Saturday, March 31, 2012

FARM INCOME COMPARED TO THE NATIONAL DEBT

Net farm income in the USA was $98.1 billion in 2011 (i.e., gross income less expenses), up +59% in the last 2 years. The $98.1 billion was an all-time record, exceeding the $87.4 billion earned in 2004 (source: Department of Agriculture).

Now let’s compare that to the national debt.  If you want to get really concerned look at the debt clock at http://www.usdebtclock.org/









As I write this on Saturday March 31, 2012 at 8:50 AM you can see that our total US national debt (upper left hand corner) is a $15,603,671,688,728.  That’s over fifteen and a half trillion dollars.  It shows the annual deficit at $1,318,819,988,953.  I challenge you to open the hyperlink above and see how much it has grown since I wrote this.

So what does this all mean?  It would take all of the farm income for 13.44 years just to cover the current year’s budget deficit.  And, that number is growing.  If that is not scary enough, it would take over 159 years of all the farm income in the United States just to cover our national debt.

Politicians need to do something to reverse this trend but it is not politically correct so they do nothing.  Eventually we are going to see higher taxes and less government services.  I hope they fix it before it’s not too late.   

Friday, March 30, 2012

A REMINDER: FEDERAL TAX FILING DEADLINE IS APRIL 17 THIS YEAR

The good old IRS sent us a reminder, they sent out a video this week reminding everyone that this year's tax filing deadline is Tuesday, April 17, 2012. This is because the traditional April 15 deadline is a Sunday, and April 16 is a holiday in the District of Columbia.

This give us two extra days to get your taxes in!

Friday, March 23, 2012

IS YOUR FARM OPERATION A PHANTOM PARTNERSHIP?

A U.S. Tax Court judge recently sided with the IRS, finding that a father and son who had each reported as farm proprietors should have their tax reporting characterized as a farm partnership. In this particular case, most of the business expenses had been allocated to the father’s Schedule F. The IRS wanted them split 50-50 in the same manner as the income. The court found that the expenses were arbitrarily allocated primarily to the father each year purely for tax reasons.

There are significant risks if two related proprietorships are really a partnership for tax reporting purposes. The penalty has increased dramatically for failing to file a partnership return.

When does a partnership exist for tax purposes?
Nearly all farming and ranching operations are family enterprises. And it is common to have two or more family members each operating a proprietorship with some form of sharing arrangement. In some cases, it is co-ownership of machinery; in others, it may include sharing of input expenses.

The IRS has stated the mere co-ownership of property is not a partnership, nor is a joint undertaking simply to share expenses. So, common sharing arrangements are not usually an issue. But if a common checking account is involved and used for more than just a few shared expenses, it gets murkier.

The question is whether two parties are sharing a common business as partners or separately operating their own proprietorships.

The courts will look at a host of factors including:
       The agreement between the parties
       The contributions that each makes to the venture
       How the business represented itself to the public
       How the books were maintained
       Whether the parties exercised mutual control over the enterprise

The Holdner Case
In the Holdner case, referred to above, a father and son had been farming together for more than 30 years. Each reported as a farm proprietor, with each individual reporting a 50 percent share of cattle sales, timber sales, and rental income. But most of the expenses were claimed by the father, who had other sources of income and apparently could make better use of those tax deductions than the son.

The Tax Court found that the facts indicated the Holdners were conducting a partnership rather than two separate proprietorship's. All of the income and expenses were run through a single checking account labeled “Holdner Farms.” They had registered with the state of Oregon as a partnership, carried insurance as a partnership, and co-owned as tenants-in-common a number of parcels of real estate.

The court determined that the expenses were arbitrarily allocated primarily to the father each year purely to benefit his high-bracket tax return, and they were not reflective of any business sharing agreement between the two parties.

Consequences of filing incorrectly
Over the last several years, Congress has dramatically increased the penalty for failing to file a partnership return. The Holdner court case involved an IRS examination of the years 2004–2006. At that time, the penalty would have been only $500 per year. Today the penalty is $2,340 per partner for each year of non-filing. If the IRS successfully recharacterized two proprietors as a partnership, and did so for three tax years, the total penalty would be $14,040 (2 partners x 3 years x $2,340).

