Monday, October 31, 2011

HMMMM

“Warren Buffett’s company reportedly owes the IRS a billion dollars in back taxes. When he said he wasn't paying enough taxes, he wasn't kidding.” Jay Leno

THE IOWA PUMPKIN TAX REPEALED



Here is how stupid taxes can be. It is estimated that more 750 million pumpkins are carved into jack o' lanterns each October. While the practice brings joy to many, it created heartburn for Iowa tax officials four years ago, who were dismayed that so many people were decorating their pumpkins.

You see, Iowa (like most states) taxes retail sales but exempts groceries. Pumpkins used for decoration should have been taxed but were slipping by because they were also food. So they spent taxpayer’s money sending out a bulletin to retailers reminding them to quiz customers on whether they were buying the pumpkin to eat (not taxable) or decorate (taxable):

Pumpkins: Pies and jack-o'-lanterns
The Department recently refined its position on whether pumpkins are subject to Iowa sales tax to more closely match what we believe to be their predominant use.

In the past, pumpkins were exempt from sales tax as a food (edible squash), even if they were to be later made into jack-o'-lanterns or used as decorations.


Our position now is that pumpkins are taxable if:
1. They are advertised to be used as jack-o'-lanterns/decorations, or
2. It is understood that they will be used as jack-o'-lanterns/decorations

Pumpkins are exempt in the following circumstances:
* The buyer completes a sales tax exemption certificate stating they will be used as food, or
* The pumpkins are a specific variety used to make pumpkin pies and are advertised in that way, or
* They are purchased with Food Stamps.

Retailers who sell pumpkins should keep these guidelines in mind and make any necessary changes to their tax treatment of pumpkin sales.
Fortunately this got picked up by the media and then the blogosphere,, which led to local news coverage, and finally Iowa officials rescinded the pumpkin tax a few days later. One less silly tax.

Friday, October 28, 2011

ACCOUNTANTS IN THE MOVIES

In Hollywood, accounting can seem like a pretty glamorous profession, or not.


Edmund O'Brien plays accountant Frank Bigelow in the fast-paced 1950 film noir crime drama "D.O.A." The movie opens with Bigelow entering a police station to report his own homicide and then in flashback traces how he came to learn that he had been poisoned by a former client who needed him to notarize an incriminating document. The movie was later remade in 1988 with Dennis Quaid playing O'Brien's role, but in the remake Quaid is a college professor. O'Brien is shown here with Laurette Luez, who plays his client's mistress Marla Rakubian.

Thursday, October 27, 2011

ACCORDING TO THE IRS THE TOP 1% PAY MORE IN TAX THAN THE OTHER 93% COMBINED


(Click on picture to look at a clearer view)

Wednesday, October 26, 2011

SOCIAL SECURITY WAGE BASE INCREASES

Social Security wage base increases to $110,100 for 2012

For those of you that are budgeting, the IRS has released the new base for Social Security tax. If you are at max this will mean an additional $205 tax ($3,300 x .062). For self employed double that.

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2012 increases to $110,100 from $106,800, which was the wage base for 2009 through 2011. The $3,300 increase, which is about 3%, is due to an increase in average total wages.

Tuesday, October 25, 2011

LOWER YOUTH WORK AGE OF FARMS

(NTV, Kearney) -- Nebraska.TV reports that many farmers in Nebraska are concerned about "a proposed rewrite from the Department of Labor prohibiting teens under 16 from performing farm duties." According to the story, some of those restrictions would prohibit younger workers from stacking bales of hay more than six feet, caring for livestock, and operating almost all power equipment. November 1st is the comment deadline set by the Labor Department.


For More: STORY

PRISONERS BILK TAXPAYERS OUT OF MILLIONS

Don't ask me why but I like to study philosophy. Recently I was reading the debate about the purpose of jail. There are a bunch of different philosophies about why jailing a person is supposed to be a good idea though admittedly no consensus. Is it punishment for wrongs? A mechanism to isolate “bad” people? A way to get those who did something wrong to think about what they have done? Some combination of the above?

