Today Is Tax Day

Today is April 15th.  Besides being the 14th anniversary of “Black Friday,” it’s Tax Day in the US. If you haven’t filed your returns, file an extension NOW!  That said, if you live in a federal disaster zone it might not be Tax Day for you. If you live outside the United States, your tax Tax Day is June 16th.

Ideally, file your extension electronically (you can do so at IRS Direct Pay); if not, mail a check using certified mail with your extension voucher.

And don’t forget your state extension (if applicable)!


*Arkansas has not fully conformed to this extension. For state tax purposes, an extension until July 31st has been granted for 60 counties of the 75 in the state. It is not clear if the state will (in the coming days) conform to the federal extension.

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Bozo Tax Tip #1: Not Remitting Payroll Taxes

A couple of years ago, I received a visit from a member of the IRS’s Criminal Investigation unit.  It turns out a client, call him Larry, had worked for a company that decided to not remit payroll taxes.  The loss to the government just from Larry’s wages was more than $100,000 and Larry was far from the only employee of that company.  As far as I know, the IRS investigates every case where payroll taxes are not remitted.

Of course, it’s easy for the IRS to find out.  Every employee is going to be filing a tax return (like Larry) claiming his withholding. The IRS will quickly see that there isn’t any withholding.  Sometimes it can be an honest issue (like the time where the IRS “helpfully” changed a client’s Employer Identification Number without telling him).  Other times there’s an error within IRS systems.  But a lot of these cases end up as just plain theft.  This is a crime that has as close to a 0% chance of success that I’m aware of.

My business has employees and payroll, and I’m a check signer (and I’m an owner).  I am personally liable for the trust fund taxes.  We use a reputable firm for our payroll taxes because the only thing worse than paying payroll taxes once is paying them twice.

And it’s not just the IRS that takes a dim view of not remitting payroll taxes.  Every state department of revenue (or taxation) has the exact same view.

If your business is having tough times, not remitting payroll taxes is absolutely, positively one of the worst possible choices (if not the worst) you can make.  Don’t do it!  But if you did, don’t say I didn’t warn you when two nice looking individuals in suits knock on your door and tell you that you have the right to remain silent.


That’s a wrap on our Bozo Tax Tips for 2025!  Please, please don’t do these.  Instead, be smart and remember (1) if it sounds to good to be true it probably is and (2) it’s almost always a whole lot easier to just pay your taxes correctly.

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Bozo Tax Tip #2: The Eternal Hobby Loss

The goal of must businesses is to make money. There aren’t many businesses that can lose on each sale and make it up in volume. In fact, I don’t know of any. But I digress….

So let’s take Sam and Edna, two successful individuals who love horses. They decide to start raising horses. They remember their accountant telling them that if they had a business that loses money they can take the loss and offset some of their income. That’s true. They don’t remember their accountant telling them that the business does need to be structured to make money eventually.

Hobby losses are not allowed. Under the Tax Cuts and Jobs Act, the income from a hobby is taxable, but the expenses (up to the amount of income) are also not deductible!  The IRS has a webpage noting the major factors used in determining whether or not your business is really a business or is a hobby:

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

  • The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.
  •  The taxpayer puts time and effort into the activity to show they intend to make it profitable.
  • The taxpayer depends on income from the activity for their livelihood.
  • The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.
  • The taxpayer has enough income from other sources to fund the activity
  • Losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
  • There is a change to methods of operation to improve profitability.
  • Taxpayer and their advisor have the knowledge needed to carry out the activity as a successful business.
  • The taxpayer was successful in making a profit in similar activities in the past.
  • Activity makes a profit in some years and how much profit it makes.
  • The taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts, and circumstances with respect to the activity must be considered. No one factor is more important than another.

If your business loses money year-after-year, and you’re not making any efforts to change it, and you get a lot of personal enjoyment out of the business, beware! Your “business” might be a hobby. Yes, circumstances can cause any business to fail (and the IRS knows this). But when your business is losing money every year and you make no effort to change your business, at least on the surface you’re looking like a hobby. The eternal hobby loss is a good way to head to an IRS audit.

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Bozo Tax Tip #3: Foreign Trusts

By far the worst tax schemes in the view of the IRS are offshore (foreign) trusts. In fact, trusts of all sorts—domestic and foreign—are regularly abused.

