Financial Focus

Bush Tax Cuts Appear to Becoming Permanent

2012-02-06T13:52:00.000-08:00

Washington, DC is home to a powerful group of sycophantic cowards and with this being an election year we can expect even more cravenness than what we've become accustomed to.

Regardless of where one sits politically, it's terribly unsettling that something so important as tax policy can be shirked in such a brazen manner. Most mainstream commentators attribute the lack of action in creating a more permanent tax code to a lack of partisanship. The real problem, though, is a lack of purpose and internal fortitude on the part of those in Washington to a degree unseen before.

As a result of the weak willed personalities that make up the political class of our country, many aspects of public policy have been left unattended to, not because they are unknown but because no one is willing to take a stand in any direction for fear of having their stated opinions used as ammunition against them down the line in an election battle. Instead of actual decision making, we get grand sounding pronouncements that are full of sound and fury yet signifying nothing. Better to obfuscate and leave wiggle room than to put yourself out there to possibly be hung by your own words.

This is no more evident than in the current situation surrounding the current tax code. Congress has been aware of the sunsetting provisions within the Economic and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, otherwise known as the Bush Tax Cuts, since they were enacted, yet here we are two years out from the end of the most parts of these acts with no permanent solutions as to what to do. Instead of acting decisively, Washington continues to use Band-Aids.

Members of Congress continue to hedge their bets with conservatives not wanting to offend their base by coming out in favor of tax increases or cuts to Republican pet issues but scared to lose votes by cutting benefits like Medicare and Social Security. Liberals are afraid to act decisively to save many programs aimed at middle to lower class taxpayers or tax wealthier citizens lest they become targets of Tea Party or kindred activists while at the same time trying to convince Democrats that they 'care'.

2011 and 2012 are set for the most part, aside from some continuing haggling over the two percent reduction on the employee-side Social Security tax, but that only came as a result of a nearly literal last minute agreement at the end of 2010, which essentially extended the terms of the Bush Tax Cuts. Beyond 2012, things look just as they did in 2010. With this being a presidential election year, it wouldn't be surprising to see another rushed together tax bill in December.

What does this all mean? Well it means a number of things, but most importantly to our minds, is the lack of ability for taxpayers to plan their futures with any kind of certainty and it also means an increased amount of scrambling on the part of an overextended IRS to get their systems updated and their staff trained.

So with a government that prefers expediency and cover for their actions, it seems more and more likely that the Bush Tax Cuts are likely to become more or less permanent, although we will have to continue and wait every couple years to find out.

2012 IRS Standard Mileage Rates Have Been Announced

2012-02-02T14:22:00.000-08:00

Without further ado, here they are:

55.5 cents per mile for business miles driven
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Tax Season is Upon Us

2012-01-12T10:57:00.000-08:00

While we empathize with tax payers, which isn't that difficult since we are tax payers ourselves, our firm is very excited to be entering the busiest time of the year for our practice.

We love having people come to our office. First of all, the business is nice but secondly and nearly as important is the sense of pride we feel when we see familiar faces who continue to allow us to prepare their returns for them and those that are giving us the opportunity for the first time.

Please return to this spot often as through out the year we will be updating you on the latest and most pressing tax issues in a manner that is hopefully clear to the lay tax person. Questions are definitely welcomed. If we don't have the immediate answer we will find out for you.

Tax Repatriation Isn't As Simple As It Seems

2011-06-28T09:36:00.000-07:00

There are a few different arguments on how the government should handle corporations bringing foreign income into the United States.

Some believe that a holiday should be put into effect into encourage investment, which will in turn fuel employment.

Another argument I've recently read suggests that by lowering the tax rate on repatriated income would actually encourage companies to send jobs offshore.

This blog post in Forbes explains the problem with a tax holiday on foreign income. Companies that employ cheaper overseas workers can bring their profits into the country at a reduced rate, while those that maintain their operations here in the states have to continue to pay the full 35% rate on their profits. Plus, whatever tax was paid in foreign taxes can be used to offset domestic taxes with the foreign tax credit.

This situation creates huge incentives to sending more jobs overseas as wages are lower and it will actually save companies tax wise to do so.

