Wednesday, November 30, 2011

BABA WAWA

Pardon my non-tax post – but I couldn’t resist.

Barbara, Barbara, Barbara – what is wrong with you?

I read in this morning’s USA TODAY about Barbara Walter’s annual “The 10 Most Fascinating People of 2011” special.

Included in her 10 are the Kardashians, Jesse Tyler Ferguson and Eric Stonestreet of MODERN FAMILY, Simon Cowell, Derek Jeter, Donald Trump, Katy Perry, and Pippa Middleton.

You have got to be kidding!  The Kardashians?  The #1 most undeservedly overexposed family of 2011 maybe.  Those cafones are as fascinating as stewed prunes!

Tronald Dump is fascinating only for his ginormous ego.  But he has been quiet lately, thank the Lord.

By now Simon Cowell is old hat and seems to have passed his period of fascination.

I don’t follow sports, do not watch MODERN FAMILY, and have no idea who Katy Perry is – so I cannot comment on these choices.

The only name that seems to me to qualify to be on such a list is Pippa Middleton.

I know one program I will definitely not be watching on December 14th.

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENIN’ – WEDNESDAY EDITION

+ The DECEMBER issue of LOIS is here!

+ TAX PROF Paul Caron quotes “The Tax Mess Deepens” by Laura Saunders in his post “WSJ: Year-End Tax Planning Amidst Political Chaos”.

Laura correctly observes –

Now tax experts don't expect action on the most important issues—income-tax rates, capital-gains rates, estate-tax exemptions and rates, and the alternative minimum tax—until after next year's election.”

For a change tax year 2011 is actually clear – but tax law for 2012 will be up in the air until probably the end of next year, thanks to the idiots in Congress.

+ KANSAS CITY.COM reports that “Tax Refund Loans Land H&R Block In Court Again

A lawsuit in U.S. District Court in Los Angeles accuses the Kansas City-based tax preparation firm and others of targeting ‘minorities and the working poor’ with products that ‘provide little to no value’ while charging “predatory interest rates and fees.”

Nothing new.  Certainly not the first suit, and probably not the last, even though Henry and Richard no longer offer RALS.

As I point out frequently – one of the reason why H+R overcharge their clients for minimal service is because they need money to pay off all of their legal settlements and judgments.

+ CCH tells us “Senate Democrats Roll Out Payroll Tax Cut Legislation”.  The proposed would extend and expand the current 2% payroll tax reduction, which expires December 31, 2011.

+ Over at FORBES.COM Kelly Phillips Erb, aka TAX GIRL, explains that “Form 5471 Email Is Bogus”.

Yes, it’s another spammy email purporting to be from the IRS. This one has, as its subject, “IRS-SUBJ1″ and claims to be from the IRS Tax Notification Department (support@irs.gov) though the IP address appears to actually be located in the Republic of Korea.”

I have said it many times before, and I will say it again – the IRS will NEVER send an unsolicited email to ANYONE.

TTFN

Tuesday, November 29, 2011

THE 2011 CHRISTMAS PRICE INDEX

PNC Wealth Management has released the 28th annual “PNC Christmas Price Index”, which determines the cost of the gifts in the holiday classic “The Twelve Days of Christmas”.  This year the cost of the items totaled $24,263.18, a 3.5% increase over last year’s $23,439.38 price tag.

The biggest price increases involve the “specialty” livestock – the partridge that inhabits the pear tree, the turtle doves, the French hens, and the swimming swans.  The cost of the partridge and the doves increased 25%, the biggest jump.  Surprisingly the price for calling birds dropped 13.3%.

Gold prices fell slightly, with the golden rings down .8%, joining the calling birds as the only items that cost less than 2010.

For the most part labor costs remained constant, with only the musicians, i.e. pipers and drummers, getting a 3% raise.  The index highlights the fact that the union for performing artists has done a better job representing its members over the years than the musicians’ union.  Dancers and leapers are better paid than the pipers and drummers.  The most expense item on the list is the nine dancing ladies, earning $6,294.03.  Milking maids earn the minimum wage, which has not increased for the second straight year.

The 3.5% increase in the Christmas Price Index mirrors the Consumer Price Index’s 3.9% growth.

PNC Wealth Management also calculates the “True Cost of Christmas” - the total cost of all the items gifted by a True Love who repeats all of the song’s verses.  For the first time this amount has topped $100,000, coming in at $101,119.84, 4.4% more than 2010.