I’m not sure what I think the real purpose of jail is but I’m pretty sure it’s not supposed to be a forum for committing more crimes. And yet, that’s what’s allegedly happening in jails across the country.

CNN recently reported that an investigation into a scheme into a Key West, Florida has found attempts to cheat the government out of more than $1 million – on your dime. Investigators believe that inmates have been filing false tax forms using bogus Social Security numbers and made up businesses in order to collect refund checks. Instructions explaining how to fill out the forms together with cheat sheets – as well as how to keep refund request relatively low (under $5,000) – were circulated among the prisoners in a far-reaching scheme.

Most commonly, prisoners would fill out a form 4852, a form that you use to report wages when your form W-2 is missing. When the forms, along with tax returns were processed, the prisoners received bogus refunds. The refunds were mailed to family members and sometimes, even directly to the prison. At the prison, the refunds were divided among ringleaders (who kept a portion for themselves) and participants in the scheme. Genius, right?

It may not be as genius as it sounds. The scheme is actually nothing new: it’s been happening for years. The IRS has been notified and across the country, charges have been filed and ringleaders prosecuted. However, officials familiar with these cases say that the fraud is ongoing. At Key West, for example, the prison has been intercepting bogus checks still being issued by the IRS for at least one prisoner.

The IRS, for its part, says that it is aware of what’s happening. They note that it is difficult to attack the problem since being in prison doesn’t bar taxpayers from receiving a genuine refund. Even more challenging? The population of prisons is constantly changing which means that patterns may be difficult to spot.

The issue has been on the radar for years. Five years ago, the IRS flagged false refunds from prisoners as a top concern noting that of 118,000 fraudulent tax returns filed, 18,000 were filed by prisoners – that’s a whopping 15%. Prisoners received more than $14 million in bogus claims, though the IRS points out that they successfully blocked an additional $53 million.

The IRS won’t say what steps they are taking to control the number of bogus claims filed by prisoners but they do know who is to blame: you. Reportedly IRS’ position is to issue refunds and then audit later in response to a bigger problem: taxpayers want their refunds quickly. Increased scrutiny of returns at the processing level (while clearly more efficient) would slow down the refund process. And that wouldn’t be popular for taxpayers who want to see refunds.

Saturday, October 22, 2011

CHARITABLE CONTRIBUTIONS FROM IRAS

Year-end planning Tip: Individuals age 70 1/2 or older should consider making charitable contributions from IRAs.

This year may well be the last chance for taxpayers age 70 1/2 or older to take advantage of an up-to-$100,000 annual exclusion from gross income for otherwise taxable individual retirement account (IRA) distributions that are qualified charitable distributions. Such distributions aren't subject to the charitable contribution percentage limits and aren't includible in gross income. This tax advantage will not be available for distributions made in tax years beginning after Dec. 31, 2011.

This is a great opportunity for taxpayers that do not have enough itemized deductions to file the “long form.” For married couples over age 65 the standard deduction is $13,900 and for singles it is $7,250.

Where this becomes a great planning tool is when the taxpayer is in the zone where they are paying tax of Social Security Benefits and making charitable contributions that they effectively can’t deduct because they are taking the standard deduction.

For example:
Bonnie and Clyde are both over age 70 ½. They have interest and other income of $20,000 and are taking $10,000 per year from their IRA. In addition they have Social Security benefits of $20,000. Bonnie and Clyde got religion after they retired from the banking business and annually make charitable contributions of $7,500.

If they draw money from their IRA and put it in their checking account and then make a charitable contribution their total federal and state tax is $1,703.

On the other hand if they direct their IRA administrator to take the IRA money of $7,500 and give it to their charity their tax drops to $176.

There is a saving so $1,527. Pretty cool… easier than robbing a bank.

If you need any more information on this let me know. Remember, unless Congress renews this tax strategy 2011 is your last chance. You might want to think about doing your 2012 contribution in 2011 to beat the expiration deadline.