It seems that in order for a tax repatriation holiday to really make sense, it would have to spur enough domestic investment to offset the built in tax incentives.

Pensions Are A Major Problem Facing Governments At All Levels

2011-06-22T10:52:00.000-07:00

According to an article from Reuters, the state of New York will need to raise over $1300 per resident for the next 30 years to fully fund their pension systems. In New Jersey it's $2475! But this issue is one that is facing nearly every state and local government in the country.

The recent economic downturn has cut severely into tax revenues, and with these governments having created budgets with expectations of continued economic expansion, they find themselves overstretched and unable to meet their obligations without severely cutting services.

It seems as if there are major confrontations developing across the country, with unions and their backers on one side, and those who feel that state employees have been coddled and want to cut taxes and spending on the other. I think the fight that's been taking place in Wisconsin is only the first of many such battles we will be seeing in the near future.

Regardless of how it all turns out, it is very apparent that pensions and other benefits are very big expenditures for governments at every level to account for and one which a solution seems difficult to come by.

California Wants to Remain the Film Capitol of the World

2011-06-01T12:27:00.000-07:00

The California state assembly recently passed a bill that extends credits for movie makers. The extension is for another 5 years past 2014, so it's tentatively set to expire in 2019.

With the job market in the Golden State in horrible shape this seems like a good move. It was probably equally important to those in Sacramento to maintain California, and especially Los Angeles, as the movie center of the universe. But with the amount of movies and television shows being shot and produced outside of the state at far lower costs, this seems like it might only temporarily stem the tide.

5 Questions for Robert W. Wood

2011-05-24T07:48:00.000-07:00

This is the first interview we've conducted here at Financial Focus. Our first interviewee is Robert W. Wood, a tax attorney from the San Francisco firm of Wood & Porter. He maintains a blog on Forbes called The Tax Lawyer, through which he discusses some of the more pressing tax matters of the day. What I really like about the blog is his abilities to identify the more interesting and important issues and also to be able to explain them in an easy to understand manner.

1. What do you feel are the most important tax laws that people should

be aware of for 2011?

That's hard to answer since so many are important. But here are a few. From a general planning viewpoint, I would include the alternative minimum tax, since it catches so many people unaware. I would also include estate and gift taxes, since 2011 and 2012 may be years of real opportunity, depending on what happens in 2013!

I would also ensure that business taxpayers think about the increasing importance of enhanced expensing allowances. There are truly amazing benefits in the short term. Finally, I would worry over the compliance issues associated with foreign income and foreign accounts. Despite all the recent press, I find that many taxpayers, especially those with their feet in multiple countries, are ignorant of these rules. The stakes have gotten very high both for income tax returns and for the related financial disclosures on FBAR forms.

2. What do you think the biggest issues in tax law are going forward

that people should keep an eye on?

There will continue to be pressure to raise rates at least for some taxpayers. That may impact traditional tax planning when it comes to accelerating deductions and deferring income. If rates go up, the incentives can be reversed.

Another huge area of interest to business people relates to independent contractor v. employee issues. The IRS is making a major push in this area. Moreover, it is possible that there will be major changes in the law on this issue. President Obama has previously indicated interest in the "loophole" presented by employers inappropriately characterizing workers as independent contractors and thus avoiding payroll taxes. Expect more scrutiny in this area, and more difficulty in resolving these disputes with the IRS going forward.

3. Do you feel as if the Bush Tax Cuts are on their way to becoming more

or less permanent?

I imagine there will be quite an impetus to change them. The wild card will be with the upper income levels and with capital gain rates. I was very surprised by the year-end compromise in 2010 to extend the rates for everyone through 2012. A 15% capital gain rate is extremely low. I don't think we've ever had a lower one. It would not surprise me to have it go back to 20% or so.

4. We're hearing murmurs once again about 'reforming' the tax code. What

do you think the odds are of that actually happening this time?

In part, it depends on what you mean by "reforming." Over the last 30 years that I've been practicing tax law, there have been numerous major tax laws passed. Some of them were in the nature of quite significant tax reform. Examples include the 1981 and 1986 tax laws, both of which brought sweeping changes. Many of the reform discussions going on presently involve what seem to be more rifle shots than shotgun approaches that will fundamentally alter the tax landscape.

