David Kirkpatrick

September 13, 2010

In advance of favorable midterm elections …

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 5:21 pm

… the “party of ‘no'” says, “maybe.”

Good news on the tax front. This at least hints the GOP isn’t willing to blow up tax cuts for a very huge majority of taxpayers just to side with the top two percent (or thereabouts) of households.

From the link:

The top Republican in the House of Representatives offered a hint of compromise on the divisive issue of taxes on Sunday, saying he would support extending tax cuts for the middle class even if cuts for the wealthy are allowed to expire.

Representative John Boehner said President Barack Obama’s proposal to renew lower tax rates for families making less than $250,000 but let the lower rates for wealthier Americans expire was “bad policy” — but he will support it if he must.

“If the only option I have is to vote for some of those tax reductions, I’ll vote for it,” Boehner said on CBS’s “Face the Nation” program.

“If the only option I have is to vote for those at 250 and below, of course I’m going to do that,” he said. “But I’m going to do everything I can to fight to make sure that we extend the current tax rates for all Americans.”

September 8, 2010

The latest on the White House proposed tax cuts and infrastructure spending

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 1:20 pm

Can Obama pull off these fiscal moves this year? Opinions are a mixed bag, but the quick answer is probably not.

From the link:

Tax experts and economists offered mixed reviews about the feasibility of the Obama administration’s attempt to pass additional tax cuts now with the legislative year winding down, even as the president declined Sept. 3 to specify what proposals his administration will advance.

On Aug. 30, the president announced that he will propose a series of targeted tax cuts and infrastructure investments in the coming days and weeks, some of which will be new.

“I will be addressing a broader package of ideas next week,” the president told reporters at the White House Sept. 3. “We are confident that we are moving in the right direction, but we want to keep this recovery moving stronger and accelerate the job growth that’s needed so desperately all across the country.”

August 26, 2010

Out of control taxation, New York State-style

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 8:17 pm

There really isn’t anything to add to this Wall Street Journal story other than WTF?

From the link:

State tax officials, under orders from cash-strapped Albany to ramp up their audit and compliance efforts, have begun to enforce one of the more obscure distinctions within the state’s sales tax law.

In New York, the sale of whole bagels isn’t subject to sales tax. But the tax does apply to “sliced or prepared bagels (with cream cheese or other toppings),” according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it’s never been touched by a knife, it’s also taxed.

August 7, 2010

Bush tax cuts find foe in Greenspan

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 10:26 am

Alan Greenspan’s post-Fed chair economic line has been quite different from how he wielded power for almost twenty years. His latest seeming apostasy is to call for repealing the Bush 43 tax cuts. I’ll have to admit I agree with the sphinx here. I’m certainly fiscally conservative, but I’m not fiscally stupid, and I’m certainly not one of those fiscal hardliners (hardheaders?) who would prefer to see the United States go completely bankrupt than to implement a serious monetary policy that matches the facts on the ground.

From the link:

It was not enough, it seems, for Alan Greenspan, the former Federal Reserve chairman and a self-described lifelong Republican libertarian, to call for stringent government regulation of giant banks, as he did a few months ago.

Now Mr. Greenspan is wading into the most fierce economic policy debate in Washington — what to do with the tax cuts adopted, in large part because of his implicit backing, under President George W. Bush — with a position not only contrary to Republican orthodoxy, but decidedly to the left of President Obama.

Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

August 5, 2010

House may still vote on middle class tax cut extension …

… before the election adjournment in October.

From the link:

The House could consider an extension of the 2001 and 2003 tax cuts for middle-income households prior to the chamber’s Oct. 8 target adjournment, House Majority Leader Steny Hoyer (D-Md.) said Aug. 3.

Hoyer said he would like the legislation to move before lawmakers adjourn to campaign for the midterm elections. But it is possible that the House will not reach an agreement on how to proceed, he told reporters during a conference call hosted by the Center for American Progress.

“I think many in our caucus and many on the Senate side would like to see us address it and to give confidence to working Americans that their taxes are not going to be increased, and I fall under that category,” Hoyer said.

Additionally, “we have to deal with the Senate,” he said, adding that it is not a requirement that the Senate move the extension first. Some House leaders have previously said that they would wait until the Senate acts.

August 4, 2010

Looking way ahead …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 6:28 pm

… all the way to next year’s tax season. Here’s some tips on using an offer in compromise on your total tax bill from the IRS. This is a tough, tough year and it doesn’t hurt to begin reviewing your options this early.

From the AICPA link:

In these economic times, more taxpayers are not able to fully pay their federal income taxes when due. There are several methods that may be used to pay tax liabilities in this situation, one of which is an offer in compromise (OIC).

