Bring Me the Usual Suspects: Small Business Policy Index 2013

Posted on December 29, 2013 by Russ

The 18th annual Small Business Policy Index was released almost three weeks ago by the Small Business & Entrepreneurship Council. Congratulations are in order for my home state of Nevada; the Silver State ranked second (behind only South Dakota). Bringing up the rear are the usual suspects.

Here are the top ten states:

1. South Dakota
2. Nevada
3. Texas
4. Wyoming
5. Florida
6. Washington
7. Alabama
8. Indiana
9. Ohio
10. Utah

And the bottom ten:

41. Connecticut
42. Oregon
43. Iowa
44. Maine
45. Minnesota
46. Hawaii
47. New York
48. Vermont
49. New Jersey
50. California

The rankings include a variety of factors, and the Bronze Golden state ranked last in quite a few: personal income tax rates, individual capital gains tax rates, individual dividends and interest tax rates, and state gas taxes. California also has an added S-Corporation tax rate, and both an individual and corporate Alternative Minimum Tax (AMT). California ended up with a relative ranking of 113.637; the top state, South Dakota, has a ranking of 34.627. Yes, you’d have to deal with the South Dakota winters, but climate isn’t everything.

As noted in the introduction,

Of the 47 measures included in the 2013 edition of the Index, 22 are taxes or tax related, 14 relate to regulations, five deal with government spending and debt issues, with the rest gauging the effectiveness of various important government undertakings.

It is a comprehensive review. The states that did the best are those with low tax rates, low regulations, and lower spending and government debt.

The conclusion of the report is really presented in the introduction:

Political fantasies involving higher taxes, increased regulation, and much higher levels of government spending and debt, as we have learned at the federal level over the past nearly seven years, do not serve our economy well. The same goes, of course, at the state and local levels.

Posted in California, Nevada, South Dakota | 2 Comments

Capital Losses Must be Realized to be Taken

Posted on December 29, 2013 by Russ

With just two business days left in 2013, it may be time for you to harvest some capital losses. You’re allowed to take $3,000 of capital losses (in excess of capital gains). To be a capital loss, the transaction must be realized–you must sell the security. As long as the stock sale is placed by the 31st (the trade date), it’s a 2013 sale.

Like almost everything in tax, there are some gotchas. The biggest one is wash sales. Let’s say you sell 100 shares of XYZ on December 30th in security account 1 and then buy 200 shares of XYZ on January 15th in security account 2. That’s a wash sale–you’ve purchased substantially the same stock within 30 days of the sale. Let’s say you purchased those 200 shares on December 15th; that’s also a wash sale. It’s within 30 days from the date of sale in either direction. The IRS, in Revenue Ruling 2008-5, believes that if you sell the 100 shares of XYZ and then buy the same shares in an IRA, that’s also a wash sale!

As Joe Kristan noted, the sale must be in a taxable account. Selling stocks in an IRA won’t decrease (or increase) your tax.

So if you have a dog in your portfolio that you’ve been thinking of selling, now may be the time to do so. But don’t wait too long: Most investment advisors will be closing up early on New Year’s Eve.

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Nominations Due for 2013 Tax Offender of the Year

Posted on December 25, 2013 by Russ

With just under a week to go before 2013 is complete, it’s time for a final reminder to submit nominations for the Tax Offender of the Year. To be considered for the Tax Offender of the Year award, the individual must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

Nominations are due by Sunday night, December 29th.

Posted in Taxable Talk | Tagged | 1 Comment

Business Tax Season to Begin on January 13th

Posted on December 21, 2013 by Russ

The IRS announced that they will begin accepting 2013 business tax return on Monday, January 13, 2014. This includes corporate tax returns (Forms 1120 and 1120S), partnership tax returns (Form 1065), trust and fiduciary tax returns (Form 1041), excise tax returns (Form 720), and payroll tax returns (Forms 940 and 941). However, unincorporated businesses (those filing a Schedule C, E, or F on their Form 1040) must wait until personal tax return filing begins on January 31st.

The IRS announcement is here.