5. If you could choose one thing to change in the tax code, what would

it be and why?

Well, this may be a strange one to point out. A peccadillo of mine concerns the exclusion from income for damages paid on account of personal physical injuries or physical sickness. I see many lawsuits resolve, and many plaintiffs who think that all or a part of their settlements should be tax-free. In 1996 Congress changed section 104 to require that personal injuries must be "physical" to be excludable from income. There's been huge controversy about what this "physical" requirement means, but much remains unclear. The Tax Court docket is frequently clogged with cases concerning this provision, and many taxpayers are caught within these imprecise rules. Often a psychological injury may produce physical problems or illness, and in my view, recoveries for such injuries should not be taxed.

A Preposterous Proposal

2011-05-20T08:59:00.000-07:00

This is one of the most ridiculous ideas I’ve ever heard of. Some lawmakers are proposing that taxpayers pay more of their fair share of road construction costs by taxing them on the amount of mileage they’ve driven. The idea came about in response to lower tax revenues due to higher fuel efficiency in newer cars. The way it would work is that there would be a GPS device in stalled in your automobile that would track the amount of mileage driven and that info would be transmitted back to the government.

I think I’ve done a good job above of making it sound as if it isn’t that far out an idea. But this is an incredibly convoluted and overly complicated ‘solution’ to a very simple problem. Sure, it makes sense on the face of it to tax people based on their usage. That part makes sense, although it is a bit of a regressive tax idea. But to actually try and track something like driving distance using a government owned GPS system is nutty. First of all, there’s the obvious privacy issues. Some people don’t think it’s the government’s right to know what they’re doing and where, at all times. Secondly, there’s the cost and hassle of having everyone install these devices, which will surely be a headache. Thirdly, this is going to set a bad precedent as far as the government taxing us on activities they categorize as falling a 'user tax' situation. The possibilities are endless.

There are tons of gaping loopholes in the current tax code that, if closed, would provide huge windfalls for the government and wouldn’t require anything but a vote and a signature. I always feel that if an idea seems too complicated for it’s own good, it probably is, and this one falls in that category.

Notes from the IRS Liaison Meeting

2011-05-06T09:21:00.001-07:00

Dave Flemmer himself and I were participants in an IRS liaison meeting this morning. What was supposed to go from 9 until 11:30 ended up spilling over to about 12:30. Yes, it was long. Yes, it was arduous. And yes, it was informative.

I’m going to highlight some of the things I learned at the meeting. First of all, IRS employees have an uncanny ability to internalize the objectives of their respective departments to a degree that is a little unsettling. Now don’t get me wrong, everyone in the meeting was as nice as could be, it’s just that they seem to lack an ability to think outside of their immediate job duties, which is strange considering I’m sure nobody grew up thinking they want to be a collections agent for the IRS so they can help get the IRS the money they’re owed. They said a number of times that we as tax practitioners were the first line of defense in their crusade to eliminate tax fraud and to get those that owe to pay up. I guess working for the IRS, you are desperate for professional allies and the hope is that we’ll want to be a part of their mission since we are after all brothers in the tax business.

This over identification with their departments was in evidence when they went around the room and had each of them explain a ‘little’ about the work they do. The acronyms were flying and there was more than a little shop talk that we as outsiders were not at all familiar with.

But within the jargon was a lot of useful information.

Unenrolled Agents – Unenrolled agents, or uncertified tax preparers, will have to be fingerprinted before they will receive their PTIN’s. They will also have to maintain 16 hours of CPE a year

EFTPS – Every business has to make payments of more than $2,500 using the EFTPS system, the IRS online payment program. The IRS will no longer accept paper coupons or checks. There are ways around using the system but they make little sense.

Taxpayer vs. Tax Preparer Accuracy Statistics – We learned in the meeting that 5% of taxpayer prepared returns had errors while tax preparer returns had an error rate of 1%. But that was on paper returns. For electronic returns the numbers for each were both under 1%. Now, these are math errors and not reflective of whether the returns reflected over or under estimates of income or deductions and credits.