Sec. 7122 permits the IRS to compromise a tax liability on one of the following grounds:

  • Doubt as to liability;
  • Doubt as to collectability; or
  • To promote effective tax administration because either collection of the full amount would cause economic hardship for the taxpayer or compelling public policy or equity considerations provide a sufficient basis for compromising the liability.

July 13, 2010

Congressional showdown to keep tax breaks …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:44 pm

… for the top one percent or so of all taxpayers. Because the Bush 43 era tax policy did such wonders with the economy.

From the link:

While Democrats and Republicans alike want to keep the 2001 and 2003 tax reductions for families earning up to $250,000, President Barack Obama and congressional Democrats want to end the break for those who earn more. Republicans, contending a recovery from recession is no time to raise taxes, insist on continuing the Bush-era cuts for high-income people as well.

July 8, 2010

From the department of “no duh”

The only thing the title of this release left out is it would also reduce both crime and the caseload of the California court system.

The release:

Legalizing marijuana in California would lower the price of the drug and increase use, study finds

Legalizing the production and distribution of marijuana in California could cut the price of the drug by as much as 80 percent and increase consumption, according to a new study by the nonprofit RAND Corporation that examines many issues raised by proposals to legalize marijuana in the state.

While the state Board of Equalization has estimated taxing legal marijuana could raise more than $1 billion in revenue, the RAND study cautions that any potential revenue could be dramatically higher or lower based on a number of factors, including the level of taxation, the amount of tax evasion and the response by the federal government.

Past research provides solid evidence that marijuana consumption goes up when prices go down, but the magnitude of the consumption increase cannot be predicted because prices will fall to levels below those ever studied, researchers say. Consumption also might rise because of non-price effects such as advertising or a reduction in stigma, researchers say.

In addition to uncertainty about the taxes levied and evaded, researchers do not know how users will respond to such a large drop in price. Even under a scenario with high taxes ($50 per ounce) and a moderate rate of tax evasion (25 percent), researchers cannot rule out consumption increases of 50 percent to 100 percent, and possibly even larger. If prevalence increased by 100 percent, marijuana use in California would be close to the prevalence levels recorded in the late 1970s.

The analysis, prepared by the RAND Drug Policy Research Center, was conducted in an effort to objectively outline the key issues that voters and legislators should consider as California weighs marijuana legalization.

“There is considerable uncertainty about the impact that legalizing marijuana in California will have on consumption and public budgets,” said Beau Kilmer, the study’s lead author and a policy researcher at RAND. “No government has legalized the production and distribution of marijuana for general use, so there is little evidence on which to base any predictions about how this might work in California,”

The analysis also suggests that the annual cost of enforcing current marijuana laws is smaller than suggested by others. The RAND study estimates that the cost of enforcing the current laws probably totals less than $300 million.

“It is critical that legislators and the public understand what is known and unknown as the state weighs this unprecedented step,” said Rosalie Liccardo Pacula, a study co-author and co-director with Kilmer of the RAND Drug Policy Research Center.

Two proposals are pending that would legalize the production and sale of marijuana in California. Assembly Bill 2254 authored by Assemblyman Tom Ammiano (D-San Francisco) would legalize marijuana for those aged 21 and older and task the state Department of Alcoholic Beverage Control with regulating its possession, sale and cultivation. The bill would create a $50 per ounce excise tax and these funds would be used to fund drug education, awareness, and rehabilitation programs under the jurisdiction of the State Department of Alcohol and Drug Programs.

In November, California voters will consider a ballot measure titled the Regulate, Control and Tax Cannabis Act of 2010 that would make it legal for those aged 21 and older to cultivate marijuana on a 5-foot-by-5-foot plot, and possess, process, share or transport up to one ounce of marijuana. In addition, the initiative would authorize cities or counties to allow, regulate and tax the commercial cultivation and sales of marijuana. Such activities would remain illegal in jurisdictions that do not opt in.

In only two countries have there been changes in the criminal status of supplying marijuana. The Netherlands allows for sale of small amounts of marijuana (5 grams) in licensed coffee shops and in Australia four jurisdictions have reduced the penalties for cultivation of a small number of marijuana plants to confiscation and a fine. Neither has legalized larger-scale commercial cultivation of the sort California is considering.

In 1975, California was one of the first states to reduce the maximum penalty for possessing less than an ounce of marijuana from incarceration to a misdemeanor with a $100 fine. In 1996, California became the first state to allow marijuana to be grown and consumed for medical purposes.

RAND researchers say one effect of legalizing marijuana would be to dramatically drop the price as growers move from clandestine operations to legal production. Based on an analysis of known production costs and surveys of the current price of marijuana, researchers suggest the untaxed retail price of high-quality marijuana could drop to as low as $38 per ounce compared to about $375 per ounce today.

