a lower rate than his own secretary — on his $39.8 million taxable income. The revelation sparked conversation across the country, and even inspired President Obama to propose a "Warren Buffett" rule imposing a special tax on income above $1 million per year.

Last week, Presidential candidate Mitt Romney made similar headlines when he released his taxes. The returns weighed in at 547 pages, and included some items, like "Form 8261: Return By a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund," that most tax professionals never encounter in a lifetime. (Trust us when we tell you this stuff is every bit as exciting as it sounds.) Romney's not quite in Buffett's financial league — his 2010 taxable income was a "mere" $17.1 million. But Romney's actual tax rate was a similarly low 17.6%.

We're not here to take sides on Romney himself, his campaign, or the tax system that makes his 17% rate possible. But Romney's return illustrates a crucial lesson about your taxes, too — namely, that when it comes to paying less, how you make your money is even more important than how much money you make.

Romney's income is more than high enough to put him in the top 35% bracket. That 35% applies to "ordinary" income like wages and salaries, business income, and "passive" income from certain investments. But Mitt made "only" $6.3 million in ordinary income. Most of his income derives from other sources, taxed at lower rates:

Long-Term Capital Gains: Tax on long-term capital gains is capped at 15%, no matter how much gain you report. For 2010, Romney drew over half his income from such gains. This included $7.4 million in "carried interest," related to his work at Bain Capital, and taxed as long-term capital gain. If that income had been taxed at ordinary rates, he would have paid an extra $1.5 million. If it had been subject to employment tax, like salary, the government would have collected another $214,600.

Qualified Dividends: Tax on qualified dividends is also capped at 15%, regardless of how much income you report. Romney reported $3.3 million in qualified dividends for 2010. It's worth pointing out that the only dividends "qualifying" for this rate are those that have already been taxed at corporate rates ranging from 15-35%.

Tax-Free Municipal Bonds: Muni bonds are a traditional tax shelter for taxpayers in Romney's "1%" category. But Romney's home state of Massachusetts imposes a flat 5.3% tax, which makes munis less attractive compared to taxable bonds, for those with stratospheric income. So Romney reported just $557 in muni bond income for 2010.

If Romney winds up carrying the GOP flag in 2012, his taxes will be a campaign issue. But it's important to remember that, while some are criticizing him as the face of a system gone wrong, no one is actually accusing him of doing anything wrong under the law. In fact, Romney appears to have foregone some legitimate opportunities (like potential home office deductions for his speaking and director's fee income) to pay even less.

Judge Learned Hand famously wrote that "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury." (And with a name like Learned Hand, well, you just have to believe him.) We're here to help you arrange your affairs so that your taxes are as low as possible — and do so in a way to survive scrutiny even if you decide to run for office. And remember, we're here for your friends, family, and running mates, too!

My Interview on Fox 40 Live.

noreply@blogger.com (Owen S. Arnoff, EA) — Thu, 26 Jan 2012 20:44:00 +0000

http://www.wpix.com/videogallery/67654699/News/How-to-Increase-Your-Tax-Refund-Owen-Arnoff-Incompass-Tax-Estate

Can't Buy Me Love!

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 23 Jan 2012 20:11:00 +0000

Heiress Huguette Clark, who was born in 1906 and died last May at 104, was America's last living link to the 1890s "Gilded Age." Her father, William A. Clark, was Montana's "Copper King" and, according to her New York Times obituary, "once bought himself a United States Senate seat as casually as another man might buy a pair of shoes." Huguette grew up in a 121-room mansion, at the corner of New York's Fifth Avenue and 77th Street, that cost three times as much as Yankee Stadium. But her life soon took an odd turn. She married, for just a year at age 22, then got a quickie Reno divorce. (Her husand claimed they never even consummated the marriage.) Then she and her mother withdrew almost completely from view. The last known photograph of her was taken in 1930, and she rarely appeared in public after her mother's death in 1963.

Clark may have been shy, but she was no miser. She spent most of her life in a 42-room coop at Fifth Avenue and 72nd Street, said to be the largest parkview apartment in the city, and worth an estimated $100 million. (She left in an ambulance in 1988 and never came back.) She owned a 21,666-square-foot mansion called "Bellosguardo," or "lovely view," on 23 acres overlooking the Pacific in Santa Barbara, CA. (She stopped visiting sometime in the 1950s, and reportedly turned down a $100 million offer to sell it to Beanie Baby founder Ty Warner.) And in 1952, she bought a 22-room mansion on 52 acres in New Canaan, CT. (She added a new wing to the house and hired caretakers to live on the grounds — but never spent a single night there herself.)

Huguette had so little contact with the world that some people wondered if she was actually still alive. It turns out she spent her last 22 years in a series of ordinary rooms at New York hospitals. She had few visitors during this time, and little contact with anyone outside these facilities. But her few contacts included her attorney, Wally Bock, and her accountant, Irving Kamsler. And that's where Clark's Gilded Age story begins to tarnish.

Clark was worth half a billion dollars at her death. She left the bulk of her fortune to charity, with smaller bequests to her longtime nurse ($30 million), her goddaughter ($12 million), and her attorney and accountant ($500,000 each). You would think she'd be able to pay her taxes, right? But property records show the IRS filed four liens for unpaid taxes — $1 million in 2006, $1.1 million and $41,000 in 2007, and $7,400 in 2008. Even worse, according to a Probate Court filing, the pair had let unpaid federal gift taxes and penalties accrue — to the tune of $90 million!

It turns out both the attorney Bock and accountant Kamsler have a history of questionable conduct. When Bock's former law parter Donald Wallace died, after revising his will six times in the last few years of his life, Bock and Kamsler wound up inheriting $100,000 in cash each — plus Wallace's Mercedes and his Upper East Side apartment. They even collected $368,000 in fees on the $4 million estate! And, just by the way, Kamsler is also a convicted felon and registered sex offender, who pled guilty in 2007 to attempting to disseminate indecent material to minors in an online "chat room."

