Tax Guru-Ker$tetter Letter
Friday, January 30, 2004
There's such a thing as too much cash - Good summary of the rules requiring reporting of cash transactions of more than $10,000.
David Coursey has a good piece on using the do it yourself tax prep programs.
GOP Wake-Up Call. A conservative revolt over runaway spending.
Poor Props - Practically as often as they use the "for the children" line, DemonRats exploit the "poor" to justify all kinds of Marxist government programs. As with all such perceived problems, the worst thing for the Dems would be to actually make progress towards solving it. Their entire existence depends on perpetuating the suffering for all eternity. When was the last time a "temporary" government program was actually ended, or even scaled down? It always has to be made bigger and more powerful.
Thursday, January 29, 2004
Fix The Flaw In The Freedom Index - There is some validity to the comparison between slavery and taxation. Every year that point is made with the announcement of "Tax Freedom Day" in early May. Up until that point, all of our labor is for the massas and we can't keep any of it until after they are paid off. (Thanks to Donald Luskin for the heads up on this).
D-I-Y Tax Software - CNET's reviews of the big selling consumer tax prep software for do it yourselfers.
Mutual fund whistleblower tells senators about beating - It's not just a culture of silence that keeps employees from disclosing excessive fees charged to investors. There is actual physical violence on some occasions. Of course, what else would you expect from the Tony Soprano Investment Fund?
Wednesday, January 28, 2004
Haunted by tax cuts past - The DemonRats hate it when anyone reminds them that their hero, John F. Kennedy, believed in tax cuts.
Harrison Abstract Update
It's been several months since there has been any news about the collapse of Harrison Abstract, with the potential loss of over a million dollars from Dian Brown's looting of the escrow accounts. According to a recent hearing, everyone who made a claim against the company by the deadline will be paid in full. This is much better than the earlier report before the hearing, where it was expected that claimants would have to settle for a percentage of their losses.
I hope the IRS is checking on whether or not Dian Brown reported her loot on her tax returns. As we all know, our rulers consider all other kinds of crime (murder, theft) as small potatoes in comparison to tax evasion.
It's been pretty well documented that, besides buying several expensive vehicles, Dian Brown used some of the stolen money to buy up a lot of real estate in the area. Last Friday, Sherry and I, as fire fighters with the Hilltop Volunteer Fire Department, helped battle a house fire up here on Gaither Mountain. We later learned, from the previous owner of that house, that Dian Brown is the current owner of that 98 year old house.
Tuesday, January 27, 2004
Which is the "Smaller Government" party?
Bush Creates New Department of Deficit Obliteration
Monday, January 26, 2004
There is a big difference in the carryover basis and potential capital gains taxes between having the transfer take place as a gift or as an inheritance. Besides the issues covered in the following email exchange, another common misconception I'd like to dispel is that a gift doesn't have a zero cost basis just because the recipient didn't personally pay anything for it. That idea has come up in a few recent conversations with clients.
I received the following question:
I am an attorney in Kentucky. I have a question about your website. You said that if a gift of non cash is made and the item is a highly appreciated one, the fair market value is used as the cost basis for the gift. In a case with a piece of real property here in Kentucky, the FMV of the property when the donor acquired it was $60,000. The FMV right now is $149,332. Would this be a situation where the FMV of the property becomes the recipients' basis. If so, can you please point me to some statutory authority on this please. Thank you very much, keep up the good work on the website.
There seems to be a misunderstanding regarding the basis issue.
When a gift is made of an appreciated asset, the gift tax (Form 709) is based on the item's current fair market value. However, the cost basis of that item on the books of the recipient is the same as it was for the item's previous owner (giftor/donor) plus any gift tax that was paid on that item. As I explain to people, this means that responsibility for the future capital gains taxes on that item is also transferred to the recipient (giftee/donee). In your example, the $60,000 cost basis would transfer to the recipient.
This is quite different from how the basis is affected when items pass through inheritance. The fair market value at the time of death is used for estate and probate purposes, and it also becomes the basis on the heir's books. The capital gain that had accumulated during the previous owner's lifetime is literally wiped off the books. This stepped up basis for the heirs makes this one of the biggest tax saving opportunities available and is why gifting appreciated assets is not normally the best strategy.
This is also why the "swap 'til you drop" strategy of continuously using 1031 exchanges normally means that the accumulated gains are never subject to capital gains taxes. It has always bugged me to hear people say that they want to just sell their highly appreciated assets and pay the taxes so they won't burden their kids with that responsibility. The exact opposite is true.
For decedents leaving an estate under the taxable threshold (currently $1,500,000), this means the gain is never taxed. For those whose estates are large enough to require an estate tax, there is a trade-off between wanting a high or low valuation on the estate tax return (Form 706) because of the normally higher estate tax rates.
I hope this clears things up.
In tax matters, it's often not what you spend money on that matters; but what you call it. If you can connect expenditures to the operation of your for-profit (not hobby) business, it could very well be deductible.
Sunday, January 25, 2004
Ads appear on dollar bills - Being paid to read an ad - nice idea.
Investing Like Dummies. Cal professor says most of us are playing poorly with our own money - With the terrible quality of financial and economic knowledge among the populace, this isn't exactly news.