First, not all trusts are bad. Many trusts serve a legitimate purpose, such as family trusts. (Family trusts are a device to avoid probate, and are used in many states. For tax purposes, these revocable trusts are ignored.) Survivors’ trusts are another useful vehicle.

But trusts set up to avoid income tax are abusive, and very much Bozo-like. Individuals and businesses have spent thousands of dollars trying to avoid taxes (in some cases, mid five-figure amounts)…and many times these tax structures have been challenged successfully by the IRS.

And those are the domestic trusts.

Many foreign trusts are worse. These are usually organized just to avoid taxes and hide money. If you look at Schedule B on your tax return you’ll see that you are supposed to report your foreign trusts (the IRS has a special form for this, Form 3520). They work great until the IRS finds out about them.

Remember: If it sounds too good to be true it probably is.

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Bozo Tax Tip #4: Use a Bozo Accountant

Here’s another Bozo Tax Tip that keeps coming around. The problem is, the Bozos don’t change their stripes. In any case, here are some signs your accountant might be a Bozo:

– He’s never met a deduction that doesn’t fit everyone. There’s no reason why a renter can’t take a mortgage interest deduction, right? And everyone’s entitled to $20,000 of employee business expenses…even if their salary is just $40,000 a year. Ask the proprietors of Western Tax Service about that.

– He believes that the income tax is voluntary. After all, we live in a democracy, so we don’t have to pay taxes, right?

– Besides preparing tax returns, he sells courses on why the Income Tax is Unconstitutional or how by filing the magical $2295 papers he sells you will be able to avoid the income tax.

– He wants you to sign over that tax refund to him. After all, he’ll make sure you get your share of it after he takes out his 50% of the refund.

– He believes every return needs at least three dependents, no matter whether you have any children or not.

— He refuses to sign the tax return (it’s listed as self-prepared). That’s a “ghost” return, and that’s not allowed (for tax professionals).

If your tax professional exhibits any of these symptoms, please do yourself a favor and find a different tax professional

 

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Bozo Tax Tip #5: Procrastinate!

Today is April 7th. The tax deadline is just eight days away.

What happens if you wake up and it’s April 15, 2025, and you can’t file your tax? File an extension. Download Form 4868, make an estimate of what you owe, pay that, and mail the voucher and check to the address noted for your state. Use certified mail, return receipt, of course. And don’t forget your state income tax. Some states have automatic extensions (California does), some don’t, while others have deadlines that don’t match the federal tax deadline (Hawaii state taxes are due on April 20th, for example). Automatic extensions are of time to file, not pay, so download the extension form and mail off a payment to your state, too. If you mail your extension, make sure you mail it certified mail, return receipt requested. (You can do that from most Automated Postal Centers, too.)

By the way, I strongly suggest you electronically file the extension. The IRS will happily take your extension electronically; many (but not all) states will, too.  If you make an extension payment on IRS Direct Pay, the IRS will automatically file an extension for you.

But what do you do if you wait until April 16th? Well, get your paperwork together so you can file as quickly as possible and avoid even more penalties. Penalties escalate, so unless you want 25% penalties, get everything ready and see your tax professional next week. He’ll have time for you, and you can leisurely complete your return and only pay one week of interest, one month of the Failure to Pay penalty (0.5% of the tax due), and one month of the Failure to File Penalty (5% of the tax due).

There is a silver lining in all of this. If you are owed a refund and haven’t filed, you will likely receive interest from the IRS. Yes, interest works both ways: The IRS must pay interest on late-filed returns owed refunds. Just one note about that: The interest is taxable.

NOTE: If you reside in a federally declared disaster zone, you have an automatic extension of time to file and pay.

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Bozo Tax Tip #6: Declare More Income Than You Earned!

Why in the world would anyone of sound mind and body declare more income than they actually earned? He or she would owe more tax, so there’s no reason to do this, right?

No, there are actually two reasons people do this. They’re both part of the Bozo contingent, and I strongly advise you not to follow their lead, but here goes:

The first (less common) reason is to qualify for a loan (typically a mortgage). Let’s say you found your dream home, but you need to show income of $100,000 a year…but you only earned $90,000. Simple solution: Declare an additional $10,000 of income! Now you qualify, and next year you plan on cheating on your taxes by that $10,000. Of course, the fact that you committed a felony by lying on your loan application doesn’t concern you. And the IRS is unlikely to come after you for the extra income; after all, if you do get audited in some future year you will simply admit the error. Some who practice this simply file an amended return a year or so later. You own the home, you’re making mortgage payments, so no one’s the wiser, right? (We’ll continue to ignore that felony you committed.)