RAND researchers caution there are many factors that make it difficult to accurately estimate revenue that might be generated by any tax on legal marijuana. The higher the tax, the greater the incentives would be for a gray market in marijuana to develop, researchers say.

“A fixed excise tax per ounce may give producers and users an incentive to shift to smaller quantities of higher-potency forms of marijuana,” said study co-author Jonathan P. Caulkins, the H. Guyford Stever Professor of Operations Research at Carnegie Mellon University’s Heinz College and Qatar campus. Such a shift is another factor that could lower revenues collected from marijuana taxes.

In addition, since the November ballot initiative leaves it to local governments to set tax rates, the size of any levy could vary broadly. A jurisdiction with a low tax rate might attract marijuana buyers from elsewhere in the state or even other states, further complicating efforts to predict government revenues from the sale of legal marijuana, according to researchers.

The RAND report also investigates some of the costs to the state and society in general, such as drug treatment and other health expenses, that may change if marijuana is legalized in California.

It’s unclear whether legalizing marijuana may increase or decrease drug treatment costs, according to the study. More than half of the 32,000 admissions for treatment of marijuana abuse in California during in 2009 resulted from criminal justice referrals, which could drop if legalization is approved. However, an increase in marijuana use could cause a spike in those who voluntarily seek treatment for marijuana abuse, researchers say.

###

The report, “Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets,” can be found at www.rand.org. Funding for this study was provided by RAND’s Investment in People and Ideas program, which combines philanthropic contributions from individuals, foundations, and private-sector firms with earnings from RAND’s endowment and operations to support research on issues that reach beyond the scope of traditional client sponsorship.

Other authors of the study are Robert J. MacCoun of the University of California, Berkeley, and Peter H. Reuter of the University of Maryland.

The RAND Drug Policy Research Center is a joint project of RAND Health and the RAND Safety and Justice program within RAND Infrastructure, Safety, and Environment. The goal of the RAND Drug Policy Research Center is to provide a firm, empirical foundation upon which sound drug policies can be built.

The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. To sign up for RAND e-mail alerts: http://www.rand.org/publications/email.html

May 13, 2010

Mapping state and local tax burdens

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 1:20 am

Interesting graphic from the Tax Foundation:

May 11, 2010

US tax bill at lowest level in 60 years

Kinda punches a few holes in that whole “Obama is out to get everything you own” meme floating around the not-so-rational right.

From the link:

Amid complaints about high taxes and calls for a smaller government, Americans paid their lowest level of taxes last year since Harry Truman‘s presidency, a USA TODAY analysis of federal data found.

Some conservative political movements such as the “Tea Party” have criticized federal spending as being out of control. While spending is up, taxes have fallen to exceptionally low levels.

Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

“The idea that taxes are high right now is pretty much nuts,” says Michael Ettlinger, head of economic policy at the liberal Center for American Progress. The real problem is spending,counters Adam Brandon of FreedomWorks, which organizes Tea Party groups. “The money we borrow is going to be paid back through taxation in the future,” he says.

May 5, 2010

IRS offering open house May 15 for small business and individuals

The facts straight from the source:

Open House on Saturday May 15 to Help Small Businesses, Individuals Solve Tax Problems

IR-2010-55, May 3, 2010

WASHINGTON — The Internal Revenue Service will host a special nationwide Open House on Saturday May 15 to help small businesses and individuals solve tax problems.

Approximately 200 IRS offices, at least one in every state, will be open May 15 from 9 a.m. to 2 p.m. local time. IRS staff will be available on site or by telephone to help taxpayers work through their problems and walk out with solutions.

“Our goal is to resolve issues on the spot so small businesses and individuals can put any issues they have with the IRS behind them,” IRS Commissioner Doug Shulman said. “If you have a problem filing or paying your taxes or resolving a tough tax issue, we encourage you to come in and work with us.”

IRS locations will be equipped to handle issues involving notices and payments, return preparation, audits and a variety of other issues. At a previous IRS Open House on March 27, approximately two-thirds of taxpayers requested and received assistance with payments and notices.

So, for example, a taxpayer who cannot pay a tax balance due can discuss with an IRS professional whether an installment agreement is appropriate and, if so, fill out the paperwork then and there. Assistance with offers-in-compromise will also be available. Likewise, a taxpayer struggling to complete a certain IRS form or schedule can work directly with IRS staff to get the job done.

At the March 27 Open House, 88 percent of the taxpayers who came in for help had their issues resolved the same day.

Locations for the May 15 Open House are listed here.

The Open House on May 15 is the first of three events scheduled through the end of June. The next two are planned for Saturday June 5 and Saturday June 26. Details regarding those events will be available soon.