Bush's Looming Political Deficit. Conservatives grow restless with big-spending Republicans.
Saturday, January 24, 2004
Retirement for People Outside the Private Sector
Bush to propose spending freeze - It would be about time.
No Class in Class Warfare - Part of being a loyal DemonRat is embracing the Marxist principles of demonizing the evil rich.
Gap widening between Bush and conservatives -
CCAGW Blasts Congress, Omnibus Package
Poor May Not Be So Poor, After All - Both "Rich" and "Poor" are subjective terms and can be defined in any number of ways.
Stretching the poor - Liberals need to continually redefine who are poor so as to justify and perpetuate their big government programs.
Gathering Forces for Historic Social Security Reform - It would be great; but I'm not holding my breath for this to happen.
A Concerned Bloc of Republicans Wonders Whether Bush Is Conservative Enough - While this split is true, what's more interesting about this story is how the DemonRats' official newspaper, the New York Times, is trying to encourage this. Dividing the GOP and playing its factions against each other is the only hope the JackAss Party has for success in the November elections. I'm certain we will be seeing similar stories about disharmony in the GOP from the other leftist media - ABC, CBS, NBC, CNN, MSNBC, et al.
Conservatives: Reset Your Course - A more reliable source on the conservative problems with the current GOP rulers.
Friday, January 23, 2004
Most of us have seen the special quarters being issued to commemorate the different states. It's not true that the design picked for the Arkansas quarter is two dimes and a nickel held together with duct tape. When I first read about this a few weeks ago, it was referred to as a Texas quarter; but I think the Arkansas reference is better. We do use a lot of duct tape around here.
Thursday, January 22, 2004
FTB Announces States Huddle to Plan Offensive Against Abusive Tax Shelters - What's most surprising about this announcement is that they waited this long to coordinate their efforts to fight tax scams.
What Isn't Taxed?
Courtesy of one of the posters on the QuickFinders message board:
Tax his cow, tax his goat
Tax his pants, tax his coat
Tax his tires, tax his shirt
Tax his work, tax his dirt
Tax his chew, tax his smoke
Teach him taxes are no joke
Tax his land, tax his wages
Tax the bed in which he lays
Tax his tractor, tax his mule
Teach him taxes are the rule
Tax his tobacco, tax his drink
Tax him if he tries to think
Tax his booze, tax his beers
If he cries, tax his tears
Tax his bills, tax his gas
Tax his notes, tax his cash
Tax him good and let him know
That after taxes he has no dough
If he hollers, tax him more
Tax him 'til he's good and sore
Tax his coffin, tax his grave
Tax the sod in which he lays
Put these words upon his tomb:
"Taxes drove me to my doom."
And when he's gone we won't relax
We'll still be after his inheritance tax!
Do It Yourself Tax Software
PC Magazine has some reviews of tax programs for consumers. These do not cover programs for us professionals to use. I have no comments on any of the consumer software other than the usual GIGO (garbage in, garbage out) warning. While they can help fill in the tax forms, they cannot take the place of a knowledgeable and creative tax professional. I have never felt threatened by any computer program. In fact, some of our clients use these programs in place of our standard organizer when submitting their info to us every year. Needless to say, the final results we end up with almost always look dramatically different from what the clients had come up on their own. These tax programs can do as accurate a job as the mass market tax prep services that are nothing but "form fillers." Those companies should worry about losing business to do it yourselfers.
Can anyone honestly claim that this would be any worse than following the advice of other so-called investment gurus, such as those who pick stocks on TV?
Tuesday, January 20, 2004
Financial legacy for the future - Art Linkletter has a good handle on the Social Security scam. It's reinforcement for my 30 plus year campaign to help people arrange things so as to not flush more of their hard earned money down this toilet.
What Great Choices:
Study: EVERY Democrat Presidential Candidate's Platform Would Raise, Not Lower, Federal Budget Deficits
Drunken GOP Sailors. Even Bill Clinton and a Democratic Congress didn't spend like this.
Those who don't buy into the standard line that we can only choose from the two big parties understand that there is a party that has at its main core the belief in lower taxes and smaller government.
Creative Use of Office Tools - We've all heard that "the pen is mightier than the sword," but how powerful are staplers? Using a stapler to scare away a crook with a knife was a smart move by this tax preparer in Des Moines.
Unfortunately, this is too accurate a representation of how most people are planning for their retirement.
Sunday, January 18, 2004
It's Not What You Spend, It's What You Don't Spend That Counts
Republicans Warn Bush on Spending, Deficits
New 10-Step Weight Loss Plan For the Federal Budget Offered
Is Congress Helping Build a Toll Booth for the Internet? - Our rulers are taking their sweet time addressing the issue of taxing the Internet.
Tax changes prove puzzling for investors
Vacation second home tax breaks
How everyone else pays for the lifestyle of the super rich - More "hate the evil rich" propaganda.
California Dems Try 'Fresh' Strategy: Higher Taxes
Calif. Lawmakers Back Tax Hike, Defy Schwarzenegger - Why the outward migration from the PRC is not likely to change.
