WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’
January 27, 2009 by THE WANDERING TAX PRO
Filed under Articles
* Fellow twit, and fellow tax blogger, Michael Rozbruch “turned me on” to an article from the Washington Post titled, “Don’t Wait for Obama to Cut Your Taxes”. It provides some good advice and resources.
* The TAXGIRL does not take week-ends off (actually none of “us” do this time of the year). Last Saturday she provided a good answer to a common question in “Ask the taxgirl: 1099 for Closed Business”.
* Kelly answers another oft asked question in “Ask the taxgirl: Running As Fast As I Can”. Her correct answer points up another inequity in the Tax Code – another instance where the taxpayer must bend over. Income is reported on Page 1, increasing AGI, but related deductions claimed on Schedule A (lost to non-itemizers) as “miscellaneous” subject to the 2% of AGI exclusion. To be fair only excess hobby income should be reported on Page 1.
* From the “I couldn’t have said it better” file – Kay Bell said it all when she pointed out “From the get-go, the lack of oversight in administering the Troubled Asset Relief Program (TARP) has made every bailout handout a very unfunny, and egregiously costly, joke. And since Congress opened up the bailout door so wide, then who’s to stop any legal business form seeking relief?” in her post “Next In Bailout Line: Porn” at DON’T MESS WITH TAXES.
* Kay has also provides a good basic overview of the many educational tax benefits that are available in her post “Rags, Riches and College Costs”
* TAXPROF Paul Caron quotes from the Wall Street Journal to tell us “Obama Plans to Keep Estate Tax” -
“President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010.
Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million — $7 million for couples — from any taxation.”
*Jeff Rose provides a good answer to ”Reader Question #4- Can I Take a Tax Loss on My Kids 529 Plans?” over at GOOD FINANCIAL CENTS (Helping you make “cents” of your investments).
Jeff smartly ends his answer with, “be sure to speak with your tax advisor just to make sure”.
* An AccountantsWorld.com article reports “Americans Failing Taxes 101”.
A survey by of all people The Tax Institute at H&R Block indicates that “most can’t answer even the most basic tax questions correctly . . . the majority doesn’t know a credit from a deduction”. Duh! Hey – it seems that many Americans have something in common with H+R Block tax preparers!
*WebCPA reports that “IRS May Expand Enforcement During Tax Processing” and pay closer attention to returns claiming the Child and Dependent Care Credit and Earned Income Credit while in the course of the initial processing of returns.
* The weekly NATP member email newsletter reports-
“The IRS has announced that victims of the severe storms and flooding on December 10, 2008, in the city and county of Honolulu, have more time to make tax payments and file returns. As a result, the IRS is postponing certain deadlines for taxpayers who reside or have a business in the disaster area until February 9, 2009. The postponement applies to return filing, tax payment, and certain other time-sensitive acts otherwise due between December 10, 2008, and February 9, 2009.”
* We have a winner – actually two. Peter Pappas of THE TAX LAWYER’S BLOG reports the results of his online poll in “Worst Tax Cheat Poll Results Final: Kiss Your Sister, We Have a Tie”.
* It appears that BO’s proposed economic “stimulus” package will include some individual tax breaks – Among them, according to the press release by Charles Rangel for the House Ways & Means Committee, the following:
· refundable tax credit of $500 per worker/$1000 per couple (up to $200,000 income)
· expansion of EITC
· expansion of child tax credit
· simplification of education credits and making the credit partially refundable
· turning the $7,500 loan for first time home buyers during 2008 into a subsidy (no repayment requirement)
· increased expensing for businesses
· increased bonus depreciation for businesses
· increased (5-year) carryback of net operating losses for businesses
· “prospective” repeal of Treasury’s illegal section 382 ruling (Notice 2008-83).
· annual one-year AMT fix {I added this to list – rdf}
More and expanded refundable credits – great! The mouths of tax-fraud scammers are most certainly watering.
I will provide more information when available.
TTFN
This post is from THE WANDERING TAX PRO
HOW TO ALLOCATE THE 1ST TIME HOME BUYER CREDIT AMONG NON-RELATED OWNERS
* The credit is available to first-time home buyers only. A first-time home buyer is a buyer who has not owned a principal residence during the three-year period prior to the purchase. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
* The maximum credit amount is $7,500.