April 15, 2010

Tax day is here

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 2:32 pm

Hope you’ve already taken care of the unpleasant chore of federal income taxes. If you want to see some frazzled people, head to the largest post office branch in your city or town between around 10 p.m. and midnight to see all those very last minute filers. Of course with electronic filing that little bit of yearly Americana is probably heading toward extinction.

March 18, 2010

States looking for their cut of e-tailing

Filed under: Business, Politics, Technology — Tags: , , , , — David Kirkpatrick @ 6:20 pm

It’s a terrible idea for a lot of reasons, but this bit from the link pretty much sums up why individual states forcing out-of-state e-tailers to cough up taxes just is not feasible:

Mary Osako, a spokeswoman for Amazon.com Inc., the largest online retailer by revenue, said state-by-state laws are creating a “very complex sales tax regime,” and that the company would only support a “simplified system, fairly applied to all business models.” Amazon is in favor a national streamlined sale-tax effort that would mandate sales tax collection by out-of-state retailers in 23 states that have voluntarily signed on to the program. “We aren’t opposed to collecting sales tax within a constitutionally permissible system applied even-handedly,” Ms. Osako said.

A 1992 Supreme Court ruling prohibits states from forcing retailers without a physical presence in the state to collect sales tax on their behalf. Many states technically require local residents to pay so-called use tax on such purchases, but most taxpayers ignore those rules.

March 10, 2010

IRS outreach to the unemployed

Tax season is here and tax day is looming. If you are currently unemployed, there’s a new one-year only tax break involving your unemployment checks to take advantage of, and the Internal Revenue Service is offering additional assistance for those out of work. Don’t get on the bad side of the IRS because your employment condition and take advantage of every break, deduction and federal assistance and advice out there.

From the second link, the release:

IRS Outlines Additional Steps to Assist Unemployed Taxpayers and Others

Video
Owe Taxes But Can’t Pay? English
Unemployment Compensation: EnglishSpanish
Job Search Expenses: EnglishSpanishASL
For these and other videos:  YouTube/IRSVideos

IR-2010-29, March 9, 2010

WASHINGTON — The Internal Revenue Service today announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.

The steps –– an expansion of efforts that began more than a year ago –– include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday “open houses” offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.

“Times are tough for many people, and the IRS wants to do everything it can to help people who have lost their job or face financial strain,” IRS Commissioner Doug Shulman said. “We continue to make adjustments to key programs and expand ways for people to get help. We’re doing everything we can to help ease the burden on struggling taxpayers.”

New Flexibility for Offers in Compromise

For some taxpayers, an offer in compromise –– an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed –– continues to be a viable option. IRS employees will now have additional flexibility when considering offers in compromise from taxpayers facing economic troubles, including the recently unemployed.

Specifically, IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise. Normally, the standard practice is to judge an offer amount on a taxpayer’s earnings in prior years. This new step provides greater flexibility when considering offers in compromise from the unemployed. The IRS may also require that a taxpayer entering into such an offer in compromise agree to pay more if the taxpayer’s financial situation improves significantly.

These immediate steps are part of an on-going effort by the IRS to ensure the availability of the Offer in Compromise program for taxpayers.

Hundreds of Saturday Open Houses to Resolve Taxpayer Issues

In addition, IRS will hold hundreds of special Saturday open houses to give struggling taxpayers more opportunity to work directly with IRS employees to resolve issues. The offices will be open on March 27 and three additional Saturdays in the spring and early summer. Dates, times and locations will be announced shortly.

During the expanded Saturday hours, taxpayers will be able to address economic hardship issues they may be facing or get help claiming any of the special tax breaks in last year’s American Recovery and Reinvestment Act, including the:

  • Homebuyer tax credit
  • American Opportunity Credit
  • Making Work Pay credit
  • Expanded Earned Income Tax Credit

In addition to these special Saturdays, taxpayers can take advantage of toll-free telephone assistance and regularly scheduled hours at local Taxpayer Assistance Centers. Taxpayers can find the location, telephone number and business hours of the nearest assistance center by visiting the Contact My Local Office page on IRS.gov.

Special Outreach Efforts to Unemployed

The IRS is working and coordinating with state departments of revenue and state workforce agencies to help taxpayers who are having problems meeting their tax liabilities because of unemployment or other financial problems.

These coordinated efforts may include opportunities for taxpayers to make payment arrangements and resolve both federal and state tax issues in one place.

Special Section of IRS.gov Created

Taxpayers who are unemployed or struggling financially can find information on a new page on the IRS Web site, IRS.gov. This online tax center has numerous resources including links to information on tax assistance and relief to help struggling taxpayers

Other Options Available for Taxpayers

The IRS will continue to offer other help to taxpayers, including:

  • Assistance of the Taxpayer Advocate Service for those taxpayers experiencing particular hardship navigating the IRS.
  • Postponement of collection actions in certain hardship cases.
  • Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals having difficulty paying.
  • Additional review of home values for offers in compromise in cases where real-estate valuations may not be accurate.
  • Accelerated levy releases for taxpayers facing economic hardship.

