If I Had Only Known - No Need to Pay Taxes

[JohnH]

Got this bit of drivel from a client today.
They just wanted to be sure I knew about all the tax breaks.

http://online.wsj.com/article/SB10001424052748704530204576235090332473366.html?mod=WSJ_hp_mostpop_read

They also asked me to review it and see how close they could come to zero. I replied that as soon as they max out their SEP and start paying their state estimates on time ( neither of which they do), to get back to me and we will discuss anything else which might apply.

[MilTaxEA]

Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well.

Client: "But I used my cell phone for business use, can't I write off the entire bill? Oh, and I bought a new $40k truck, we can write that all off also, right?"

Have fun trying to explain the limitations of "listed property" to your client who read this article...

[Bees Knees]

Client: "But I used my cell phone for business use, can't I write off the entire bill? Oh, and I bought a new $40k truck, we can write that all off also, right?"

Have fun trying to explain the limitations of "listed property" to your client who read this article...

Cell phones are no longer listed property - TTB page 10-10.

Trucks and Vans over 6,000 pounds loaded gross vehicle weight are not subject to Section 280F, thus qualify to write the whole thing off under Sec 179 - TTB page 10-6.

[JohnH]

I did also tell them I can raise their fees considerably. Focusing entirely on the tax savings, that's actually a better tax break than the SEP, because all except the small allocation to their personal return will be deductible on their Schedule C and thus reduce both income tax and SE tax. They did mention something about not having the SEP money available when they got ready to retire, but I explained that it still works pretty much the same way. The only difference is that it will be in MY SEP. I think they're coming around to the wisdom of that line of thinking.

I think I'm getting the hang of this. Pretty soon I'll submit an article to the WSJ.

[JON]

News

Compliance audits are back??? I think we know that all government taxing authorities have been given their largest budgets in history with the mandate go get money and information. My tax forum met yesterday and two things had been delayed to after tax season by members. The first, a regular audit that when asked by preparer why was the selected the answer was we are doing "compliance auditing" again. Every item on the return was supposed to be backed up by information. There were $175 of donations out of like $1500 that the preparer just said these were cash. The auditor said OK and left. The "compliance" audits in the old days lasted forever, this one, simple return, was done in less than a day. I hope we can avoid those.

The second was "preparer audit". This CPA's practice has a lot of clergy. The auditor comes in flashes badge and interviews the preparer. He was selected for audit, because of the large number of returns with 1040 Schedule Cs with the net taxable income less then 50% of gross income??????????????? He explains a lot of his Schedule Cs are for clergy that report their other income there. They select six returns to look at (I do not know that he had to do that) the auditor reviewed quickly and said everything looked fine.

Welcome to the world of getting preparers to be better. The IRS and here, the State of Minnesota auditors have been told go get the money and shring the "tax gap" their budgets have never been bigger, they have never collected more with their actions and it is only going get worse. I think if you are prudent in your gathering of information and preparation you will always be prepared from your end. I guess we cannot complain as long as the returns our there are becoming more accurate.

The MN auditing State Farm agents have been appealed and now they go through people from the Secretary of States Department to decide what subjects and items can be presented to the court and may negotiate a settlement there. State Farm home office has gotten involved, because individually the agents would not have been able to afford it. The state did crush a few real estate agents.

Two weeks ago when all the "white book" information hit where bizillionaires federal effective income tax rate was "only" 17%, there was even a better and more depresive piece of information also included in the report 45% of HOUSEHOLDS in the USA pay NO income taxes. I am old and grew up when it was fun. I have been fighting this battle for 30 years and have lost. I think it is more a sign of good thing if we have more billionaires and less government employees. I was always told I was nuts. Now we have the more and more government employees and it will not stop, between government being the largest employer and the news that 45% of households pay no income tax guess who is in the majority. In the building I have officed in for 30 years by July 1st the building will be about 95% occupied and areoud 60% will be government and Not-for-profits, looking for government grants. Make sure your kids work for one of the previous two employers or they will start out behind. This government does not like profits, but do like taxes.

[joanmcq]

Compliance audits are completely random; therefore a simple return has as great a likelihood of being chosen as a complex one. That is how they come up the statistical methods to select returns for audit.

Then you have the preparer audit. How else do they catch unscrupulous preparers? You said it went easy. Good.

Of course audits are going to step up; we have the tax gap. As someone who did a lot of audit rep, I've seen it all. There IS a tax gap. I pay my taxes. I'm going to guess you do too. Why should mine go up to cover the cheaters?

[DaveO]

GE Bashing

What many people don’t take into account when railing about GE not paying income tax is the fact that GE, like all US based businesses, serves as a massive unpaid tax collection agency for the Federal, state and local governments. Imagine the vast amount of personal income and employment taxes GE collects from its employees. Add to that the property tax it pays on the billions of dollars of real and personal property it owns, not to mention the sales tax collected when consumer products are sold or taxes paid by investors on the dividends paid.

Government collects very little tax on its own. If the businesses of America all refused to collect and remit taxes the IRS and the Dept of Revenue of the states would be powerless to collect the tax on their own. Before people criticize a company for availing itself of perfectly legal tax strategy they might want to consider what the world would be like it GE wasn’t there. Do you suppose we’d have local craftsmen turning out washers, dryers and food processors out of little neighborhood shops?

When clients bring this issue up to me I respond by asking them, “If I could show you a perfectly legal way for you to cut your taxes in half wouldn’t you want to know about it?” I usually get a response along the lines of, “Of course that’s what I pay you for.” I then reply, “What do you suppose GE’s accountants are paid to do?”

[erchess]

GE Bashing

GE is not to be blamed when it takes every legal deduction and credit available. It is however NOT bashing GE to argue that perhaps some if its tax savings should not be allowed.

On the other hand, I think a credible argument can be made that taxes on corporations are really taxes on employees and customers to whom they are passed through in the form of lower wages and higher prices. In this light it might be possible to argue for low to no taxes on corporations.

[Black Bart]

Say, EC (In re: ME instead of GE)

GE is not to be blamed when it takes every legal deduction and credit available. It is however NOT bashing GE to argue that perhaps some if its tax savings should not be allowed.

On the other hand, I think a credible argument can be made that taxes on corporations are really taxes on employees and customers to whom they are passed through in the form of lower wages and higher prices. In this light it might be possible to argue for low to no taxes on corporations

While I don't have a corporation, I do have an LLC. Do you suppose I also could use this argument?

Thanks. BB