Friday, October 21, 2011

NO WONDER WE HAVE A DEFICIT

In 1969 20% of US Taxpayers Paid Zero or Negative Tax

In 2009 42%

Now 51%

(Tax Foundation) -- The Tax Foundation's Tax Policy Blog reports that from 1969 to 2009, U.S. taxpayers who have a zero or negative tax liability grew from less than 20% of all filers to 42%, according to the IRS. Congress' Joint Committee on Taxation has "found that 51% of American households paid no income taxes." For millions of these non-payers, "the refundable credits more than exceed their payroll tax contributions." The blog also notes that since 2003, the top 1% of taxpayers' share of the tax burden "has well exceeded that of the bottom 90%, even during the recent recession."

Wednesday, October 19, 2011

MAN AGAINST MACHINES

It’s technologies fault that we have so much unemployment

A couple of years ago, I was making a presentation to a group of about 250 CPA’s, Certified Public Accountants. Before the talk I was back stage with one of the other presenters. This guy was from one of the big CPA firms and had just returned from working in Europe for one of his tax clients.

During my conversation I asked him about technology in Europe. In his words, “Europe has not embraced technology because it doesn’t do them any good.” It seems that In Europe you can’t lay anybody off so there is no incentive to use computers when they still need to have the people there. I was thinking about that conversation recently as I watched six or seven workers outside my office window tearing up a street and laying new cement. There weren’t many workers walking around with shovels, they were utilizing big machines and technology to build the new road. Anything that needed to be moved was done with a backhoe or a frontend loader. I don’t think I ever saw over ten workers and that was when they were pouring cement. So even “shovel ready” jobs are not going to create a lot of jobs unless they mandate that everything be done by hand.

Actually President Obama was right when he said that ATM’s were part of the employment problem. You don’t need tellers if people are using ATM’s.

Recently I read in Reuters that since 1999 business investment in equipment and software has surged 33% while the total number of people employed by private firms (not the government) has changed very little. The gap between man and machine widened even further in 2008 and 2009 during the recession. You can see why the United States is struggling to bring down employment which is stuck at 9%. I know my clients that went through the 2008 and 2009 recession have not significantly increased their number of employees because they are able to get by with the people they have.

Here is a personal example: I know that in our small accounting office we have 20 to 25 people employed depending on the time of year. I estimate that if we did not have computers and software and two or three monitors on everybody’s desk and internet access, etc. we would need fifty to seventy-five people to do the same amount of work we are doing right now. We used to have one person who worked part-time, just updating our paper tax library. Right now our tax library is out on the cloud and we don’t need that person working part-time. The same is true with our mail room and our filing. Everything is electronically filed.

I guess this is progress and we have to wait for the workforce to get caught up to the progress. I think we can see that it’s more than just the economy that is causing the problem with unemployment.

ACCOUNTANTS IN THE MOVIES

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Charles Martin Smith (far right) played accountant Oscar Wallace in the 1987 movie version of "The Untouchables," a popular TV series that ran from 1959-1963. Wallace joins a team organized by Treasury agent Elliot Ness, played by Kevin Costner, to break up Al Capone's mob in Prohibition-era Chicago. They finally put Capone behind bars for tax evasion. Capone was played by Robert De Niro. Other members of Ness's Untouchables included Sean Connery and Andy Garcia. Wallace was based on a real-life accountant named Frank J. Wilson who joined the Treasury Department's Intelligence Unit in 1920 and later helped nab Lindbergh baby kidnapper Bruno Hauptmann by insisting that the serial numbers on the ransom money be properly recorded. Wilson later became chief of the Secret Service.



Tuesday, October 18, 2011

FARM BILL LIKELY TO SEE CUTS

'Farm Bill Likely to See Cuts of at Least $23B, Loss of Direct Payments'

(Politico) -- Politico.com reports that "Agriculture committee leaders in Congress pledged Monday to come up with $23 billion in 10-year savings as part of a new farm bill expected to do away the outdated system of direct cash payments to growers." The general agreement would see commodity supports losing "roughly 24%" of their baseline spending, while conservation programs would realize a 10% cut, and nutrition programs like food stamps -- "a huge part of any farm bill" -- would see less than a 1% cut.