In addition, the IRS will accelerate lien relief for homeowners if a taxpayer cannot refinance or sell a home because of a tax lien. As previously announced, a taxpayer seeking to refinance or sell a home may request the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. The taxpayer may also request the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

March 9, 2010

Unemployed? Be sure to take advantage of new tax break

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 11:49 am

It’s getting a little late in the game for this year’s taxes, but if you are unemployed you should make certain you take advantage of every tax break out there. You probably know within certain constraints you can deduct job search expenses, but this year offers a new break on unemployment insurance tax.

From the link:

Traditionally, every penny of unemployment insurance is taxed. But with 8.4 million job losses since the start of the recession, that rule is changing this year.

If you received unemployment checks last year, you can exclude the first $2,400 from your return. You have to remember to do this math yourself, since the documents from your state employment agency won’t exempt it. This benefit won’t be around next year.

March 1, 2010

Health care reform won’t help self-employed tax issue

As a self-employed freelance writer, I completely understand the pain of the odd taxes and hoops of red tape the IRS has put in front of the self-employed sole proprietor. Too bad none of the reform ideas floating around include helping those smallest of businesses.

From the link:

By a quirk in the tax code, self-employed workers who buy their own health insurance essentially pay an extra tax on their premiums. They’re the only taxpayers in the system who pay taxes on premiums, which count as a business expense for corporations and pretax income for employees. Because self-employed workers have no corporate employers to match their payroll tax contributions to Social Security and Medicare, they pay double the rate of wage and salary workers in a levy known as the self-employment tax equal to 15.3% of their net earnings. That’s on top of regular state and federal income taxes, and the income they spend on health premiums is not exempt.

The nation’s 9 million self-employed—sole proprietors with few or no employees, contract workers, and freelancers—constitute about 8% of the total U.S. labor force, according to the Bureau of Labor Statistics. (The Census Bureau counts 22 million sole-proprietors, but it’s not clear how many of those may be payroll workers as well.) “You correct this, think of the widespread health benefit you would give to so many people,” says Kristie Arslan, executive director of the lobbying group National Association for the Self-Employed (NASE), which represents the self-employed in Washington.

February 26, 2010

Tax deductions — the odd, the strange and the crazy

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:58 pm

Ever wonder if your crazy tax deduction idea would pass the IRS’s muster? Here’s a list of 14 “oddball” deduction that did just that.

And here’s three samples from the  link:

4. Cat food. A couple who owned a junkyard were allowed to write off the cost of cat food they set out to attract wild cats. The feral felines did more than just eat. They also took care of snakes and rats on the property, making the place safer for customers. When the case reached the Tax Court, IRS lawyers conceded that the cost was deductible.

And:

7. Breast augmentation. In an effort to get bigger tips, an exotic dancer with the stage name “Chesty Love” decided to get implants to make her a size 56-FF. The IRS challenged her deduction, saying the operation was cosmetic surgery. But a female Tax Court judge allowed this taxpayer to claim a depreciation deduction for her new, um, assets, equating them to a stage prop. Alas, the operation later proved to be a problem for Ms. Love. She tripped, rupturing one of her implants. That caused a severe infection, and the implants had to be removed.

And finally:

10. Free beer. In a novel promotion, a service-station owner gave his customers free beer in lieu of trading stamps. Proving that alcohol and gasoline do mix — for tax purposes — the Tax Court allowed the write-off as a business expense.

February 25, 2010

All about the 1031 exchange

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 1:14 pm

I’ve written about the 1031 exchange — also known as a Starker exchange — in the past (here’s a link to menu of my 1031 offerings) and it’s a great tax-deferred way get out of an investment property you are no longer interested in owning.

Here’s my intro from the first link:

The Internal Revenue Code 1031 exchange, also known as a Starker exchange, is a powerful tool investment second home owners can use to sell their existing real estate and purchase new property with all capital gains taxes deferred as long a certain criteria are met. A 1031 exchange is considered a “like kind” exchange of property. This exchange can be tricky and should be conducted through the services of a Qualified Intermediary, also referred to as an Exchange Accommodator. This independent party helps accommodate both the sale and subsequent purchase transactions.Before pursuing a 1031 exchange remember this option is only available for investment property. If you’re not sure if your second home is considered investment real estate, check where it falls in the four tax categories for second homes. If you use your second home for no more than 14 days in a year, or 10% of the days rented if that number is greater, the IRS will consider your second home investment real estate.

And here’s a link to a recent article at Forbes.com. The article provides a nice overview of whys and hows of a 1031 exchange, plus the comments provide additional insight into the process.

