Wells Fargo Tax Giveaway (Finally) Attracting Some Notice
Better late than never?
The truth of this saying may be tested in coming weeks, as lawmakers and regulators grapple with the question of how to fix an under-the-radar corporate tax break for a few large banks (the federal tax cut for Wells Fargo alone has been estimated at over $20 billion, and the new tax break overall could cost US taxpayers $140 billion) that seems to have been approved without Congress agreeing to it.
A Citizens for Tax Justice report from last week outlines the story:
When one company buys another company that has tax losses, the law prevents the acquiring company from using the purchased company’s tax losses. There’s a very sensible reason for this rule: to ensure that companies don’t purchase other companies simply as a tax dodge.
But a little-noticed September IRS administrative ruling creates a specific, temporary exemption from this rule for banks acquiring other banks whose tax losses are attributable to bad loans.
It’s not that often that a new tax cut gets implemented without Congress ever lifting a finger, but that’s what happened when the Bush Administration’s Treasury officials decided to reinterpret an existing law in a way that would cut taxes dramatically for a few well-off banks. Senator Charles Grassley, who’s accustomed to being at the steering wheel (or at least in the car!) when the tax policy express hits the road, is very angry about it, although he’s stopped short of saying that the Administration’s move is illegal.
Yesterday’s Washington Post has a detailed story discussing how this came about, and today’s Los Angeles Times has this story noting that the state if California stands to lose a couple of billion dollars of its own corporate income tax revenue to boot.
This is obviously an important issue for Congress– the bailout was unpopular enough before it became widely known that it was being hijacked to benefit a few big corporations, so Congressional tax writers have a real incentive to clean this mess up in a way that makes it clear the bailout ultimately benefits America’s economy, not a few fat cats.
But, as Citizens for Tax Justice notes in its analysis of the problem, this is also something state lawmakers need to worry about:
Because states with corporate income taxes almost universally base their corporate taxes on federal rules, federal tax cuts for corporations generally result in state tax cuts as well. When affected states have rules making it difficult to enact tax increases (as istrue of California, whose budget deficit is already in the billions of dollars), state governments find themselves practically unable to avoid costly corporate tax cuts they never wanted… At least eighteen states that tax corporate profits will likely take a hitfrom the new IRS ruling—and any state that taxes the profits of financial companies is at riskof helping to fund the next bank that chooses to purchase another financial company.
With state budgets already going up in flames, this is a problem state lawmakers don’t need. Stay tuned…
KEEPING TRACK OF BUSINESS MILEAGE
We were discussing keeping track of business mileage, and it came up that most of us tax pros, and probably most other business persons, make multiple trips to the same locations on a regular basis – in my case to Office Depot for supplies, to my mail drop (which is also a client), to the bank, and to various business clients.
I was reminded of a practice many, many, many years ago when I was a “para-professional” (official title was “Business Services Associate”) in the Small Business Department of Deloitte, Haskins + Sells – one of the then “big eight” international CPA firms. We had to record the mileage to and from our client’s offices on our time report. The firm would reimburse us for business miles – and would turn around and bill the client for the mileage. But rather than have to count the miles for each individual trip the firm provided employees with a chart that listed the round-trip mileage from our office to each of the firm’s clients. If Client A indicated 20 miles each time I would go to Client A I would record 20 miles on my report.
I expect that the mileage was clocked on the first visit from the office to the client, and that mileage was used as the standard for every trip from then on. If a client moved the standard would be changed accordingly.
My colleague mentioned that she had heard of clients who looked up the mileage between the addresses of their office and the business location in Yahoo or Google, and used that figure instead of actually clocking the mileage. I felt this could short change the driver. Isn’t the mileage provided on these online services more “as the crow flies” than actual driving miles? I think it is much “more better” to do as I think DH+S did – on your first round-trip to a location to which you will be making multiple stops record the exact mileage from your odometer. You can then use the same miles each time you make a round-trip from your office to the location.
There is a downside to using a pre-determined mileage figure. In reality each individual round-trip to a location is not always exactly the same number of miles.
On one trip excessive traffic may cause me to take an alternate route to save time – i.e. get off a major highway and take back roads, which is more actual miles but less travel time. Or road construction or an accident may force me to take a detour that ends up being more miles. On another trip I may stop to buy office supplies or visit the Post Office to mail business packages on the way to or from a client, which would add a couple of miles to that specific trip.
I realize that we are not talking about thousands of miles lost – but if you do a lot of client visits the added miles could add up.
The bottom line is that clocking each and every individual business trip is the best and most accurate way to record your true business mileage. This is not difficult – you just have to get into the habit. You can use a simple pocket date book to keep track of business trips. Enter the location, business purpose and miles driven. For example - “Office Depot (Union City) to purchase office supplies 4 miles” or “Business Client, LLC (Watchung) to do payroll and accounts payable 56 miles” or “Wachovia (Union City) to make deposit for client 3 miles”.
If you are the lazy type – or forget to set the odometer – you can always use a standard mile amount – the “DH+S method”. But remember - you still have to keep a record of the date, location, and business purpose for each trip in some kind of log or record book.
TTFN
Can the IRS find out about extra income if you put it in the bank?
January 27, 2009 by Tax Blog
Filed under Questions & Answers
A person I know does side work and earns about $15,000 a year in extra income. He refuses to put it in the bank because he is worried somehow the IRS will find out about it and he will be in trouble.
He keeps the money in a safe in his house.
Can’t he just put it in the bank? Will the IRS really go after him for an extra $1000 deposit every month?
How closely does the IRS monitor your bank accounts when you’re in Currently not collectible status?
