Saturday, October 17, 2009


* An update on a tax blog debate (a pretty one-sided one - with only one erroneous contrary opinion) from earlier in the summer - Jean Murray discusses still another reason why you should maintain a separate checking account for your business in her post “Keep Business and Personal Separate to Ease the Loan Process” at JEAN’S BUSINESS LAW/TAXES: US BLOG.

* Kay Bell keeps us up-to-date on the health care reform saga in the appropriately titled post “Health Care Reform Saga Continues” at DON’T MESS WITH TAXES.

* Kay also tells us that BO is considering sending out another round of $250.00 rebates to Social Security and Veterans benefits recipients in 2010. It seems, “low inflation will mean no cost-of-living increase next year for Social Security recipients”.

The proposed $250 payment equals a 2 percent increase for the average retiree who gets the federal benefit.”

Instead of going through the mess of sending out $250.00 separate checks why not just build a 2% raise into the Social Security benefit system in lieu of the annual COLA? But no – the whole purpose of a special rebate is to get the maximum political benefit for the President supporting it and those in Congress who vote for it – which a separate check does this much “more better” than a monthly increase.

Kay’s post points out another problem with a low inflation rate. When deductions and thresholds are “indexed for inflation” annually what happens when there is a negative inflation?

Some economists and tax experts have expressed concern that a negative inflation rate over the last year could mean that the contribution limits on 401(k)s, IRAs and other retirement funds could actually be reduced for 2010.”

* My homepage reported that it is now official with “Social Security Makes It Official: No COLA in 2010”.

The article tells us – “There will be no cost of living increase for more than 50 million Social Security recipients next year, the first year without a raise since automatic adjustments were adopted in 1975, the government announced Thursday”.

It also says that – “Medicare Part B premiums for the vast majority of Social Security recipients will remain frozen at 2009 levels. However, premiums for the Medicare prescription drug program, known as Part D, will increase”.

* I just discovered a new tax blog – by a tax preparer who is “following me” on – titled PATP TAX TALK. Author Tony, of Proctor and Associates in Charlotte NC, has a good post on “Newlywed Tips”.

* A WebCPA article tells us about a recent Government Accountability Office (GAO) report titled “Limiting Sole Proprietorship Loss Deductions Could Improve Compliance But Would Also Limit Some Litimate Losses”.

The article tells us that, according to the GAO, “. . . about 5.4 million, or 25 percent, of all sole proprietors reported losses in 2006. Ninety-five percent of these filers deducted some or all of their losses against other income, deducting a total of $40 billion.”

And also says -

According to the IRS’s most recent estimate, in 2001, 70 percent of the sole-proprietor tax returns that reported losses had losses that were either fully or partially noncompliant with tax laws. About 53 percent of aggregate dollar losses reported in 2001 were noncompliant. Sole proprietors underreported their net income by 57 percent, or $68 billion, for 2001.”

In response to the report IRS Deputy Commissioner Linda Stiff has said - “We agree that addressing noncompliance among sole proprietors is important because they are responsible for a large portion of the tax gap”.

As I pointed out in several earlier posts, it is expected that the IRS will be paying close attention to Schedule Cs that report losses, which will truly now be a red flag item.

While I recommend that most Schedule C businesses register as an LLC, I still do not believe that increased scrutiny by the IRS in itself is enough to advise all sole-proprietorships take on the additional expense, paperwork and agita of filing as a corporation.

* I am a fan of the ROTH IRA or 401(k) account. It lets you put away money that will grow tax free forever (or at least until Congress needs to raise money desperately enough). Qualified withdrawals are totally tax free to the original plan owner and to his/her beneficiaries.

But a ROTH is not necessarily the best overall option for everyone. Joe Taxpayer provides some good information in his post “ROTH Mania” at JOE TAXPAYER (Financial Commentary for the Average Joe).

Joe correctly points out –

Who should deposit into a Roth? Young people working part time or just starting a job, likely in a low bracket and not a bad idea to just pay the 10% or even 15% and put that money away. The other exception is truly an exception in these times, those who have an excellent defined benefit pension plan. The old fashioned plans were structured to replace a large portion of your income, 80% wasn’t unheard of. So, my remarks above aside, if you are well into your working career and will enjoy such a pension, and still are saving in a retirement account, the Roth is something you should really consider.”

I would add to this an individual who will have more than enough income and savings at retirement to meet all/her needs and wants – and will have a large retirement fund balance to pass along to beneficiaries.

* Speaking of ROTH, Chad Bordeaux continues his series on the ROTH IRA Conversions over at BEANCOUNTER RAMBLINGS.

In “Roth IRA Conversion Rules Changing – Have You Reviewed Your Tax Plan – Part III” he discusses Reasons NOT to Convert to a Roth IRA.

* More gleeful reporting – AccountingWeb reports that “New York CPA Gets 33 Months for Stealing Refunds”.

The word is –

A Chappaqua-N.Y. based CPA has been sentenced to 33 months in prison for pocketing more than $320,000 of his clients' tax refunds over 11 years, according to the U.S. Attorney's Office in the Southern District of New York.

Randal Kase, 56, stole at least 60 refunds between 1998 and 2009 by having the refund checks mailed to himself and then forging his clients' signatures. He stated, falsely, that his clients had signed the refund checks over to him

* According to a BNA Software news article, “Rangel Plans Separate Estate Tax, Jobs Creation, Tax Extenders Measures”.

The House Ways and Means Committee is planning to consider three more major tax bills before the end of the year” which “could come before floor consideration of a health care package”.

The bills will address the economy, the estate tax, and tax extenders.

Regarding the estate tax –

It is expected that Congress will simply extend the 2009 levels for one year, although some business groups have recently expressed support for a permanent estate tax exemption amount of $5 million for individuals, $10 million for couples, and a maximum tax rate of 35 percent.”

In addition to the usual extenders – educator expense and tuition and fees adjustment, deduction of state and local sales tax, and higher AMT exemptions – there is also the possibility of extending the first-time homebuyers credit. Regarding the “usual” extenders, if Congress thinks these items are good why don’t they just make them permanent? They can always repeal them in the future if they so desire.

* We all know that my home state of New Jersey is perhaps the worst state in which to launch a small business. CNN MONEY discusses the 5 states that they consider to be the best places to launch in “Tax Havens”.

* October 15th has come and gone. Stacie Clifford Kitts tells you what to do if “Oh Crap You Missed the Filing Deadline”.

* Good news. Bruce, Bruce, the Bruce (aka tax guy) is back! “Back for more. . . . , somewhat. . . .?

* I will end on a non-tax note from a tax blog. The Tax Foundation’s TAX POLICY BLOG tells us that “The Federal Government Is in the Business of Dating Advice (Not Kidding)”.

That is almost as bad as Dr Phil giving tax advice - although I expect the federal government is about as qualified to give dating advice as cafones like Dr Phil.


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