As Huguette Clark's bizarre story reminds us, money really can't buy happiness. Our job, of course, is to help you pay the minimum tax allowed by law. But before you ask us what we can do to help you pay less, ask yourself how those savings will improve your life. Are you working to put your children through college? Build security for your retirement? Or are you looking for life's little "extras," like traveling in style? Those are the real benefits we work to give you — not just numbers on your annual IRS "scorecard"!

IRS Goes Where the Money Is!

noreply@blogger.com (Owen S. Arnoff, EA) — Fri, 20 Jan 2012 05:42:00 +0000

The outlaw Willie Sutton stole an estimated $2 million over a 40-year career robbing banks — and scored the ultimate "success" in his business, living long enough to die of natural causes. Sutton always carried a pistol or Tommy gun with him on jobs, declaring "you can't rob a bank on charm and personality." But the gun was never loaded, because, as he said, someone might have gotten hurt! And he became legendary, ironically, for something he never actually said. According to the story, Sutton was asked why he robbed banks — and replied "because that's where the money is." But in his 1976 autobiography, Where the Money Was: The Memoirs of a Bank Robber, he confessed that credit for the line belongs to "some enterprising reporter who apparently felt a need to fill out his copy."

What does a depression-era bank robber have to do with taxes? Well, the IRS estimates that outlaw taxpayers cost the Treasury $385 billion per year in uncollected taxes — roughly 15% of the amount they believe is due under current law. So they work hard to close that gap. In FY 2011, the IRS employed over 22,000 revenue officers, revenue agents, and special agents. They conducted 391,621 "field" audits and 1,173,069 less-intensive "correspondence" audits. They filed levies on 3.7 million taxpayers and filed over a million liens. But they can't turn over every rock. So how do they case their targets?

Earlier this month, the IRS released their FY 2011 Enforcement and Service Results revealing how likely you are to be audited. And even Willie Sutton would have appreciated the IRS's "M.O.":

If you make less than $200,000, your overall audit risk is only about one in a hundred. (Of course, that average encompasses a range of possibilities. If you run a sole proprietorship in a cash-heavy business like takeout pizza, your risk may be far higher.)

If you make over $200,000, your overall audit risk rises to about one in twenty-five. Obviously, the IRS sees more opportunity in chasing higher income earners.

If you pull down over $1 million, your audit risk rises again to one in eight. Welcome to the 1%!

The IRS likes targeting entertainers, athletes, and other celebrities, too. Sure, it sets a high-profile example for the rest of us. But it's also (spoiler alert) where the money is. Take Hollywood trainwreck Lindsay Lohan, for example. Google her name, and you'll usually find it followed by "failed another breathalyzer test" or "missed her court-appointed community service." But last week, Lohan made a different kind of headline. That's right, the IRS filed a lien against her home seeking $93,701.57 in upaid taxes from 2009.

Where does that all leave us as we move into this year's tax season? Our job is to help you pay the minimum tax allowed by law. But we know the IRS is out to challenge us. So we don't cut corners. We give you good, solid planning. That way, even if you do lose the "audit lottery," you'll feel safe knowing your savings are court-tested and IRS-approved.

Tax Detectives, on the Case

noreply@blogger.com (Owen S. Arnoff, EA) — Tue, 10 Jan 2012 02:45:00 +0000

The IRS is busy playing detective! But are they building cases, clue by meticulous clue, like the supersleuths of television's CSI? Or are they falling on their faces like the bumbling Inspector Clouseau?

Last month, a federal judge gave the IRS permission to serve a "John Doe" summons on the California Board of Equalization, demanding names of residents who transferred real estate to children or grandchildren for little or no consideration. The IRS sought the names as part of a nationwide effort to find taxpayers who transfer property to relatives without filing gift tax returns. (The IRS had already rounded up information from Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington state and Wisconsin — but California officials objected that state law prohibited them from ratting out residents without court approval.)

Most people don't know much about gift tax, for the simple reason that most people won't ever pay gift tax. Gift tax law lets you give up to $13,000 per year to as many people as you like. Once your gifts to any single person (other than your spouse) top $13,000 in a year, you're required to file gift tax returns. Your cumulative lifetime gifts count against your estate tax "unified credit," which is the amount you're allowed to leave free of estate tax. And once your cumulative lifetime gifts top $5,012,000, you owe a 35% tax on the excess. If you're gifting to a grandchild or some other person more than one generation removed, you might even owe an extra 35% "generation-skipping" tax.

How does that lead the IRS to combing state property records like a sleazy private investigator tracking down a cheating husband? Well, transferring property into an heir's name is a common estate-planning move. Let's say you own a beloved vacation home, or a stock portfolio, and you don't want to see it burdened by probate. You can just add your child's name to the deed or account as "joint tenant with right of survivorship," and at your death, voila, the property automatically passes to your child. But there's a catch — transferring property like that counts as a "complete gift." If that property is worth $1,000,000, you've just made a $500,000 gift!

This particular IRS "project" is already yielding results. The IRS filed an affidavit in the California case stating that they had examined 658 taxpayers who transferred property to relatives — and concluded that 238 of them should have filed Form 709 to report the gift. Twenty of those 238 were assessed actual tax because the transfers pushed them over their lifetime exemption.

This isn't the first time the IRS has used the "John Doe" summons to flush out members of suspect groups. Back in 2002, the IRS subpoenaed MasterCard and Visa to find taxpayers using debit cards tied to accounts in offshore tax havens. And in 2008, they used it to find taxpayers hiding Swiss bank accounts. The Internal Revenue Manual puts strict limits on this tool. But if today's efforts succeed in finding lost revenue, we can probably expect to see more in the future.

There are a couple of lessons here. First, many financial moves — like transferring property into your kids' names — have hidden tax consequences that are easy to miss. And second, the IRS has more ways than you realize to find those consequences. So don't take chances, especially when they might land you on the wrong end of an IRS subpoena! You know how the utility company tells you to "call before you dig"? Well, call us before you dig, and we'll help you avoid all sorts of nasty surprises!