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“Unabomber” (Poker Player) Phil Laak Reportedly Hit With Tax Liens from California

Posted on December 19, 2013 by Russ

Phil Laak is a very successful poker player. According to the Hendon Mob database, he’s won more than $3,136,000 in poker tournaments. He’s also a successful cash game player. The web site TMZ has stated that Phil Laak left out paying one interested party: California’s Franchise Tax Board.

Mr. Laak allegedly owes the FTB $24,874 for his 2010 and 2011 California taxes. Mr. Laak was (and I believe still is) a California resident; assuming that’s the case, he would owe California income tax on all of his earnings anywhere in the world. Hopefully Mr. Laak will be able to quickly resolve his California tax troubles.

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FBI Agent Structures His Gambling Into ClubFed

Posted on December 19, 2013 by Russ

Law enforcement officers are supposed to know the law. That’s obvious, but one former FBI agent remembered half the law about currency (cash) deposits to his regret.

Travis Wilson is a former Special Agent of the FBI. Agent Wilson liked to gamble, and played at the casinos in California, Arizona, Nevada, and West Virginia. There’s nothing wrong with that. He left the casinos some nights with more than $10,000. Agent Wilson didn’t want his superiors at the FBI to learn of his gambling habit. Of course, there’s nothing illegal about gambling. And if Agent Wilson was a poker player and kept a log, it might have made a nice supplement to his income. That said, DOJ Inspector General Michael Horowitz is correct:

When a law enforcement agent conceals ongoing gambling activity it risks creating a security vulnerability. The DOJ OIG will partner with prosecutors and other investigative agencies to ensure that such conduct does not go unchecked within the Department of Justice.

So what was Agent Wilson to do? Deposit his cash, let his superiors know about his winning gambling habits? No, that would cause Currency Transaction Reports (CTRs) to be issued, and he didn’t want them to know about the gambling. Perhaps stopping the gambling would have been a good idea. No, that didn’t happen. Well, why not make smaller deposits (less than $10,000) so that no CTR would be issued; that would stop all the problems. No CTRs and his superiors wouldn’t know.

There’s a problem here, and it’s one that Agent Wilson should have known about: 31 USC § 5324. That’s structuring, and that’s a felony. That’s when you deliberately make smaller deposits to evade financial reporting (such as CTRs). Banks are required to have programs in place to automatically generate Suspicious Activity Reports (SARs). You may remember that SARs led to the downfall of former New York Governor Eliot Spitzer. And that’s almost certainly what happened here.

Agent Wilson should have known about structuring. But apparently he missed that lecture at the FBI Academy; instead, he’ll get some remedial education at ClubFed. He pleaded guilty to structuring $488,000 of deposits; he’s facing up to five years at ClubFed when he’s sentenced next March. He’s also a late nominee for the Tax Offender of the Year.

Posted in Gambling, IRS | Tagged | 1 Comment

The Death of the Death Master File (Sort of)

Posted on December 19, 2013 by Russ

I’ve been complaining about the Death Master File for some time. This is a wonderful tool for identity thieves, allowing them to get all the details for an individual who has gone to the great beyond. As Jason Dinesen noted, it’s almost certainly the way one of his clients was a victim of identity theft. It’s also the method used in an attempted identity theft of my partner’s deceased stepfather.

But no more. Congress, as part of passing a budget (the first budget passed in years) inserted language requiring the Commerce Department to set up a process to verify users of the Death Master File; for “normal” users, it will take three years (after a person dies) before information is released.

What does this mean? First, file a final tax return for anyone who has passed on. That will tell the IRS that there should be no more tax returns for that social security number.

Second, while the Commerce Department has 90 days to set this program up, expect them to take longer. There’s no penalty on the government if it doesn’t act expeditiously, so I’d estimate it will be sometime in April at the earliest before this is set up. That means we have one more tax season of identity theft from the death master file.

Still, as Jason said, “All I can say is — thank you Congress (how often do we say that anymore?), and it’s about time.”

Posted in IRS | Tagged , | 1 Comment

Tax and Insurance Administration Are Different

Posted on December 18, 2013 by Russ

Jason Dinesen tweeted tonight about the insurance regulation report card issued by RStreet.org. On Monday, the Tax Foundation posted about the Council on State Taxation (COST) grading states on taxpayer administration. I thought it would be interesting to compare the top states and bottom states in each.

