Things Have Changed Just a Bit Since 1943

Posted on March 28, 2012 by Russ

Back in 1943, Walt Disney released this short for the war effort. Back in 1943, it was the income tax to sink the Axis. Just five years later, Rex Stout wrote,

A man condemning the income tax because of the annoyance it gives him or the expense it puts him to is merely a dog baring its teeth, and he forfeits the privileges of civilized discourse. But it is permissible to criticize it on other and impersonal grounds. A government, like an individual, spends money for any or all of three reasons: because it needs to, because it wants to, or simply because it has it to spend. The last is much the shabbiest. It is arguable, if not manifest, that a substantial proportion of this great spring flood of billions pouring into the Treasury will in effect get spent for that last shabby reason.

It’s arguable that a very substantial portion of the funds heading to the Treasury are now spent for that last shabby reason.

In any case, let’s head back to 1943 for a few minutes:

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Annual Blog Hiatus

Posted on March 26, 2012 by Russ

With just about three weeks left before Tax Day, it’s time for our annual blog hiatus. We’ve written our annual top ten Bozo Tax Tips (they’ll start appearing next week), but between now and April 17th our clients are paying us to get their work done. Of course, if anything, really, really big in the world of tax happens we’ll interrupt the hiatus and post about it. Otherwise, to you and our fellow tax bloggers, have a Happy Tax Day!

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Last Mailbag Prior to Tax Day, With an Emphasis on Being Abroad

Posted on March 25, 2012 by Russ

We get more mail:

I was thinking of taking a trip to Belize in mid-April to fish. My accountant told me that if I’m out of the country on April 17th, I get a two-month extension on my taxes and I find that hard to believe.

It’s true: If you are outside of the United States on April 17th, you get an automatic two-month extension until June 15th; you need to note this on your tax return (filed by June 15th). You will owe interest but there are no penalties. Note that if you have a state tax return, not all states follow this automatic extension.

I worked in Australia last year, and my employer naturally withheld Australian income tax on my income. I can’t believe I have to pay US income tax, too.

It’s true: The United States is one of the few countries that taxes its citizens on their world-wide income. However, there is a tax credit available for your foreign income that has already been taxed. It’s taken on Form 1116. In essence, you will pay the higher of the two countries’ tax rates. Note that the required calculations do get somewhat complex, so you may want to discuss this with your own tax professional.

My father-in-law just passed away, and my husband this month [March 2012] received his bank account in a London bank. Is there anything I need to do for our 2011 taxes?

First, my condolences on your loss.

Assuming you and your husband had no foreign financial accounts in 2011, there won’t be anything related to this that you need to do for your 2011 returns. However, you will have a foreign financial account that may need to be reported for your 2012 tax returns. This involves filing a Foreign Bank Account Report (FBAR, Form TD F 90-22.1) which is filed separately from your tax return, disclosing the foreign account on Schedule B, and possibly filing Form 8938. The requirements depend on balances in the accounts, and the penalties are ridiculous if you make even a minor mistake. I strongly advise you seek a tax professional for this situation. You do have some time for this as it appears this will be a 2012 tax return issue (reported in 2013).

That’s it for our mailbag for this tax season.

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Politics First, Solving Problems Second: Dems to Schedule Vote on “Buffet Rule” for April 15th

Posted on March 25, 2012 by Russ

Today on CBS’s Face the Nation, Senator Chuck Schumer (D-NY) said that Democrats will schedule a vote on the “Buffet Rule” for April 15th. The so-called Buffet rule would raise income tax rates on anyone making $1 million or more to a minimum of 30%. Democrats promote the rule as stating it will solve the problems of the deficit. Unfortunately, the truth is quite different: The non-partisan Congressional Budget Office says it will raise only $47 billion over ten years. This year’s budget deficit–that’s the budget deficit for just one year–is projected to be well over $1 trillion.

The CBS story says the vote will be on April 15th (a Sunday); this Providence Journal story says it will be on Tax Day, April 16th. Democrats apparently haven’t checked with the IRS or their tax professionals: Tax Day this year is Tuesday, April 17th. Like many things comes out of the left in Washington, it’s a proposal that sounds good, but doesn’t do what it’s supposed to do.

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On Wednesday the Rabbi Will Go to ClubFed

Posted on March 19, 2012 by Russ

I’ve reported on Spinka before. The Grand Rabbi of Spinka, Naftali Tzi Weisz, was jailed for two years for his part in a charitable donation (but not really charitable donation) tax fraud scheme.

Apparently, there’s more to investigate. A Grand Jury in Los Angeles summoned another rabbi, Moshe Zigelman, to testify. He refused, citing the Jewish principle of “mesira.” As the Los Angeles Times has reported, he believes he must answer to a higher authority.

Unfortunately for the rabbi, the judge Margaret Morrow disagrees. The Volokh Conspiracy has an interesting discussion of the legal issue of whether the First Amendment trumps the government’s right to subpoena. For now, the government has won; he must report to prison on Wednesday.

