Tax Guru-Ker$tetter Letter
Tuesday, May 28, 2002
Bill Gates' Father
It never ceases to amaze me that the father of the world's richest person would endorse the Communist plank of wealth redistribution. This isn't the first time Bill Gates, Sr. has publicly gone on the offensive to defend the concept of the estate (aka death & inheritance) tax. He's now trying to rally opposition to those of us who want to see the estate tax eliminated forever.
As I have explained several times, his argument that removing or reducing taxes causes less charitable donations is pure bunk.
Oops, They Did It Again
Everyone I speak with tells me that they wouldn't mind paying their fair share of taxes if they had any confidence that the money was going to be spent wisely by our masters in DC. However, with constant stories of government waste and pork barrel programs, this just isn't the case.
It's even harder to rally people to send their money to Washington when stories like this come out, describing how our rulers allowed $17.3 Billion to slip though their fingers last year due to "sloppy bookkeeping."
This is a pattern and not a one time incident. If an employee in a real world company allowed this to happen, s/he would be fired at a minimum and probably hit with criminal charges. When our rulers do it, they are rewarded and re-elected over and over. Disgusting.
Frequent Flyer Mile Scam
I don't think Joe Bob Briggs has any formal training in accounting or finance; but he does an excellent job in analyzing the scam the airlines have been pulling for decades with their frequent flyer mile programs. As he very cleverly documents, these have actually become a form of currency in this country that can be used for almost anything, not just for flying.
This reminds me of an accounting class back in college, where we discussed the effects of unrecorded liabilities on the books of airlines; specifically unredeemed frequent flyer miles that would affect future revenues and expenses.
It also reminds me of the hilarious scene in the movie, Duets about someone trying to actually use his frequent flyer miles with a hotel and going berserk when he is confronted with all of the fine print restrictions designed to prevent real people from actually using the miles.
Sunday, May 26, 2002
All corporations operating inside Arkansas are required to file an annual franchise tax report. The form is very simple, just asking for the names of corporate officers and the number of shares of stock. The fee for most corporations is the basic $50. Most of my clients prepare their own, while some still prefer that I do it.
It is normally due in to the Secretary of State's office by June 1. However, as with almost all tax deadlines, the actual due date this year is Monday, June 3 because June 1 is a Saturday.
The form (which erroneously says it's due June 1) and instructions can be downloaded as pdf or can be completed and filed online.
There is an extra convenience fee for filing online. I've noticed that a lot here in Arkansas; convenience fees for paying fees and taxes by mail or online. It seems a little unfair, since these methods are also much more convenient and efficient for the bureaucratic tax collectors.
Primary Residence Sales
It's been more than five years since the rules for tax free sales of primary residences were drastically changed. It amazes me how few people are aware of this and are still under the assumption that the old replacement rules still apply. What's scariest is that many of these people are tax and real estate professionals who are spreading their ideas as if they are legitimate.
I'm doing my part to keep people up to date. I will be giving a mini-seminar to a real estate office in Fayetteville on Wednesday to discuss the rules for primary residence sales and for Section 1031 (aka Starker) tax deferred exchanges. In preparation for this, I have expanded my analysis of the residence sale rules.
We are planning to tape the seminar and if everything works properly, we will make copies available on CDs and cassette tapes for purchase. It's been a few years since we have recorded a seminar and it will be good to have a more current one available.
Friday, May 24, 2002
Hybrid Vehicle Tax Break
Since 1992, there has been a special $4,000 tax deduction available for the original buyers of electric vehicles in order to offset their higher costs. Since purely electric cars have been a bust in terms of market acceptance, some car companies have been making vehicles that use a hybrid combination of gasoline and electric power. For a long time now, it has been unclear whether they would qualify for the special deduction.
Finally this week IRS issued an official Solomon like pronouncement that these hybrids will qualify for a $2,000 deduction. You can download the official one page IRS announcement in pdf here. Here is a summary of the rule from USA Today.
Thursday, May 23, 2002
Even Movie Stars Fall For Tax Scams
I don't know anything about the politics of Wesley Snipes; whether he shares the standard Hollywood love of big expensive government or not. However, he shares the desire most of us have to personally pay no income taxes.
He has taken his dislike of taxes to an illegal extreme by relying on one of the bogus tax protestor arguments; that only income from foreign corporations is subject to tax. The Smoking Gun has obtained a copy of the amended tax return (1040X) Snipes filed, based on the work of a tax scamster in Florida, Douglas Rosile, requesting a refund of all of the $7,360,755 that he paid in Federal income tax for 1997.
Filing such a bogus income tax return is a crime and is subject to serious penalties, both on the preparer and on the taxpayer. However, since movie stars aren't held to the same legal standards as the rest of us, I doubt if Snipes will be prosecuted. He just won't be receiving that big refund he asked for.
Snipes better not have paid that scam preparer up front. Those crooks usually charge a percentage of the taxes they claim they are recovering. Since Mr. Rosile will probably be heading off to the old gray bar hotel, he won't be in any shape to refund his fee to Snipes.
Tuesday, May 21, 2002
Put A Stake Through Its Heart
I don't intend to back off from my crusade to have the estate (aka death or inheritance) tax repealed forever. Too many people are still under the false impression that it is phasing out and will be just a bad memory after the year 2010. The truth is that in last year's "humongous" (according to the Dim's) tax cut bill, our esteemed rulers set in motion a gradual phase out of the estate tax over several years, with the tax disappearing completely for one year only, 2010.