* The credit is available for homes purchased on or after April 9, 2008 and before July 1, 2009.
* Single taxpayers with Modified Adjusted Gross Income (MAGI) of up to $75,000 and married couples with MAGI of up to $150,000 qualify for the full tax credit. The amount of credit is phased-out as MAGI goes from $75,001 to $95,000 for singles and $150,001 to $170,000 for married couples.
* The tax credit is not really a “credit” – it is actually an interest-free loan that must be repaid over a 15-year period. Be advised – one of the items that will probably be in BO’s economic stimulus package is a repeal of the requirement to pay back the credit – so it may end up really being a credit after all.
IRS Notice 2009-12 provides guidance on just how to allocate the credit. According to the notice taxpayers can allocate the credit in any manner they see fit among the eligible purchasers.
WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ –
* Kay Bell reports in her post “
California Tax Refunds on Hold” at DON’T MESS WITH TAXES that “the state’s controller says that if lawmakers don’t come up with a way to cover California’s $42 billion budget deficit, on Feb. 1 he will put a 30-day hold on tax refunds and some other payments”.* Another reason not to rely on tax software, such as Turbo Tax, if you don’t know what you are doing. Kay Bell reports in her post “Geithner — and TurboTax — Grilled Again” that “Geithner acknowledged that he had used TurboTax”.
The “Turbo Tax Defense” doesn’t work in Tax Court – but apparently it works in Congress.
* Kay Bell also writes on taxes for Bankrate.com. She has begun a daily series of tax tips. Friday’s tip – “Second Chance for Economic Stimulus Check” – included the observations and insights of two of her fellow tax bloggers – Bruce the taxguy and yours truly.
* Fellow twit Cindy Morus gives us “Top 10+ Ways to Jumpstart your New Year’s Finances!” over at MEND YOUR MONEY. The list includes – “Set up an appointment with your tax professional early”. Only not too early – make sure you have all your “stuff” before you see your tax pro!
While it is not on the list, an earlier post from Cindy suggests that you “Update Your Beneficiaries”.
* If you missed the online-radio interview with Kristine McKinley of EBIZ TAX TIPS conducted by the “eBay Selling Coach” you can click here to listen.
Also appearing on an online radio program this week was TAXGIRL Kelly Phillips Erb discussing Small Biz Taxes. Click here to listen.
* Peter Pappas of THE TAX LAWYER’S BLOG suggests that we “Repeal the Corporate Income Tax and Bring Those Jobs Back Home”. Be sure to read my comment.
* June Walker provides an excellent and creative answer to a question from a psychiatrist who was confused by the Turbo Tax software treatment of psychological software he purchased in her also excellently titled post, “
Software Cannot Replace Experience”. The highlights below are mine.“Dear Dr. Mark,
You see, I’ve been feeling really depressed. Suicidal actually. I bought this software program Mind-Mend. Says it has taken 20+years of psychiatric experience and rolled it up into this software program. There are 10 steps to avoiding stress. One step says do 15 minutes of meditation each day. Another step has me stand on my head for 10 minutes so that my circulation increases. My gym instructor says I should not stand on my head because of an old army injury. I am confused, what should I do?
As a doctor you might tell me that stress and suicidal tendencies call for different levels of treatment as well as different levels of urgency and that I should speak with a professional. You might also say that there is no way that 20 years personal experience could be put into a software program and have the same success rate as weekly visits with a therapist when treating something as complex as suicide.
This is my round-about of saying what I have said on this blog many times before: A software program written for the simple world of employees cannot replace a tax pro experienced with indie tax situations.”
* Professor James Maule has some interesting comments on depreciation in his post “Just Because It Didn’t Work the First 50 Times Doesn’t Mean It Will Work Next Time” at MAULED AGAIN.
”The depreciation provisions . . . have contributed to the current economic mess by allowing taxpayers to compute taxable income as though their economic position declined when in fact it remained the same or improved”.