If the IRS creates a partnership, other tax issues also come into play. For example, an individual proprietor is entitled to a full $250,000 Section 179 deduction for first-year depreciation. But as a partnership with equipment that is owned by the partnership, there is only a single $250,000 first-year Section 179 deduction.

How we can help
The Holdner family could have accomplished their objective (i.e., a greater share of expenses to the father) by actually filing a partnership return and creating a more formal income and expense sharing agreement. Partnerships are allowed to allocate income and expenses disproportionately, provided that each person’s capital account properly reflects his or her share of income and deductions and that the capital accounts are used to reflect each party’s share of assets upon dissolution of the venture.

If you are in a situation like the Holdners take note- the penalties for not filing a partnership return are server.

I CAN’T GET A W-2, NOW WHAT DO I DO?

Q.  A company that I worked for is now defunct and I don’t expect to get a W2.  What do I do?
A. The short answer is file your return with a Form 4852, Substitute for Form W-2, Wage and Tax Statement.

Here is what is on the IRS web site dealing with your problem. 
 If you haven’t received your W-2, the IRS recommends that you follow these four steps:
1. Contact your employer  If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.
2. Contact the IRS  If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:
•  Employer’s name, address and phone number
•  Dates of employment
•  An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return  You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.
4. File a Form 1040X  On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X and instructions are available on this website or by calling 800-TAX-FORM (800-829-3676).

Wednesday, March 21, 2012

FARM BILL SUGGESTIONS

(Grand Island Independent/LexCH.com) -- The Grand Island Independent reports that "with the farm bill up for renewal this year," farm organizations are providing "lawmakers with suggestions on what they'd like to see in the new legislation."  The article notes that American Farm Bureau Federation President Bob Stallman, testifying before Congress, "said national farm policy must strike a balance between the need for a strong, effective safety net to protect farmers and ranchers against catastrophic revenue losses and fiscal soundness for the nation."  The Farm Bureau leaders said the new farm bill needs "a strong crop insurance program, continuation of the current marketing loan provisions and a catastrophic revenue loss program."

To read more of this article: CLICK HERE

US DEBT PROBLEM

I was reading an article in the local paper and Tom Purcell from the Omaha World Herald is spot on with the US debt problem. He does a great job of summarizing the issues.

To read his article: CLICK HERE

Saturday, March 17, 2012

TAX CONSEQUENCES OF BUSINESS EQUIPMENT RECEIVED BY GIFT

Q: My father just gave me some equipment. Do I get to take depreciation on the equipment? What happens if I sell it?

A: When you acquire a piece of equipment in the form of a gift, the basis is the lower of fair market value or the basis in the hands of the person making the gift. In most cases, the equipment has been fully depreciated before gifting it away; therefore the basis is zero.

Even though you don't get to re-depreciate the equipment if it is completely depreciated out, you should determine what the original cost of the equipment and accumulated depreciation since the equipment is still considered to be Section 1245 property. Meaning that, when the equipment is sold the amount of depreciation taken by your father would be ordinary income. If sold for more than your father paid for the equipment that portion would be capital gain.

HOW MUCH OF THAT PRICE AT THE PUMP IS TAX - SEE THE MAP

This new map show the state gasoline tax rates. How much does your state tax gas?

Thursday, March 15, 2012

OBAMA CARE MISCALCULATION

One of the most heavily promoted piece of Obama Care turns out to be a dismal failure.  The White House endlessly trumped that more than 4 million small business might benefit from the health insurance tax credit.  The promise was that because you would get a tax credit for offering health insurance to their employees businesses would provide insurance as a fringe benefit.

In actuality this did not happen.  Instead of 4 million small businesses only 300,000 filed for the credit and the average was only $1,200.  Far less to make offering insurance to employees.

I have yet to find a client that will spend, for example, $10,000 to save $1,200.