Examinations – Essentially what was stressed was that you and your clients should show up to the examination meeting prepared and having brought exactly what was requested. It will put you on a better standing with the IRS and will help allay the agents’ suspicion. Basically, stay on their good side and they’ll be more understanding.

Issue Management Resolution System – This is a program that has been put together to help address issues within the IRS, both discovered internally and from without the organization, that is going to make it easier to correct problems. It’s essentially bureau wide clearinghouse so that problems can be handled once instead of each time they show up individually.

Well, this is the gist of what I got from the meeting. My hand became very tired and I wasn’t able to get everything. Nor was my mind capable of taking in everything that was said, but I hope that this info is of some use to you.

Do Not Fear the IRS Notice!

2011-05-04T15:09:00.000-07:00

Receiving a notice from the IRS might be one of the scariest things you face, right up there with getting your test results back from the doctor or telling your parents you want to move in with your boyfriend or girlfriend who happens to be 50 years older than you.

The notice from the IRS is no reason to panic though! You shouldn’t even worry, so long as you know that you haven’t attempted to defraud the IRS in anyway. Normally it’s either a simple misunderstanding or they are making a relatively minor adjustment to your return.

The first thing to do is to respond to the notice in whatever way they specify on the letter. Normally it’s to call a designated phone number, at which time you will be given further instructions. Often times, though, it’s not even this complicated, the IRS will elucidate the actions they are proposing, the reason(s) why and the amount they are expecting you to pay.

Should the IRS request more than just money, it’s usually going to be the supporting documents for the amounts you claimed on your return. Now seeing as we all are extremely organized and are documents are well filed, this should be no problem.

If you feel that the notice is too much to bear, or even look at, you should definitely contact a tax professional as they have dealt with the process on numerous occasions and should be able to put your worries to rest. Well, as long as you don’t have a preexisting mental condition that is. We’re not therapists or analysts.

Getting Prepared For Next Tax Return Now Will Pay Off in The Future

2011-05-02T14:13:00.001-07:00

Although it seems that next year is a long ways off, it’s already May and we’ve already experienced four months. And if you were like a lot of our clients, you didn’t have your tax information easily at hand for your 2010 tax return, having to make a mad dash at tax time trying to find everything you need for your return.

Well, hopefully this blog can get you headed in the right direction so that come early next year, you will not only have everything ready for your return, you can face the amount owed or expected to be refunded, with a sense of confidence rather than dread or surprise.

Let’s take a look at some of the things you can do right now to get yourself organized and prepared.

1.Use the IRS Withholding Calculator:

The majority of our clients are W-2 employees and most of them have held the same position and made roughly the same amount of money each year. Yet, without fail, quite a number of them are surprised at either the amount owed or lack of refund. They often say that they thought because of such and such deduction they didn’t have to withhold as much. This mentality is no different than gambling, because they never actually know what the consequences of their changes mean.

This doesn’t have to be the case. All you have to do is grab your most recent pay stub and go to the IRS Withholding Calculator website. Just follow the prompts and it will easily allow you calculate with confidence how best to set up your W-4 so that you owe as little as possible. Or receive a refund as large as possible. It all depends on your preference.

2. Begin Tracking Your Expenses NOW:

There are a number of terrific reasons why spending time now logging deductible expenses will help you in the long run, besides the fact that it will keep your tax preparer from pulling out all of her or his hair when you bring in that old shoe box again.

First of all, your memory is not nearly as fool proof as you think. We have plenty of clients who draw a blank when we ask for specific numbers, or seriously overestimate what they think they had when they go and tally everything up.

A great idea is to at least start separating your receipts into their different categories. So for medical expenses, put all your medical bills in one spot; your automobile expenses, put them in another spot, etc. And to make sure you don’t unnecessarily keep things you don’t need, talk to your tax advisor and have them help you determine what would help you out based on your previous returns.

3. Get Caught Up On New Tax Laws:

There are plenty of terrific tax resources available online that can keep you up to date on current and forthcoming tax legislation, including, of course, this blog. Keeping up to date will help to keep you from being caught flat footed when the credit or deduction you had been expecting is no longer available.