Jim agrees with what I discussed at TWTP in my post “Here is Something to Think About”. He discusses the idea in more detail in “Instead of More Favorable Depreciation Deductions, Eliminate Them?
”.Goose the Tax Dog (I am assuming Goose is the name of the Dog) also adds his 2 cents on the topic in his post “Real Estate Depreciation” at THE TAX STUDENT.
I would be interested to hear your comments on what I propose in this post.
* TAXGIRL Kelly Phillips Erb points out that it seems that somewhere someone from the press is giving out bad information on BO’s stimulus package in her post “Ask the taxgirl: Don’t Look for a Second Rebate Check in the Mail!”.
Read my, and Kelly’s, lips – THERE WILL NOT BE ANOTHER “STIMULUS” REBATE CHECK! While he didn’t take my advice regarding refundable credits, at least BO listened to me about rebates.
* Right on Prof Daniel Shaviro of START MAKING SENSE – “Happiest word in the English language {is} ‘Ex”, when placed with a dash in front of the words ‘President George W. Bush’.”
* A great Q+A post from Gina Gwozdz at TAX TIPS BLOG on “
1099 vs W2?” She makes the excellent point – “Your employer does not get to decide if they can pay you as a W-2 employee or a 1099 contractor. The law determines your classification.”* Trish McIntyre of OUR TAXING TIMES provides the word on the economic “stimulus” rebate you did or didn’t receive last year in her post “Stimulus Rebate-Taxable This Year?”. The answer, of course, is NO – for both federal and state returns.
Trish points out that you could get an additional rebate added to the refund, or subtracted from the balance due, on your 2008 Form 1040 or 1040A – “For example, the full stimulus rebate a married couple with one child could receive was $1500. A child born in 2008 qualifies the couple for an extra $300.”
The 2008 “stimulus” rebate election year bribe caused tons and tons of confusion last year, completely overwhelming the IRS – and I expect the confusion to continue to apply to 2008 tax returns. As was the case with the last rebate check, there will be millions of errors on 2008 federal returns.
* I came across an interesting bit of information in my “wanderings” on Thursday – “The Association of Chartered Certified Accountants, the global body for professional accountants, views the U.S. tax regime as one of the world’s most complex, according to Chas Roy-Chowdhury, London-based head of taxation.”
* In item from Freep.com (Detroit Free Press) titled “Tax Rebate Impact on Economy is Weak” we learn “Two University of Michigan economics professors have some advice for President Barack Obama about how not to design his economic stimulus package. Their advice: Don’t make tax rebates a big part of it.”
The professors confirm what I have been saying all along – “Onetime payments from the government are a weak economic stimulus”.
Some statistics from the article – ”The U-M economists found that only 20% of U.S. households mostly spent their tax rebates, while about 48% used their rebate mostly to pay debt and roughly 32% mostly saved their rebate checks.”
* Always leave ‘em laughing – you will find some good parenting advice from BUSINESS PUNDIT in the post “
Always Check Your Child’s Homework Before it Gets Turned In”.TTFN
RIGHT ON!
“
President Elect Obama: Stop the Tax Code Lie” echoes what I have been saying for years.In the post Chad explains, quite correctly, that (the highlights are mine) “a third of all taxpayers pay no income tax – projected to increase to 44% under President-Elect Obama’s plan {according to a report from the Tax Foundation – rdf
}. The reason for this disparity in what people believe and what is actually true dates back to the initial passing of the Earned Income Tax Credit in 1975, and its massive expansion in 1990 and 1993.Touted as one of the top anti-poverty programs in the country, the Earned Income Tax Credit is no more than a massive government welfare and wealth redistribution system – kept on the down-low from most Americans. It is not obvious because it isn’t called “welfare.” It is called a “tax refund.” I hate to tell Congress, but a refund is only a refund up to the amount that someone paid. Anything else, if NOT A REFUND, is welfare. Currently, taxpayers that paid no income tax (zero, zilch, nada) can receive a “refund” of up to $4,825. [Not a typo].
I am not here to argue whether these people need the money or whether or not the poor should be helped or anything related. My issue is simple. The government needs to stop lying to the American public by funneling these massive welfare payments through the tax code. If the welfare is needed, open up the debate on whether or not welfare is needed and stop hiding it in the tax code.