Saturday, January 17, 2004
Latest Budget Figures Show Light At End Of Tunnel. No Need for States to Increase Taxes
Deficit Mongers & the IMF - The Left aren't slowing down any with their lies about tax cuts causing deficits.
Some lottery winners challenge IRS, tax court rulings - Lottery winners have been selling their future payment streams to investors and trying to claim the income as long term capital gains, which are subject to lower tax rates than the ordinary income tax rates that would apply to regular lottery income. IRS and the Tax Court are claiming that such sales should be taxed in the same manner as the regular payments would be. As with most tax issue, it is extremely expensive tax-wise to receive too much income in a single year because it pushes the recipient into the higher brackets than if the income were spread out over several years. Up until 1986, we had a mechanism to alleviate some of the damage from a big spike in income. However, our rulers in DC decided that income averaging was saving people too much money, so they eliminated it for everyone except farmers.
IRS to Audit Nature Conservancy From Inside - As with most huge bloated charities, there are plenty of opportunities for funny business and conflicts of interest. As I've always said, if you truly want to support very helpful charitable causes, it's best to give directly to the small groups who do the actual work and not to the big guys who use most of the money for their humongous overhead. For fans of big cats, my favorite is still Turpentine Creek Wildlife Refuge, South of Eureka Springs, Arkansas. Every dime they receive is used to care for the animals they have saved.
Friday, January 16, 2004
The Next Tax Cut. Unlike the Democrats, Bush looks set to encourage saving. - Bush will have to overcome the "tax cuts for the rich" propaganda if he expects to enact these tax free savings accounts.
Minimum Required Distributions From IRAs - I am constantly hearing about bad advice as to how this rule works.
Will Greed of Elderly Bankrupt Us All? - Increasing costs of entitlements show no sign of ever being under control.
Gates quietly spends $14 million buying homes near Medina estate - What good is having a ton of money if you can't buy yourself a peaceful safe place to live? I'm surprised he's only buying up four acres around his current five acre estate. I know that if we had a lot more money, we would be buying up thousands of acres around us. While the buffer zone we currently have with our 285 acres is great, owning a few square miles would be ideal. If we had Bill Gates size money, we would probably just buy an entire county.
Conservative groups break with Republican leadership - This is great. Bush and the other GOP spendaholics in power have been taking conservatives for granted, believing they have no place to go except their party. For those people who want to send Bush and his drunken sailor cohorts a message, voting for Libertarians would go a long way.
Courtesy of another Fark PhotoShop contest:
Thursday, January 15, 2004
What is Poverty? - It's really hard for any objective person to not see how well off our citizens are who are considered to be below the poverty line. Their living standards, and the things they have, would have classified them as very well off not too long ago.
Who didn't see this coming?
Tax Withholding Proposed for Independent Contractors - Here is the other shoe dropping after the recent tax gap propaganda. If this plan to deputize more people as government tax collectors doesn't encourage more use of the corporate form, people are less intelligent than I thought. I have already seen plenty of businesses refuse to work with any service that isn't incorporated just to avoid the potential for the workers being classified as employees. This new rule, if enacted, would push more business owners to the same conclusion because payments to corporations are not subject to the same 1099 reporting or tax withholding rules that apply to payments to unincorporated individuals and businesses.
Avoid Premature Reaction
With the constantly changing tax environment, it is important to distinguish between what are actual real life changes in the laws and what are just proposals. I've never done a scientific study of this; but my guesstimate is that there are at least 100 tax change proposals for each one that makes its way into actual law. Changing your behavior based on the proposed changes can be very counter-productive.
What also happens is that people, including many tax pros, hear about the proposed changes and go around spreading them as if they were true; as in this letter I received today.
I am in Baghdad, Iraq until March and have the opportunity to buy a vehicle for my business at a reduced cost (one perk to being activated) while I am here. I read that the Senate voted to reduce the SUV tax break from $100,000 back to $25,000. Is this true? If so, will that affect the 2004 deduction of $100,000? It may be a factor on whether or not I purchase a large vehicle.
I guess it's good that you're able to think about tax matters while in the battle zone. I don't know if I would be able to even consider taxes while in such a dangerous situation.
The rule limiting the Section 179 deduction for vehicles to just $25,000 did receive a lot of publicity; much more than it deserved. I never worried about it actually becoming law; so I didn't spend a lot of time discussing it at the time.
As I had expected, that provision never got beyond the one Senate committee that passed it. It never reached the full Senate, any part of the House, or the President. The net effect is that restriction on deducting the cost of heavy vehicles is still nothing more than a wet dream for environmental wackos like Arianna Huffington and other busy-body hypocrites who want to tell the rest of us what kind of vehicles we can buy and drive.
I hope this helps resolve any confusion and lets you better plan your purchases.
Wednesday, January 14, 2004
Creativity of elite cheaters costs taxpayers billions
Preparing for the tax preparer can make all the difference
Protesters: Tax prep firm is deceptive about loans - This really isn't anything new. The quickie refund anticipation loans (RAL) that tax prep firms like H&R Block provide have always been aimed at the same lower intelligence crowd as the other legal loan sharking operations, such as cash advance services. These people don't mind paying the fees and huge interest charges that work out to be effective interest rates in the hundreds of percent.