To read more on this- Cuts

Monday, October 17, 2011

RAFFLE WINNER

Q. We were at a local fundraising event and won a raffle. The prize was a trip to Vail, CO. including airfare and lodging for seven nights. The value is estimated at $12,000 to $18,000. Is the prize taxable?

A. You win... and of course the IRS wins. This is taxable and you most likely be receiving a 1099 for this. If the trip is valued at $12,000 at a 40% tax rate, you will be paying about $4,800 in income taxes on your 2011 tax return for this.

Enjoy the trip!

Friday, October 14, 2011

PROTESTS ON WALL STREET

Maybe this is too political but.... this past summer I read Atlas Shrugged by Ayn Rand. The book explores a dystopian US where leading innovators refuse to to be exploited by society. The protagonist sees society collapse around her as the government asserts control over all industry while the most productive citizens progressively disappear.

As I watch the protests on Wall Street and the ones spreading across the country, I thought of this book and the following statements. If anybody that reads this understands what the protesters are trying to get across would you please email me so that maybe I can understand.

Here are the concepts that I pulled out of my quotes bag.

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it.

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

Thursday, October 13, 2011

PREVENTIVE SERVICES COVERED

One of our staff was not aware that there was no copay on Preventive services, which are covered under “Obama Care”. Of course she was told it was ‘FREE’ but her premiums still went up.

If you have a new health insurance plan or insurance policy beginning on or after September 23, 2010, the following preventive services must be covered without your having to pay a copayment or co-insurance or meet your deductible. This applies only when these services are delivered by a network provider.


Covered Preventive Services for Adults
• Abdominal Aortic Aneurysm one-time screening for men of specified ages who have ever smoked
• Alcohol Misuse screening and counseling
• Aspirin use for men and women of certain ages
• Blood Pressure screening for all adults
• Cholesterol screening for adults of certain ages or at higher risk
• Colorectal Cancer screening for adults over 50
• Depression screening for adults
• Type 2 Diabetes screening for adults with high blood pressure
• Diet counseling for adults at higher risk for chronic disease
• HIV screening for all adults at higher risk
• Immunization vaccines for adults--doses, recommended ages, and recommended populations vary: Hepatitis A, Hepatitis B, Herpes Zoster, Human Papillomavirus, Influenza, Measles, Mumps, Rubella, Meningococcal, Pneumococcal, Tetanus, Diphtheria, Pertussis, Varicella
• Obesity screening and counseling for all adults
• Sexually Transmitted Infection (STI) prevention counseling for adults at higher risk
• Tobacco Use screening for all adults and cessation interventions for tobacco users
• Syphilis screening for all adults at higher risk




Covered Preventive Services for Women, Including Pregnant Women
Note: Services marked with an asterisk (*) must be covered with no cost-sharing in plan years starting on or after August 1, 2012.
• Anemia screening on a routine basis for pregnant women
• Bacteriuria urinary tract or other infection screening for pregnant women
• BRCA counseling about genetic testing for women at higher risk
• Breast Cancer Mammography screenings every 1 to 2 years for women over 40
• Breast Cancer Chemoprevention counseling for women at higher risk
• Breastfeeding comprehensive support and counseling from trained providers, as well as access to breastfeeding supplies, for pregnant and nursing women*
• Cervical Cancer screening for sexually active women
• Chlamydia Infection screening for younger women and other women at higher risk
• Contraception: Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling, not including abortifacient drugs*
• Domestic and interpersonal violence screening and counseling for all women*
• Folic Acid supplements for women who may become pregnant
• Gestational diabetes screening for women 24 to 28 weeks pregnant and those at high risk of developing gestational diabetes*
• Gonorrhea screening for all women at higher risk
• Hepatitis B screening for pregnant women at their first prenatal visit
• Human Immunodeficiency Virus (HIV) screening and counseling for sexually active women*
• Human Papillomavirus (HPV) DNA Test: high risk HPV DNA testing every three years for women with normal cytology results who are 30 or older*
• Osteoporosis screening for women over age 60 depending on risk factors
• Rh Incompatibility screening for all pregnant women and follow-up testing for women at higher risk
• Tobacco Use screening and interventions for all women, and expanded counseling for pregnant tobacco users
• Sexually Transmitted Infections (STI) counseling for sexually active women*
• Syphilis screening for all pregnant women or other women at increased risk
• Well-woman visits to obtain recommended preventive services for women under 65*