And PNC determines the cost of the items if purchased online.  The base internet total is $39,860.06, up 16.1% from 2010’s total of $34,336.03, and the “True Cost” equivalent is $174,382.93, a 26.5% jump.  PNC explains that, “In general, Internet prices are higher than their non-Internet counterparts because of premium shipping costs for birds and the convenience factor of shopping online”.  The biggest price increase in the base internet analysis is the six laying geese – up 164.1%.

TTFN    

Monday, November 28, 2011

IT'S HERE!

You do not have to wait any longer – the December 2011 issue of LOIS is here!

In it I discuss I LOVE LUCY trivia, classic detective movie series, and my recent experience on a jury, ramble about the idiots in Congress, provide you with the TOP TEN TAX TIPS, answer an interesting tax question, look at some interesting and timely websites, and, of course, always leave you laughing.

Click here to download the issue.

Enjoy!

WHAT’S NEW FOR 2011 FEDERAL INCOME TAX FORMS

Since, for a change, the IRS did not have to wait for Congress to pass extenders this year, many of the new 2011 forms and schedules have been available at the Forms and Instructions section of the IRS website for a while now.

There is no change to the “body” of Page 1 of the 2011 Form 1040.  It is exactly the same as 2010.  However there is a new line in the name and address section for “Foreign country name”, “Foreign province/country”, and “Foreign postal code”.

The “Other Taxes” section of Page 2 adjusts Line 59 to create 59a for “Household employment taxes from Schedule H” and 59b for First-time homebuyer credit repayment” (you do not necessarily have to complete Form 5405).  Line 60 now reads “Other taxes” with a place for one to enter code(s) identified in the instructions. 

The line for the Making Work Pay credit is removed from the “Payments” section – with 64 (a + B) through 72 the same as 2010.

The same change was made to the name and address section of the 2011 Form 1040A, with the rest of Page 1 unchanged.

Page 2 loses three (3) lines –

·      Advance earned income credit payments.
·      The addition of net income tax from Line 35 and advance EIC payments.
·      Making Work Pay Credit

The only change on the 2011 Schedule A is that Line 7 under “Taxes” now reads “Personal property taxes” instead of “New motor vehicle taxes”.

As I discussed in earlier posts the 2011 Schedules C and E have separate income lines for “Gross merchant card and third party network” receipts and gross receipts not from gross merchant card and third party networks, and Page 1 of Schedule D is totally restructured to refer to entries from the new Form 8949 (which replaces the Schedule D-1).

The 2011 Schedule SE has been revised to reflect the new temporary tax rate for the Social Security equivalent portion of self-employment tax, and remove the reference to reducing taxable earnings by the above-the-line self-employed health insurance deduction.

And, of course, there is no more Schedules L or M.

It appears that the “most changed” form for 2011 is Form 5695 (Residential Energy Credits).

I will report on changes to 2011 NJ and NY forms when the forms become available.

TTFN

Saturday, November 26, 2011

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENIN’

+ Don’t forget to check out the NOVEMBER issue of LOIS.

+ Howard Gleckman gets right to the heart of the matter in “It’s Time Stop Squabbling about the Bush Tax Cuts” at the Tax Policy Center’s TAX VOX blog

Rather than bickering endlessly about whether what they are doing is a tax cut or a tax increase compared to a law first passed a decade ago, lawmakers should start talking about what a fair and economically efficient tax code should look like. They ought to just decide how much tax revenue they need and then figure out how to raise it.  

Much as I’d love to take credit for this brilliant new insight, it is hardly original. The chairmen of the 2010 White House deficit reduction commission, Erskine Bowles and Alan Simpson, proposed rewriting the entire tax code from scratch and fixed a revenue target for the new law of 21 percent of Gross Domestic Product.  House Budget Committee Chairman Paul Ryan (R-WI) did much the same thing when he called for a bottom’s-up tax reform that produces 18 or 19 percent of GDP in federal taxes.”

Right on, Howard!  I have been pushing to rewrite “the entire tax code from scratch” here at TWTP for some time now.

+ Daniel Stoica reminds us that “2011 Home Energy Credits are Still Available”, although “the credit is more limited than in the past years”.

When purchasing energy efficient items available for the credit be sure to get a “Manufacturer’s Certification” from the seller – and be sure to give this certification to your tax preparer with all your other tax “stuff”.

+ Bruce, the MISSOURI TAX GUY, answers the question “What if You Default on Your IRS Payment Plan?”.