From the above link:

Because of the concentrated nature of a real estate investment, it is important for portfolio managers to have the flexibility to rebalance their portfolios and make tactical bets in either different property sectors or investment regions. A 1031 exchange encourages such rebalancing by allowing investors to move in and out of real estate exposures through the exchange of one property for another without the burden of immediately incurring capital gains taxes. By continually using 1031 exchanges when acquiring and unloading property, investors can defer the capital gains tax until it is time to liquidate some or all of the portfolio, there is a favorable change in the tax law, or they have accrued enough capital losses to offset the capital gains obligation.

February 20, 2010

The home office deduction

I’m going out on a limb to guess this tax year an entire slew of one time full-time employees have started businesses out of their homes, either because they became unemployed, their job was scaled back or they were forced into serious pay cuts. As a long-time freelance writer I’ve taken the home office deduction for years. When you work out of your home it’s a deduction you deserve, and should, take. My best advice on the topic? Find a reputable CPA and schedule a meeting immediately (these professionals are already very busy with the 2009 tax year season) to discuss how to handle your home office deduction. This is one tax dedution that pretty much requires professional help.

From the link:

IRS Publication 587, Business Use of Your Home, spells out the rules under which you can take a deduction for using your home as your office, manufacturing facility or warehouse.

Your home office should be used:

—Exclusively and regularly as your principal place of business, or

—Exclusively and regularly as a place where you meet or deal with patients, clients or customers in the normal course of your trade or business.

“Exclusively” refers to the requirement that the part of your home that you use for business cannot be used for any personal reason. The IRS doesn’t require that it be a complete room in a house, or that the space you use be partitioned. It does require that your home office or workspace be a “separately identifiable space.”

February 19, 2010

More recording industry shenanigans

This time it’s going after radio with a new performance tax proposal. Okay, the industry is foundering on the rocks, has alienated the bulk of its customer base under the age of twenty five and due to technological developments has forever lost its stifling stranglehold over the creative process and product distribution. That’s not to say the music industry doesn’t have a real and necessary role to play in today’s marketplace, but the old ways are gone and are not coming back. It’s time to face the future and meet the challenges of today or shut down and get out of the way for a new paradigm that can.

What is the response from the industry? More ill advised lawsuits against consumers and now an attempt to force a “performance tax” bill through Congress to punish radio, the one-time bread and butter of the music business.

From the link:

The recording industry wants to impose a performance tax that would financially hurt local radio stations, stifle new artists and harm the listening public who rely on free local radio.

Senators Blanche Lincoln (D-Arkansas) and John Barrasso (R-Wyoming), along with RepresentativesGene Green (D-Texas) and Michael Conaway (R-Texas), and many other members of Congress have sponsored legislation and efforts against the performance tax.  Others still need to hear your voice.

Here’s more detail from the NoPerformanceTax.org website:

For more than 80 years, radio and the recording industry have enjoyed a mutually beneficial relationship: free play for free promotion. And it works. It’s a relationship that has sustained businesses on both sides.

In fact, radio’s free promotion of artists translates to as much as $2.4 billion annually in music sales for record labels and artists. And this doesn’t even include the enormous revenues they receive from concerts and merchandising.

But the labels–like many businesses–are struggling in this economy. They have failed to adapt to the digital age, and find their business model is broken. And now they want to impose a fee called a performance tax on local radio stations to subsidize their losses.

A performance tax would threaten the local radio stations that communities depend on. It would financially hamstring stations, stifle new artists and harm the listening public who rely on free local radio.

WHERE DOES THE MONEY GO?

In short, the money generated from the performance tax would flow out of your community and into the pockets of the major record labels – and three out of the four are foreign-owned. The record labels would like for you to think this is all about compensating the artists, but in truth the record labels would get at least 50 percent of the proceeds from a tax on local radio.

And:

Congress has continually recognized that local radio is different from other musical platforms and should not be subject to a performance tax. Local radio is free, so everyone, regardless of income, can have access to it. Local radio also has to fulfill certain public service obligations that other platforms do not. And importantly, the free music that radio plays provides free promotion to the record labels and artists – up to $2.4 billion annually.

TELL CONGRESS TO SUPPORT LOCAL RADIO – TAKE ACTION NOW

There are currently two bills pending in Congress that would levy a performance tax on local radio – H.R.848, sponsored by Rep. John Conyers (MI-14) and S.379, sponsored by Sen. Patrick Leahy (VT). Your members of Congress need to hear that you strongly oppose these bills.