Nickels and Dimes

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 02 Jan 2012 21:26:00 +0000

Last Thursday, cellphone carrier Verizon Wireless announced a new $2 fee for one-time payments made online or over the phone. On Friday, the Federal Communications Commission immediately announced they were "concerned about Verizon's actions" and planned to look into the matter. At the same time, over 158,000 visitors signed an online petition demanding that Verizon drop the fee. In fact, the website hosting the petition expressed shock that "while you are instituting this new fee, Verizon paid zero federal income tax from 2008-2010, and actually got almost a billion dollars in rebates from taxpayers." Verizon immediately beat a hasty retreat and dropped the proposed fee.

Verizon is hardly the only corporate giant to float new fees, only to see them immediately fall back to earth. Back in September, Bank of America announced plans to charge a $5 monthly fee for customers making debit card purchases — then, after howls of customer protest, backed off just five weeks later. Other banks, which had tested similar debit card fees, killed their fees too in the wake of the protests.

There's a pattern developing here. In today's struggling economy, companies can't impose the broad-based price hikes they really want. So they settle for nickel-and-diming us with junk fees. Unfortunately for them, consumers are pushing back — and at least with Verizon and the banks, the customers are winning.

There's a similar pattern at work in today's Washington. Candidates can talk 'till they're blue in the face about bold sweeping change, like Rick Perry's 20% flat tax and Herman Cain's attention-grabbing "9-9-9" plan. (If you close your eyes right now, I bet you can still hear Cain saying "9-9-9" in your head.) But in today's hyper-partisan Congress, the actual legislators in charge of implementing all those bright ideas can't find the consensus to name a Post Office, let alone remake the tax code in any meaningful way. So they settle for nickel-and-diming the system — extending the payroll tax holiday for a miserly 60 days instead of a full year, and paying for it by levying fees on mortgages sold to Fannie Mae and Freddie Mac rather than by raising taxes on million-dollar earners.

Even when legislators extend new breaks, they tend to be for small amounts, like the $800 "Making Work Pay" credit or $1,500 for home energy improvements. New tax breaks also tend to be short-lived: the 2009 deduction for sales tax on new cars lasted 10½ months, and the much-ballyhooed "Cash for Clunkers" program lasted just 56 days.

The problem, of course, is that Washington's version of nickel-and-diming us adds up fast. A couple of bucks for online bill payments here and $5 for monthly debit-card usage there? Maybe it cuts into your Starbucks budget. But closing tax breaks hurts. As former Senate Minority Leader Everett Dirksen famously said, "A billion here, a billion there, pretty soon you're talking real money." And IRS "customers" can't threaten to take their "business" somewhere else like customers at the bank.

2012 is an election year, of course, which means we can expect even less in the way of substantive action — at least for the next 10 months. But that may all change after November 6, as the Bush tax cuts expire after December 31. If the upcoming election leaves Washington as divided as it is now, we can expect a repeat of last summer's debt-ceiling battle. Our job is to keep on top of all the news to safeguard your nickels and dimes, regardless of what happens in November. And that means planning. Remember, being proactive, now, is the key to keeping your tax bill as low as possible in 2012 and beyond. So, if one of your New Year's resolutions is to get out in front of the tax nickel-and-dimers, give us a call!

We're Number One!

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 26 Dec 2011 20:31:00 +0000

New Year's day is almost here, and for millions of Americans, that means college football bowl games. Fans and alumni across the country are gearing up to root for their favorite school. LSU fans cry "Geaux Tigers!" 'Bama fans chant "Roll, Tide, Roll!" But only one team will be champion come January 9.

Regardless of which gridiron gladiators we support for the BCS championship, Americans are #1 in another competition. That's right, Americans cheat their government out of more tax dollars than the citizens of any other country in the world!

A recent study by the Tax Justice Network, a British think-tank dedicated to transparency in international finance, shows the U.S. government lost $337 billion annually to tax evasion. We're followed by Brazil ($280 billion), Italy ($238 billion), Russia, Germany, France, Japan, China, U.K., and Spain. Overall, the study finds that worldwide tax evasion tops $3 trillion, or 5% of the world's economy.

However, while Americans are #1 in absolute dollars lost to cheating, we're not actually the biggest fibbers. The report attempts to quantify the size of each country's "shadow economy" that hides from official view to avoid tax. Russia is the biggest loser here, with 44% of its Gross Domestic Product (GDP) lurking underground and evading tax. Brazil is next, with 39% of its economy hiding in the shadows. Our own shadow economy, at 8.6% of GDP, is actually the smallest of those top ten tax evaders listed above.

Looking at it from a different perspective, next to the cost of financing government, the cost of financing health care is perhaps our country's biggest fiscal challenge. The Tax Justice Network's report draws an interesting contrast between each country's cost of tax cheating and cost of health care. Worldwide tax evasion costs an average of 55% of worldwide health care costs. But that average encompasses an enormous range. Here in the U.S., for example, tax evasion drains the equivalent of just 15% of our national health care budget. By contrast, in Bolivia, where the "shadow economy" accounts for 66% of GDP, tax evasion costs that nation more than four times the amount of their annual health care spending.

American tax cheats may even show a conscientious side. The Charities Aid Foundation, a British organization dedicated to encouraging efficient charitable giving, just released their World Giving Index 2011 report. They found that the U.S. is #1 in charitable giving, out of 153 countries surveyed. "Using data from Gallup's Worldview World Poll," the report says, "the results show that the USA is officially the most charitable nation in the world." Now there's something we can all take pride in this holiday season!

The irony here is that there are so many legal ways to pay less tax that nobody needs to cheat. Proactive planning is the key to paying less tax without having to hide in the shadows. As 2012 dawns, remember that we're here to deliver that planning — for you, and for your family, friends, and colleagues as well.

