Lots of meat in today’s BUZZ.
* FORBES.COM’s newest tax blogger, TAX GIRL Kelly Phllips Erb, brings back her popular “Fix The Tax Code Friday” series in her new home.
Last Friday’s question –
“Like many U.S. corporations, would you be willing to give up your tax breaks – including deductions, exemptions and credits – for a lower tax rate? And if so, how long would the rate have to be?”
* Kelly also began “a series on the history and evolution of popular tax deductions”, which “will continue throughout the month of June”. The series, apparently titled “Deduct This”, kicked off with “Deduct This: The History of Student Loan Interest”.
* The MISSOURI TAX GUY deals with the issue of “Employee or Independent Contractor”.
Bruce correctly points out that the classification of workers has state as well as federal considerations.
His bottom line –
“There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:
· Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.
· Document relationships with your workers and vendors. Although it won’t always save you, it helps to have a written contract stating the terms of employment.”
And Bruce suggests that if you have a question about how to classify a worker you should ask your tax professional (or call Bruce).
* Professor Annette Nellen provides a good comprehensive update on the status of the tax return preparer regulation regime, with a look at current developments, in “PTIN- The Continuing Sequels” at her Tax Insider column at CPA2BIZ.
Annette reports that “the preparer exams will not be ready until at least October 2011” and that those who have currently registered for a PTIN “have until the end of 2013 to pass the test”. I will certainly not be the first on my block to sign up for the test, since I have until 2013 to so do. I will wait until after the first sets of tests have been given and “graded” and then take advantage of the NATP exam preparation class (it is currently being offered – but there is no actual test on which to base the preparation). I expect I will not be sitting for the actual exam until the end of 2012 or the beginning (January) of 2013.
Prometric, the exam administrator, is in the process of conducting a survey of tax professionals, and I have taken the survey.
* Kay Bell suggests the possibility of a “Payroll Tax Cut for Employers?” as a way of helping to stimulate employment in her BANKRATE.COM blog.
This would be similar to the current 2% reduction in the employee share of Social Security tax, which is BO’s most recent alternative to mailing out stimulus checks. The thought is that reducing the tax cost of an employee will cause employers to run out and hire tons of new employees.
If this is the goal I don’t know how effective it will be. Will saving a few thousand dollars in taxes per employee cause a business to spend tens of thousands per employee (actual salary, employee benefits, state payroll taxes, administrative costs) to hire new people? I am certainly not against reducing the tax burden of small business – but I would not hold my breath for an immediate and significant increase in hiring.
* And over at DON’T MESS WITH TAXES Kay gives us the word that “Leona {“only little people pay taxes” – rdf} Helmsley’s Rich Dog is Dead”.
“Trouble, the Maltese bequeathed $12 million when her rich owner Leona Helmsley died in 2007, has also passed away.
The pooch was 12 years old or, as the New York Daily News notes, 84 in dog years.”
What happens to what is left of the canine’s inheritance?
“The rest of the dog's inheritance has reverted to the Leona M. and Harry B. Helmsley Charitable Trust.”
* And finishing a Kay Bell trifecta, the Yellow Rose of Taxes passes along the IRS announce that “Federal E-filing History Now Includes More Than 1 Billion Taxpayers Served” in a post that outlines a history of electronic filing at DON’T MESS WITH TAXES.
In theory electronic submission of returns is a good thing and saves the IRS money. However if the IRS wants me to e-file returns that I prepare (I only “file” one 1040 – my own; I do not file client returns, I prepare them and the client files the return) they will need to allow me to file directly with the IRS free of charge via its website, like NJWebFile.
I use NJWebFile as often as possible, if the client allows - but it has had many, many problems in the past. Not all NJ returns can be e-filed this way. For two non-consecutive filing years the coupon issued by the system for payment of a balance due had the wrong year encoded and payments were applied to the previous year. This created an overpayment for a tax year, about which the State of NJ did not notify taxpayers (hoping that it would be able to keep the money to waste on pork), and taxpayers were billed by the State in the fall for the payments they had previously and timely made.
I refuse to waste thousands of dollars each year on flawed tax preparation software, currently necessary to submit federal income tax returns electronically.
* Dr Jean Murray reminds us “Got a Booth at a Farmer’s Market? Don’t Forget to Pay Taxes” at ABOUT.COM: US BUSILESS LAW/TAXES.
“Seasonal businesses like booths at flea markets, farmers markets, and craft fairs must also pay taxes. Although each locality and state has different regulations, if you have a business where you sell to customers, you probably are going to have to pay taxes.”
As Jean points out, you will probably need to pay federal and state income tax, self-employment tax, sales tax, and perhaps employment (payroll) tax.