Like a monster in a movie, it will come back to life in 2011. When it does return, the exemption from the tax will be back to the same level as it is right now, $1,000,000. While that may seem like plenty for 2002, factor in nine years of inflation and many more people will be facing that obscene and immoral confiscation of up to 60% of everything they have accumulated during their lifetimes.
This is an election year and should make our rulers in DC more receptive to our concerns than they normally are. Here is another good summary of the issue by someone with similar initials to mine, Karen Kerrigan of the Small Business Survival Committee.
Friday, May 17, 2002
Taxes Are Only The Symptom
I am constantly harassed for daring to discuss politics along with taxes. I have to remind people that our tax policies don't happen in a vacuum. They are merely the symptom of the real problem; which is an ever expanding government run by people who have no respect for the limits on what the government should be doing, as laid out by our founding fathers in the Constitution.
With the supposed small government GOP controlling the White House and Congress, it would be natural to think that the size of the government will be controlled. No such luck. As Stephen Moore explains, our rulers in DC, of both parties, are on a record spending spree and acting like drunken sailors, who have earned the reputation as the textbook examples of wasteful stewards of money.
For those of us here in the real world, this means that more money will be required to be sent to our masters in DC to fund all of these programs and the chances of seeing the tax cut made permanent are fading away quickly.
Saturday, May 11, 2002
Our Rulers Want Us To Die Before Collecting
One of my many problems with the entire Social Security system in this country is that it is like a casino game, with the odds stacked against the average person from the beginning. The Feds take our money from us while we are working and then structure it so that most of us will die before we are eligible to receive any benefits.
When SS was established, the average life expectancy in the US was 56, yet no benefits were available until you reached 62. As we all know, the average life expectancy has increased dramatically, requiring much more money to be paid out than was ever expected, putting a big strain on the long term finances of the system. That is why one of the most frequent proposed solutions for salvaging this Ponzi scheme is to raise the retirement age so that more people will die before they are able to cash in.
While the overall average life expectancy has increased, it isn't so with every ethnic group. For example, as this article describes, black males currently have a life expectancy of 70.2 years, compared to 75.9 for whites. The tone of this article is that white people are stealing from blacks by the built-in age bias.
With such a built in discrepancy in place, how do you think things will be equalized, which is the goal of so many people in this country? Don't be surprised to see different retirement ages based on race. Rather than really fix the program, such as making it voluntary, this is the kind of Band-Aid approach our masters in DC prefer.
Thursday, May 09, 2002
Taxing Possible Income
It's bad enough when our rulers confiscate a portion of money we actually earned. However, it's ludicrous when people are forced to pay real tax dollars currently on income they might receive several years down the road. This is already the case with the alternative minimum tax (AMT) on employee stock options. I have already described the situation where many people have tax bills costing much more than the stocks were even worth. That fight is still ongoing, and again I encourage anyone interested in helping remove this insane tax to join with ReformAMT.
In what is another step in the wrong direction from fairness and morality, IRS is now poised to charge the 15.3% Social Security & MediCare taxes on the so-called employee stock option income. This is ridiculous; but will happen if enough people don't let their rulers know that they don't like it. This is an election year, when feedback from us peons is a little more noteworthy to our masters.
Wednesday, May 08, 2002
Paying Taxes Late
The tax laws are jam packed with examples of double standards. Paying your taxes late is a big one. Miss the deadline by even one day and you are nailed with penalties and interest. However, if the government decides to take its time, there's nothing you can do about it.
The latest example is the State of Missouri, which has found itself in a cash crunch. This has caused them to hold off sending people their tax refunds. According to this official press release, they are hoping to return to sending out refund checks around the end of June or the middle of July. This is just another perfect illustration of why overpaying your taxes and banking on a big refund is such a stupid investment. The MO DOR isn't even require to pay any of the late payees any interest until after August 15.
What is a bit scary is that this very same thing could happen with refunds from IRS and from other states. The Feds are very close to running out of cash unless the debt ceiling can be raised by our rulers; and several states have had much lower tax revenues than their crystal balls had predicted for their spending plans. Eliminating wasteful programs is harder for the rulers to do than to just hold onto the taxpayers' overpayments.
Sunday, May 05, 2002
It's Not Too Late
Libertarian activist, Jacob Hornberger has an excellent point in this article on how accustomed the American people have become to a world where part of our hard earned income is confiscated from us. This is still a relatively new concept in this country and was not intended to even exist by our founding fathers.
As Jacob concludes, while we may not be able to do anything about the certainty of death, if enough people want to, we can eliminate the immoral income tax system.
One of the main reasons those of us who understand numbers have never taken seriously any of the financial statistics coming from our rulers in DC is the method by which they make their calculations. They have long used assumptions that are so far removed from real life as to be considered absurd in the finance department of any private sector company. Our rulers use what is called static analysis, which assumes that they can mess with the tax codes all they want and people will not alter their behavior any. Nothing could be further from the truth.
What really happens when the tax laws are modified is that people and companies do make dramatic changes in what they do. The only realistic way to measure the effects of tax law changes in the real (not DC fantasy) world is to use what is called dynamic scoring, as explained in this article from the Heritage Foundation.
There is no better comparison between the two methods than the Reagan tax rate cuts of the 1980s, which are constantly mischaracterized by the lefties. With a static analysis, cutting the tax rates would result in less money for the Feds, which is the impression that the liars want to give. This assumes that people and companies will have the same amount of income to be taxed. Reality was very different. With lower tax rates, people and companies had more incentive to report higher taxable income. The actual dollars to DC more than doubled as a result.
Anyone in the media or in power in government who bases any argument on a static analysis is either a liar, an idiot, or both, and not to be trusted.