Tax Foundation Releases State & Local Tax Burdens

Posted on October 24, 2012 by Russ

The Tax Foundation released its annual State-Local Tax Burden Ranking. In what won’t be shocking to most readers, New York came in first…and that’s not a good thing. Here are the ten worst states:

1. New York 12.8%
2. New Jersey 12.4%
3. Connecticut 12.3%
4. California 11.2%
5. Wisconsin 11.1%
6. Rhode Island 10.9%
7. Minnesota 10.8%
8. Massachusetts 10.4%
9. Maine 10.3%
10. Pennsylvania 10.2%

The ten best states (those with the lowest tax burdens):

41. South Carolina 8.4%
42. Nevada 8.2%
43. Alabama 8.2%
44. New Hampshire 8.1%
45. Texas 7.9%
46. Wyoming 7.8%
47. Louisiana 7.8%
48. Tennessee 7.7%
49. South Dakota 7.6%
50. Alaska 7.0%

One observation that the Tax Foundation made is that most states have similar burdens. Note that the burden being measured is on taxes residents pay and not taxes on tourists (such as hotel excise taxes). Numerous states fall between 8.7% and 9.7%.

One interesting observation I have is that almost all of the low-tax states are “Red” states (they tend to vote Republican) while almost all of the high-tax states are “Blue” states (they tend to vote Democratic). I suspect that this is not a coincidence.

Posted in New York | Tagged | 1 Comment

Bad States for Gamblers

Posted on October 22, 2012 by Russ

It’s been a while since I’ve listed out the bad states for gamblers. Here’s an updated list. Make sure you read the notes because while all of these states have tax systems that are problematic for gamblers, some impact amateurs while others impact professionals. Note that I do not cover the laws that impact gambling here (such as Washington State’s law that makes online gambling a Class C felony).

Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [6]
Washington [7]
West Virginia [1]
Wisconsin [1]

NOTES:

1. CT, IL, IN, MA, MI, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)

2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).

3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.

4. Mississippi only allows Mississippi gambling losses as an itemized deduction.

5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.

6. Ohio currently does not allow gambling losses as an itemized deduction. However, effective January 1, 2013, gambling losses will be allowed as a deduction on state income tax returns. Unfortunately, those gambling losses will not be deductible on city or school district income tax returns, so Ohio will remain a bad state for amateur gamblers.

7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.

Posted in Connecticut, Gambling, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Minnesota, Mississippi, New York, Ohio, Washington State, West Virginia, Wisconsin | 1 Comment

Thoughts on the Reid/Kyl Online Poker Bill

Posted on October 21, 2012 by Russ

On Friday, copies of the purported Internet Gambling Prohibition, Poker Consumer Protections, and Strengthening UIGEA Act of 2012 appeared. The draft of the legislation is just that: a draft. The actual legislation that might pass Congress in the lame duck session could be wildly different. In any case, I’ve read through the legislation and have some thoughts on it (on the tax, poker, and public policy aspects of the measure). Because some of you are not interested in this legislation, I’ve put the analysis in the cut below.

Posted in Gambling | Tagged , , , | 2 Comments

L.A. County Assessor Arrested in Corruption Probe

Posted on October 18, 2012 by Russ

John Noguez, Los Angeles County Assessor, Ramin Salari, a property tax consultant, and Mark McNeil, an aide to Mr. Noguez, were all arrested on charges of conspiracy and misappropriation of public funds. The allegation is that Mr. Salari paid (bribed) Mr. Noguez to reduce assessments on properties owned by his clients. Mr. McNeil is the chief appraiser in the office according to this AP story.

The Los Angeles Times reports that,

The scandal came to light earlier this year when prosecutors acknowledged that they were looking into complaints from assessor’s office employees who said they were under pressure to lower property taxes for clients of prominent Noguez contributors, including Salari.

This isn’t the first inkling of trouble in the assessor’s office. Back in May, Scott Schenter, a former appraiser, was arrested and charged with more than 60 felonies. Mr. Schenter alleges that Mr. Noguez asked him to assist contributors to his campaign (including Mr. Salari).

Needless to say, it’s a mess. All four of the accused individuals are looking at lengthy terms in state prison if found guilty of the charges.

Posted in California | Tagged | 1 Comment

Why the 2013 Tax Season May Give Me Lots More Gray Hair

Posted on October 18, 2012 by Russ

The closing days of a tax season are always hectic; such was the case for us this year. Yet I may look back fondly at this past tax season next year. The reason has to do with the election.