More Money for Millionaires

noreply@blogger.com (Owen S. Arnoff, EA) — Tue, 20 Dec 2011 02:41:00 +0000

Last year's federal budget deficit topped $1.48 billion. With money so tight, you'd expect government to focus its efforts on those who really need the help. But that's far from the case, according to Oklahoma Senator Tom Coburn. Last month, he released a 37-page report entitled Subsidies of the Rich and Famous, outlining "sheer Washington stupidity" that he claims costs taxpayers billions of dollars every year.

The first part of Coburn's report focuses on direct payments like Social Security and Medicare benefits, unemployment benefits, and farm subsidies. (NBA star Scottie Pippen, rocker Bruce Springsteen, and billionaire broadcaster Ted Turner have all gotten federal farm subsidies.) But Coburn also heaps his scorn on specific tax breaks that he calls a "reverse Robin Hood style of wealth distribution." He claims he's not interested in raising rates on anyone. And he cautions against demonizing "those who are successful." But he does want to means-test benefits, close loopholes, and limit deductions that pamper millionaires with "unnecessary welfare to create an appearance everyone is benefiting from federal programs."

What sort of tax breaks have Senator Coburn so upset? Here are three:

"Subsidizing Millionaires' Mansions": For 2009, 143,441 out of the 235,413 taxpayers reporting incomes over $1 million claimed mortgage interest deductions, averaging $30,995 each.

Rental Expense Deduction: 69,074 of those million-dollar earners claimed a total of $12.5 billion in rental property expenses, including mortgage interest, cleaning and maintenance, and depreciation.

Gambling Losses Deduction: Finally, 8,225 of the top earners reported a total of $4.2 billion in gambling losses.

Coburn's points seem reasonable at first glance. Does Oprah Winfrey really "need" a tax break for her $50 million California mansion? Should Vegas high-rollers count on us to bail them out when the dice come up snake eyes? On closer look, however, his objections may not hold up. The mortgage interest deduction, for example, is already limited to interest on $1 million of "acquisition indebtedness" on a primary residence and one additional residence, plus $100,000 of home equity indebtedness. Coburn would ditch the deductions for second homes and home equity interest, and drop the overall cap to $500,000 of indebtedness. But critics respond that over 11% of American homes are valued over $500,000, and limiting the deduction would cut home prices off at the knees at a time when they need all the support they can get.

Coburn's objections to deducting rental real estate expenses and even gambling losses seem to make less sense. Paying tax on gross rents and gambling winnings? Rental real estate losses are already limited by "passive activity" rules. If millionaires can't deduct their rental real estate expenses, they won't invest in real estate at all. That would drag prices down in the same way as limiting mortgage interest deductions. And gambling losses are deductible only to the extent of gambling winnings. Is it fair to tax anyone, millionaire or not, on gross winnings without letting them net out losses?

As the economy continues to struggle, Washington gridlock intensifies — just look at the bickering over the payroll tax cut extension, which both parties say they want. And the 2012 presidential election draws near, we can expect to hear more rhetoric like Coburn's. What do you think? Do tax breaks for millionaires offend your sense of fairness? Or should millionaires get to take advantage of the same rules as the rest of us?

The Dog Ate My Tax Return

noreply@blogger.com (Owen S. Arnoff, EA) — Wed, 14 Dec 2011 02:12:00 +0000

When you were a kid in school, you probably forgot your homework once or twice. And you probably came up with some sort of excuse to weasel out of trouble, right? 'Fess up now — did the dog everreally eat your homework?

Now that you're all grown up, you've got a different set of assignments you have to turn in. Few of them are more important than your annual tax return. Of course, even grownups sometimes forget their homework. But the IRS won't be buying that school kid whine!

Take supermodel Christie Brinkley, for example. Earlier this month, the IRS filed a lien for $531,720 in unpaid taxes against the "Uptown Girl's" $30 million country estate in swanky Bridgehampton, NY. That unpaid balance, of course, is also subject to interest compounded daily and a 0.5% monthly late payment penalty. Brinkley's publicist told E! Online that she "was surprised to hear today that a tax lien has been filed, and has instructed her team to resolve the matter immediately." Brinkley herself stated that "I have been, and remain focused on my whole family as both my parents navigate serious health issues."

At least Brinkley is facing the music willingly. Rapper Bow Wow — who must not think his "real" name (Shad Gregory Moss) gives him the street cred he wants — is putting up more of a fight. In November, the IRS filed a $91,105.61 lien against him for taxes dating back to 2006, when he was just 19 years old. But Bow Wow isn't taking this one lying down, declaring "we all know not to believe anything the media writes or blogs." And Bow Wow isn't the only rapper to run afoul of the IRS. In August, Beanie Sigel pleaded guilty to failing to file tax returns for three years in a row. (Prosecutors believe he owes up to $700,000 more in unpaid taxes dating back to the 1990s, but the statute of limitations has run out.) And in July, Ja Rule earned 28 months of federal housing for failing to file returns for tax losses from 2004 through 2008.

Rappers aren't the only musicians who don't always pay their taxes. Back in April, the IRS hit former Black Sabbath frontman and reality star Ozzy Osbourne with liens totaling over $2 million for unpaid taxes from 2007, 2008, and 2009. Ozzy's wife Sharon took to the "twitterverse" to admit her finances had gone off the rails. "You can't rely on anyone but yourself," she tweeted. "You have to be on top of your own business affairs. My fault...lesson learned."

And musicians, in turn, aren't the only celebrities who don't pay taxes. Former Green Bay Packers left guard Frederick "Fuzzy" Thurston dominated the frozen tundra of Lambeau Field from 1959-1967, then opened a chain of restaurants called the Left Guard after retiring. He and his partners withheld taxes from their employees' paychecks — just like they were supposed to — but they didn't actually pay the bill. Way back in 1984, the court flagged him with a $190,806 penalty for "roughing the IRS." With interest, that bill has grown to $1.7 million. Federal marshalls even seized his Super Bowl II ring commemorating Green Bay's 33-14 victory over Oakland to help pay!

Of course, our job is to make sure you don't need excuses for not paying your taxes. Proper planning is the key to making that bill affordable, and making sure you don't ever have to tell the IRS that the dog ate your homework!