Of course, when I think of “higher authority,” this television commercial from 1975 comes to mind.

Posted in Tax Fraud | Tagged | 1 Comment

Another One Bites the Dust

Posted on March 19, 2012 by Russ

Yet another late night infomercial house has fallen into trouble. As Janet Novack on Forbes reported, “Owe The IRS? TaxMasters Bankruptcy Shows Why Not To Get Help From TV Pitchmen.”

TaxMasters, like all of the late night infomercial firms, says that they can settle your tax troubles for “pennies on the dollar.” Sure they can, as long as your balance sheet looks like TaxMasters’s. As I’ve said before, anyone can apply for an Offer in Compromise. If you really, really can’t pay your tax debt, you’ll have a chance of having an OIC accepted. On the other hand, if you are making a lot of money and you want an OIC, well, I have a bridge to sell you.

The worst thing about some of these firms (I can’t specifically cite TaxMasters, as I don’t know their business model) is that they wanted huge retainers up front…huge non-refundable retainers. That was apparently the model of Roni Deutch (the now closed “Tax Lady”), which led to a lot of unhappy customers.

I’ll repeat what I’ve said before: If it sounds too good to be true, it probably is.

Here’s a little music to wake up to:

Posted in IRS | Tagged | 2 Comments

What’s $146.3 Million Among Friends?

Posted on March 15, 2012 by Russ

I can answer that question! $146.3 million is the additional amount of tax collections that California projected but did not receive in February. What’s worse is that the shortfall in the fiscal year-to-date is $1.3 billion.

I’ve been preparing plenty of California tax returns, and those are generally coming in at lower amounts of taxes for 2011 in comparison to 2010. Now, I’m just one tax professional so what I see may not match the overall trend; however, I do speak with my former colleagues in Orange County and none of them are seeing a trend of clients owing more money.

The Orange County Register noted, “Whatever the case, this is the umpteenth time the controller has reported revenues have come in below projections this year, suggesting that that Legislature and governor will have yet another sizable budget deficit to address come June.” The Register is correct: The shortfall will be in the billions, likely between $10 and $16.

The problem is the same one I’ve been writing about for the last seven years: You can’t spend more money than you take in. There needs to be massive cuts in the bureaucracy in California, cuts to pensions of state employees, and cuts in regulations and taxes that drive businesses (and revenues to the state) from California. Instead, Democrats in Sacramento are proposing tax increases.

Even if the tax increase passes on the November ballot, come June 2013 the California legislature will again be talking about budget deficits. Until the fundamental problem is addressed, a Band-Aid placed on the wound won’t help.

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I Was #254

Posted on March 14, 2012 by Russ

Investors Business Daily has an article today on the Sick Man of America: California:

In 2011, more businesses (254) quit California than the year before (202), which was a high-water mark over 2009 (51). Last year, roughly five businesses left in any given week, one more than left in each week of 2010 when the average was 3.9.

Well, as one of those 254 businesses that fled the Bronze Golden State, I can say that Nevada has been a wonderful change. California may have a far better meteorological climate but from a business standpoint Nevada is far, far better.

What does California need to do to improve its business climate? Cut regulations, cut taxes, cut the pervasiveness of government. What are Governor Jerry Brown and the Democrats in Sacramento proposing? More taxes, more regulations, more of the same.

I’ll take the over on 254 for 2012.

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When Buying a Business in Texas…

Posted on March 14, 2012 by Russ

…ask for the Certificate of No Tax Due from the Texas Comptroller of Public Accounts. Alan Sherman of the Texas State & Local Tax Law Blog explains why.

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Mailbag Update

Posted on March 13, 2012 by Russ

We get mail:

I got married last June and my wife says we need to file as single because we weren’t married for the whole year. Can you set her straight?

Your marital status on December 31st is your marital status for the year (with a few exceptions). If you are married on the last day of the year, you are married for the entire year. You and your wife need to file a Married Filing Jointly return or a Married Filing Separate return.

The exceptions include spouses who do not live together for the entire year and where a spouse dies during the year.

I won a €20,000 jackpot at a casino while traveling in Europe last year. My accountant told me I have to claim that income. That can’t be right, right?

It’s correct. The US taxes you on your worldwide income, even money won in a casino in Europe. You need to convert the Euros to Dollars and include the gambling income as part of line 21, Other Income. The good news is that you get to deduct your gambling losses (up to the amount of your winnings) as an itemized deduction on Schedule A.

I spent a month working in New York last year for my business. My W-2 has New York withholding along with withholding for my home state, California. It appears that both states taxed the same income and that can’t be right! Or can it?

Well, you were working in New York, so you have New York source income, and New York definitely has the right to tax you for that time (and any other New York source income you might have). You’re a resident of California, so you owe California tax on all of your income.

That said, you do get to take a tax credit for the double-taxed income. In this manner you effectively end up paying the higher of the two states’ income tax rates.

I’m looking for a tax professional in the Philadelphia area familiar with the Adult Entertainment Industry.

That can be read in so many different ways….

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