An example of this issue was a couple years ago the child tax care credit for California dropped from around $300 to only $90 per child. Well, this left some mothers a little shocked to discover that they weren’t getting the usual refund from the state that they had become accustomed to. Now while there wasn’t anything they could have done to change the law, they could have had themselves more prepared for this eventuality.

It will be 2012 before you know it. Now is the time to get ready for your 2011 return as it will save you heartache, put you on more stable ground financially and give you peace of mind when you go to get your tax return done, knowing that you already have a very good idea of what to expect.

Dirty Dozen Tax Scams from the IRS Explained

2011-04-28T12:17:00.000-07:00

Every year the IRS releases a list of its top 12 tax scams, what they call the “dirty dozen”. This year was no different. Below is the list of scams and a brief summary. A very important point to remember is that whether you knowingly or unknowingly sign off on a return that is purposely misprepared, you are ultimately responsible for any unpaid taxes plus interest and penalties. So if someone comes to you with a tax avoidance plan that sounds too good to be true, chances are, it probably is.

1. Offshore income: This one is pretty straightforward. People try to stash money in other countries to hide income
2. Identity Theft & Phishing: Identity theft in this instance means using someone else’s information either to file a phony return and receive their refund. Phishing is soliciting personal information claiming to be a part of the IRS through email or websites.
3. Return Preparer Fraud: Another very straightforward scam. A preparer guarantees potential clients that they can either get them a refund or make it so they owe nothing. Often times these claims are made sight unseen or with only a cursory glance at a client’s information. Again, the client is ultimately responsible for any adjustments made, as well as penalties and interest. Also, the preparer may illegally skim off part of the refund.
4. Filing False or Misleading Forms: Filing of 1099’s or other tax forms that either show false deductible amounts or underreport the amount of actual income.
5. Frivolous Arguments: These are arguments made to support a tax position that the IRS has already deemed unreasonable and outlandish. A list of some of these arguments can be found on the IRS website.
6. Nontaxable Social Security Benefits with Exaggerated Withholding Credit: This scam is where a taxpayer excessively withholds tax money from their Social Security Benefits, which can lower their taxable income to zero. There is a $5,000 penalty for getting caught participating in this scheme.
7. Abuse of Charitable Organization and Deductions: There are a couple of different scams here. One is to use a tax exempt organization to shield income or assets from taxation. The other is the overvaluation of donated items. The IRS has been very determined in combating this particular scam.
8. Abusive Retirement Plans: Shady advisers have been known to encourage their clients to contribute more to their IRA’s than is allowed. There’s also the case where early distributions are improperly categorized.
9. Disguised Corporate Ownership: Where corporations are formed in certain states in order to disguise ownership. The hidden owners then use the dummy corporation to hide income, launder money, accumulate fictitious deductions and a number of other sundry activities.
10. Zero Wages: Fraudsters use this scheme to report zero wages by filing phony informational returns such as 1099’s and Form 4852 (substitute Form W-2) to counter act the real forms that report the actual income. Often times there will be an attempt to justify the adjusting filings using legalese to define away terms such as wages or even reasons why the company that filed the original W-2 or 1099 is incapable of filing an amended form.
11. Misuse of Trusts: These scams are where a trust, which is a valid financial instrument, is used to hide income and reduce estate or gift taxes.
12. Fuel Tax Credit Scams: Claiming a credit for fuel use that doesn’t actually qualify for the credit.

The lessons to be learned from this list are that the IRS is probably aware of any scheme someone might think up, you are ultimately responsible for the adjusted amount of tax owed for any hidden income or over valued deductions and that you need to be extremely wary of anyone making promises of the kind that guarantee refunds or no taxes owed.

New IRS App for your iPhone or Android Phone

2011-04-21T10:18:00.000-07:00

The IRS has a free application for smart phones, Ipads and Tablets. It is called IRS2Go and gives taxpayers the ability to check on the status ohttp://www.blogger.com/img/blank.giff their refunds, allows them to sign up for tax tips as well as get the most recent Twitter feeds from the IRS. If you want the IRS at your fingertips, this is the application for you. You can find more info here.