Additionally, anti-performance tax resolutions have been introduced in the House and Senate in support of local radio. In the Senate, Sens. Blanche Lincoln (AR) and John Barrasso (WY) introduced S. Con. Res. 14, and in the House, Reps. Gene Green (TX-29) and Mike Conaway (TX-11) introduced H. Con. Res. 49. Both are known as the Local Radio Freedom Act. Many members of Congressalready support local radio and resolutions against the performance tax. Others still need to hear your voice.

I suggest you hit the site and check all the information out for yourself, but if not, here’s a shortcut to taking some action against this ridiculous tax — Take action now!

February 8, 2010

A note from the IRS

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 8:50 pm

Don’t waste our time.

The release:

IRS Debunks Frivolous Tax Arguments

IR-2010-18, Feb. 5, 2010

WASHINGTON — The Internal Revenue Service today released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.

Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 80-page document, The Truth about Frivolous Tax Arguments.

The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.

No estate tax this year

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:41 pm

Well, so far at least. Congress let the estate tax lapse for 2010 meaning anyone lucky (unlucky? since you’re dead) enough to leave an estate this year will leave a larger estate since the Federal government isn’t taking its cut. Of course that might change in the future with some sort of retroactive tax. All in all it’s a confusing situation all around.

From the link:

More than a month into 2010, the Internal Revenue Service is not collecting estate tax on the money that wealthy people, including small business owners, leave to their heirs after they die. The unusual situation results because the U.S.Senate did not pass legislation late last year to remedy the scheduled expiration of the estate tax.The situation is confusing and unfair, and particularly hurts entrepreneurs doing succession planning, says Jonathan M.Bergman, a certified financial planner and vice-president of Palisades Hudson Financial Group, a fee-only financial planning firm in Scarsdale, N.Y. He spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

Also from the link, here’s the bottom-line impact of this Congressional blunder:

How much tax revenue is lost when there’s no estate tax?

Around 1% of total Internal Revenue Service collections come from estate taxes.

January 26, 2010

Small business tax credit still in play

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 2:09 pm

It may have died in Congress, but a tax credit for small businesses creating jobs is a good idea. There are pros and cons, but overall Main Street needs this. Companies need a little more financial flexibility, especially if they legitimately need to add employees, and people out there just need more jobs.

From the link:

President Barack Obama’s push to create jobs includes a new tax credit for small businesses that add employees, an idea that fell flat in Congress last year and continues to have skeptics this year.

The idea has appeal as the nation struggles with an unemployment rate topping 10 percent. But House Democrats left out Obama’s proposal when they passed a jobs bill in December because they didn’t know how to target the credit effectively. The Obama administration still hasn’t provided details on how the tax credit would work, and some tax experts question whether it would.

January 25, 2010

An idea that’s almost too simple

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 8:31 pm

Tax forms pre-filled with the information the IRS has on your taxpayer ID.

From the link:

Requiring taxpayers to file returns without being told what the government already knows makes as much sense “as if Visa sent customers a blank piece of paper, requiring that they assemble their receipts, list their purchases — and pay a fine if they forget one,” said Joseph Bankman, a professor at the Stanford Law School.

Many developed countries now offer taxpayers a return containing all information collected by the taxing authority — to “get the ball rolling by telling you what it knows,” Mr. Bankman says.

It’s a stunningly reasonable idea. When you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be? You’d have the chance to check whether the information was accurate, correct it as needed and add any pertinent details — that you’re newly married, for example, or have a new child — before sending it. Far better to discover problems early with the I.R.S., whose say matters more than third-party software’s best guess.

January 19, 2010

Taxation temperature? Cold days ahead for the financial industry

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 3:45 pm

And given the performance of the financial industry, coupled with some massive public relations missteps and populist uprising looking to put at least a few banker’s heads on pikes for a Main Street parade, it’s a pretty safe bet when D.C. goes looking for new money banking and financial services will be the most public targets.

Here’s a breakdown of seven potential tax changes coming this year. Over half target the financial industry.

From the link:

Tax banker bonuses more

The populist fury unleashed when bonuses were paid to AIG executives is back. This time it’s during bonus season on Wall Street, where investment banks are expected to distribute tens of billions of dollars to reward their employees for the banks’ 2009 performance.

House Financial Services Chairman Barney Frank, D-Mass., will hold a hearing on Wall Street compensation next week. On the agenda will be consideration of bonus taxation, as well as President Obama’s proposal to tax banks to make up for any bailout money that isn’t repaid.

Frank’s committee doesn’t write tax law. That’s up to the House Ways and Means and the Senate Finance committees. But he is beating the drums for change.

“I think compensation has gotten excessive,” Frank said in a statement. “I want to underline what we are already doing. Frankly, in the hope that maybe the Senate will be even more inclined to [act].”

So don’t be surprised if talk of a banker bonus tax is revived. But it’s not clear how viable it would be. “That’s more politics than policy,” Schwarz said.