+ Peter J Reilly tells us that for the first time the “Turbo Tax Defense Works for Patent Attorney” at FORBES.COM.

The case involved Kurt Olsen, a patent attorney working for the Department of Energy who prepared the joint return for himself and his wife using commercial software.  For 2007 he failed to report about $30,000 in interest income from a Form K-1 from issued by a trust.

According to Peter –

Mr. Olsen did a better job of representing himself in tax court than he did in preparing his return so the penalty of $1,859 was not upheld.” 

THE LAST WORD:

A belated word of thanks - I am thankful that I live in a country where I can publicly identify the members of Congress as the idiots they are without fear of being thrown into prison.

TTFN

Thursday, November 24, 2011

Wednesday, November 23, 2011

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENIN’ – WEDNESDAY EDITION

+ Don’t forget to check out the NOVEMBER issue of LOIS.

+ The idiots in Congress have proven beyond a reasonable doubt that they are not just idiots but totally f**king useless as well – they can’t get a damned thing done (except, as John Stewart pointed out on a recent DAILY SHOW, vote to make school lunches less healthy).

The failure of the “super-committee” – unable to agree on anything after three full months of “talks” – is the latest example of the uselessness of the idiots in Congress.

The consequences have already begun.  BANKS.COM reported that –

The failure of the congressional debt committee to reach a deficit reduction agreement sent the markets into a nosedive with the Dow collapsing 300 points to 11,495. Nasdaq sank 59 points to 2512.”

Alan Silverleib provides a good review of the situation at CNN.COM in “Analysis: Super Committee Reflects Our Own Super Failure” (the highlight is mine) -

"The failure of the super committee is not just a failure of 12 members of Congress, who I believe genuinely tried to cut a deal but were rebuffed by their party leaders. It is a failure of political leadership on both sides of the partisan aisle," said Brown University political scientist Wendy Schiller.

"Both parties chose their own electoral livelihoods over the good of the country, and it is outright shameful. ... This might be the most self-serving, mediocre and uncaring set of legislators in Congress in the last 50 years."

Might?

Alan adds – “don't forget to leave room on the bus for the American public. Americans voted them into office”.

I would suggest that the American public join together next November to vote out every single idiot in Congress who is running for re-election.  But we must also vow to make sure that we do not vote in any Tea Party members or supporters.

When it comes to the idiots in Congress Kay Bell has the perfect bottom line in her week-end post “Death of Super Committee Deficit Deal Expected as Soon as Monday“ (highlight is mine) –

To paraphrase a line from another classic holiday tale that gets replayed year after year, God help us everyone.”

+ Trish McIntire has some insight on the method for the madness of the idiots in Congress and offers a good suggestion in “First Things First” at OUR TAXING TIMES.

+ Howard Gleckman lists “Five Reasons Why the Deficit Super Committee Failed” at the Tax Policy Center’s TAXVOX blog.  I especially like reason #5 (the highlight is mine) -

There was never a serious penalty for failure. If lawmakers really wanted to force action by the super committee, they would not have delayed the consequences of inaction ($1.5 trillion in automatic cuts) for more than a year. Imagine telling your teenager that if she doesn’t do her homework tonight she’ll be grounded—in 2013.  As it is, weeks before the deficit panel flopped, powerful lawmakers were already talking about how they’d defuse those spending reductions—especially those targeted at the Pentagon.”

And Howard hits the nail on the head with his bottom line (again highlights are mine) –

Much like the European Community over the past few years, Congress’ goal when it created this panel was not to resolve a fiscal mess, it was merely to buy time so it could avoid painfully tough choices.  And it wasn’t looking to stall only until this Thanksgiving. It wanted to delay though the 2012 elections. And in that, at least, Congress succeeded gloriously.”

The members of Congress may be idiots, but they ain’t necessarily stupid.

+ Now here is an interesting tax question – another one that I have never been asked in my 40 tax seasons in the biz – what about “The Tax Consequences of Exorcism”?  Prof Jim Maule gives his answer at MAULED AGAIN.

I agree with Jim’s analysis – including the possibility of a deduction for the cost of an exorcism along the same lines as was allowed for “a Navajo medicine man sing”.


Neither the medical practitioner prescribing the treatment nor the method of treatment prescribed has to be American Medical Association approved or sanctioned to claim a tax deduction, as long as the practitioner and treatment are valid within the patient’s religious or cultural context.”