If You Didn't File On Time, You Need to File ASAP

2011-04-19T10:07:00.000-07:00

Well, yesterday was the official deadline for filing your 2010 taxes, just in case you didn’t realize… If you didn’t get your filing postmarked or e-filed by yesterday or if you didn’t file for an extension, you need to contact us right away so we can get your return prepared and sent in as soon as possible. Penalties for late filing of returns with money owed to the IRS are 5% for each month late up to 25% longer you wait to get your return in. Don’t procrastinate because with the IRS, things will only get worse! Here’s an excerpt from the IRS website explaining what happens if you don’t file your past due return or contact the IRS. http://www.irs.gov/businesses/small/article/0,,id=108330,00.html

• “Penalties and Interest will be assessed and will increase the amount of tax due.
• The IRS will file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability.
• Once the tax is assessed the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.
• Even if the IRS has already filed a substitute return, it still makes sense for you to file your own return to make sure you take advantage of all the exemptions, credits, and deductions you are allowed. The IRS will generally adjust your account to reflect the correct figures.”

There are additional penalties for Failure to Pay as well as Interest. Let us help you avoid the hassles described above, minimize your penalties and get your return filed ASAP.

If you have a refund due, you generally have three years to complete and submit your return. But, why wait if the IRS owes you money? Let us get your return prepared, e-filed and get that money into your bank account right away.

Education Credits Demystified

2011-02-03T14:25:00.000-08:00

Many taxpayers realize that there are tax credits available to them for education expenses. Unfortunately, due to their seeming complexity and unclear rules, many miss out taking full advantage of these credits. Worse still, a lot of people incorrectly take either a larger credit or the wrong credit than what actually applies, causing them to have to pay penalties and interest as well as the amount they owe.

Well, we're here to explain the two education credits and to whom and how they apply. The two credits are the American Opportunity Credit and the Lifetime Learning Credit.

The first thing to understand is that you can only use one or the other of the two available credits in a single tax year. The second tip to remember is that you cannot use either of the credits if you take a tuition and fees tax deduction.

Now onto the credits themselves.

The American Opportunity Credit is available to students in their first four years of post-secondary education credit. It is worth up to $2,500, with up to $1,000 of it being refundable. The credit begins phases out for individuals at $80,000 and $120,000 for those filing a joint return. The student must be enrolled as at least a half-time student for either one semester or quarter in the year. The student must be pursuing either a degree or some other type of credential. Qualified expenses that the credit applies to are tuition, fees, books, supplies and class related equipment.

The Lifetime Learning Credit applies to all post-secondary education and job skills training and there is no requirement for the student to be pursuing a degree or certification. The credit is good up to $2,000 and is not refundable. Expenses the credit applies to are the same as those for the American Opportunity Credit: tuition, fees, books and related equipment. The credit begins to phases out for individual filers at $60,000 and at $120,000 for those filing a joint return.

These credits are very beneficial and it behooves any student or those who have dependents that are students to see if and which credit can help them lower their tax load or even increase the amount of their refund.

IRS Mileage Rates for 2011 Announced

2011-01-21T16:16:00.000-08:00

The IRS has released the mileage deduction rates for 2011.
* 51 cents per mile for business miles driven
* 19 cents per mile driven for medical or moving purposes
* 14 cents per mile driven in service of charitable organizations
This rate is taken in lieu of repairs and other costs involved with the maintenance of an automobile. It's always best to do a side by side comparison to find out whether taking the mileage or deducting maintenance costs will give you the biggest deduction. In our firm we have found that taking the mileage is usually the best way to go.

If You're Itemizing, IRS Says You'll Have to Wait

2011-01-20T13:14:00.000-08:00

The IRS has said that if you plan on filing an itemized return for 2010, you'll have to wait until February 14. The delay is because the IRS is still trying to frantically get their computer system set up correctly for the last minute tax bill passed by Congress at the end of last year. Others who will have to wait to file are those claiming education credits and teachers claiming the educator expense deduction will have to wait as well.