Covered Preventive Services for Children
• Alcohol and Drug Use assessments for adolescents
• Autism screening for children at 18 and 24 months
• Behavioral assessments for children of all ages
• Blood Pressure screening for children
• Cervical Dysplasia screening for sexually active females
• Congenital Hypothyroidism screening for newborns
• Depression screening for adolescents
• Developmental screening for children under age 3, and surveillance throughout childhood
• Dyslipidemia screening for children at higher risk of lipid disorders
• Fluoride Chemoprevention supplements for children without fluoride in their water source
• Gonorrhea preventive medication for the eyes of all newborns
• Hearing screening for all newborns
• Height, Weight and Body Mass Index measurements for children
• Hematocrit or Hemoglobin screening for children
• Hemoglobinopathies or sickle cell screening for newborns
• HIV screening for adolescents at higher risk
• Immunization vaccines for children from birth to age 18 —doses, recommended ages, and recommended populations vary:Diphtheria, Tetanus, Pertussis, Haemophilus influenzae type b, Hepatitis A, Hepatitis B, Human Papillomavirus, Inactivated Poliovirus, Influenza,Measles, Mumps, Rubella, Meningococcal, Pneumococcal, Rotavirus, Varicella
• Iron supplements for children ages 6 to 12 months at risk for anemia
• Lead screening for children at risk of exposure
• Medical History for all children throughout development
• Obesity screening and counseling
• Oral Health risk assessment for young children
• Phenylketonuria (PKU) screening for this genetic disorder in newborns
• Sexually Transmitted Infection (STI) prevention counseling and screening for adolescents at higher risk
• Tuberculin testing for children at higher risk of tuberculosis
• Vision screening for all children

ACCOUNTANTS IN THE MOVIES

In Hollywood, accounting can seem like a pretty glamorous profession, or not.



Will Ferrell plays lonely IRS agent Harold Crick in the 2006 comedy-drama "Stranger Than Fiction." Harold has been assigned to audit Maggie Gyllenhaal, and falls in love with her. However, he keeps hearing a strange British-sounding voice in his head, and he discovers it's author Emma Thompson, whom he tracks down through her tax records. Turns out she has been writing about his life and trying to decide how he will die in her next book.



Wednesday, October 12, 2011

STATE AND LOCAL SALES TAX COLLECTIONS





Did you ever wonder how your state compares with others? The Tax Foundation has an interactive map showing collections.

This map shows per capita state and local sales tax collections. Wyoming comes in highest at $2,303 per person; at the other end are Oregon, Montana, Delaware, and New Hampshire, which lack a sales tax at any level.


Tuesday, October 11, 2011

TAX SAVINGS IN MILLIONAIRE TAX BILL

The American Jobs Act introduced in the Senate last week (commonly known as the Millionaire Surtax Bill) contains some tax breaks for businesses. Since the chance of this passing is fairly slim, rather than confuse you with the details we will keep an eye on the legislation and let you know what to expect if passed. I really don’t think it would be wise to use the proposal in our yearend tax planning. However, if you would like some of the details that I think impact business let me know and I will summarize for you.