National Taxpayer Advocate Releases Report to Congress, Cites AMT as a Top Problem Facing Taxpayers - Interesting that even IRS is admitting that the insane AMT is ensnaring more and more people who were never intended to be its victims by our rulers, who continue to keep their heads in the sand in regard to any remedy.
This report also cites a tax gap of $132 billion. As I've explained before, this number is no more than a SWAG and cannot be backed up by IRS. They use big numbers like that in order to try to get more money for their own operating budget from our rulers in Congress. The bigger the amount of supposedly uncollected taxes, the more readily the money hungry politicians are to fund and allow increased collection actions by IRS. It's too bad none of our rulers, nor anyone in the media, has the guts to challenge the official IRS statistics on something that, by definition, is impossible to measure; as I have been doing for several years. In all of my efforts to track down the official IRS calculations of the infamous widely cited tax gap, IRS personnel at very high levels have actually admitted to me that it is nothing but a SWAG (scientific wild ass guess). Their rationale is that since the actual amount is indeterminable, their SWAGs are as genuine as any other number anyone else may want to come up with.
I do dispute the size of the IRS's imaginary tax gap because it has been my experience that most people overpay their taxes by not claiming all of the deductions to which they are legally entitled. This is most often due to lousy bookkeeping, as well as the use of tax preparers who think their job is to maximize the IRS's take.
Tuesday, January 13, 2004
Stephanopoulos Fails to Correct Dean's False $304 Tax Cut Claim - Are there really viewers who expect true objective journalism from the Clintons' former campaign manager?
Republicans target Virginia Governor Warner's tax increases
Democrats Put Tax Proposals In Context of Systemic Change
Judge Grants Request of IRS Office of Professional Responsibility to Disbar CPA - Another tax protestor promoter gets nailed. This former IRS agent, Joe Bannister, has been trying to get support for his use of the same old completely discredited tax protestor scams. What's surprising to me isn't that he was disbarred; but that he isn't looking at a long prison term.
Monday, January 12, 2004
Sunday, January 11, 2004
Health Savings Accounts - More changes to an under-used tax deduction. I'm not a big fan of these kinds of plans because I find it a lot easier and more effective to use C corporations to cover all medical costs.
Who Says Eliot Spitzer Is a Hero? - I've had similar thoughts as Neil Cavuto has about the power-mad crusade Spitzer is undertaking in the name of saving investors from unscrupulous fund managers. Breaking the law or violating written contracts is a valid area of concern for him; but telling private businesses how much they can charge is overstepping his authority.
Wal-Mart Settles Insurance Policies Suit - Imagine that. Some people aren't happy about Wal-Mart making money from dead former employees.
All Tax Talk, No Action? - Luckily, tax lawn are written by the Congress. So, even if George Bush were to follow in his father's footsteps as a one term president, the GOP controlled House & Senate would hopefully not go along with the DemonRats' plan to repeal Bush's tax cuts and soak the "rich" (anyone earning over $25,000 per year).
The Clark tax-increase scheme
Saturday, January 10, 2004
Be Alert To Tax Saving Potential
There is a tendency on the part of some people to not want to bother with new things or to avoid even discussing issues with which they are not extremely familiar. In the worlds of consulting and most any business relationship, this is a disservice to the clients, as well as a potential liability to the advisor.
When we moved here to the Ozarks almost eleven years ago, not surprisingly, there were hundreds of differences in all kinds of things from what we had been used to in the Bay Area. Many of those differences were obviously part of the reason we had decided to relocate.
As we met and interacted with more and more people, we noticed that many of the things that had been common knowledge back in the Bay Area were practically unknown here in the Ozarks. We knew that we were moving from the highest tech part of the country (my main office was in Fremont, CA - part of the extended Silicon Valley) to one of the least technically up to date areas (high tech was having an answering machine). It was also a running joke in this area that they were happy to be twenty years behind the rest of the country because when the world ended in places like the PRC, there would be another 20 years to prepare for it here in the Ozarks. There was a general attitude by many that there was no need to learn about new things because everyone had gotten along just fine without them.
I will be the very first to admit that it is impossible for anyone to know absolutely everything about a topic, especially something that is constantly changing as much as the world of taxes. However, it is extremely important to be aware of at least the existence of new developments. When we financial professionals are working with clients, they expect us to know more than they do and to catch the signals for money saving opportunities that may apply to them.
After moving here, we started encountering people and hearing story after story about people having to pay huge amounts of taxes from the sales of their properties. The influx of people to the Ozarks from the PRC and the Chicago area had drastically driven up prices, resulting in huge profits for people who had often paid almost nothing for their properties.
When we would ask why those people hadn't done Section 1031 (aka Starker) tax deferred exchanges so they could avoid those huge taxes, we discovered that almost none of the tax and real estate professionals had ever heard of 1031 exchanges. To them, that was some new fangled thing for big city folks and had no application here in the Ozarks. In the meantime, their clients were needlessly paying hundreds of thousands of dollars of taxes.