Complexity of Tax Code Major Headache In Time and Money

2011-01-06T15:20:00.000-08:00

With the passage of Obama's recent tax legislation, once again the call is going out for a major overhaul, if not outright elimination, of current federal tax code. Two recent articles here and here both have references to a recent report by Nina Olsen, the National Taxpayer Advocate at the Internal Revenue Service. Some aspects of the report the articles highlight are numbers that are sure to surprise most people:

-Businesses and individuals spent an estimated 6.1 billion hours preparing their returns, equal to the same amount of time on the job of 3 million full time workers in a year.
-89 percent of taxpayers either employed someone or bought software to prepare their taxes at an average of $258 per taxpayer, which equals a combined $163 billion.
-The tax code itself is currently roughly 3.8 million words and growing, with over 4000 changes in the last 10 years and 579 last year.

All these numbers add up to a tax code that has been growing out of control, costing taxpayers billions of dollars and millions of productive hours. With no one seemingly brave enough in Washington to confront the issue head on, it doesn't appear there is any relief in site but hopefully the highlighting of the IRS taxpayer advocate report will start to build up some political momentum on this issue.

Delay in Refunds Expected Due to Obama's Tax Bill

2010-12-30T14:01:00.000-08:00

According to the LA Times, the IRS is frantically attempting to update it's systems in accordance with the recently passed tax legislation. The IRS was set for the expiration of Bush-era tax cuts but now it has to scramble to put into place all the new provisions, or rather extension of the prior provisions. The IRS is expecting the process to go on into February. What this means is that you'll have to wait longer this year for you refund if you're used to getting it early.

What the 2% Social Security Tax Cut for Employees Means for Employers

2010-12-27T15:52:00.000-08:00

As part of the new tax bill recently signed, employees' share of Social Security tax has been decreased by 2%. This does not apply to Social Security withholding on the employers side. Being this late in the year is makes it exceedingly difficult for employers to implement the change in withholding into their payroll systems, whether by software or by more old fashioned methods. In recognition of this the government is giving businesses until January 31 of next year to get things in order. If an employer is still unable to get it done by that date, they can make an adjustment on their employees' next paycheck.

Small Business Health Insurance Credit Overview

2010-12-14T06:20:00.000-08:00

The Small Business Health Insurance(SBHI) credit, which begins in 2011, is part of the Patient Protection and Affordable Care Act (PPA). It's purpose is to help small businesses be able to afford to participate in the new legislation.

For the purposes of the new bill a small business is defined as a company of 25 or less employees with average wages of less than $50,000. To receive the full credit a business may not have more than 10 employees or average wages of more than $25,000. The credit is reduced by any employees over 10 and the excess of average wages over $25,000.

For years 2011 and 2012, the credit is a maximum of 35% of nonelective contributions for employee insurance premiums and is included as part of the general business credit. For tax exempt businesses they may take 25% of contributions and use them against payroll taxes.

Beginning in 2013 the credit rises to 50% of contributions (35% for tax exempt employers). At that point the credit will be available for two consecutive years beginning with the first year the employer offers a qualified plan through a state insurance exchange.

As with any of the legislation associated with the PPA it's important to remember that this is as of right now, as what the future holds for the bill is still very much uncertain. For 2011, though, small businesses are being given an excellent incentive to provide health care and to reduce their taxes if they already are.

Congress and the Tax Disaster Waiting to Happen

2010-12-02T15:41:00.001-08:00

Washington has been a bastion of self-serving ineptitude for many a year now, but I think it's fairly safe to say that never has it been so pronounced as it is at the current moment. I think that there are a few contributing factors, but number one might just be the fact that no matter how far you scratch a current representative or senator, you will not reach even a scintilla of a principled core. In even the recent past, say 20 years ago, it seemed as if every member had at least one pet issue on which they were unwilling to bend. The current crop of legislators display a devotion to one thing only: their office and the sinecures that come with it.

The reason I bring up the characteristics of our representatives in Washington is because it seems as if now is a possibly linchpin moment for the history of our country. We are in still in the midst of one of the worst economic downturns the US has endured, one that doesn't seem to have an end in sight. In fact, it's a very good possibility that we may never be the same prosperous nation we have been since the end of World War II. With this in mind, it seems now is the time for a dramatic change in the direction our country, especially in the way we manage our national finances. Yet, there doesn't seem to be one person in Washington that is talking about the situation we face. Yes there has been some rather ineffectual chest beating about cutting programs here and raising taxes there, but nothing in the way of an overall plan. Instead we have a group of politicians who are ignoring the situation at hand either through ignorance or political calculation.