The more common reason is the Earned Income Credit (EIC). This welfare program is part of the Tax Code. Let’s say you earn nothing; you’re not eligible for it. But if you have some income (but not huge income), you’re eligible for “free money.” (And we’ll throw in a phony child or two or nineteen so you can get the Child Tax Credit and, voila, you have even more “free money.”) Of course it’s not free—it comes out of our tax dollars. And you’re committing a crime (lying on your tax return). However, given how the Tax Code works and the monetary reasons for individuals to seek the Earned Income Credit, the Bozo contingent looks at it as “free money.”

(That’s the reason Congress requires tax professionals to conduct a mandatory interview for people who are claiming this credit. There are penalties on tax professionals who evade this requirement. Of course, if you’re running an Earned Income Credit fraud program, you’re probably more than willing to lie on the tax professional’s mandatory questionnaire.)

A tax return is supposed to show the exact amount of income you made: no more, no less. If you get caught adding income that didn’t exist to your return for one of the two reasons I’ve highlighted you’ve committed at least one crime. I’d like Congress to end Tax Code welfare (end the Earned Income Credit) but that’s not going to happen. But if you get caught adding phony income (especially if you’re a tax professional running an EIC fraud mill) you can be sent to a very real prison.

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Bozo Tax Tip #7: Honey, You Don’t Exist!

Last week, I finished the tax return of a long-time client (call him John Smith).  We were on the phone reviewing his return and he mentioned his wife.  He was filing his 2024 tax return as “Single.”  After I congratulated him, I asked when he got married.  He replied, “last August.”  I sighed.

With weddings comes changes in tax status. Your marital status on December 31st determines your marital status for the year. If you are married, you file as Married Filing Jointly or Married Filing Separately. (In some rare cases, if you’re married you can file as Head of Household.) But you can’t file as single. Likewise, if you’re single you can’t file as married.

Perhaps it’s something in the water, but this year this is the second case of an individual who ignored his marriage license and wanted to file as single (though he was married). There’s a good reason for that, of course: you save on taxes. A big issue is rental real estate: If you’re actively involved in rental real estate you get to take losses of up to $25,000. But there’s an income cap (the deduction begins to phase out at an income of $100,000 and completely phases out at $150,000). This particular deduction is neither indexed for inflation nor does it vary if you are single or married.  (There are numerous other areas of the Tax Code that penalize marriage.)

There’s a problem taking deductions you’re not entitled to: tax evasion. It’s a Bozo act to claim things you’re not entitled to.

Marriage has its ups and downs. Claiming you’re single on your tax return when you’re married will in the long-run cause you nothing but downs. Thankfully, my client and his spouse are now discussing if they will each file “Married Filing Separately” or if they will file a joint return.

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Bozo Tax Tip #8: Publicize Your Tax Crimes on Social Media!

Social media is really, really big these days. You can follow me on X (Twitter). I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

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Bozo Tax Tip #9: Only Income Earned Outside the United States Is Taxable

A few days ago I was explaining to a client the basics of the US Tax Code: All income is taxable unless Congress exempts it; nothing is deducible unless Congress allows it. That’s the basics.

My office is in Las Vegas, Nevada. I’m a US citizen. So I owe US income tax on my earnings, right? Of course I do. But where few willingly go the Bozo contingent jumps in. Here’s a method of avoiding tax on all your income. It’s been used by celebrities such as Wesley Snipes. So let’s use Section 861 of the Tax Code to avoid tax!

Section 861 states that certain items are always considered as income from within the United States. It does not say that income earned in the US is exempt from tax. But tax protesters claim that’s the case; courts, though, basically state, ‘You must be kidding.’ This argument has never been used successfully. In an audit or in court, if you use the Section 861 argument you have no chance of success.

The US taxes its citizens on their worldwide income. That includes the United States. Indeed, if that weren’t the case I’d be out of a job. Mr. Snipes received three years at ClubFed. In the long-run it’s far, far easier to simply pay your tax.

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