Again, it's a product of the environment that back in the PRC, most tax and real estate pros knew about 1031s and would broach the idea when a client may be a good candidate for one. The famous Starker case was in 1978, and the official blessing of delayed exchanges was given by our rulers in DC in 1984; so it had been around long enough to become part of the collective knowledge. There were even scores of exchange accommodation companies to handle the paperwork and funds for clients.
Here in the Ozarks, the existence of 1031 exchanges was almost completely unknown by tax or real estate pros. Many of them weren't even interested in learning about them and were unconcerned that they weren't helping their clients save huge amounts of taxes. As I toured around Arkansas, Oklahoma and Missouri, speaking to groups of CPAs and Realtors, I explained the mutual benefits of helping their clients save on their taxes.
I also explained that, as more of their clients learned about 1031 exchanges after the fact, they would become extremely angry that they weren't told about 1031s by either their tax or real estate pro before thy had sold their properties. The reaction to such news is handled in one of two ways. The old style from this part of the country is to slough it off and chalk it up to experience ("we'll know better for next time"). The other response is to blame someone and take legal action for the fact that they weren't informed of ways to save taxes. Besides the huge amounts of money people from California and Illinois were bringing to the Ozarks, they were also bringing their knee jerk reflex to sue anyone for any reason. I lost track of the number of people wanting to know if they could sue their tax and real estate pros for not telling them about 1031 exchanges. Having been the victim of nuisance lawsuits myself, I did not want to add to the massive volume of litigation and encouraged everyone to consider this a learning experience, although they had very good cases of negligence against their advisors.
As I toured the area and spread the word about the value of exchanges, I was trying to motivate people to start up exchange accommodation services. I even offered to provide the forms that I had developed as owner of an exchange company back in the Bay Area, Realty Arrangements, Inc. (RAI). It was too new a concept for this area and nobody wanted to get into this service. I constantly heard "you're so smart, why don't you do it." I discussed this idea with the CPA to whom I had sold RAI, Doug Heimforth. I had signed a non-competition agreement which I didn't want to violate, so I asked him about having a branch office of RAI here in the Ozarks. He decided it would be easier all around for us to just start up our own new company out here; which is how Sherry's Tax Free Exchange Corporation was born.
The motivation for this longer than expected piece was my seeing the issue of suing CPAs and Realtors for not informing clients about 1031 exchanges in some of the Q&A boards I occasionally check on the web, such as this one. The desire to force tax advisors to pay for their failures to alert clients about tax saving options is still very strong.
As I would explain in my speeches and seminars to CPAs and Realtors, they don't all have to become experts on the details of 1031 exchanges. There are far too many tax issues to become an expert in every one of them. However, they should at least be aware of the signs that indicate a 1031 might be beneficial for their clients. When they detect any of these signs, they should refer their clients to consult with someone who can dig in and analyze and advise on the specifics of their situation.
It won't always be the case that a 1031 exchange is the best move. On at least half the cases I consult on, we come to a mutual conclusion that a 1031 exchange would not be appropriate, for various reasons. While the end result may be the same, this is actually quite different than my arbitrarily making the conclusion, or completely ignoring the possibility, without even discussing it with the client.
Friday, January 09, 2004
Dean's Flip Flop on Taxes - This guy is a certifiable loony toon and a godsend for the Bush reelection campaign.
IRS will track Free File taxpayers - There seems to be a bit of an over-reaction to this. When you e-file, it's already a given that you are giving IRS special personal information. IRS keeping separate tabs on returns received under their Free File program doesn't seem to be much different than other classifications they use, such as returns that were self-prepared versus done by professionals.
The Dean Tax - This is a good rebuttal to the idiotic website called BushTax.com that claims Bush's tax cuts are screwing the little people and rewarding the evil rich fat cats. I checked that site out a number of weeks ago and thought it was too stupid to even comment on, but Ron Rapp has spent the time and done a nice job debunking each of the fallacies used by the Bush haters. It's really more of the same kind of leftist propaganda and outright lies about the positive effects of tax cuts that the DemonRats and the media still spout about the Reagan 1980s cuts.
Receiving Blog Updates
Those of you receiving these postings via email may have noticed long gaps between receiving anything. Those have been caused by problems with the Bloglet and Blogger services and are an unfortunate fact of life on the 'net. As always, you can find all of my postings on the main web page and in the archives, going back to November 2000.
I have found that a much more reliable delivery service for web log postings is by subscribing to the RSS feeds that are produced with each posting. I have found the easiest way to do this is through an aggregator service, such as my favorite, Bloglines. It's free and has been amazingly efficient for checking on dozens of blogs much more efficiently than having to log onto each site one by one. It also cuts down on the volume of email. With close to a thousand spam messages coming in each day to my email accounts (after having been whittled down by my ISPs), I enjoy the ability to focus directly on the latest postings from the blogs I've subscribed to via Bloglines.
Another nice feature of Bloglines is that it accumulates unread postings for each of my subscribed feeds. Several of them I only check once or twice a month; so I can feel confident that everything since my last visit is still available.
I encourage anyone who has learned the benefits of reading blogs to try out Bloglines to make keeping up with the growng volume of information much more efficient. With this election year, there will be a record number of news items to keep up on.