I think the current inactivity with the Bush Tax Cuts is an excellent encapsulation of all the problems I have pointed out above. We have a problem that's been facing us for years, yet nothing has been done prior to the point which we are now faced with. No one really understands what the inevitable means because no one has bothered to really figure it out. So now in the 11th hour, we have politicians scrambling to either take cover or trying use this issue for political purposes, making hay of this issue for their reelection campaigns two years away, one month after having just been elected, or more likely, reelected. No one has any semblance of an overall plan. Instead, what's most likely to be instituted is an ad hoc series of legislative Band Aids that will resolve nothing in the long term but will allow those in Washington to kick the issue further down the road. This will leave individual Americans and, especially, small businesses without the ability to make financial decisions with an eye on what they can expect in the future. Even past decisions aren't safe as there is talk of instituting provisions that might actually be retroactive.

In short, Americans need to know what they can expect from our government. Yes, we'd all like to have our political visions instituted, but short of that we'd at least like to know what to expect so that we are not left scrambling each year end to figure out what we'll have to come up with to pay Uncle Sam.

1099 Reporting Requirements for 2012 On Their Way to Being Repealed

2010-12-01T15:43:00.000-08:00

Included as part of the massive Patient Protection and Affordable Care Act, or Obama's health care reform bill, was a provision set to go into place in 2012 where business owners would have to file 1099s for any goods and services of over $600 paid to any person or company. This is as opposed to current law which requires a 1099 for any service provided by an independent contractor. If kept in place, this provision would cause a major reporting problem for small businesses. As well, the IRS doesn't currently have the resources necessary to attempt to match up the flood of 1099's to the returns of those being paid. All the way around it seems like a really bad deal and it makes you wonder how much forethought was put into it. Luckily though legislators have been made aware of their error, which isn't unusual, but the fact that they seem to be rectifying the issue is. Sen. Max Baucus of Montana, one of the major authors of the health care bill, has added a repeal of this rule to another bill. The repeal will not affect landlords, for whom the provisions will remain the same.

Small Business Jobs and Credit Act of 2010 Primer

2010-11-19T14:40:00.000-08:00

The Congress recently passed legislation, the Small Business Jobs and Credit Act of 2010, that can benefit small businesses if they act quickly. Let me run down the major provisions:

Bonus Depreciation: It behooves any business considering any depreciable purchases to do so before December 31^st as they will be able to deduct 50% of the cost right away. This applies to assets with useful lives of 20 years or less.

General Business Credits Carry Back Period Extended: The carry back period for the general business credits has been extended to five years. The credits can be used to offset taxes from previous years, including the Alternative Minimum Tax.

Capital Gains Relief: Capital gains tax on investments in small businesses have been eliminated entirely if held for at least five years. A small business is categorized as a company with $50,000,000 or less in assets and performs a qualified trade or business.

Section 179 Expensing Increase: Section 179 is the IRS tax code that allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the full purchase price from your gross income, instead of having to depreciate it over the useful life of the equipment. The Section 179 limit has been increased from $250,000 to $500,000 and will continue through 2011.

Expanded List of Section 179 Property: Leasehold, restaurant or retail improvements can be expensed up to $250,000 through 2011.

New PTIN Requirements Affects All Tax Preparers

2010-11-10T14:52:00.000-08:00

The IRS is requiring that all tax preparers, even those who do not put their names to a return, to apply for a PTIN before the end of the year. Along with this, all tax preparers will have to maintain a number of hours annually of continuing education, although the IRS hasn't decided the exact amount of hours required or who exactly will have to abide by this regulation.

Those of us that already have a PTIN must reapply for a new one by the end of the year. Having to reapply is already a hassle enough but it will now also cost us, $64.25 to be exact.

You can apply or reapply here: http://www.irs.gov/taxpros/article/0,,id=210909,00.html?portlet=7

I will update this post as I gather more information.