A Slice of IRS Pie

noreply@blogger.com (Owen S. Arnoff, EA) — Tue, 29 Nov 2011 16:01:00 +0000

Millions of Americans earn their living collecting commissions on various products and services. Insurance agents collect commissions on premiums they write. Real estate agents collect commissions on homes they sell. Car salesmen, retail salespeople, and even restaurant servers all earn a piece of the business they generate.

Did you know there's a way to earn "commissions" on someone's taxes? That's right — tax whistleblowers can earn "commissions" of up to 30% of underpaid tax, plus penalties, interest, and other amounts they help recover. You'll need to give the IRS "specific and credible information" about a case that leads to collection — not just educated guesses or unsupported speculation. (As the IRS says, "this is not a program for resolving personal problems or disputes about a business relationship." Of course, if your jerk of an ex-husband or crook of an ex-partner really is a tax cheat, that's a different story!) You'll use Form 211 to file your report. And Internal Revenue Manual Section 25.2.2.9.2 outlines a predictably complicated formula for calculating just how much you'll get — but don't wo rry, if you don't like your booty, you can appeal it to the Tax Court!

The Treasury has been authorized to pay bounties for tax cheats since as far back as 1867. (No doubt they delivered rewards by Pony Express.) The program picked up steam in 1996, when the Taxpayer Bill of Rights authorized rewards for reporting mere underpayments in addition to outright cheating. And the Tax Relief and Health Care Act of 2006 created a dedicated Whistleblower Office, dedicated to tax underpayments topping $2 million. Since launching the new office, which has about 17 employees, the IRS has gotten 9,540 claims from 1,387 whistleblowers. Hundreds of those tips alleged tax underpayments topping $10 million, with dozens more alleging underpayments topping $100 million. Clearly there's big money — and big rewards — at stake.

What's the catch? Well, if you want to make a living tattling on taxpayers, you'll have to be prepared to wait for your reward. And wait . . . and wait . . . and wait. First the IRS has to audit the targeted returns to verify your claims. Taxpayers can appeal those findings and exercise other rights that add years to the process. And taxpayer privacy laws that prohibit the IRS from even acknowledging that your target is being audited make it impossible to just "check in" with the IRS on the status of "your" claim. The General Accounting Office reports that over two-thirds of the claims submitted as far back as 2007 and 2008 are still being processed.

But there is light at the end of the tunnel. Back in 2007, an in-house accountant tipped the IRS off to a $20 million underpayment by his financial-services employer. After hearing nothing for two years, he hired an attorney to follow up. Finally, this April, the IRS paid him a whopping $4.5 million reward. (It sure beats finding lost puppies for $100 a head!)

Oh, and because we know you'll ask — yes, you'll owe tax on your "commission." In fact, the IRS will helpfully withhold 28% of any award topping $10,000!

Of course, there's an easier way to slice the IRS pie. A good tax plan is the key to keeping the most of what you earn. And no one will call you a rat! But time is running out to plan for 2011. So, at the risk of sounding like a broken record, call us now for the plan you deserve. Your holiday season will be even brighter, knowing there's nothing more for the IRS to collect from you!

Nobody Likes Paying Taxes

noreply@blogger.com (Owen S. Arnoff, EA) — Wed, 23 Nov 2011 00:44:00 +0000

Nobody likes paying taxes. But what adds insult to injury for so many of us is just how maddeningly complicated it all gets. If you're like most Americans, you've seen your own return grow longer and more complicated over the years. Maybe you've noticed the new Schedule M for the Making Work Pay Credit. Maybe you've bought rental property and filed separate depreciation schedules for regular tax, state tax, and Alternative Minimum Tax. President Obama's 2010 tax return ran to 59 pages. And it's not unusual for complicated individual returns to run over 100 pages including forms, schedules, worksheets, and statements.

Of course, that's not really surprising, given the source of all the confusion. The U.S. Government Printing Office's own version of the Internal Revenue Code — available for the bargain price of just $179 — runs 3,387 pages. Add the IRS's regulations, for $974 more (shipping generously included!), and you're up to 16,845 pages. Sounds ugly, right? It is. (Trust us, we actually have to read this stuff.) But if you need any reason to be thankful this holiday season, be glad you're not responsible for filing the country's largest tax return.

General Electric is America's sixth-biggest corporation and its biggest conglomerate. Originally founded by Thomas Edison in 1890, GE manufactures everything from light bulbs and refrigerators to jet engines, locomotives, and nuclear reactors. Their NBC subsidiary reaches millions of viewers daily. And their GE Capital unit, which accounts for over half of their profit, is bigger than all but six standalone banks. It shouldn't surprise you, then, that GE files a pretty hefty tax return. Their tax department, which the New York Times reports "is often referred to as the world's best tax law firm," employs 975 people. They file literally thousands of tax returns every year, for every country in the world (or at least every one that requires a tax return), every state in this country, and more cities than you can name.

But nobody really cares what GE's Vermont return looks like, right? What about their flagship U.S. federal income tax? Well, 2006 was the first year the IRS required corporations with assets over $50 million to file electronically. That year, GE spent over $500,000 just to develop their own e-filing system! Their first electronic return took a full 30 minutes to transmit — but replaced what would have been 24,000 pages of paper. (That's 24,000 pages the IRS would have had to convert into electronic form anyway.)

Since then, GE's return has grown even fatter. For 2010, the firm reported worldwide profits of $14.2 billion. (That's more than the entire economies of Iceland and Jamaica.) They paid $2.7 billion in worldwide tax, but actually claimed a $3.2 billion refund from the U.S. Treasury — most of it due to losses at the GE Capital unit resulting from the 2008 financial collapse. Their actual tax return swelled to 57,000 pages. Print them all out and you'll have a stack of paper 19 feet high!

Oh, and of course they get audited, every year. Imagine the smile that brings to everyone's faces.

Here's the good news. You don't need a staff of 975 to manage your taxes. You just need a plan to make the most of every deduction, credit, loophole, and strategy the law allows. Now the bad news. Time is running out to get that plan. So call us to make sure you're not missing any opportunity to bring good things to life!