I wonder if an exorcist would help remove the “demons” within the idiots in Congress?

+ Over at the ROTH AND COMPANY TAX UPDATE BLOG Joe Kristan tells us "President Signs Into Law New Tax Breaks For Hiring (and Replacing) Veterans” and gives a good overview of the new credits included in the bill.

Joe also asks the question “Are these credits good tax policy?”  His answer, the correct one, is (the highlight is mine) –

No. Their inherent complexity and paperwork make it likely that many taxpayers will fail to claim the credit; it rewards having a good human resources function as much as it awards hiring veterans. I doubt that veterans need special help finding work -- their successful service alone is often a good signal to prospective employees. It seems insulting to lump veterans in the same code section as "qualified ex-felons." And Opportunistic taxpayers with good HR departments can even fire existing veterans and use the credits to hire their replacements.”

The above highlighted FU just adds to the proof that the members of Congress are idiots (are you sensing a theme to this BUZZ installment?).

Before I leave Joe – let me thank him for plugging my post on charitable contributions!

THE LAST WORD:

I do believe I have said enough about the idiots in Congress above.  Something non-tax this installment.

The latest TWOT (total waste of time) from Adam Sandler was recently released – JERK AND JILL I think.

An excellent rule of thumb is to avoid any comedy that stars Adam Sandler. 

The only thing that I can recall from Adam Sandler that was anywhere near actually being funny is his Hanukkah song.  I do believe it is the only thing he has done that does not excessively reference bodily excretions and secretions.

Sandler’s films are, for the most part, targeted to 5th grade boys, or those whose mental development has not passed that of a 5th grade boy.

He actually had the “stones” to remake two iconic films of their time – MR DEEDS GOES TO TOWN and THE LONGEST YARD.  In reviewing DEEDS one critic rightly observed, “Adam Sandler is to Gary Cooper what a gnat is to a racehorse”.  And he is certainly no Burt Reynolds (I hear the only good thing in the remake was Burt Reynolds performance).

Actually a good rule of thumb is to avoid any movie that stars anyone from any SATURDAY NIGHT LIVE cast, except for those who appeared during the first two years and the early films of Eddie Murphy.

TTFN

Tuesday, November 22, 2011

THE BUFFETT SOLUTION


In his post “Patriotic Millionaires: A Buffet Line of Wealth Tax Raisers” at TICK MARKS Dan Meyer tells us that –

A group called the Patriotic Millionaires visited Washington recently to lobby for an increase in the tax rates for high-income Americans.”

How many time must I say it – if certain millionaires, probably guilty about the source of their wealth, want to pay more to the federal, or state, government they can always make a contribution.

Gift Contributions to Reduce Debt Held by the Public” at TREASURY DIRECT states –

The Bureau of the Public Debt may accept gifts donated to the United States Government to reduce debt held by the public.”

This webpage records that the total gifts received for Fiscal Year 2011 (the months of October 2010 through September 2011) was $3,277,369.23.

There are two ways for you to make a contribution to reduce the debt:

• You can make a contribution online either by credit card, checking or savings account at Pay.gov, or

• You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public. Mail your check to:

Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188

And such a payment is tax deductible as a charitable contribution on Schedule A!

In the chart “Examples of Charitable Contributions—A Quick Check” from IRS Publication 526 (Charitable Contributions) it tells us that included in “deductible as charitable contributions” is money or property you give to “Federal, state, and local governments, if your contribution is solely for public purposes )for example, a gift to reduce the public debt).”

So, Warren et al, get out your checkbook.

TTFN

Monday, November 21, 2011

A TIME FOR GIVING

The holidays are approaching, as indicated by the Christmas-themed ads already appearing on tv.  The holidays are a time of giving gifts – to family and friends and to church and charity.  

It seems a good time to provide some reminders of the rules for deducting charitable contributions, taken from the 2011 Edition of my special report “Itemized Deductions: A Complete Guide to Schedule A”.

You must have a hard-copy receipt for every single dollar you contribute to a church or charity in order to claim a tax deduction on Schedule A!

Charitable contribution deductions will not be allowed for any monetary contributions by cash or check unless the donor maintains a record of the contribution. The record must be in the form of -

an actual cancelled check,

a bank record (i.e. a copy of the front of the check included on your monthly bank statement),

an entry on a bank or credit card statement indicating a credit or debit card charge, or

a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.

