Still Time for NOLs

Posted on August 25, 2010 by Russ

There’s still time to claim your (up to) five-year carryback on a Net Operating Loss (NOL). You have until October 15th to claim this for losses from either 2008 or 2009. Joe Kristan has more.

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On the Whole, I’d Rather Not be in Philadelphia

Posted on August 23, 2010 by Russ

Suppose you are a blogger that accepts advertising, and you reside in Philadelphia. You make $10 a year from the small blog advertisements you accept. It’s not much, but it’s something…until you get the bill from the City of Philadelphia for $300.

Philadelphia has a Business Privilege Tax that requires a license. A lifetime license costs $300; you can also buy a license for $50 a year. You will then also have to file the BPT returns each year and pay any tax owed. For the small-time blogger, it probably makes sense to avoid selling advertising as your $10 of profit just became at minimum a $40 loss.

Is Philadelphia within its rights to require a blogger who sells advertising to obtain a business license? Certainly. Overall, does it make sense? Well, that should be obvious.

Of course, Philadelphia is taking this one step further. The City of Brotherly Love requires a BPT license for, “any business…engaged in a for-profit activity in the City of Philadelphia.” So if you are a blogger in Philadelphia and set aside space for advertising on your blog but don’t sell ads, in the view of Philadelphia you need a BPT license. It’s not clear if Philadelphia is enforcing that part of their BPT yet, but they could.

There’s a solution, of course: move. If the City of Philadelphia has a bad tax structure, consider a nearby suburb. Unlike W.C. Fields, you may be far better off not being in Philadelphia.

Posted in Pennsylvania | Tagged | 1 Comment

Alabama Highest in Sales Tax Rates

Posted on August 23, 2010 by Russ

If you don’t want to pay sales tax, go to Delaware, Montana, New Hampshire, or Oregon. On the other hand, if you like high sales taxes, head to Alabama. That’s the crux of a report issued by the Tax Foundation.

The report ranks the 25 largest cities by sales tax. Not surprisingly, Portland, Oregon has the lowest tax rate among cities with populations over 200,000 (0%); however, it’s not one of the 25 largest US cities. For those, you need to head to either Detroit or Baltimore (6%). On the other hand, Los Angeles and Chicago are on top at 9.75%. In cities with populations of 200,000 or more, Irvine ranks 26th at 8.75%. On top at 10% are Birmingham and Montgomery, Alabama.

It’s just a reminder that not only do we pay income tax but we must all pay a host of other taxes. Sales tax is the most obvious, but our government today bombards us with a host of ‘user fees’ that are just disguised taxes.

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Financial Advice from Zsa Zsa Gabor

Posted on August 23, 2010 by Russ

Zsa Zsa Gabor has led a long and interesting life. From the UK Telegraph, here are a couple of her one liners:

I learned in school that money isn’t everything. It’s happiness that counts. So Momma sent me to a different school.

I am a marvelous housekeeper. Every time I leave a man I keep his house.

There’s more in the short article–it’s well worth your perusal.

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The Answer: $64.25

Posted on August 19, 2010 by Russ

As part of the IRS announcement today on the new PTIN regulations, we now what it will cost tax professionals to either re-register their PTINs or to obtain a new PTIN: $64.25.

Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.

As I noted in the previous post, there is opposition to the new regulation, so it may be a month or two before we have to start paying the $64.25.

Additionally, the IRS announced changes to Circular 230, the means that the IRS regulates tax professionals.

The proposed regulations (REG-138637-07) would clarify the definition of practice, establish a new registered tax return preparer designation and the eligibility requirements for becoming a registered tax return preparer, repropose standards with respect to the preparation of tax returns, revise rules regarding continuing education providers, and amend multiple other sections of Circular 230.

Tax professionals and other interested parties have until Oct. 7, 2010, to submit comments regarding the proposed regulations.

I haven’t found the new proposed regulations online (yet); I’ll likely post about them once I read the proposal.

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PTINs and the SEE: Unintended Consequences

Posted on August 19, 2010 by Russ

The IRS announced today that as part of the new PTIN procedure the IRS will temporarily stop issuing new PTINs on Monday, August 23rd. No big deal, right? After all, in a month or two you will be able to apply for a PTIN.

For most individuals, that’s the case. However, if you’re going to take the Special Enrollment Examination (SEE)–the test to become an Enrolled Agent–you need a PTIN. Let’s say you were unaware of this, and you haven’t applied for a PTIN. Let’s further assume next Tuesday you are ready to take Part 1 of the exam, and the testing company tells you of this requirement. Well, if you don’t have a PTIN, you can’t take the exam. Prometrics, the company that administers the exam, can’t issue PTINs. You’re stuck until the IRS resumes issuing PTINs. Given that there is some opposition to the new PTIN regulations (the AICPA has complained about them), it’s possible that it could be November before you can obtain the PTIN. That’s a nice Catch-22.