One of the most basic rules for efficient investing is ensuring that all of your advisors and custodians have the same objectives in mind as you have. Unfortunately, there are still plenty of financial professionals who care more about their own commissions and fees than the profits and long term security of their clients' wealth
Schwarzenegger Pledges to Reduce Spending - That's the only logical way to attack the fiscal problems because that's how they dug themselves so deep into debt.
More On IRS Changes
IRS to Add to Enforcement by Reducing Its Clerical Staff
IRS Plans New Steps to Improve Operations, Shift Jobs to Front-Line Positions
Thursday, January 08, 2004
Sen. Kerry Proposes Watchdog for American Family Finances - Typical moronic response to every problem by the DemonRats. Their answer to everything is to set up a new governmental agency to screw things up even more.
A Tax Debate Full of Hazards for Democrats - Anything the DemonRats do is a hazard for AMericans.
While this is obvously not the best way to plan for financing one's retirement years, it is probably more reliable than counting on Social Security, especially for anyone under 50.
I received the following from someone who was shocked to learn that states other than his home state would hit him with income taxes.
I’m not sure who to contact on this question, I get different answers depending on who I talk to. I’m a computer consultant that travels and last year the company I work for said that they have to take state taxes out of my paycheck for work I've perform in each of the states I was in. Which means this year I will have to fill out state taxes for 3 states, Michigan, where I live, Pennsylvania and West Virginia where I worked. Is this right? If it is right what happened to the words “taxation without representation”, because I cannot vote in those states and I have no access to whatever benefits people living there may get
If you were working as a W-2 employee, it is correct that you will have to file part-year or non-resident income tax returns with each of the states in which you earned income for the year.
All states that have income taxes require taxes and tax returns on income earned from services provided inside the state as well as from property located inside the state (rentals).
You are right that you have no recourse against the elected officials in those states; and that is why they love to tax tourists and other non-residents. It's not anywhere close to being fair; but it is how things are.
It's not as bad as you may think. You won't end up paying three state taxes on the same income. On your home state return (Michigan), you will be able to claim a credit for the state taxes paid to PA and WV. You will need to attach copies of those state income tax returns to your Michigan tax return in order to properly document your eligibility for that credit.
If you were an independent contractor or incorporated, there are ways to possibly avoid the other state taxes; but that didn't sound like your situation. When you are a W-2 wage slave, your tax savings options are very limited.
Consumers dig to record debt depth - Two trillion dollars in consumer debt - it's the American way.
The major difference between death and taxes is that Congress can't make death any worse than it is.
Courtesy of the Dribbleglass newsletter.
Unlike those financial gurus who claim to have a crystal ball view of the future, my only predictions for those extreme risk takers who have a majority of their wealth invested in the stock market is that there will be plenty of mood swings.
IRS Job Cuts to Make Way for New Hires - This is really just a shifting of IRS personnel between different tasks and locales. They have been shifting their workload again among the service centers around the country. Also, the increase in people filing their returns electronically has reduced the need for data entry on the IRS side.
In fact, everyone needs to be careful where they send their income tax returns this filing season; as the appropriate service centers have been changed for many filers. Here in Arkansas, we will now be sending our 1040s to Austin or Dallas instead of the Memphis service center. To make things even more confusing, there are now different addresses to use depending on whether the taxpayers prepare their own returns or use the services of paid preparers. There are also different addresses depending on whether the return includes a payment or not.
I normally explain to people that the true blame for the messy complicated tax system lies with our rulers in Congress who draw up the idiotic and illogical laws. However, IRS isn't completely innocent in this regard, as illustrated by this new level of complexity with so many different new filing addresses. I am going to give IRS the benefit of the doubt and assume that returns sent to the wrong address will eventually find their way to the proper processing location.
You can get to the appropriate addresses from the IRS website
There is also an easier to use guide to the new filing addresses in the latest QuickFinder handbook which just arrived a few days ago. Any tax pro who doesn't have this is most likely wasting huge amounts of time looking things up that the QuickFinder book literally has at our fingertips.
Wednesday, January 07, 2004
Schwarzenegger throws down gauntlet on taxes, spending cuts
For the DemonRats, it's a "top this" game of who can screw the evil rich the most.
Reverse Tax Reform. Wesley Clark proposes a Clintonian hike--only much bigger.
Senator Kerry Attacks Dean, Gephardt On Tax Issue -
Democratic Rivals Split on Tax Plans
Companies consider pension freezes - When you work for someone else, you are at their mercy for current and future compensation.
What's Wrong With Income Inequality? - Too many government programs, including much of the tax code, are based on the underlying premise that it is inherently evil for any person to have one dime more than anyone else. Utopia in the minds of leftists is everyone always having the exact same amount of wealth. Until we reach that point, they will never give up trying to use the force and power of government to work towards achieving it.
The Howard Dean Tax Calculator - Now everyone can see how much more they will be paying for the privilege of having that Vermont hot-head with a Napoleon Complex in the Oval Office.
Bush Administration Confident Surging Economy Will Help Cut Deficit in Half by 2005, Snow Says - The DemonRats' worst nightmare, and their reason for opposing the tax cuts, is coming true.