If you live in a swing state (like I do) you’ve been bombarded with television advertising on the candidates. Today, President Obama reiterated that he won’t sign a bill to block the year-end tax hikes unless there are tax hikes on the wealthy. If President Obama wins reelection, he’ll end up having to negotiate with the Republican House (and possibly a Republican Senate in January).

But what happens if Mitt Romney wins? In today’s Gallup Poll, he’s up by 7 among likely voters so this definitely could happen. And what were to happen if the Republicans also win the Senate (or it ends in a 50-50 tie, to be decided by whichever party holds the Vice Presidency), also a definite possibility? Republicans would wait for President Obama to leave office and on January 21st legislation might pass extending many of the Bush tax cuts.

There’s a problem here, though: The IRS won’t be able to update their computer systems until after the legislation passes in late January. A few years ago, there was a tax season where we couldn’t file most returns until mid-February because Congress waited until mid-December to pass extender legislation. Yes, it could be mid-March before we’re able to file many tax returns. Imagining a compressed one-month “normal” tax filing season is not pleasant for a tax professional.

Unfortunately, I see this as a definite possibility. On the bright side, I’m almost completely gray already….

Posted in IRS | Tagged | 2 Comments

FTB and BOE Release List of 500 Biggest Tax Delinquents

Posted on October 18, 2012 by Russ

California’s Franchise Tax Board released its list of the 500 largest income tax delinquents on Tuesday. New to the list is a notation of whether or not the individuals have state licenses. I’m amazed at how many attorneys are on the list. Lawyers, after all, are one of three groups of professionals with full practice rights in front of the IRS. That doesn’t seem to help them here. But I digress….

Leading the list is Halsey Minor, founder of CNET. He filed bankruptcy earlier this year. He’s been on the list for a while, and given the bankruptcy, he’ll likely be on it for some time. He owes the FTB $10.7 million.

There are some celebrities on the list: Dionne Warwick ($2.6 million), Joseph Francis ($819,000), and Steven Seagal ($348,000) were highlighted by Joe Kristan. I also noticed Ronald Isley ($407,000) among the individuals.

Joseph Francis makes a second appearance on the list. His Mantra Films owes $1.2 million (the FTB added officers to the list for business entities which made it easy for me to spot this). In total, Mr. Francis and his businesses owe the FTB more than $2 million.

It took $140,000 in tax debt to make the FTB list.

The Board of Equalization also released its list of the 500 largest sales and use tax delinquents. Leading the list (again) is California Target Enterprises of Downey (owing $18.5 million). The company went bankrupt in 1992, so like Mr. Minor, good luck to the BOE in getting anything from them.

The only celebrity I recognize on the list is Bruce McNall, the former owner of the Los Angeles Kings and former resident of ClubFed (he was convicted of conspiracy and fraud back in the 1990s). Mr. McNall owes $7.8 million to the BOE, and it’s likely that collecting from his will be nearly as difficult as collecting from California Target Enterprises.

It took $436,000 to make the BOE list.

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FICA Limit Up 2.8%; Social Security COL Up

Posted on October 18, 2012 by Russ

The Social Security Administration announced that the maximum earnings subject to the full 6.2% FICA tax will be $113,700 in 2013, up 2.8% from the $110,100 in 2012. Note that the FICA tax itself had been reduced temporarily to 4.2% in 2012. Next year, the full 6.2% will be collected from the employee, so the maximum FICA tax itself could take as much as $2,425 from many employees. There is no maximum dollar limit on the 2.9% medicare tax (1.45% for employees and employers).

Meanwhile, social security recipients will see only a 1.7% cost-of-living increase in their benefit payments. I’ll leave it to you to form your own opinion on whether or not this makes social security a Ponzi scheme or not.

Posted in Self Employment Tax | 2 Comments

I am not a Crook

Posted on October 16, 2012 by Russ

A friend sent me a link to a news story; she headlined it in her email, “Russell Fox caught as tax evader; must repay 200,000.” And then I took a look at the story:

A fish and chip shop owner who was caught dodging tax has been given two weeks to pay £200,000 back to the tax office – or spend three years behind bars.

Russell Fox, who lives in Maidstone, was caught out by HM Revenue and Customs investigators who found he had been lying about the income of his business, the Little Fish Shop in Sandgate, for six years.

Maidstone is in England, near Kent. I don’t own a fish and chips store.

Seriously, that Mr. Fox (no relation to me) appears to have some serious tax troubles. He didn’t pay his income tax, he didn’t pay his health insurance fees, and he cheated on the Value Added Tax (VAT). Adding to his troubles, he was apparently caught destroying evidence. I don’t care if you’re fighting the IRS or HMRC, getting caught destroying evidence is not a good idea.