I bet the IRS, and states, would make a fortune if they sent undercover agents to local flea markets.
Although just because you take a table at a flea market doesn’t mean you will be subject to tax. If you do so to sell your used “stuff’, rather than holding a yard or garage sale, you certainly are not in business to make a profit – as the “cost of goods sold” would greatly exceed the sale price. But if you sell items that you make or grow at a mark-up you are in business.
* Jean’s colleague at ABOUT.COM, William Perez, reports on another TIGTA study that found problems with tax credits in “TIGTA Report Uncovers Inefficiencies, Fraud Potential with the Adoption Credit”.
“The IRS has received $897 million worth of adoption tax credits were claimed on year 2010 tax returns as of April 28th, 2011. Over half of the adoption credit tax return had missing or insufficient supporting documentation. The IRS is routing such tax returns to auditors, who request additional documentation and review documentation to make sure the tax credit being claimed is genuine. However, the IRS has no specific time frame for completing its review of tax returns.”
Just one more reason why the payment of such government benefits should be done directly by the appropriate federal agency and NOT through the Tax Code.
* On this topic Professor James Maule truly tells it like it is in “More Criticism of Non-Tax Tax Credits” at MAULED AGAIN, joining me in my call for “leaving social welfare spending out of the Internal Revenue Code and sparing the IRS the task of doing other agencies’ work”.
Jim explains why the idiots in Congress continue to load the Tax Code with items that do not belong. While Congresscritters (as Joe Kristan likes to call them) may be idiots, they are not necessarily stupid (the highlights are mine) -
“So why does Congress continue to put non-tax programs into the tax law? Olson pointed out one of the factors. A spending program administered by an agency other than the IRS is “scored against the budget,” that is, it is characterized as spending. On the other hand, by hiding the spending as a tax reduction in the form of a tax credit or tax deduction, the Congress makes no less of an increase in the federal budget deficit but can claim that it has not increased spending. Until people understand that a $100 tax credit issued to ten million taxpayers is no different, for federal budget purposes, than the writing of ten million $100 checks, the nation’s attempt to get its fiscal house in order is doomed. Worse, by distracting the IRS with additional program responsibilities without increasing its funding, Congress forces the IRS to divert resources from its primary mission, namely, protecting the revenue.
* FORBES.COM’s newest tax blogger, TAX GIRL Kelly Phllips Erb, brings back her popular “Fix The Tax Code Friday” series in her new home.
Last Friday’s question –
“Like many U.S. corporations, would you be willing to give up your tax breaks – including deductions, exemptions and credits – for a lower tax rate? And if so, how long would the rate have to be?”
* Kelly also began “a series on the history and evolution of popular tax deductions”, which “will continue throughout the month of June”. The series, apparently titled “Deduct This”, kicked off with “Deduct This: The History of Student Loan Interest”.
* The MISSOURI TAX GUY deals with the issue of “Employee or Independent Contractor”.
Bruce correctly points out that the classification of workers has state as well as federal considerations.
His bottom line –
“There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:
· Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.
· Document relationships with your workers and vendors. Although it won’t always save you, it helps to have a written contract stating the terms of employment.”
And Bruce suggests that if you have a question about how to classify a worker you should ask your tax professional (or call Bruce).
* Professor Annette Nellen provides a good comprehensive update on the status of the tax return preparer regulation regime, with a look at current developments, in “PTIN- The Continuing Sequels” at her Tax Insider column at CPA2BIZ.
Annette reports that “the preparer exams will not be ready until at least October 2011” and that those who have currently registered for a PTIN “have until the end of 2013 to pass the test”. I will certainly not be the first on my block to sign up for the test, since I have until 2013 to so do. I will wait until after the first sets of tests have been given and “graded” and then take advantage of the NATP exam preparation class (it is currently being offered – but there is no actual test on which to base the preparation). I expect I will not be sitting for the actual exam until the end of 2012 or the beginning (January) of 2013.
Prometric, the exam administrator, is in the process of conducting a survey of tax professionals, and I have taken the survey.
* Kay Bell suggests the possibility of a “Payroll Tax Cut for Employers?” as a way of helping to stimulate employment in her BANKRATE.COM blog.
This would be similar to the current 2% reduction in the employee share of Social Security tax, which is BO’s most recent alternative to mailing out stimulus checks. The thought is that reducing the tax cost of an employee will cause employers to run out and hire tons of new employees.
If this is the goal I don’t know how effective it will be. Will saving a few thousand dollars in taxes per employee cause a business to spend tens of thousands per employee (actual salary, employee benefits, state payroll taxes, administrative costs) to hire new people? I am certainly not against reducing the tax burden of small business – but I would not hold my breath for an immediate and significant increase in hiring.