What Would Puss Do?

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 31 Oct 2011 21:39:00 +0000

This weekend, DreamWorks Animation's Puss in Boots clawed to the top spot in the theaters, selling $34 million in tickets. The story follows Antonio Banderas's animated gato as he and his friends hunt for magic beans, grow a beanstalk to the sky, and make off with the goose that lays the golden eggs. (It's OK, your kids will follow it just fine.)

Meanwhile, here in the real world, the 2012 election is picking up steam. Federal spending has reached $3.7 trillion. But the politicians in charge of spending all that money are having no luck finding magic beans, let alone golden eggs. It looks like we're going to have to stick with plain old taxes. And of course the candidates have dramatically different visions of how to raise those taxes.

President Obama remains committed to our progressive tax system, where taxpayers with more beans pay a higher percentage of their income. Obama has proposed a new surtax for those earning over a million beans a year. And he's endorsed all sorts of targeted tax breaks for specific purposes, such as higher education, new homes, and even new cars.

Obama's Republican opponents, in contrast, lean towards broader, flatter taxes, with fewer deductions or credits and lower rates:

Former Godfather's Pizza CEO Herman Cain has vaulted to the top of the polls with his catchy "9-9-9" plan, which would scrap the current 3-million word Tax Code for a 9% tax on personal income (minus charitable contributions), a 9% tax on business income, and a 9% national sales tax.
Texas Governor Rick Perry would let taxpayers choose an optional 20% flat tax on earned income. Perry's plan also raises the personal exemption to $12,500 and preserves deductions for mortgage interest, state and local taxes, and charitable gifts for families earning up to $500,000.
Libertarian Ron Paul would repeal the income tax entirely. (It doesn't get much flatter than that!)
Even "establishment" candidate Mitt Romney has said "I love a flat tax" and proposed to eliminate tax on capital gains, interest, and dividends for those earning less than $200,000.

Realistically, even if Republicans retake the White House, we're not likely to see a true flat tax. Remember, it's Congress that actually makes the laws. And right now, the Democrats and Republicans who run things on Capitol Hill can't seem to agree on naming a post office — let alone remaking the Tax Code that powers government spending.

As for us, our job is to help you pay the legal minimum regardless of how the Tax Code works. We've told you before that planning is the key to keeping your magic beans — and that's still true even under the Republican flat-tax proposals. So why wait for the election when you can start cutting your tax now? Call us — before December 31 — to discover what we can do now!

What Do Accountants Think?

noreply@blogger.com (Owen S. Arnoff, EA) — Wed, 26 Oct 2011 01:12:00 +0000

Americans love quizzes, surveys and polls. We love taking them, and we love seeing the results. Where would Nielsen be without his ratings? Who would Gallup be without his poll? Who would read Cosmo without their quizzes? So in the midst of all this polling, we felt sure you'd want to know what a bunch of accountants think of various tax topics. Every few weeks, Accounting Today magazine polls visitors to their web site — and the results just might surprise you!

Does the Tax Code need to be simplified? Tax pros make their living managing complexity for clients. If taxes were easy, who would need us to prepare them? So you might expect us to want to keep the current system. But fully 72% disagreed, saying the Code should be simplified. Just 19% voted to keep the system that former President Jimmy Carter described as "a disgrace to the human race," and 9% said "not sure."
Should Congress raise taxes to help close the budget deficit? If taxes go up, more clients come looking for ways to keep them down. So you might think accountants want taxes going up. But once again, you might be surprised. Just 40% said Congress should raise taxes, 59% said no, and 1% weren't sure. (Maybe we don't want to see our own taxes go up any more than we want to see yours?)
Should Congress approve legislation to require online retailers to collect sales taxes? Web retailers like Amazon.com save billions by avoiding most state and local sales taxes, and this lets them undercut local brick 'n' mortar retailers. Requiring "e-tailers" to collect sales taxes would level the playing field. But it would also create mountains of new paperwork, and thousands of new jobs. Surprisingly, site visitors are evenly split on this question, with 50% voting "yes" and 50% voting "no."
Do you think Herman Cain's 9-9-9 plan for a 9% individual, business, and sales tax would be viable? Former Godfather's Pizza CEO and presidential hopeful Herman Cain has taken a surprising lead atop Republican polls with his radical "9-9-9" plan. But just 17% of Accounting Today's visitors think "the Hermanator's" plan might actually work. 75% think not, and 8% aren't sure.
Were your clients' finances generally in better shape this tax season compared to last tax season? You can't turn on the news without hearing about the stalling economy. But maybe things are starting to turn around — 55% said their clients were in better shape this season, while 45% disagreed.

Pretty exciting stuff, right? Seriously, who cares what People magazine readers think about Lindsay Lohan's latest arrest when you can see who accountants voted their favorite movie CPA! (For the record, 25% picked Ben Kingsley as Itzhak Stern in Schindler's List, followed by 18% for Rick Moranis as Louis Tully in Ghostbusters.)

We'll let you guess how you think we would have answered those questions. But there's one area where we're in a distinct minority — and we put it to your advantage. Most accountants do a fine job putting the right numbers in the right boxes on the right forms, and get them filed by the right deadlines. But then they call it a day. At our firm, we don't just record history. We help you write it, with a proactive attitude that takes advantage of every legal deduction, credit, strategy, and concept. We know that planning is the key to minimizing your taxes. So call us when you're ready for your plan!

The Steve Jobs Legacies

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 17 Oct 2011 19:23:00 +0000

Pancreatic cancer robbed the world of a true genius on October 5, taking Apple founder Steve Jobs at the age of 56. Today's corporate CEOs are rarely shy about promoting themselves, but Jobs has been legitimately compared to Thomas Edison and Henry Ford. His Apple Corporation changed our relationship with technology. Apple's original Macintosh popularized the PC mouse and changed the way we interact with computers. Pixar Studios set a new standard in film animation. Apple's iPod changed the way we listen to music. And Apple's iPhone, love it or hate it, has changed how millions of us communicate with family, friends, and colleagues.

