Paradox - Harlan

[Corduroy Frog]

This might be so remote as to be labeled non-topic, but it WAS tax-related at one time. I can almost guarantee ChEAr$ can remember the day and share a few stories of his own.

Until the 1980s, Alabama allowed itemized deductions to include charitable contributions and ALL taxes. As incredible as this sounds, this also included state tax on cigarettes, beer, and liquor.

I had a few clients that were overtly religious, and told me they "tithed" 10% of their gross income. If they were really dedicated, this didn't just mean 10% after everything came out, but 10% on their total gross pay. During this time, they would testify about how wonderful this was, and in some cases resulted in a substantial deduction. Back then, a $30,000 salary was quite livable in the South, and this would mean a $3000 deduction.

Some of these dedicated tithers also drank heavily. Not only would they claim a substantial deduction to their church, they would also smoke 4 packs a day, drink a couple six-packs, and serve a consumptive amount of liquor to their friends. From some of the amounts deducted, you would wonder how such a taxpayer ever sobered up long enough to go to church on Sunday.

Harlan, did you ever have some of Alabama's finest??

[ChEAr$]

This might be so remote as to be labeled non-topic, but it WAS tax-related at one time. I can almost guarantee ChEAr$ can remember the day and share a few stories of his own.

Until the 1980s, Alabama allowed itemized deductions to include charitable contributions and ALL taxes. As incredible as this sounds, this also included state tax on cigarettes, beer, and liquor.

I had a few clients that were overtly religious, and told me they "tithed" 10% of their gross income. If they were really dedicated, this didn't just mean 10% after everything came out, but 10% on their total gross pay. During this time, they would testify about how wonderful this was, and in some cases resulted in a substantial deduction. Back then, a $30,000 salary was quite livable in the South, and this would mean a $3000 deduction.

Some of these dedicated tithers also drank heavily. Not only would they claim a substantial deduction to their church, they would also smoke 4 packs a day, drink a couple six-packs, and serve a consumptive amount of liquor to their friends. From some of the amounts deducted, you would wonder how such a taxpayer ever sobered up long enough to go to church on Sunday.

Harlan, did you ever have some of Alabama's finest??

Indeed I did. First returns I did was back in 1973. In 1975 when I started filing my own Alabama return I also listed cigaret taxes along with my se tax plus some FICA. Still can, the latter. And while AL has conformed mostly to federal law, one can still deduct federal income tax AND.. and all capital losses without limitation.

[Koss]

Capital Losses

ChEAr$ wrote:

And while AL has conformed mostly to federal law, one can still deduct federal income tax AND.. and all capital losses without limitation.

Wow, that's wild. Sounds a bit like Pennsylvania, in reverse. Pennsylvania doesn't recognize standard tax-deferred contributions to a 401(k) plan or a traditional IRA. They get added back to federal AGI for the state tax return.

So if I am an Alabama resident, and I take a $20,000 loss on the sale of stock, I can take the entire loss when calculating my gross income for the state tax return.

What happens the following year, when my federal AGI includes a $3,000 capital loss that was already deducted for state tax purposes?

On the federal return the following year, I would have a $17,000 capital loss carryover.

What if that year, I have $18,000 in capital gains? On the federal return, I'll have a $1000 capital gain, after using up the loss carried forward. But on the state return...

Sweet Mother of Abraham Lincoln...

You must have to track the gains and losses separately for state tax purposes. Sounds like a nightmare.

Can the taxpayer choose not to take the entire loss, follow the federal rules?

BMK

[ChEAr$]

ChEAr$ wrote:



Wow, that's wild. Sounds a bit like Pennsylvania, in reverse. Pennsylvania doesn't recognize standard tax-deferred contributions to a 401(k) plan or a traditional IRA. They get added back to federal AGI for the state tax return.

So if I am an Alabama resident, and I take a $20,000 loss on the sale of stock, I can take the entire loss when calculating my gross income for the state tax return.

What happens the following year, when my federal AGI includes a $3,000 capital loss that was already deducted for state tax purposes?

On the federal return the following year, I would have a $17,000 capital loss carryover.

What if that year, I have $18,000 in capital gains? On the federal return, I'll have a $1000 capital gain, after using up the loss carried forward. But on the state return...

Sweet Mother of Abraham Lincoln...

You must have to track the gains and losses separately for state tax purposes. Sounds like a nightmare.

Can the taxpayer choose not to take the entire loss, follow the federal rules?

BMK

Right, must "track" capital losses on federal returns of course, but don't have to on
Alabama since all deducted in year suffered. So you might guess that Alabama return does NOT begin with federal AGI. Everything is list from the get go.

And btw, we don't use that man's name down hear. I don't even want to DRIVE a
Lincoln. Unfortunately his picture is on a common US bill, but I never look at it.
And that big US bill with Grant's picture on it? I won't use one.

Don't gee me started on that yankee genrul who devastated my home state during his "march to the sea."

[Snaggletooth]

My favorite Alabama Return

Ladies would love this one. 'specially those of the "Womens' Lip" movement.

During those days of yore, if both spouses worked, it would behoove them to file separately, as the std deduction and personal exemption could be doubled, and the rate was basically "flat" anyway.

The Alabama tax form is called AL40. In those days, the state would process two AL40s for each family where the spouse worked. So for a few years, the state redesigned its format and created Form "40-S". This was a two-columnar return designed so that each spouse could file separately, but file on the same form. This may sound like there would be a simple solution, but trust me, it is easier to re-design the form than to get the legislature in Montgomery to agree on ANYTHING. The form saved Alabama from having to process about 1 million returns.

So the form was introduced in 1978 (or thereabouts) with two columns. The first columnar heading was titled, "Primary Taxpayer" and the second column was labeled "Wife."

As you might suspect, the columnar headings were changed the next year.

And finally, by 1982, the std deduction and exemption were cut in half for separate filers, so there was no longer an advantage for Alabama working spouses to file separately.

[Koss]

Primary Taxpayer

Snaggletooth wrote:

So the form was introduced in 1978 (or thereabouts) with two columns. The first columnar heading was titled, "Primary Taxpayer" and the second column was labeled "Wife."

That's hilarious.

That tax form would be a fascinating collector's item today, if anyone has an original in good condition. Even a photocopy from some library archives, or a PDF image, would make an interesting conversation piece.

I have a small collection of federal tax booklets, which are no longer produced by the IRS. I'm referring to the bound booklets which contained tax forms and instructions, in high quality paper, and in color. The instructions were black and white. But the cover had multicolor ink, and the background of Form 1040 was blue. Form 1040A was pink.

It wasn't that long ago. The last year was 2009. But it feels like a decade, because with tax software and e-file, we haven't actually used those forms for many years.

I also have several years of Package X. I think the IRS stopped producing it around 2005 or so.

Someday I'll try to sell this stuff on e-bay or something...

BMK