The Supreme Court will hear arguments on Obama Care on March 26 to 28.  We are watching closely and will keep you posted.

Wednesday, March 14, 2012

ONE OF THE WALL STREET PROTESTERS SALUTED ME

I can't figure out why this happened.  I have been trying to figure out the psychology of why a young man would for some reason give me the middle finger salute.  I finally came to the conclusion that he was angry at me because I was part of the establishment.

Here is what happen.  First of all I have to tell you I have a nice car.  Not a Rolls or a Porsche, but a really nice black Infinite.  I have to tell you I have earned this vehicle by working hard (and smart).  For example during the last two weeks I have put in over 70 hours each week.  I am not complaining but just trying to justify my Infinite 50FX.  It is a good car for me because it is like me.  It is a SUV that thinks it is a sports car and I am a old guy (63) who thinks he is a young guy.

On Monday I was in Waterloo Iowa doing a class on how to take your business to the next level.  My wife Maggie came along with me.

After the program I put my brief case in the back of my SUV.  My car was dirty so I grabbed my California Duster and started wiping down my car.  I noticed a guy who was about 25 years old with tattooed arms and sloppy clothes walking accross the parking lot to a car behind me. 

I noticed him but did not even make eye contact because I was concentrating on my car.  When I got in my car my wife, who was waiting patiently in the car said that before the young man  got into his car looked towards me and although i was not looking he felt it necessary to give me the middle finger salute. 

Just why would he do that?  Because I have a nice car.  Because I cared how it looked? Because apparently I am successful.  If someone knows why I deserved this please let me know.  I know that my new friend will not be reading this.  I doubt if he can read.  By the way new friend, if you do happen to be reading this, I did notice that your pants were falling off.

Saturday, March 10, 2012

STATE BEER TAX

Did you ever wondered what the state excise tax rates on off-premise beer sales were? Well take a look at this....



Friday, March 9, 2012

WHICH PRESIDENTS TAX PROPOSAL IS BEST... AND DOES IT REALLY MATTER?

Q: We are seeing a lot of proposals to revamp the tax system.  Obama has a plan and Rommey has a plan.  Which one do you think would be better for the average person?

A: Tax reform plans are popping up all over, like robins showing up in the spring, but don't get too excited.  If you think about it this is just election posturing.  It takes more than just the president to change the tax code.  Legislation must first start with the House Ways and Means Committee and then make it all the way through Congress before it hits the president’s desk.  Sure the president has some power to influence but that is about all.  Because of this I don't get too excited about election promises. 

We are watching and will keep you posted.

GIVE ME ONE OF THOSE STEM CELL BURGERS

Using the stem cells from an adult cow, a Dutch physiologist has grown a sliver of edible artificial "meat."  He claimed this could offer a better way than traditional animal farming to satisfy the world's booming taste for meat. 

According to researchers within the next 50 years meat production will have to double worldwide to meet the demands of a growing population.  This method could help avoid the cost of using precious farmland.

But you might not want to order a stem cell burger just yet.  The first patty, promised for later this year will cost $300,000.

Thursday, March 8, 2012

NEW VEHICLE RATES

Each year, IRS issues the amounts that can be claimed as depreciation for vehicles placed into service that year, over their useful lives. As has been the case since these Luxury Vehicle rules were implemented in 1984, they do not apply to vehicles weighing more than 6,000 pounds gross vehicle weight (GVW).

The IRS has just issued the following amounts for business vehicles placed into service during 2012.

Passenger Automobiles:
Year 1 – $3,160 ($11,160 if bonus depreciation applies)
Year 2 – $5,100
Year 3 – $3,050
Year 4 and on – $1,875 per year


Trucks and Vans:
Year 1 – $3,360 ($11,360 if bonus depreciation applies)
Year 2 – $5,300
Year 3 – $3,150
Year 4 and on – $1,875 per year

Sunday, March 4, 2012

REFUND DELAYS

The Internal Revenue Service is providing an update on the status of the tax refund delays that plagued the agency this season.

