Last week I was notified that Taxable Talk made a list of the top 50 accounting blogs. It’s nice to be listed with such worthy blogs.
Taxable Talk didn’t make Dan Meyer’s list of the Twelve Blogs of Christmas this year (I have made it in previous years). It’s another list of worthy bloggers.
Sure, California has problems. Our legislators can’t figure out that if you have $70 billion coming in that you can’t spend $90 billion. Still, there’s plenty of businesses located in the Bronze Golden State (mine included).
Then there’s Michigan. How would you like to be the owner of a small daycare facility and find out you were in a union? “But I’m the owner of a business,” you tell the state. “Tough,” they reply. Yes, that’s really occurring in Michigan.
Is it any wonder why on a per capita basis Michigan’s budget deficit is worse than California’s?
The IRS released their Fiscal Year 2009 Enforcement Results last week. Business audits are down while individual audits are up. If your income is over $1 million, you have a 6.42% chance of being audited. If your income is under $200,000, you have a 0.96% chance of being audited. Note that these number include both correspondence audits (where everything is done through the mail) and face-to-face audits. There are 21,059 individuals employed in enforcement by the IRS (revenue agents, revenue officers, and special agents).
The joy of living in California. The wonderful climate (it’s going to be 70 and sunny today). The beach is just a 15 minute drive from my house. I live in the safest city in the country. And our state has the most dysfunctional government in the world.
Governor Arnold Schwarzenegger (R-CA) will be asking Uncle Sam for $8 billion to help close the state’s usual $20 billion deficit. Unfortunately, the Democrats in the legislature know only one method of decreasing a deficit (raising taxes) while the Republicans prefer cutting programs. When an unstoppable force meets an immovable object nothing happens.
Such is life in the Bronze Golden State
Government efficiency is usually thought of as an oxymoron. Yet another example of this has come to light—this time, in the world of tax. The Treasury Inspector General for Tax Administration (TIGTA) audited the IRS’ assignment of Individual Taxpayer Identification Numbers (ITINs) and found:
“TIGTA reviewed a sample of ITIN applications and found that almost 70% contained significant errors and/or raised concerns that should have prevented the issuance of an ITIN. The IRS estimates that it has issued more than 14 million ITINs as of December 2008.”
And we’re going to be giving healthcare work to the IRS, too?!?
In one week I’ll release the name of 2009’s Tax Offender of the Year. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.
I’ve thought of a couple of possibilities, but I’m sure you may have an idea or two. Simply email them to me (click on Contact Russ Fox on the right) or leave a comment on this post.
I’ll announce the 2009 Tax Offender of the Year in one week.
I’ve previously reported about Naftali Tzi Weisz, the Brooklyn rabbi who really like soliciting donations…but also secretly gave back much of the money. Rabbi Weisz pleaded guilty to Conspiracy earlier this year, and yesterday was sentenced to two years at ClubFed. His assistant also received a two-year sentence.
So I noted last month (more accurately, noting that Joe Kristan’s comment was completely accurate). We have a new listing of the taxes in the healthcare legislation. The new taxes are noted by italics while taxes that have been removed are noted by strikeout text.
1. Individual Mandate Tax. For those who don’t purchase health insurance, this income tax surcharge will start at $95 $495 (S)/$295 $990 (2)/$1485 (3+) or 0.5% of AGI in 2014 and rise in 2016 and future years to $750 $495/$2250 $990/$1485 or 2% of AGI.
2. Employer Mandate Tax. On businesses with 50+ employees that do not offer health care, and at least one employee qualifies for a tax credit, $750/employee. This will cause many small businesses to stop growing once they reach 49 employees.
There is also a waiting period tax of $400 (if the wait is 30-60 days) or $600 (60+ days). This tax also starts in 2014.
3. Excise Tax on Health Insurance Plans. Beginning in 2013, 40% tax on plans costing $8500/$23,000. Is indexed to CPI. In high premium states such as California, many plans would pay this tax. My health insurance would likely pay this tax…and it’s not a Cadillac plan. There’s a higher threshold for early retirees ($9850/$26,000) and those in “high-risk” professions. Longshoremen are exempt.
4. Health Insurance would be reported on W-2s. Another mandate that increases costs for business.
5. “Medicine Cabinet Tax.” Limitation on HSAs, FSAs, and MSAs to purchase non-prescription medication except insulin. Note that this is also in the House healthcare bill.
6. HSA Withdrawal Tax Increased. The tax would increase to 20% from 10%. This is also in the House legislation.
7. FSAs capped at a maximum of $2500. They are now uncapped.
8. 1099 Reporting for corporations. Requires businesses to send 1099-MISCs to corporations. This is another cost for businesses. This will begin in 2011 and will definitely increase my income.
9. Tax on Charitable Hospitals. This excise tax of $50,000 per hospital impacts hospitals that don’t meet new Department of Health and Human Services regulations.