You can no longer tell the IRS that you put a five or ten dollar bill in the collection plate each week. You must write a check to the church for the $5.00 or $10.00 each week or you must take advantage of the church's “envelope” system, which will provide you with a written receipt at the end of the year.

The law does not say that all contributions of more than $50.00 or more than $100.00 must be documented. It says that all cash contributions must be documented. So if you give the Salvation Army Santa at the mall a dollar for a poppy you must get a receipt!

You can claim a deduction for the “fair market value” of property, including used items, donated to charity.  According to the IRS, fair market value is the price a “willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell.”  

You are responsible for determining the fair market value of the items you are donating.  The charity to which you make the donation is not required to, and in most cases will not, provide you with a value.  See the Goodwill Industries valuation guide in this package or go online to www.satruck.org/donation-value-guide.  

Whenever you contribute used appliances, electronics, books, clothing, furniture or household items you should always make and keep a detailed listing of the items donated with the condition and value of each set of items (i.e. 6 pairs of men’s pants, good condition, $60.00, 5 pairs of men’s shoes, good condition, $75.00).  You should also get a receipt from the charity (unless you are putting clothes in a bin).  You may want to attach a copy of the listing and the receipt to your Form 1040.     

You cannot deduct the contribution of a used item of clothing or household item to a church or charity unless the item is in at least "good" condition (except for a single such item with a documented appraised value of more than $500).  Donations of clothing and household items with a minimal monetary value, such as used socks or underwear, are also not deductible.

When donating used clothes and household items to charity you should go with the “old reliables” like Goodwill Industries, the Salvation Army, Vietnam Veterans of America or your local church – this way you are sure to be giving your items to a legitimate charity. In many cases the charity will come to you to pick up your donations. And if you are putting your donations in a “drop-off box” make sure the name of the charity is clearly indicated on the box. While these boxes may be convenient it is “more better” to drop off your donation at a local Goodwill or Salvation Army store or donation center, where you can get a signed receipt.”

If you purchase new items to contribute to a food, toy or clothing you can deduct the actual cost of the items donated.  The same reporting and documentation requirements discussed above for used items will apply.  You should make a separate purchase of the items you will donate – do not group together with the purchase of items for your personal use – and save the store receipt. 

You must complete and attach to your Form 1040 IRS Form 8283 if you are deducting “non-cash” contributions totaling more than $500.00.  The following information will be needed –

the name and address of the charity(ies) to whom you made the donation(s),
the date of the contribution(s),
the fair market value of the items donated, and
how you determined the value – i.e. “Salvation Army valuation guide”

If any one individual item has a value of more than $500.00 you must also list

the date you acquired the property
how you acquired the property – i.e. purchase, gift, inheritance, exchange
the cost or adjusted basis of the property

If the total amount of your monetary contribution, or the total value of items donated, to a charity in a single day is more than $250.00 you must have a written acknowledgement from the donee organization with the name and address of the charity, the date of the contribution, and a description of the items donated.  The acknowledgement must also indicate whether you were provided any goods or services by the charity in exchange for the donation.  In the cash of money donated to charity - this is in addition to the required documentation mentioned above (i.e. cancelled check or credit card receipt) – you must have both if the contribution is more than $250.00.

You can also deduct out-of-pocket expenses connected with donations or volunteer service to a qualifying organization, such as the cost of the ingredients of homemade cookies or a cake donated to a church bake sale, or the cost and laundering of uniforms for a scoutmaster, and travel and transportation expenses incurred while performing a volunteer service for a qualifying organization.  If you use your car you can deduct 14 cents per mile in lieu of actual expenses plus any parking fees and tolls.  It is a good idea to keep a log of your charitable travel.

FYI - you cannot deduct contributions made directly to an individual or family, regardless of the recipient’s financial situation or health status.

Any questions?

TTFN

Saturday, November 19, 2011

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENIN’

+ Don’t forget to check out the NOVEMBER issue of LOIS.

+ Did you catch my “Year End Tax Planning Guide” at MAINSTREET.COM?

+ A belated Happy 6th Anniversary to Kay Bell’s DON’T MESS WITH TAXES blog (November 14th).  Check out her first post.

+ At her BANKRATE.COM tax blog Kay has good advice for newly married couples “Couple Bonding Via Withholding” =

But for the rest of us who have been married longer or plan to be, marriage means tax sharing, including payroll withholding responsibilities.

When both spouses work, it generally is worthwhile for the husband and wife to take some time to tweak the amount that comes out of their individual pay.”