Here are two more tangible measures of Jobs's success:

On July 28, Apple Corporation had more cash on hand ($76.2 billion) than the United States government ($73.8 billion).
Just two weeks later, on August 8, Apple briefly surpassed ExxonMobil as the most valuable corporation in the world.

What's next — more money than God?

Well, at least some smart tax planning. Jobs was obviously as shrewd about business as he was smart about technology. His net worth, which reached as high as $8.3 billion ranked him #39 on the 2010 Forbes 400 list of the country's richest people and #110 on their list of the world's billionaires. Not bad for a college dropout! Ironically, the bulk of his fortune came from Disney stock he received for selling Pixar in 2006 — Jobs was Disney's largest shareholder and owned 7.4% of the company, with a stake worth more than $4.4 billion. (Does it surprise you to hear that a stock-for-stock deal let him defer tax on the gain until selling the Disney shares?)

Jobs acquired most of his Apple stock in 2006 as well, when it was trading at $64.66/share and was worth $325 million. Since then it has grown six-fold, to $2 billion. If Jobs had sold it before his death, he would have owed tax of 15% on the capital gain. But by holding it until his death, he lets his heirs inherit it with a "stepped-up basis." That means they could sell it immediately and pay no capital gain on the growth during his lifetime. If they sell down the road, they'll owe tax only on the growth from the date of his death.

Of course, his estate may also be subject to estate tax. Congress dropped the ball and let that tax expire entirely in 2010 before bringing it back, for this year and next, at a flat 35% on estates over $5 million. However, just as Jobs deferred income tax on the sale of his Pixar stock, his estate can defer estate tax on any amounts left to his wife.

Jobs's estate can also avoid tax on any amounts left to charity. High-profile billionaires like Jobs typically take up philanthropy after they make their pile. Microsoft founder Bill Gates and Berkshire Hathaway founder Warren Buffett, for example, have led the way in pledging to give away the bulk of their fortunes and even established the "Giving Pledge" to persuade their fellow wealthy elites to give away at least half of their fortunes. Jobs left little hint of any charitable intentions, and in fact, Apple Corporation doesn't even match employees' gifts! But Jobs is rumored to be the source of an anonymous $150 million donation to the Helen Diller Family Comprehensive Cancer Center at the University of California, San Francisco. And his wife Laurene sits on several prominent boards, including Teach for America.

We realize that you don't enjoy quite the same fortune that Steve Jobs did! But the same strategies that let Jobs maximize his wealth and legacy can help you maximize your wealth and legacy too. The key, as always, is planning. So call me when you're ready for a plan!

Chicken Little Sells Her House

noreply@blogger.com (Owen S. Arnoff, EA) — Mon, 26 Sep 2011 21:59:00 +0000

Life would be a lot easier for all of us if tax laws didn't change all the time. Every year, Washington writes new laws. The IRS writes new regulations interpreting those laws. The Tax Court issues new decisions interpreting those regulations. And the IRS issues enough revenue rulings, revenue procedures, private letter rulings, and similar proclamations to keep an army of accountants and attorneys gainfully employed.

Sometimes, in the midst of all that motion, facts get twisted and misinterpreted. Sometimes a rumor gets launched that takes on a life of its own. Right now, there's an email going around that has most of us tax professionals shaking our heads. It warns that, starting in 2013, the healthcare reform act imposes a 3.8% sales tax on home sales. If you sell your $400,000 home, you'll owe a $15,200 tax!

If you see it in an email, it must be true, right? The truth, as is often the case with taxes, is a little more complicated than that — and a lot less scary. First, let's take a look at how taxes are figured on home sales today:

First, calculate "adjusted sale price." This is the sale price of the house, minus expenses of actually selling it (last-minute fixups, commissions, etc.).

Next, subtract "adjusted basis." This is the price you paid for the house, plus closing costs, plus any improvements you make that add value, prolong its life, or give it a new or different use. "Adjusted sale price" minus "adjusted basis" equals "gross profit."

If you've owned your home for more than two of the last five years and used it as your primary residence for more than two of the past five years, you can subtract a "Section 121 exclusion" of up to $250,000 if you file individually or $500,000 if you and your spouse file jointly. If you don't meet the two-year requirement, you can still take a pro-rated exclusion reflecting how long you did meet those requirements.

"Gross profit" minus "allowable exclusion" equals taxable gain. If you hold your house longer than a year, it's taxed as long-term capital gain and capped at just 15%.

The bottom line here is that few home sales are taxable — especially in today's down market — because of that Section 121 exclusion. So, where does the new healthcare law come in? Well, it does impose a new "unearned income Medicare contribution," beginning in 2013, of 3.8% on capital gains, for individuals earning over $200,000 and families earning over $250,000. (Don't you love how the folks in Washington spin that 3.8% "unearned income Medicare contribution"? Wouldn't it just be easier to call it a "tax"?)

That means any gain on the sale of your home that isn't already sheltered by the $250,000 or $500,000 exclusion might be subject to the new tax if your adjusted gross income is over the $200,000 or $250,000 threshold. That's a pretty far cry from saying there's a new 3.8% sales tax on home sales!

But somewhere along the line, Chicken Little saw the new 3.8% tax, missed the rest of the process, and saw the sky starting to fall. Being a thoroughly modern chicken, she hopped on her computer to fire off an email telling all of us that the sky was falling — and that email spread faster than the latest news about Snooki or the Kardashians. So now here we are, setting the record straight.

The next time you get an email with a rumor that sounds too awful to be true, don't just run around like Chicken Little. Send it to us. We can tell you if it's something you really need to worry about — and if so, we'll help you craft a plan to avoid or minimize the threat!

Owen S. Arnoff, Enrolled Agent

Admitted to Practice Before the Internal Revenue Service
http://www.April15th.com
Sacramento Tax Consulting
Sacramento Tax Preparation
Sacramento Tax Representation
IRS Tax Help, Bookkeeping Services, Payroll Services

Local Billionaire Not Happy With His Tax Bill....

noreply@blogger.com (Owen S. Arnoff, EA) — Tue, 16 Aug 2011 19:34:00 +0000

He wants to pay MORE, not LESS!?!

