Wednesday, August 20, 2008

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’

I am off this morning, after counting the Doctor’s money, on my annual pilgrimage to the summer playground of my youth – Wayne and Pike Counties in Pennsylvania. I will not be posting for the rest of the week. I will, of course, report on the trip at ANYTHING BUT TAXES when I return.

So, as I will not be posting on Saturday, here is an early WHAT’S THE BUZZ column -
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* TAX GIRL Kelly Phillips Erb discusses the “employee cell phone controversy” in her posts “Dialing Up Trouble: IRS Tries to Enforce Cell Phone Fringe Benefits” and its follow-up “Cell Phone Tax Continues to Generate Publicity
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Kelly tells us that, “According to the Los Angeles times, the IRS has decided to enforce a rule from 1989 that requires that employers that hand out cell phones to their employees report the cell phones as a taxable benefit. The same law requires employees to keep detailed records of all calls made on cell phones issued by employers which indicate which calls are business and which calls are personal.”
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She also reports that relief seems to be forthcoming from an unlikely source. “Congress is currently considering a bill to removing cellphones from the IRS list of fringe benefits. The bipartisan sponsored litigation passed the House earlier this year and a similar bipartisan bill, this one sponsored by Sen. John Kerry (D-MA) and Sen. John Ensign (R-NV), is pending in the Senate.”

FYI, I do not have a cell phone and have no intention of getting one. I wrote a post a few years ago about the use of cell phones (not as a tax deduction). When I return from PA I will see if I can dig it up and repost it.

* Kay Bell of DON’T MESS WITH TAXES reports that Obama has changed his tune in regards to some of his tax proposals in her post “Obama Tweaks His Tax Plan”.
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As Kay points out, “Now he's calling for a 20 percent tax on capital gains and certain dividend income, which currently is 15 percent, for individuals making more than $200,000 and families making more than $250,000.”
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And, “As for payroll taxes, Obama now wants to levy payroll taxes on earnings above $250,000 at a rate between 2 percent and 4 percent. We wouldn't see that increase, however, for at least a decade.”
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The post links to a side-by-side comparison of the major provisions of the candidates’ tax proposals (not yet updated for Obama’s change of heart) prepared by the Tax Policy Center. One word appears a lot on the Obama side – refundable credit! A refundable credit for “Making Work Pay”, a refundable “Universal Mortgage Credit”, making the Child and Dependent Care Credit, the Saver’s Credit and the Hope Education Credit refundable. Jim Maule of MAULED AGAIN rightfully warned us about refundable credits in an entry in last Saturday’s WHAT’S THE BUZZ.

Like the rebate check, the refundable credit is attractive to politicians because it is, as I have posted before, basically buying votes. “Look what Obama gave me” (or in this case “Look what Obama is going to give me”), beneficiaries (or potential beneficiaries) of these refundable credits are supposed to say, and then run out and vote Democrat.

I see from the Tax Policy Center comparison that Obama still supports the ridiculous idea to “give taxpayers the option of pre-filled tax forms to verify, sign, return to IRS”. Not smart at all, for a variety of reasons (and I am not speaking selfishly as a tax preparer). And McCain still wants to give taxpayers the choice of calculating their tax under the current system or a flatter, simpler one. Why give taxpayers the choice – just enact the flatter, simpler system!
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* Kevin of NO DEBT PLAN provides some interesting points on the topic of traditional 401(k) vs Roth 401(k) in his post “Why Roth 401k? Taxes are Bound to Go Up”.

He gives three reasons why he expects that a flat tax will never become law –
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Income taxes and the breaks that different constituents are able to take year to year give Congress power. They can give special deductions and change the tax codes to make sure they get their campaign contribution from year to year. It sounds shady and cynical, but that’s how I see it. Congress will never give up that power.
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The second reason is what would we do with all of the accountants? If doing your taxes amounted to adding up your W2 with any other forms of income and taking out 15% that seems pretty easy. The tax code is so thick and complicated that we’ve created an industry to support it.
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Finally, have you seen our national deficit? Americans seem to be following the lead of the government in spending more than we bring in. Our national debt is enormous and I don’t see it being erased overnight with a new administration. On top of that you have the social security and Medicare issue to figure out in the next thirty years. If we keep taxes the same something is going to either shut down or have benefits cut. That’s politically unpopular. Raising taxes is politically unpopular, too… but if it is the only way to keep the programs running then they will raise taxes
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I certainly agree with reason number one, and can see his point on reason number three. However I have always said that a simple flat tax would not hurt my particular tax practice. I will comment on this topic in more detail when I return from PA.
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BTW, I learned of Kevin’s post from the weekly “Passing The Week . . .” column by Bruce, THE TAX GUY. It is a weekly review of blog postings, very similar to my WHAT’S THE BUZZ. While we both read the same tax blogs, Bruce regularly reads more and different personal finance blogs.
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* A WebCPA article, included in Monday’s AccountantsWorld.com daily headline newsletter, reports that “Missouri AG Sues Tax Resolution Firm”.
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According to the article, “The Missouri Attorney General has filed suit against tax representation chain JK Harris & Co., saying the firm did not provide the services promised to resolve its clients' state and federal tax problems”.
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JK Harris & Co has had lots of problems lately. “The Missouri lawsuit follows on the heels of a $1.5 million settlement by the chain with 18 other state attorneys general in June, and a $6 million settlement of a class-action lawsuit last year (see
Tax Debt Firm to Pay $1.5M in Restitution). The AG's suit is seeking full restitution from JK Harris for Missouri customers who paid up to $4,500 for the services they did not receive.”
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The service that has gotten the firm in trouble is offering to help taxpayers resolve outstanding IRS debt for “pennies on the dollar”.

* A new tax blog to keep an eye on is TAXABLE INTEREST (A Personal Journey to CPA Success) by Michelle Rodriguez, a recent graduate of California Polytechnic State University currently pursing an MS in Taxation while simultaneously juggling to study for the CPA exam. According to Michelle “The focus of this blog to record my own personal experiences in graduate school, studying for the CPA exam, and to share strategies and tips I learn along the way.”

TTFN

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