However, I was disappointed with the gratuitous Kardashian reference.  That rectal cavity has had enough publicity to last a lifetime.

+ And BANKRATE.COM’s Dr Don Taylor tells parents of college students “Don't Make 529 Plan Distribution Taxing”.

+ The approval rating of the idiots in Congress is only slightly more than that of Fidel Castro, but less that the rating of BP during the oil spill. or so explains  Chris Cillizza in “Congress’ Approval Problem In One Chart” at the Washington Post’s THE FIX.

And you will note from the chart in the article that the IRS is 4x more popular than Congress!

+ And the WASHINGTON POST also gives us the “Republican Tax Plan At a Glance” -

“— All marginal income tax rates would be lowered by 20 percent, meaning the top rate would go from 35 percent to 28 percent and the bottom rate would go from 10 percent to 8 percent.

— The top tax rate on capital gains would remain 15 percent.

— The top tax rate on dividends would remain 15 percent.

— The estate tax would stay at 35 percent, with the first $10 million of a married couple’s estate exempt.

— The tax benefits from itemizing deductions and excluding employer-provided health insurance from taxable income would be limited to 2 percent of taxpayer’s adjusted gross income.

— A new measure of inflation would be used to adjust the tax brackets each year, resulting in more people jumping into higher tax brackets as their wages increase.”

+ Over at the ROTH AND COMPANY TAX UPDATE BLOG Joe Kristan tells us that there is no “Rule of 72?” when it comes to filing taxes.

This idea is not new to me.  Over the years I have come across individuals who thought that they no longer had to pay either federal income taxes or Social Security taxes because they were age 72.  I do believe this comes from the old rule (BC – Before Clinton) that you could have an unlimited amount of earned income (i.e. W-2 wages) and not have to pay back any Social Security benefits once you reached age 72.

THE LAST WORD:

We’ve come a long way, baby! 

In my youth we protested to end the war and in support of equal civil rights for all Americans.  Today’s youth protest because they are not rich, and apparently have nothing better to do.

Just what do the cafones that make up Occupy Wall Street want, besides attention?  I am confused about the purpose of these demonstrations.  The only thing I have heard that makes any sense is a call from a small sector for WPA-like public service construction projects as a way of creating jobs – which is actually a good idea.  Otherwise the “99%” just seem to be upset that they are not part of the “1%”.

I support neither the Tea Party movement (I actually strongly oppose it) nor the Occupy Wall Street “movement”.  As the song goes – “Clowns to the left of me, jokers to the right”!

TTFN

Friday, November 18, 2011

CHECK IT OUT!

Have you seen my YEAR-END TAX PLANNING GUIDE  at MAINSTREET.COM?

Why not?

DOUG SHULMAN SPEAKS SENSE FOR A CHANGE

TAX-NEWS tells us that “IRS Chief Looks For Tax Simplicity” (highlight is mine) -

In his remarks to the Harvey Kennedy School in Cambridge, Massachusetts, the United States Inland Revenue Service (IRS) Commissioner Douglas H. Shulman said that one of the greatest impediments to effective tax policy implementation is complexity, and that, above all, most taxpayers want tax code simplicity.”

Here is some of what Commissioner Shulman said –

Making the tax code less complex is the single most important thing that could be done to improve taxpayer service and boost compliance.”

Each tax benefit has its own series of requirements, some of which overlap, but many of which do not. Many of the tax benefits are income limited or phased out at different income levels. Certain tax benefits must be coordinated with each other. Then start to layer on other complexities, including standard vs. itemized deductions, medical expenses, education expenses, charitable expenses, local taxes, and for many taxpayers, the Alternative Minimum Tax... the list goes on and on.”

Complexity can lead people to not take advantage of tax benefits, largely credits and deductions, that Congress intended them to have, either because they don’t understand them or are afraid they may be ineligible. And in my experience, when laws or regulations are complex, it creates opportunities for those who want to game the system.”

Congress should “try to resist the temptation to enact short-term provisions that may expire but are then extended. This has an enormous unsettling effect on both clarity and stability. Last year, the JCT identified more than 130 tax provisions that were set to expire at the end of 2010, with another 65 due to sunset at the end of 2011.”

Complexity grows incrementally with every legislative session. The 15,000 plus changes to the tax code since 1986 are anything but elegant, anything but simple, and anything but clear to the average taxpayer. A simpler system could better further policy goals by having a more involved and engaged taxpayer base that would take advantage of incentives to which they are entitled and thereby improve their economic position.”