10. Tax on Drug Companies. The tax would be $2.3 billion based on sales percentage.
11. Tax on Medical Device Manufacturers. The $2 billion tax is also based on sales percentage. It rises to $3 billion in 2017.
12. Tax on Health Insurers. A $6.7 $10 billion tax based on percentage of health insurance premiums collected. It now phases in gradually until 2017.
13. Elimination of tax deduction for employer provided retirement prescription drug coverage.
14. Increase of percentage of AGI required to deduct medical expenses from 7.5% to 10%. Few can deduct medical expenses today; fewer will be able to deduct them tomorrow.
15. Compensation Limitation for Health Insurance Executives. If you work in that industry, you will be limited to a salary of $500,000.
16. Medicare Payroll Tax Hikes. Once your income exceeds $200,000/$250,000 (MFJ), you will pay an additional 0.5% 0.9% tax. Note that the employer will only collect (and be responsible for this tax) if you earn $200,000/$250,000 or more. This also impacts the self-employed. And the law is written so that the self-employed cannot deduct half of the new tax as a deduction to income tax.
17. Blue Cross Tax. There is a tax deduction available today for Blue Cross and Blue Shield companies; this tax deduction will vanish if they don’t spend 85% (or more) of premiums on clinical services.
18. Excise Tax on Cosmetic Medical Procedures. A new 5% excise tax on these procedures.
18. Tax on Indoor Tanning. A new 10% excise tax on indoor tanning salons.
This is bad legislation, unwieldy, probably unconstitutional, and will hurt us all. So of course there’s a rush to pass it….
About a year ago I discover a tax blog called Apirl15.com. I doubt we’ll be seeing any more of this blog; according to an affidavit from an IRS Special Agent, the proprietor of the blog has admitted to embezzling $8.5 million.
William Murray, a CPA from Sacramento, allegedly told his clients to pay their taxes through a “trust account” system. This “service” would help the clients and make things easier for them. Mr. Murray also allegedly had clients send money that he would allegedly “loan” to other clients.
Unfortunately for his victims, it was all a lie. From the affidavit:
In a non-custodial, unimmunized interview, Murray provided a spreadsheet—which he said was incomplete—which indicated that from January 2005 to November 2009 he deposited over $6.5 million dollars of client tax payments to his “trust account” of which he only paid $376,355 to the IRS and/or state taxing authorities on behalf of his clients.
In that interview, Murray also admitted to another lie he told clients. He said that he told them to invest in a financial services entity he called US Financial Services. It was bogus. Using this story, Murray fraudulently obtained over $2,023,674 from clients who intended to invest with him.
Mr. Murray admitted that the money he obtained was used, “to support an extravagant lifestyle of fine dining, travel, entertainment, attendance at professional sports events, …three residential properties, and … a 10 vehicle fleet limousine service known as Luxury Limousine.” Mr. Murray also allegedly was a heavy gambler.
Mr. Murray is cooperating with authorities. Donald Heller, his attorney, told the Sacramento Bee, “He’s fully cooperated with the government. He accepts responsibility for his conduct and is very remorseful. He’s a very capable individual who enjoyed a wonderful reputation.”
The investigation began after a doctor told the Special Agent that he had given money to Mr. Murray’s business to pay his taxes, but the IRS had garnished the doctor’s account for failing to pay the taxes. The investigation began, and the facade crumbled away. He was arrested last week and is currently free on bail. His preliminary hearing is set for February 12th.
I learned of this case from an email from a blog reader. He’ll certainly have a casualty loss claim, but if Mr. Murray gambled away and spent his money it’s likely most of it is gone for good.
I’m unaware of accountants offering “trust services.” I don’t want to touch your money (except when you pay my invoices). I don’t want the liability if something goes wrong. Unfortunately, not everyone is ethical. The usual rule applies: If it sounds too good to be true, it probably is.
There is no free lunch. If the government provides us a benefit, it’s really we who provide that benefit. It’s our government, and the money that it’s giving us is our own, whether that money is borrowed or comes from tax receipts.
The health care legislation that appears likely to pass the Senate is such a bill. The legislation, which runs at least 2000 pages, contains numerous tax components. The latest change eliminates a tax on cosmetic surgery but adds a tax on indoor tanning. Medicare taxes will be increased on individuals earning more than $200,000 by 0.9%. Those are just two of the taxes in this legislation.
And there are numerous carve-outs and special deals so that the bill could make its way through the Senate. Nebraska won’t have to pay for Medicare; the other states will under this legislation. That deal was so that Ben Nelson, a Democrat who represents a relatively conservative state (Nebraska), would vote for the bill. There are provisions in the legislation that aid Louisiana and Indiana, states that are also relatively conservative and have Democratic Senators.
And what do we get for this? I’m still unsure; it appears to be some sort of mandatory health insurance program. What it will likely be is a lot more work for people like me, and a lot more bureaucracy. And a lot higher taxes. The bill, if it passes, will be passed on a straight party-line vote.