As noted in the quote, that Mr. Fox must make restitution of £200,000 (over $322,000 at today’s exchange rate). That will buy a lot of fish and chips.

Posted in Tax Evasion | 1 Comment

On Death, Taxes, and Estate Planning

Posted on October 16, 2012 by Russ

Today is October 16th. I just had a client fax me his signature documents, hoping that a day late isn’t a dollar behind. He’s getting a refund, so it won’t be that big of a deal.

October 15th and 16th are always difficult days for me. In 2006, my father passed away on the evening of October 15th. That was a Sunday night, so the tax deadline was the next day. I only had one tax return left to file, and I did that on Monday morning, October 16, before heading to my mother’s home near Los Angeles. By contrast my firm likely filed over 100 returns yesterday. Most of these returns had already been completed (we were just waiting for signature documents), so it was just pressing buttons.

But that’s not the point of this post.

I want to talk about our mortality. We are mortal. At some point in the future, I won’t be here. Thanks to the Internet, my words will be here. My family will be able to see pictures of me, but I won’t be here. That’s reality.

Back in the early 1990s my parents met with an estate planning attorney. They had a will, but my parents owned a home in an expensive area. It was likely that upon death 55% of their assets would go to the estate tax. They sought professional planning, and regularly met with the estate planning attorney to update the plan. When my father passed away, my mother had almost no economic worries because they planned well.

I sought professional planning a few years ago. I own a home, and while the estate tax exemption today is over $5 million, it could be just $1 million in 77 days. Look at your assets. Consider the value of your life insurance, the value of your 401(k) or IRAs, the value of your home. Is it over $1 million? And even that $1 million figure is too high in some areas. Some states have estate taxes, and they can begin at levels well under $1 million.

Do you have children? You have a will, of course, even if you haven’t written one. Everyone does, courtesy of your state. If you don’t want the state choosing who cares for your children should something happen to you, get professional help today. Make that appointment now.

I’m often asked about inexpensive services, such as LegalZoom and store-bought will kits. You get what you pay for is a common theme of the world. If you have a simple estate, and you’re not likely going to be subject to an estate or inheritance tax (yes, some states have inheritance taxes), and all you need is a will to make sure that your children are cared for by the ones you choose, this may be a possible choice. For anyone else, spend the money and seek out a local estate planning attorney.

Estate planning is a touchy subject, in that we feel immortal. But we’re not, and as the saying goes, “There but for the Grace of God go thee.” Life is fleeting and temporary, but the wealth you’ve earned doesn’t have to be. Get good planning. If you are one of our clients and would like a referral to an estate planning attorney, contact our office and we’ll put you in touch with someone local to you. This is definitely an area where local advice is necessary. When I moved from California to Nevada, I found that much of the paperwork that I had needed to be redone. This was especially true with my health care directive; Nevada law is different from California law.

Whether or not you believe in the hereafter, sooner or later you won’t be here. While my hope is that all my clients will outlive me (while I live a normal lifespan, of course), the cold hard reality of statistics refutes that. Like the tax filing deadline, you can’t make changes to your estate plan once you’re gone.

Posted in Estate Tax | Comments Off on On Death, Taxes, and Estate Planning

The End of Procrastination Season Is Upon Us

Posted on October 13, 2012 by Russ

Monday is October 15th. Individual tax returns on extension are due. What do you do if you haven’t done anything except procrastinate? It’s time to file your return.

The IRS website has all the forms. Dig up all of your paperwork (W-2s, 1099s, etc.) and get working on it. If you’re lucky, you will find a tax professional who isn’t buried with his or her own procrastinators. If not, you can still find software to help you. But don’t wait until October 16th; your extension will be invalid and you will owe the failure to file penalty–5% of the tax due per month late (to a maximum of 25%).

So let’s say it’s 7:00pm and you’re now ready to file your paper return; how can you get it postmarked with an October 15th postmark? That’s far easier than it used to be. Many post offices have Automated Postal Centers (there’s even one in the supermarket I go to). If you select certified mail (which you can do with the machine–it will even print out the certified sticker and the return receipt), and pay for the postage at the APC, the stamp label printed by the APC will note the date of purchase. At 11:50pm on October 15th, it will say October 15, 2012…and your return will be considered timely filed.

Of course, if you file electronically you don’t have to worry about the post office. As long as your return is filed by 11:59pm on October 15th, it is considered timely filed. If you are going to use the Postal Service, spend the money for certified mail, return receipt requested. You will get proof that you mail your return timely and proof that the tax agency received it.

Finally, next year consider not procrastinating. Your tax professional will appreciate it.

Posted in IRS | Tagged , | 1 Comment