I'm Baaaaack! And so is the Tax Man!

noreply@blogger.com (Owen S. Arnoff, EA) — Tue, 19 Jul 2011 19:58:00 +0000

Yankee fan pays the tax bill for catching Derek Jeter's 3,000th hit!

Apparently not a Survivor

noreply@blogger.com (Owen S. Arnoff, EA) — Fri, 14 Jan 2011 06:30:00 +0000

Looks like he's in trouble AGAIN!

Owen S. Arnoff, Enrolled Agent
Admitted to Practice Before the Internal Revenue Service
http://www.betterbusinessventures.com
Sacramento Tax Consulting
Sacramento Tax Preparation
Sacramento Tax Representation
IRS Tax Help, Bookkeeping Services, Payroll Services

A $23 Vegetable Audit?

noreply@blogger.com (Owen S. Arnoff, EA) — Fri, 14 Jan 2011 06:28:00 +0000

That's right; a Michigan man gets audited because he reports $23 he received from selling vegetables in his garden. The IRS thought it was strange, this honest act of his!

Think the IRS is Not Getting More Aggressive in Collections?

noreply@blogger.com (Owen S. Arnoff, EA) — Sat, 25 Dec 2010 16:53:00 +0000

These stats show that collection actions are going up.

Really Bad News...Again!

noreply@blogger.com (Owen S. Arnoff, EA) — Sat, 25 Dec 2010 16:20:00 +0000

If you file Schedule A (Itemized Deductions, including mortgage interest, property taxes, charitable contributions, etc.) you will, unfortunately, have to wait until mid- to late-February to file. That's because of the changes to the recent tax law enacted by Congress and signed by President Obama last week.

The IRS has issued a release that explains the details.

Additionally, there are a number of other forms that are affected by these changes. Basically, if you are an educator claiming the $250 credit, you have Tuition and Fees to deduct or a host of other deductions or credits, you will also have to wait on those as well before you can file.

A number of good articles (in plain English!) on this subject can be found here and here.

Of course, even though this affects one-third of all taxpayers, your deadline is still the same, April 18 (yes, April 18 due to a holiday in Washington DC).

Excellent Analysis of the New Tax Law SIgned on Friday Dec 17 2010

noreply@blogger.com (Owen S. Arnoff, EA) — Sat, 18 Dec 2010 15:40:00 +0000

CCH is one of the leading sources of tax information and analysis. They were the first ones to put an analysis into my "InBox" this morning. For those of you 'taxaholics' out there, this is a very good summation of the new bill.

Happy Reading!

Weird Tax Laws of 2010

noreply@blogger.com (Owen S. Arnoff, EA) — Fri, 17 Dec 2010 02:41:00 +0000

(Courtesy Accounting Today)

From hot air balloons to bagels, 2010 proved to be yet another year in which states and municipalities passed some strange tax laws in a desperate bid to raise revenues and close their budget gaps.

The Tax & Accounting business of Thomson Reuters has compiled a sampling of some of the year’s quirkiest sales and use tax changes, emphasizing the importance of technology and expertise to help navigate the dynamic sales and use tax landscape.

A few of the “quirky” sales and use tax highlights of 2010 include:

• Candy without flour in Washington: In June, Washington State enacted legislation that made candy without flour taxable. According to a list published by the Washington Department of Revenue, “Rainbow Whirly Pops” and “Lemon Drops” were taxable, but “Twizzlers” and “Peppermint Bark Shortbread” remained exempt. However, because the law caused so much confusion, and after push-back from voters and large candy makers, Initiative 1107 was passed, repealing the tax on candy effective Dec. 2, 2010.

• Belt buckles in Texas: Every year before it is time to go back to school, several states allow for a tax holiday on school supplies and clothing, with several oddities seemingly infiltrating the exemptions. In Texas, belts are exempt, but belt buckles are not. Cowboy boots and hiking boots are also exempt, but rubber boots and climbing boots are taxable.

• Bagels in New York: In 2010, New York cracked down on its enforcement of the tax on prepared food, specifically targeting a New York staple: bagels. If you buy a whole bagel and take it home with you, it is exempt from tax. However, if you purchase that same bagel, but eat it at the bagel shop (even without cream cheese), bagel shops must charge sales tax on the purchase price. Apparently, the mere slicing of a bagel kicks your bagel purchase into a taxable transaction. As a result, New Yorkers are paying approximately 8 to 9 cents more per bagel.

• Cup lids in Colorado: Effective March 1, 2010, Colorado eliminated the exemption for non-essential food items and packaging provided with purchased food and beverage items. So, while cups are considered essential, lids are not.

• Hot air balloons in Kansas: On June 30, the Kansas Department of Revenue issued a private letter ruling discussing the taxability of hot air balloon rides. Kansas generally taxes sales of admissions to “any place providing amusement, entertainment or recreation services.” The question was not whether or not balloon rides are entertaining, but whether or not federal law pre-empts the imposition of state sales tax on sales of those rides. Under the Anti-Head Tax Act, 29 U.S.C. Section 40116, states and local jurisdictions are prohibited from imposing fees and charges on airlines and other airport users. The department determined that un-tethered balloon rides where the balloon is actually piloted somewhere “some distance downwind from the launching point” would be considered carrying passengers in air commerce and would be pre-empted by the law. However, state sales tax can be imposed on tethered balloon rides.

• Haunted houses in New York: According to TSB-A-10(11)S, admissions to haunted houses are subject to the New York sales tax.

Owen S. Arnoff, Enrolled Agent

Admitted to Practice Before the Internal Revenue Service
http://www.betterbusinessventures.com
Sacramento Tax Consulting
Sacramento Tax Preparation
Sacramento Tax Representation
IRS Tax Help, Bookkeeping Services, Payroll Services