The article also points out –

While the Joint Committee on Taxation (JCT) found that between 1980 and 2010, the number of tax expenditures in the code grew from slightly less than 100 to almost 250, and that the IRS has counted that there have been 3,000 legislative changes to the tax code since 2000, he provided some ideas on how to deal with some of the difficult problems that the IRS faces in interacting with taxpayers.

I hope the idiots in Congress were listening.

TTFN

Thursday, November 17, 2011

A GUEST POST FROM THE MISSOURI TAX GUY

{While I am on jury duty my friend and fellow twit and tax blogger Bruce McFarland of L & R Tax Preparation in Grandview, Missouri has sent me a guest post.  Bruce writes THE MISSOURI TAX GUY blog on “federal taxes, tax preparation, and your personal finances” – rdf}

Recently on LinkedIn a friend asked if she should become an EA or take the CPA exam. Many of us have asked this question of ourselves; it is what brings us to where we are today. Or maybe, like my friend, you are at this junction now.

We are all a flutter now with the new regulations that the IRS is putting on “unenrolled” tax return preparers. There is a lot of talk about who should be tested, who should do what and to what level.

In the world of tax preparation there are five fields that taxpayers look to for help them with tax issues, audits, and reviews of various types. What you decide to do, or where you decide to go with your credentials, should be based on what you want to do in the tax world and the clients you want to help.  Let’s look at the five fields so you can decide where you want to be, or be able to guide taxpayers/clients who need services you don’t necessarily provide.

1. The Enrolled Agent (EA):

An Enrolled Agent is a federally authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. “Enrolled,” means to be licensed to practice by the federal government, and “Agent” means authorized to appear in the place of the taxpayer at the IRS.  Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. 

The EA has passed an extensive test in federal tax knowledge and must maintain an average of 24 hours of CPE each year in federal taxation.

The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department. 

2. The Accountant/CPA:

Accountants help to ensure that firms are run efficiently, public records kept accurately, and taxes paid properly and on time. They analyze and communicate financial information for various entities such as companies, individual clients, and Federal, State, and local governments. Beyond carrying out the fundamental tasks of the occupation—providing information to clients by preparing, analyzing, and verifying financial documents—many accountants also offer budget analysis, financial and investment planning, information technology consulting, and limited legal services.

Specific job duties vary widely among the four major fields of accounting and auditing: public accounting, management accounting, government accounting, and internal auditing.

A CPA, Certified Public Accountant, is an Accountant who has passed the uniform CPA examination, and who has received state certification to practice accounting.  A CPA must maintain annual CPE credits, although there is no requirement that any of these hours be in federal taxation.  The amount of required CPE varies from state to state.

3. The Tax Attorney:

Tax Attorneys are lawyers who specialize in the complex and technical field of tax law. Tax Attorneys are best for handling complex, technical, and legal issues. Typically large, and some smaller, businesses will meet with a tax attorney at least once a year to ensure that they are making the best possible business choices with regards to investments and tax issues. They generally focus only on tax issues and relief. A tax attorney may also be helpful when setting up trust funds, stock portfolios and such so a taxpayer doesn't run into unexpected surprises.

4. The Tax Preparer:

A professional Tax Preparer is an individual who prepares tax returns. A professional tax preparer can be an Enrolled Agent, an Accountant/CPA, a Tax Attorney, or anyone who prepares tax returns for a fee. I often hear tax preparers being called Accountants, but technically speaking they are not. In the early 1900s, accountants usually filled out the relatively simple forms as one of their duties. Today, with the tax preparation industry becoming a specialty all its own and the tax laws becoming increasingly complex, tax preparation is a very separate field populated by thousands of individuals that have never performed bookkeeping or accounting functions. Most are educated individuals who know how to organize tax data and how to enter it on the tax forms, and most are professional and honest, and provide excellent service to their clients.

Previously “unenrolled” Tax Preparers - those who are not an EA, a CPA or an attorney - are now required to register with the IRS, pass a competency test, and maintain 15 hours of CPE in federal taxation each year in order to be permitted to prepare federal tax returns, and will be granted the designation “Registered Tax Return Preparer” (RTRP).