Picking A Tax Advisor
This is a pretty good article with things to consider from Women's Wall Street
I still believe in the issues I covered a few years ago. We constantly hear horror stories caused by people using tax pros just because they are local or because they are comfortable with the same person they've been using for several years. I can't say how much such convenience is worth; but many people reconsider it when they discover they've been paying tens of thousands of dollars more in taxes each year than they would have if they had been working with a more knowledgeable and creative tax pro.
As strange as it may sound, there are times when an IRS audit is actually requested. The most frequent examples I have seen have been with estate tax returns (706), where the administrator and heirs want formal IRS acceptance of the figures so they don't have to worry about any surprises later on.
Tuesday, January 06, 2004
How to Spot a Loaded Mutual Fund - Many mutual funds disguise their true costs.
It seems that Howard Dean's own public comments are as good an ad against him as anything a third party could put out. Dean's repeated calls for repeal of the Bush tax cuts are reason enough to oppose this idiot. His support of Usama bin Laden is just icing on the cake of proving his mental incompetence for any position higher than hamburger flipper at Micky D's.
The Clinton hand puppet from Arkansas is just another DemonRat endorsing Marxism. His plan to turn over our military protection to the USA hating United Nations puts him in treasonous territory already.
Clark tax plan soaks rich
Clark proposes shifts in tax code
Clark Offers 'Simple' Yet Sweeping Tax Reform
Clark Offers Plan to Overhaul Tax System
Clark Unveils $30 Billion Tax-Cut Plan
States out of the red but still seeing red
U.S. offers tips on avoiding overtime pay
The art of thievery - When the free market doesn't support certain projects, it's time for our rulers to steal money from the little people and redistribute it according to their whims.
2004 State By State Corporate Tax Survey - As unpatriotic as it seems to some people that corporations would take steps to reduce their taxes, it is a big part of the managers' fiduciary responsibilities to the shareholders to do whatever is legally possible to maximize their net income. This often means moving different parts of a business to other jurisdictions that are less confiscatory.
Another January, another Congressional pay raise - Unlike most private businesses, where compensation is related to performance, our rulers are rewarded for incompetence. It doesn't hurt that they control the government funds and don't have to answer to anyone when awarding themselves annual raises. This doesn't even count the millions of dollars in annual tax free fringe benefits they are given.
Monday, January 05, 2004
Financing of asset has no effect on Section 179 deduction
Heeding the adage that, for every person who asks a question, there are many more out there who want to know the same thing, I share the following.
I have a question concerning IRS form 179, vehicle deduction.
I have a new SUV that I purchased in '03 and use in my real estate business. I currently owe $40K. I will have funds in first quarter '04 to pay off the loan. My question is will I still be able to deduct the vehicle with a "zero" balance owed in '04 tax year therefore eliminating a monthly payment of $600 or should I maintain the payment for the deduction in '04 tax year and beyond?
How much you owe on the SUV, either originally or later on, is completely irrelevant to the depreciation and Section 179 deductions on Form 4562. As I've said on a number of occasions, the 4562 deductions are exactly the same whether you pay cash for a new business asset or if you finance the entire purchase price.
The only difference you would have if you pay off the loan is no more deduction for the business portion of the interest you pay each year.
No offense, but these are very basic issues that your personal tax advisor should know about. It sounds like you should be looking for a new advisor if you want to keep your taxes as low as legally possible.
Take Your Time
It's only January 5th and I've already seen people panicking about getting their W-2s and 1099s prepared for last year. What's the big hurry? As I have seen all too often, mistakes are made on these forms when they are rushed without ensuring the accuracy of the figures. The forms aren't required to be given to the payees until February 2 (January 31 is a Saturday). A little known secret is that there is no actual penalty for payers missing this deadline. The real deadline, with minor potential penalties, is March 1 (Feb 29 is a Sunday), when the 1099 and W-2 forms need to be mailed in to IRS and SSA.
As I've said on many occasions, it's always wiser to take your time and make sure your tax forms are as accurate as possible than to rush something in that may or may not be able to be corrected. With erroneous W-2 and 1099 forms, what happens is that IRS and SSA will end up with two sets (the original and the corrected one) and will expect the combined amounts to be reported on the payees' 1040s.
One other reminder -- payments to corporations are not required to be reported to IRS on 1099s or any forms.
For tax pros who are preparing 1099s and W-2s for clients who don't have them set up on QuickBooks, I can't speak highly enough about the stand alone program from CFS Tax Software. This will be something like the 20th year I have used it.
Despite Rebound, States' Budgets Are Still Reeling
Governor's Budget Bill Comes Due
Tax puzzle pressure points - As always, every attempt to simplify the tax system just ends up making it even more complicated, ensuring us tax professionals a lifetime of never ending work.
Cash-Strapped States Face New Challenges
Dream Homes Come With Rural Wake-Up Call - Living in the boonies does take some getting used to and is obviously not for everyone. However, after almost eleven years living here in the Ozarks with the closest neighbors about a mile away, we could never go back to the other kind of life like we had in the Bay Area. It's very nice here, where population density is measured in numbers of acres per human resident instead of dozens or hundreds of people per acre.