First, the top ten:

Rank Tax Administration Insurance Administration
1. Maine Virginia
2. Ohio Vermont
3. Alaska Illinois
4. Arizona South Carolina
5. Kansas Tennessee
6. Montana Minnesota
7. Pennsylvania Missouri
8. Indiana Nebraska
9. Iowa Wisconsin
10. MA/NC/OK/UT/VA Nevada

Now, the bottom ten:

Rank Tax Administration Insurance Administration
50. California New York
49. Louisiana Hawaii
48. Alabama West Virginia
47. Colorado Florida
46. Arkansas California
45. Nevada Texas
44. Florida Washington
43. Kentucky North Dakota
42. North Dakota Montana
41. NC/VT/WA/DC Massachusetts

One conclusion that I draw is that a state appearing on both bottom ten lists is a state with a bad regulatory environment. California, Florida, North Dakota, and Washington share that dubious distinction. Indeed, California ranks the worst for tax administration and is 46th for insurance administration. It’s no wonder that business executives believe that California’s regulatory climate has miles to go before it becomes average (in ranking).

Only one state makes the top ten in both lists: Virginia. A state with a favorable regulatory climate will attract business, and that’s something that Virginia is doing.

Finally, I do need to point out that states that rate poorly in tax administration but do not have a personal income tax lead to some interesting scores on the COST list. The states without a corporate tax return (such as Nevada) should have a negative score in the Corporate Return Filing Burden column imho–these are states where life is easy for tax administrators.

My thanks to the Tax Foundation, RStreet.org for publishing these charts and to Jason Dinesen for pointing out the insurance information.

Posted in California, Nevada, Virginia | Comments Off on Tax and Insurance Administration Are Different

2014 Tax Season to Begin on January 31st

Posted on December 18, 2013 by Russ

The IRS announced today that 2013 personal tax returns will begin to be accepted on January 31st. Since most states piggyback onto the IRS’s computer system, most state returns can also begin to be filed on January 31st.

The 2013 tax season began on January 30th on a limited basis; it took the IRS several weeks before they could accept all returns. It appears that this coming year the full tax season will open at the end of January, so that’s a plus in comparison to the most recent tax season.

Of course, most taxpayers will be unable to file until later in the year. The deadline for issuing W-2s and most 1099s is also January 31st. However, brokerage account 1099s do not have to be issued until February 18th this year (the 15th falls on a Saturday, the 17th is President’s Day, so the deadline gets moved back three days). Additionally, the IRS routinely grants extensions to brokerage firms that need more time. Unfortunately for preparers, that has led to tax season being more and more compressed each and every year. I doubt the upcoming tax season will be any different.

For our clients, we plan on beginning distribution of Organizers and related documents next week.

Posted in IRS, Taxable Talk | Tagged | Comments Off on 2014 Tax Season to Begin on January 31st

IRS Provided Some Good Tips this Morning

Posted on December 17, 2013 by Russ

The IRS sends out tax tips, and this morning’s tips are worthy of a repeat: Start a filing system, make charitable contributions, and contribute to retirement accounts.

The IRS first noted that individuals should start a filing system.

If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.

The IRS is absolutely right here…except about the shoebox. Please don’t send me a shoebox (unless you want your bill to go up a lot). If you document, document, and document, you’ll be in great shape not only to prepare your returns but in case your return is audited.

The IRS then suggested making charitable contributions.

If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.

Contributions are only deductible if made to a 501(c)(3) organization. I’m on the Board of a tax-exempt organization but we’re not a charity (it’s a 501(c)(7)). The IRS tool is handy. As the IRS notes, save your receipts; you need to have a written record for all donations of money to get the deduction.

The IRS last notes that contributing to retirement accounts is a good idea.

I agree: You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

If you’re self-employed, you have even longer to start and contribute to a SEP IRA: the latter of April 15, 2014 or your timely filed return including extensions.

Once the clock turns to 2014 (and that’s in two weeks!), there isn’t much left that you can do that will impact your 2013 tax returns. So if you are thinking about making a charitable donation or starting a system to keep track of your expenses, now is a good time to act.

Posted in IRS | Tagged | 1 Comment