5. The Bookkeeper:

A Bookkeeper is responsible for keeping accurate, up-to-date business records for proper cash flow management, balance sheet preparation, and developing expansion and investment plans. A bookkeeper also assists in filing tax returns with updated tax records. Accurate bookkeeping is a legal requirement for businesses and should be kept well within the standards that are set by local and federal tax agencies. Perhaps bookkeepers have the biggest responsibilities in a company as business planning, payroll management, and tax return preparations are dependent on accurate bookkeeping. Bookkeepers often do not have the qualifications or certifications of accountants, but the responsibility they hold is not any less. Bookkeepers that have a great deal of experience often market themselves as accountants.  Only those bookkeepers who qualify as an RTRP will be allowed to prepare federal income tax returns.

U.S. tax law is not only convoluted in structure; it also changes nearly every year. So how do you choose the right one?  You need to figure out where you want to fit in this puzzle and go from there.   

{Thanks to Bruce for providing this informative guest post – rdf}

TTFN

Wednesday, November 16, 2011

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENIN’ – WEDNESDAY EDITION

+ Don’t forget to check out the NOVEMBER issue of LOIS.

+ David Logan points out that a “Major Flaw of the VOW to Hire Veterans Act Lost Amid Political Popularity” at the Tax Foundation’s TAX POLICY BLOG.

Targeted incentives are poor policy in general, but are especially wasteful in this case.  Why?  Legislators failed to include a provision saying that business must increase net employment in order to receive the credit.  Given the lack of such a provision, a business could hire a veteran and fire one on the same day, eventually collect a government check of up to $9,600, and not reduce veteran unemployment by a single job.”

David correctly explains that “politically popular legislation which has not been properly thought through is not the answer”.

Hey, when have the current idiots in Congress ever “properly thought through” any legislation they pass?

+ The LA Times reports that the idiots on the “Deficit 'Super Committee' May Put Off Decisions”.

Rather than risk stark failure, the congressional panel could decide now on only the outline of a deal, deferring the tougher calls until after the 2012 election”.

Why am I not surprised?

+ Kay Bell follows up with “Deficit Panel Might Pick Tax Amount, But Let Others Figure Out the Details” at DON’T MESS WITH TAXES.

The nail’s head is firmly hit by Kay with (highlight is mine) –

Harry Truman is famous for, among other things, the sign on his desk proclaiming that ‘The Buck Stops Here’.

Buck passing, not stopping, is an area in which Congress is expert.

+ The Wall Street Journal’s TAX REPORT tells us there are “Special Tax Deductions for Special Education”.

More than six million children in the U.S. fall into the "special needs" category, and their ranks are expanding. The number of those affected by one developmental disability alone—autism—grew more than 70% between 2005 and 2010.

The tax code can help—if you know where to look.

The item tells us where to look.

+ Illinois accountant Daniel Stoica states the obvious in his post “Defaulting on Student Loans is a Bad Idea”.

+ Rae Hoffman-Dolan and Missy Ward have launched a new blog titled IT’S A WAHM THING to provide advice for work at home moms. 

+ Not only are they idiots – but crooks as well!  BUSINESS INSIDER discusses the revelations in Peter Schweizer's book, "Throw Them All Out" in “FULL DETAILS: How Congress Insider Traders Abused The Public's Trust During TheFinancial Crisis”.

The highlight below is mine –

Specifically, Schweizer tells how on September 16, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke held a private meeting with legislators in which they reported that the economy was in deep trouble and predicted near-term disaster in the markets.

Congressmen privy to this information reacted--not by dropping everything and drawing up a plan to save the economy, but by dumping stock and avoiding the losses everyone else would take in the coming month. Others bought stocks in financial firms that would later be saved by the federal government.”

Again – why am I not surprised?

THE LAST WORD:

Today’s BUZZ continues to illustrate the fact that the members of Congress are truly idiots. 

No one can doubt that the primary objective of a “Congresscritter”, as Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG likes to call them, is getting re-elected and certainly not the competent running of the country.  As I quoted from the LA TIMES above (highlight mine) – “Rather than risk stark failure, the congressional panel could decide now on only the outline of a deal, deferring the tougher calls until after the 2012 election”.

They are indeed lazy, as witness the FU with the VOW to Hire Veterans Act – as Joe Kristan puts it “another example of how you shouldn't look to the tax law to solve every problem.” 

And, as suggested in the above item on insider trading, they are also crooks (which Chuck Rangel had previously demonstrated) with a double standard.  As the item correctly states – “If this behavior had happened in the private sector, Congress would be outraged.”

The title of Peter Schweizer's book suggests a good solution - "Throw Them All Out"!   

TTFN