Sunday, January 04, 2004
Why I've always considered those stock picking shows, including the ones on Fox News, to be nothing but a big joke.
Find a steadier tax stream - As I've long said, and which has been proven by recent history, basing all government financial projections on an increasing supply of income taxes is foolishness of the worst kind. It is the direct cause of the Sacramento fiscal disaster. They set in place huge new spending programs based on the assumption that income taxes would provide an increasingly steady stream of cash. It is also what happened to the imaginary Clinton budget surpluses. Those were based on the assumption of steady double digit annual increases in the stock market forever and ever. To blame Bush for those predictions not coming true, as the DemonRats have been doing, is just one more example of their utter lack of credibility of any kind.
Bush's Budget for 2005 Seeks to Rein In Domestic Costs - Tax cuts and reduced spending are the proper formula. However, it is an election year, so all promises need to be taken with a grain of salt.
IRS Employees Targeted in Tax Review
10 Resolutions to Build a Fiscally Fit California
Arnold ought to question everything the state does - The mess in Sacramento requires much more than a trim here and there. It needs major severe surgery.
The out of control spending problems in the PRC do run extremely deep.
Saturday, January 03, 2004
Treasury Issues Rules to Increase Transparency and Halt Abusive Tax Avoidance Transactions - Reins Tightened on Lawyers, Accountants, Other Tax Advisers
National Taxpayers Union 2004 Taxpayer Wish List
Friday, January 02, 2004
The Great Supply-Side Experiment of 2003 - It worked with the Reagan tax cuts and it's working with Bush's. Anyone who opposes the tax cuts (all the DemonRats) is openly wishing for a recession or depression and should be treated with all of the respect such a stand deserves.
Libertarian Heroes of 2003 - It's good to see there are still some elected officials who believe in the concepts of freedom and limited government control over our lives.
Howard Dean wants to raise your taxes, whether you're dead or alive. - Not that I think this psychotic imbecile has a snowball's chance in Hell of beating Bush; but it's good to never forget what the DemonRat Party stands for - government confiscation and control over as much of our money as possible.
A recent Fox News on-air blurb calling the DemonRat nomination process a "two horse race" between Dean and Clark used the wrong animal analogy, considering the official mascot for that party. A bigger couple of JackAsses would be hard to imagine.
Special Tax Breaks
In response to an email about our tax code including special tax breaks for certain companies and individuals, I sent the following response.
It is a normal part of our legislative process that tax breaks designed specifically for certain campaign contributors are tossed in. Nobody actually reads the complete entire tax bill, so it is easy to sneak these special breaks in and nobody else learns about it until it's too late.
I have long said that the best and most lucrative investment in this country is donations to our rulers who can do this. It is very common for donations in the range of $100,000 resulting in tax breaks in the millions. In some cultures, these would be considered to be bribes; but they are standard operating practice for our system. This was part of my motivation for my infamous Tax Legislation - Digestion poster.
I don't have a list of the currently operative special breaks. You can probably find some more specifics from some of the taxpayer watchdog groups, such as Citizens Against Government Waste.
Donating Depreciated Assets
I recently received the following question illustrating why it is important to be careful on whom you rely for tax advice:
The detail man for the medical supply house says I can donate old, depreciated equipment and write off up to $5,000. He explained it as much like you told me about donating used clothing up to $499 without a receipt. Is this true or do you know anything about it?
Either that guy doesn't know what he was talking about or you misinterpreted what you were told.
I am very well experienced with this issue.
For depreciated assets that are donated, your charitable donation is limited to the lower of its current market value or its net cost basis on your books (cost less depreciation). If it's fully depreciated, your deduction for donating it is zero.
Allowing you to deduct the cost twice, as depreciation and as a charitable donation, is a perfect example of something that is too good to be true. Is this person perhaps trying to encourage you to get rid of your current equipment and buy new replacements from him?
The $5,000 limit has nothing to do with no receipt required. A receipt is required for any single donation of $250 or more. A formal appraisal is required for assets valued at more than $5,000. Total non-cash donations of $500 or less for the year don't require any details to be included with the tax return.
The Problem With The Minimum Wage - As with all efforts by the government to artificially manipulate natural market forces, the actual results are 180 degrees off from their stated goals.
Tax Cuts Do Help The Economy After All - Well, duh. Why else were the DemonRats and their media propagandists fighting so hard against the cuts? Their playbook is to do as much damage to the economy and national security as possible and then blame Bush for it.
Beware of the Alternative Minimum Tax - More and more people are being sucked into this insidious tax that was supposed to only ensnare the most evil rich among us.
Taxing Foreign Investors Would Damage Home Economy - Leveling the paying field of tax rates around the world can only hurt us here in the USA.
Schwarzenegger to Swing Big Ax on Budget - The proper tool for the situation.
IRS Strengthens Employee Tax Compliance Program - Interesting news release from IRS on how they are cracking down on tricks used by their own employees on their personal tax returns. For most IRS employees, it is one of the costs of having such a fun job that their personal tax returns are generally reviewed more closely than those of the general public.