I strongly recommend anyone who is planning on taking the SEE to apply for a PTIN today. Go online to the IRS’ website and download Form W-7P. Print it out and fax it to the number noted on the application. You’ll receive your PTIN in the mail in a couple of weeks. This is a case where it’s far better to be safe than sorry.

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29 Years Ago

Posted on August 17, 2010 by Russ

Today’s Orange County Register reminded me of an occurrence 29 years ago. On August 13, 1981, President Ronald Reagan signed into law the Kemp-Roth Tax Cut (the Economic Recovery Act of 1981). At the time, the economy looked horrible: inflation was high, unemployment was high, and the word ‘stagflation’ was in common use. The tax cuts led to an economic boon.

The Register gets this right:

On the 29th anniversary of the Reagan tax cuts, the political elite in Washington, D.C, led by President Obama, should heed the lessons of the 40th president. Burdening people further with taxes is the last thing we ought to be doing – we should be putting money back in the pockets of the taxpayers.

Today, the economy looks pretty miserable. While inflation isn’t high, unemployment is even higher, and there are no signs of economic growth. Unfortunately, President Obama isn’t a fan of President Reagan. He and his Secretary of the Treasury (Tim Geithner) are proposing tax increases (the ending of the Bush Tax cuts). The likelihood of tax increases stimulating the economy is the same as the Cubs making this year’s World Series.

Posted in Legislation | Tagged , | 1 Comment

An Income Tax in Washington State?

Posted on August 16, 2010 by Russ

As I’ve often told friends and clients, Washington state has every tax known to man except an income tax. That may change this fall…and not in a good way.

There will be a ballot measure to add an income tax to supposedly only the highest income Washingtonians. Those who earn over $200,000 ($400,000 if married filing jointly) would pay a 5% tax; those who earn over $500,000 ($1 million if MFJ) would pay 9%. However, as noted in the Wall Street Journal the liberal-leaning Evergreen State legislature could increase the scope and rate of the tax in two years; in theory, every Washingtonian could get hit with an income tax.

I’m certain the Nevada Development Authority is rooting for the passage of Initiative 1098. We know that the unions are; the Service Employees International Union is pushing for its passage.

Peter Pappas has more.

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Did the Governator Go to Mars?

Posted on August 16, 2010 by Russ

Earlier this week Governor Schwarzenegger told an audience in Silicon Valley, “There’s a good shot that we will have a budget in the next two to three weeks.” The Democrats are proposing an increase in the income tax (and a smaller decrease in sales taxes) to close the $19 billion deficit. Republicans in the legislature are opposed. There must be Republican support in order for a budget to pass the legislature (it takes a two-thirds vote to pass the budget). In fact, Republican legislative leaders consider the current proposal a non-starter.

There have been no budget talks and none are scheduled.

I can only conclude that the Governor is using extremely wishful thinking. As of now, there’s no sign that the budget stalemate will end any time soon. Indeed, October is far more likely than August as to the month the stalemate ends.

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Another Untrustworthy Trust for a Doctor

Posted on August 16, 2010 by Russ

There’s nothing illegal about having a foreign (offshore) trust. However, if you use that trust to shelter (hide) income, and if you fail to disclose the trust, and if you lie to federal agents about the trust, you can find yourself in a world of problems.

Take the case of Dr. David Alan of Rices Landing, Pennsylvania (near Pittsburgh). Dr. Alan reported taxable (joint) income of $20,254 in 2001 and just $38 in 2002. The US Attorney’s Office alleges that the true income was $148,785 in 2001 and $242,740 in 2002. Dr. Alan allegedly decided to avoid the hassle of a false tax return in 2003 and 2004 by simply not filing a return for those years.

So what did Dr. Alan do? He allegedly formed an offshore trust on Nevis, and island in the West Indies. He funneled income into the trust and a shell corporation and used a mail drop in Canada, too. He then supposedly used false invoices to ‘decrease’ his income (by allegedly inflating his cost of goods sold). He then allegedly took the leftover money and used it for personal expenses. Finally, he allegedly lied to federal agents about all of this. That’s not a trifecta but a quinfecta of troubles for the doctor.

Given that Dr. Alan is accused of under-reporting, in total, almost $900,000 of income, he’s facing a lengthy stay at ClubFed if convicted of the charges.

News Stories: Pittsburgh Tribune-Review, Observer-Reporter

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