Also, the biggest area of tax fraud – by far – is related to the Earned Income Tax Credit. Approximately 1/3 of all returns containing an earned Income Tax Credit is flawed, resulting in billions of dollars in lost funds to the government (ultimately taxpayers). If someone wants these welfare payments, let them apply for welfare. Most of these people are already on food stamps and receive assistance already. Let the Department of Health & Human Services sort this out and let us actually see from a budgetary standpoint, the true cost of welfare in this country. What is the government hiding here?
President-Elect Obama has promised a vast expansion in refundable tax credits such as the earned income tax credit. Personally, I think it is time we stopped the lie. I am not against people who need help getting help, but I am against lying to Americans to get it done.”
Bordeaux points out that “this lie has been going on during the Ford Era, the Reagan Era, the Bush I Era, the Clinton Era, and the Bush II Era. Obama did not start the lie”.
As I said in my post “
Obama The Red Menace” (I was being facetious – and making a Broadway reference) –“I do not believe that the Tax Code should be used to ‘redistribute’ wealth or assist in providing ‘welfare’ to lower income individuals. The purpose of the federal income tax is to raise the money necessary to run the government – period. While the Code can encourage certain positive activities such as saving and investment, higher education, charitable contribution and volunteer work, home ownership, etc – all things that benefit society in general – it should not be used for ‘social engineering’.
I am also against the concept of ‘refundable’ tax credits – credits that allow an individual or family to ‘make a profit’ from filing a tax return. This includes the current Earned Income Tax Credit and the Child Tax Credit.
The EITC does not provide the safeguards, checks, and balances required in other federal and state welfare programs necessary for responsible fiscal management. As a result, it is perhaps the most abused provision of the tax code. Studies have suggested that close to 30% of all EITC claims are bogus.”
I also said – “I am not against tax relief for the working poor or the concept of providing aid to families with dependent children, or other types of welfare programs for the working poor”. I just don’t believe these concepts should not be incorporated into the Tax Code.
So what do you think?
TTFN
BETTER LATE THAN LATER!
Russ points out -
“The IRS announced in
Notice 2009-11 that investment companies and brokerage firms will be considered in compliance with the law if they furnish their 1099s by Tuesday, February 17, 2009. That’s a postmark deadline so it’s likely that many individuals won’t receive their statements until the following week.Congress made the change in the law last year when they passed the Energy Improvement and Extension Act of 2008. This law extended the deadline for mailing out 1099-B’s and “consolidated reporting statements” from January 31st to February 15th. The 15th is a Sunday, the 16th is President’s Day, so the deadline this year is on the 17th.”
Last tax season Congress delayed the start of processing filed tax returns by waiting too long to pass the annual dreaded AMT fix (the AMT is dreaded – not the fix). This tax season we can’t even start to prepare many tax returns until late February because of Congress. What do they have against tax professionals?
To be honest – this deadline change will not really make the 2009 tax filing season any worse than past seasons. As Russ mentions, in the years since Congress allowed “qualified” dividends to be taxed at the special lower capital gains rates most brokerage firms have sent out one or more “corrected” Consolidated 1099 Statements – the final one sometimes as late as mid-March.
I do believe that several brokerage houses requested a special dispensation from the IRS to delay issued these statements until Feb 15th last year to avoid having to issue a corrected statement.
I have no idea why the software of these brokerages cannot compute the correct numbers in time to issue a correct statement the first time around by January 31st.
To be honest I would rather firms would send out an original correct 1099 statement a few weeks late than have to hold off until March to begin work on an involved 1040 because of the “wait and see” if a corrected (or another corrected) 1099 statement will arrive.
BTW – thanks Russ for the mention of my “Tradition” advice in your post “Selecting a Professional Tax Preparer”.
AS THE CONGRESS TURNS
“Senate Finance Committee member Charles E. Schumer, D-N.Y., told reporters on January 14 that adding a one-year patch for the alternative minimum tax (AMT) to the stimulus package is still under consideration . . . Baucus acknowledged the same a day earlier, telling reporters that the AMT patch is ‘still on the table’.”