Saturday, October 8, 2011

'BUDGET WOES TO HIT FARM BILL'

(Grand Island Independent) -- TheIndependent.com reports that "Congress is preparing the groundwork for a new Farm Bill next year, but U.S. Sen. Mike Johanns, R-Neb., said the ongoing budget problems facing the nation will impact the next Farm Bill." According to the story, Sen. Johanns recently said, “the annual cost of commodity programs has decreased from nearly $30 billion in 2000 to $10 billion in 2009." But one crop program, direct payments, may be in danger of being eliminated due to increased criticism and lack of federal dollars. "The problem when it comes to the federal agricultural budget, Johanns said, is that 83% is spent on domestic food assistance programs, mostly food stamps and the government's reduced-price lunch program. Because of the current economic downturn, demand for those nutritional programs is at a record high, he said."

Friday, October 7, 2011

FACT-CHECKING WARREN BUFFETT

Here is an article from the Tax Foundation. They are trying to figure where the Oracle of Omaha get’s his numbers. ~ Larry

Warren Buffett's much-discussed op-ed arguing that high-income earners aren't paying enough taxes makes the following claim:

"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."

To me, the effective rates he claims for other workers in his office seem too high to be realistic, and I can't figure out how he calculated them, even if you include all payroll (employee and employer) taxes. Even if you assume the scenario that leads to the highest possible tax burden (single filer, no deductions), a taxpayer would have to make at least $285,388 (in 2010) before his or her effective rate reaches 33 percent. 41 percent is impossible, as far as I can tell: the limit of total taxes over total income, as income approaches infinity, is 37.358%. That's the highest possible effective rate anyone could have paid in 2010, if you include income and all payroll taxes.

To demonstrate this, I've made a little calculator which shows the maximum possible effective rate for any income amount. Try it out on the Tax Foundation website.

Thursday, October 6, 2011

ACCOUNTANTS IN THE MOVIES

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Kirstie Alley stars as New York accountant Mollie Jensen in the 1989 romantic comedy "Look Who's Talking." She meets cab driver John Travolta when she needs to get to the hospital in a hurry because she's about to have a baby. Travolta helps her bring up the baby, but the real father is her tax client George Segal. The baby's voice also sounds strangely like Bruce Willis. Alley reprised the part of Mollie in the 1990 sequel "Look Who's Talking Too," in which Roseanne Barr joined Willis in providing the voice of another of Mollie's kids. The 1993 threequel "Look Who's Talking Now" added the voices of Diane Keaton and Danny DeVito, but this time as Mollie's dogs.

Wednesday, October 5, 2011

PROGRAM TO SNIFF OUT GIFT TAX CHEATS!

It appears that the IRS is initiating a program to sniff out gift tax cheaters who are not properly filing their gift tax returns. The IRS estimates that between 60% and 90% of taxpayers who transfer real estate for little or no consideration to family members fail to file form 709 to report the gift. The IRS is now checking real estate transfer records for 15 states: Conn., Fla., Hawaii, Nebraska, NH, NJ, NY, NC, Ohio, PA, Texas, VA, WA, and Wisconsin. So far, over 500 taxpayers have been audited and many more are lined up for audit.

Our normal method of making these types of gifts is to form a partnership or LLC and then gift the partnership or LLC interest. In this case we can many times apply a minority and lack of marketability discount and there is no filing of the transfer of the real estate so nothing for the IRS to catch.

Remember, even if the gift is not taxable, if it exceeds $13,000 to any one person in a year, you are required to file a gift tax return on form 709. Our advice if your are making non cash gifts is to file a gift tax return even if you are under the $13,000 threshold to start the three year statute of limitations.

Saturday, October 1, 2011

'FOR FIRST TIME, MORE CORN USED THAN ETHANOL THAN LIVESTOCK'

(Cedar Rapids Gazette) -- TheGazette.com reports that "for the first time ever, more of the corn crop may go into gas tanks than into the stomachs of cattle and poultry destined for kitchen tables." One expert told the paper… "We really need to plant more acres to corn next year than this year, and this was the second most acres planted in 67 years."