January 11, 2010

Taxes and the self-employed

As a freelance writer for many years I’ve been dealing with the ins-and-outs of filing taxes through the Schedule C self-employment form. With the state of the economy many more taxpayers are newly minted self-employers and get to wrestle with all the tax implications that status brings. Here’s a nice, quick overview of self-employment and federal income tax with some strategic advice thrown in for good measure.

My best advice? Obtain the services of a certified CPA, preferably an individual you can sit down with sometime in the next six weeks or so — do not wait until the last minute — to discuss your particular situation and how to take advantage of every tax opportunity available to you. After trying both ways (on my own or with tax software, and using a professional) the amount spent on CPA services is almost always easily covered by the saving the professional finds with your return.

I’m getting this post up this early in the year because if your employment status changed last year there is no time to procrastinate or delay getting everything in order well in advance of the ides of April.

From the link:

It used to be that the vast majority of people worked in staff jobs.

But in a tough economy, the number of independent contractors, temps, part-timers, and freelancers expands.

If you become a contingent worker, you’ll need to rethink your taxes. For someone used to being on staff, “It’s a mindset shift,” says Eddie Gershman, a partner in Deloitte Tax’s private client group. The common perception is that you’ll pay more tax if you work for yourself, since you’ll cover the employer portion of Social Security and Medicare taxes. While you will be on the hook for that self-employment tax, the tax advantages to working for yourself can soften the blow. Here’s how to get the most out of deductions:

Curious about electronic tax payment options from the IRS?

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:06 pm

Then this two page PDF from AICPA.org is just the ticket.

From the link:

Practitioners know that e-filing tax returns
has advantages: It documents the filing
date, reduces time at the post office, and
saves postage. For additional convenience,
consider having business and individual clients
enroll in the IRS’s free electronic payment
program, known as EFTPS. EFTPS
allows businesses and individuals to pay
federal taxes via the internet or over the
phone. It eliminates the hassles of writing
checks and taking them to a financial institution
or mailing payments to the IRS;
payments are withdrawn directly from an
enrolled bank account.

I’m not happy with the banking industry either, but …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:44 pm

Geithner is absolutely correct on this tax proposal. All this would do is further economically depress the very people it’s designed to protect.

From the link:

With popular anger building as big banks show profits and pay sizable bonuses while unemployment remains high, the Obama administration has come under pressure at home and abroad to support a financial transactions tax on institutions and to heavily tax their executive compensation.

But the United States, led by the Treasury Secretary Timothy F. Geithner, has been opposed, arguing that a transactions tax would simply be passed on to customers and a bonus tax could be easily circumvented.

January 8, 2010

If you do your own taxes …

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 7:08 pm

… remember a whole slew of tax provisions — credits, deductions and others — expired at the end of 2009.

From the link:

The ringing in of the new year at midnight on Dec. 31 also signaled the expiration of several tax provisions. The biggest was the estate and generation-skipping tax regime, which is repealed for 2010. Various bills have been introduced that would revive the estate tax in its 2009 form, but as of Jan. 1 no extension has been enacted, and the estate and generation-skipping taxes, at least temporarily,  no longer exist.

December 2, 2009

Retirement planning for the self-employed

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 4:46 pm

Are you self-employed and looking for retirement planning options? Of course you take the process completely into your own hands through savings and investing, and I bet that’s the approach a lot of self-employed tax payers do. Being self-employed at all takes a certain amount of independence in your character. For the self-employed looking for more traditional retirement planning that’s geared for their specific needs two decent options include a solo 401(k) and a Simplified Employee Pension (SEP).

And keep in mind the tax savings from these retirement planning and saving vehicles. Here’s a good breakdown on what circumstances lend best to each option.

From the link:

A solo 401(k) may be your best bet if most of your income is from self-employment. You can contribute $16,500 to a solo 401(k) in 2009 plus 20% of your net business income (which is business income minus half of your self-employment tax), up to a maximum of $49,000 in 2009. You can also make a catch-up contribution of $5,500 if you’re 50 or older. You can’t contribute more than your business income for the year, but even if you earn just $16,500 from self-employment, you can contribute the entire amount to a solo 401(k). You must open a solo 401(k) by December 31, and you have until April 15, 2010, to make your 2009 contributions Your combined contributions to a solo 401(k) and any 401(k) you may have through another job cannot exceed the contribution limits.

If you have a 401(k) through a primary job and earn some freelance income on the side, a SEP-IRA may be a better option. It’s easier to set up — you can open an account at most brokerage firms or mutual fund companies that offer IRAs — and you can set aside 20% of your net business income, up to a maximum of $49,000 in 2009. You have until April 15, 2010, to open a SEP and make your 2009 contribution. See Do-It-Yourself Retirement Plans for more information.

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