On one hand it would be good to get it over with early in the year – so we do not have to wait until the last minute as in past years.
But passing a one-year patch so early in the year means that Congress will probably not be dealing with the issue of repealing the mucking fess altogether in 2009.
Knowing Congress I suppose I should be happy to get what I can. Extending the annual fix process now is better than nothing – and better than dragging it out all year again. Hopefully Congress will seriously address the issue of repeal in 2010, which now appears will be the big year for Tax Code overhaul.
TTFN
It is About Credit Markets, Not Just Stimulus
Washington has kicked off a perfectly predictable donnybrook over stimulus. Democrats, who spent the past eight years bashing George Bush for turning a Clinton-era surplus into a big deficit, are now defending what will be nearly $1 trillion in new tax cuts and spending. Republicans, who presided over decades of deficits, suddenly are worried about the debt we are leaving to our grandchildren.
Yet, this entire squabble may be missing the point. If Washington is going to help dig the economy out of its very deep hole, it must do more than just stimulate demand. It must also restore the health of the credit markets.
That is not to say that designing a good stimulus bill is not important. It is. But we need to recognize the limits of what all this government spending and tax cutting can do.
For now, Washington is falling back on recipes that have been tried many times before with only limited success. On the tax side, proposals such as allowing businesses to write-off capital costs more quickly, or giving cash payments to workers, have been tried repeatedly in past recessions. As a new TPC report card shows, there are no magic bullets here. While some pieces of the tax stimulus working its way through Congress will be better than others at jump-starting the economy, none will have a major impact.
The same goes for spending. A new CBO report concludes it will take years for the proposed new outlays to work through the economy. For instance, CBO figures only about one-third of $30 billion in proposed highway money could be spent within the next 20 months.
My sense is that, at best, the stimulus package will keep things from getting worse. Necessary, as they say, but not sufficient for recovery. The IMF recently published an interesting paper that noted the importance of both stimulus and credit market reform, even as it called for massive efforts to boost demand. Christy Romer, a key adviser to President Obama and a highly respected economic historian, has argued that New Deal fiscal policy did almost nothing to end the Great Depression.
Think of stimulus as a life preserver. It may keep the economy from drowning, but won’t do much to get us back on a course of sustained economic growth.
It will be up to the Fed and the much-maligned TARP (and its costly progeny) to accomplish that. The problem, of course, is that when it comes to fixing the credit markets, we are sailing in unchartered waters. Do we create a “bad bank” that will offload toxic loans from troubled financial institutions? Do we nationalize some brand-name banks? In desperation, we find ourselves looking to the experiences of Sweden or Japan for answers that are not obvious.
After a lot of arguing, we’ll enact a nearly $1 trillion stimulus. It will help, though much of the money will inevitably be wasted. But keep your eyes on what the Fed and the Obama Administration do to get the credit markets working again. That, more than tax cuts and spending, will be key to how quickly the economy gets back on track.
COMMENTS, I GET COMMENTS
It seems to me that comments to blog posts, which on occasion contain some excellent points or additional information on a subject, often get “lost in the shuffle”.
Below are some comments to recent posts at THE WANDERING TAX PRO that I feel deserve a wide audience -
Here is what “Indie Tax Pro” had to say about my comments on Henry and Richard (the highlight is mine) -
“Ha I love the reference to ‘fast food’ tax chains! I got my career started at H & R Block, and some of my co-workers were like me – Accounting majors just looking for that first job to put on their resume, but hoping to work at real accounting firms after graduation. But so many of the others were just very unprofessional; they did sloppy jobs on the returns and really had no idea what they were doing. And their prices WERE ridiculous considering half of the people on my shift couldn’t do basic math.
Although Block takes advantage of poor people, they’re still nothing compared to Jackson Hewitt and Liberty – loan sharks preying on the uneducated. And you’re absolutely right about the tax software, it’s extremely faulty and although honest mistakes can be made such as the slip of just one digit, the TaxCut excuse unfortunately doesn’t hold up in court.”