In late January, the IRS sent an email to us tax professionals warning that tax refunds could be delayed a week this tax season because of new anti-fraud safeguards. The IRS had fine-tuned its identity theft filters to prevent the growing trend of tax refund fraud. Many taxpayers who wrote to have said that they were experiencing much longer delays than a week.

The IRS also had problems with its “Where’s My Refund" tool giving a different date whenever taxpayers checked up on the status of their refunds, and last month the page told many taxpayers that it had no information on the status of their tax refunds.

Friday, March 2, 2012

NEW HSA AMOUNTS FOR 2012

Here are the new contribution limits for 2012 HSA:

•Contribution limit ~ Family: $6,250 Self: $3,100
•Catch up if over 55 ~ Family: $1,000 Self: $1,000
•Minimum deductible ~ Family: $2,400 Self: $1,200
•Max out of pocket ~ Family: $12,000 Self: $6,050

The catch up contribution can only be made by individuals who are at least 55 and are not yet enrolled in Medicare.

Remember that starting in 2011 because of Obama Care over-the-counter medicines may not be reimbursed thru HSA.

NEARLY 1/2 OF ALL AMERICANS DON’T PAY INCOME TAXES


Last week I blogged that per the Heritage Foundation 23.1% of Americans are subsidized by the government.  This week I report again from the Heritage Foundation that 49.5% of Americans pay no income tax.

That means 151.7 million Americans paid nothing in 2009. By comparison, 34.8 million tax filers paid no taxes in 1984.

The rapid growth of Americans who don’t pay income taxes is particularly alarming for the fate of the American form of government, Beach and Tyrrell of Heritage warned. Coupled with higher spending on government programs, it is already proving to be a major fiscal challenge.

Thursday, March 1, 2012

WHERE THE HECK IS MY REFUND?

Here’s your obvious statistic of the tax season: most early filers do so because they are expecting a refund. And by now, many of those taxpayers want to know, “Where the heck is my refund?”
According to the IRS, 90% of taxpayers will receive a refund in 21 days or less. That’s the average taking into account all returns filed, whether e-filed or filed with traditional paper returns.
How can you speed that process up? The IRS says that if you e-file and use direct deposit, you can receive your refund in as few as ten days. I’ve heard of folks getting them as quickly as three.
Who might have to wait? The usual suspects: taxpayers who make mistakes. Submitting an error free return increases the likelihood that your refund will be processed quickly. Mistakes – sloppy returns, transposed numbers or bad math – can slow down processing and result in delays.
The IRS warns that ramped up scrutiny for fraud may slow down some refunds. If your refund is sizable or if it’s based on a credit that the IRS has identified as ripe for abuse (EITC and fuel tax credits, for example), your return might get a second look.
Other issues that can affect the timing of your refund include bankruptcy, an open audit or a balance due on a related account such as a different tax year. Your refund may also be slowed if you are subject to an offset for outstanding liabilities such as delinquent child support or unpaid student loans.
If you’ve done everything right and your refund feels slow, you can check on the status with the IRS. You’ll need to wait at least 72 hours after you e-file or three weeks after you mail your paper return before you can make an inquiry.
The fastest and best way to get the info is using the “Where’s My Refund?” tool on IRS.gov .
To check on your refund, you’ll need to have your tax return handy. You’ll need to enter:
  • Your Social Security Number
  • Your filing status
  • The amount of your refund as shown on your tax return
Here’s a quick caveat about dates: if you’ve amended your return using a form 1040X, all bets are off. It may take 8 to 12 weeks or longer to process the return. If 8 weeks have passed after you’ve filed a form 1040X and you have not received your refund, call the IRS at (800) 829-1040. Be prepared to wait (and wait).
Finally, if your check is supposed to be in your mailbox and it’s not because it was lost, stolen, or destroyed, you can file an online claim for a replacement check. You can make the claim if it’s been more than 28 days from the date that the IRS says it mailed your refund. Head over to the “Where’s My Refund?” tool on IRS.gov for details.