January 22, 2009 by Tax Blog
Filed under Questions & Answers
My $50K back tax debt to the IRS has been classified as currently not collectible for the past two years. I recently won a Disability settlement from Social Security and received a check for 4 1/2 years of back SS Disability payments (FYI: I am no longer disabled and am now working part-time). What I wanna know is, can I open a new bank account (I don’t presently have one) and deposit the lump-sum SSA check without having some kind of alarm go off at IRS HQ which results in their hoovering that account dry the second it clears? I fully intend to use a big chunk of the money to work out some kind of payment or offer in comprimise plan with them, but I need to be able to use some of it for urgent medical, dental and other essential expenses (such as a good tax attorney) first. Any information and or suggestions would be greatly appreciated. Where possible, please cite references, regulations, IRS publications, etc. so I can make sure I have my facts straight.
Is anyone who may be waiting for their IRS stimulus check finding out that its not being deposited on time?
January 17, 2009 by Tax Blog
Filed under Questions & Answers
My stimulus check was to be direct deposited on May 9th. As of 10:42 on the 10th,it’s still not in my account. I was curious to find out if anyone else was experiencinf this problem.I spoke to my bank and they told me when the first wave of checks began hitting last week that a lot of them weren’t showing up until the following Monday. Can anyone let me know if they experienced the same type of delay if you already got your check?
How to File a Tax Extension
If you are feeling the stress of the upcoming April 15 income tax deadline, you have another option - you can file a tax extension and delay your income tax deadline to October 15.
The IRS is willing to grant you the six month income tax extension without you having to come up with an excuse to extend. In fact, the IRS doesn’t even ask why you need to extend. As long as you properly submit your extension request by providing accurate information, the IRS will grant you the six month extension automatically.
The fastest way to file an extension is to file it online through a website run by an approved IRS e-file provider like FileLater.com. FileLater.com makes the process easy. You’ll be asked for your contact information and then taken through a few simple questions to determine if you want to make a tax payment along with your extension. The whole process takes less than 10 minutes. A day later you’ll have an email back with the status of your extension. It’s that simple.
Another benefit to using FileLater.com is that they will help you ensure the information you submit is accurate, and they’ll help you submit multiple times (for no additional fee) if you for some reason get a rejection from the IRS.
FileLater.com will also provide you with an online calculator to help you determine if you should make a payment with your tax extension. If you decide to make a payment, you’ll be able to either mail a check directly to the IRS or pay via direct debit from your bank to the IRS as part of your tax extension e-file.
It is important to note that filing a tax extension does not grant you extra time to pay the IRS if you expect to owe the IRS additional tax dollars beyond any current W2 withholdings or estimated tax payments you’ve already made for the 2007 tax year. If you owe the IRS when you file your return and don’t pay when you file your extension, you may be subject to penalties and interest payments.
So, do yourself or your tax preparer a favor and file a tax extension. The deadline to file your income tax extension with the IRS is midnight on April 15. If you are for some reason rejected, you’ll have until April 20 to correct any errors and complete your extension.
Get Fast Tax Refund with Direct Deposit.
Want your tax refund faster? Have it deposited directly into your bank account. Many US taxpayers are chossing direct deposit options as the way to receive Fast Tax Refund. More than 52 million people had their tax refunds deposited directly into their bank accounts in 2005. It’s a fast, easy, secure and convenient way to done your taxes online to get rapid tax refund.
Benefits of Direct Deposit :
• Security. The payment is secure — there is no check to get lost. Each year thousands of refund checks are returned by the US Post Office to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund stolen.
• Convenience. There’s no special trip to the bank to deposit a check!
To request direct deposit, follow the instructions for “Refund” on your tax return.
Want an even fast tax refund? Try e-file! Taxpayers who file electronically get their refunds in about half the time as those who file paper returns.
A word of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Also, make sure you have the correct nine-digit routing number and your account number when selecting direct deposit.
IRD Not Included on Decedent Final Return
Do not report on the decedent final return income that is received after his or her death, or accrues after or because of death if the decedent used the accrual method. This income is considered income in respect of a decedent or IRD. IRD is taxed to the estate or beneficiary receiving the income in the year of the receipt. On the decedent final return, only deductible expenses paid up to and including the date of death may be claimed. If the decedent reported on the accrual basis, those deductions accruable up to and including the date of death are deductible. If a check for payment of a deductible item was delivered or mailed before the date of the decedent death, a deduction is allowable on the decedent last return, even though the check was not cashed or deposited until after the decedent death. If the check was not honored by the bank, the item is not deductible.
Custodial Securities Account
Purchase of securities through custodial accounts provides a practical method for making a gift of securities to a minor child, eliminating the need for a trust. The mechanics of opening a custodial account are simple. An adult opens a stock brokerage account for a minor child and registers the securities in the name of a custodian for the benefit of the child. The custodian may be a parent, a child’s guardian, grandparent, brother, sister, uncle, or aunt. In some states, the custodian may be any adult or a bank or trust company. The custodian has the right to sell securities in the account and collect sales proceeds and investment income, and use them for the child’s benefit or reinvestment. Tax treatment of custodial accounts is discussed in 39.5.
Form 1099-A Notifies IRS
If your mortgaged property is foreclosed or repossessed, and the bank or other lender reacquires it, or if the lender knows that you have abandoned the property, you should receive from the lender Form 1099-A, which indicates the foreclosure bid price, the amount of your debt, and whether you were personally liable. The IRS may compare its copy of Form 1099-A with your return to check whether you have reported income from the foreclosure or abandonment.If the lender also cancels your debt of $600 or more, you may instead receive Form 1099-C, on which the information about the foreclosure or repossession will be included.