On the subject of Henry and Richard, Trish (actually fellow tax blogger Trish McIntire of OUR TAXING TIMES) provides more information on their recent tv ads that tell you to bring your last pay stub in to get an advance of $1,000 –
“Actually the pre-season money Block is offering is even worse than you explained. That type of program was ended in 2007 when the banks involved realized how much money they lost with the pay stub loans.
.
What Block is offering now is a credit card that is loaded with up to $1000 (less the annual fee.) While a paystub and prior year returns are needed, much of the decision is based on their credit rating. I have not seen the fine print this year, but last year it was a pre-paid type card with a 9% interest. If it was paid back by the date in the paperwork, the rate stayed the same but if it wasn’t the rate went to 26%. Since this was a pre-paid card, you had to not only pay back the advance but also bring the card back to a fully prepaid level. If you had received $1000 advance and used all of that, you would pay back $2000 to keep the lower interest rate. Then you could be subject to a bunch of little fees for just using the card.”
The sneaky bastards!
And here “Anonymous” (a most prolific commenter – I see his responses on blogs everywhere!) discusses another problem with the Earned Income Credit -
“Any other problems with the EITC aside, my complaint about it is that it is unfairly age-discriminatory — single people must be at least age 25 to qualify, even if they met the income requirements at an earlier age.
.
If a person no longer qualifies to be claimed as a dependent by someone else (which would still keep parent-supported college students from getting it), they should be equally EITC-eligible, regardless of whether they are age 19, 24, 25, 45, whatever.
.
An independent single 24-year-old who earns $10,000 this year is not any less poor than an independent single 25-year-old who earns $10,000 this year.
.
As long as the EITC continues to exist, this ought to be fixed.”
To respond – While Anon does make a good point, I expect that the Congress did not want to provide the benefit to college students whose earned income is low because they are full-time students or to those just starting out in the workforce and therefore not earning much.
If you have read a post at TWTP, or elsewhere, that you found interesting or helpful why not return every so often to see if there are any comments. I sometimes get comments to posts many, many months after they have been published.
And please, if you have something to say about or add to one of my posts please comment away!
A word of warning – comments are not to be used for the sole purpose of “tooting your own horn”, although you may do so in the context of a genuine comment, or selling a product. I suggest you check out my post “Comments on Comments”.
Grading the Stimulus
My TPC colleagues—most having taught at some point in their careers—couldn’t resist. They’ve given grades to the major tax provisions of the stimulus bill now working its way through Congress. While you can argue over the specific grades (and we surely did), the benefit of this exercise is that it forces you to look at the relative value of each of the elements of the plan.
For a first pass, TPC graded the Ways & Means bill, and concluded that the best proposals of the bunch are those that give temporary tax relief to low-income families. It makes sense, since they are the most likely to spend the money they receive. As I noted in a recent post, even these are far from perfect, but they should help to get the struggling economy get back on its feet.
On the business side, best in show is a technical change that gets cash to once-profitable firms that have fallen into the red in today’s rotten economy. The proposal allows them to carry-back 2008 and 2009 losses for five years, so they can redo prior tax returns and get immediate refunds. Like the most beneficial individual tax cuts, this one gets cold cash into businesses’ hands so, hopefully, they can spend it. However, like the best of the individual cuts, it too is flawed. The problem: It will waste money by subsidizing some businesses that are doomed to fail.
By contrast, the worst ideas are those that either subsidize economic activity that would have happened anyway, fail to help businesses that are in such trouble they cannot invest, or are simply badly targeted. Many, such as expanding unsuccessful tax incentives to hire unskilled workers, are unlikely to accomplish very much.
That’s TPC’s take anyway. We’ll update our grades once the Finance Committee has marked up its version. Give the report card a read and let me know what you think.
Tax Stimulus Report Card: Ways and Means Bill
The Tax Policy Center has graded the key tax provisions of the pending House stimulus bill (the “American Recovery and Reinvestment Tax Plan of 2009″). Our grades, which rely on the bill’s legislative language, focus on how well these measures would boost the economy in the short run. Accompanying write-ups describe current law, the proposed change, and the short- and long-term effects on the budget, the economy, fairness and tax complexity. We will update the report card as we learn more about the provisions and as the stimulus bill moves through Congress.