* And over at DON’T MESS WITH TAXES Kay gives us the word that “Leona {“only little people pay taxes” – rdf} Helmsley’s Rich Dog is Dead”.
“Trouble, the Maltese bequeathed $12 million when her rich owner Leona Helmsley died in 2007, has also passed away.
The pooch was 12 years old or, as the New York Daily News notes, 84 in dog years.”
What happens to what is left of the canine’s inheritance?
“The rest of the dog's inheritance has reverted to the Leona M. and Harry B. Helmsley Charitable Trust.”
* And finishing a Kay Bell trifecta, the Yellow Rose of Taxes passes along the IRS announce that “Federal E-filing History Now Includes More Than 1 Billion Taxpayers Served” in a post that outlines a history of electronic filing at DON’T MESS WITH TAXES.
In theory electronic submission of returns is a good thing and saves the IRS money. However if the IRS wants me to e-file returns that I prepare (I only “file” one 1040 – my own; I do not file client returns, I prepare them and the client files the return) they will need to allow me to file directly with the IRS free of charge via its website, like NJWebFile.
I use NJWebFile as often as possible, if the client allows - but it has had many, many problems in the past. Not all NJ returns can be e-filed this way. For two non-consecutive filing years the coupon issued by the system for payment of a balance due had the wrong year encoded and payments were applied to the previous year. This created an overpayment for a tax year, about which the State of NJ did not notify taxpayers (hoping that it would be able to keep the money to waste on pork), and taxpayers were billed by the State in the fall for the payments they had previously and timely made.
I refuse to waste thousands of dollars each year on flawed tax preparation software, currently necessary to submit federal income tax returns electronically.
* Dr Jean Murray reminds us “Got a Booth at a Farmer’s Market? Don’t Forget to Pay Taxes” at ABOUT.COM: US BUSILESS LAW/TAXES.
“Seasonal businesses like booths at flea markets, farmers markets, and craft fairs must also pay taxes. Although each locality and state has different regulations, if you have a business where you sell to customers, you probably are going to have to pay taxes.”
As Jean points out, you will probably need to pay federal and state income tax, self-employment tax, sales tax, and perhaps employment (payroll) tax.
I bet the IRS, and states, would make a fortune if they sent undercover agents to local flea markets.
Although just because you take a table at a flea market doesn’t mean you will be subject to tax. If you do so to sell your used “stuff’, rather than holding a yard or garage sale, you certainly are not in business to make a profit – as the “cost of goods sold” would greatly exceed the sale price. But if you sell items that you make or grow at a mark-up you are in business.
* Jean’s colleague at ABOUT.COM, William Perez, reports on another TIGTA study that found problems with tax credits in “TIGTA Report Uncovers Inefficiencies, Fraud Potential with the Adoption Credit”.
“The IRS has received $897 million worth of adoption tax credits were claimed on year 2010 tax returns as of April 28th, 2011. Over half of the adoption credit tax return had missing or insufficient supporting documentation. The IRS is routing such tax returns to auditors, who request additional documentation and review documentation to make sure the tax credit being claimed is genuine. However, the IRS has no specific time frame for completing its review of tax returns.”
Just one more reason why the payment of such government benefits should be done directly by the appropriate federal agency and NOT through the Tax Code.
* On this topic Professor James Maule truly tells it like it is in “More Criticism of Non-Tax Tax Credits” at MAULED AGAIN, joining me in my call for “leaving social welfare spending out of the Internal Revenue Code and sparing the IRS the task of doing other agencies’ work”.
Jim explains why the idiots in Congress continue to load the Tax Code with items that do not belong. While Congresscritters (as Joe Kristan likes to call them) may be idiots, they are not necessarily stupid (the highlights are mine) -
“So why does Congress continue to put non-tax programs into the tax law? Olson pointed out one of the factors. A spending program administered by an agency other than the IRS is “scored against the budget,” that is, it is characterized as spending. On the other hand, by hiding the spending as a tax reduction in the form of a tax credit or tax deduction, the Congress makes no less of an increase in the federal budget deficit but can claim that it has not increased spending. Until people understand that a $100 tax credit issued to ten million taxpayers is no different, for federal budget purposes, than the writing of ten million $100 checks, the nation’s attempt to get its fiscal house in order is doomed. Worse, by distracting the IRS with additional program responsibilities without increasing its funding, Congress forces the IRS to divert resources from its primary mission, namely, protecting the revenue.
Members of Congress have figured out that if they enact legislation granting $3 billion to a pet project, they risk taking heat for bestowing taxpayer dollars on a special interest. They have also learned that if they jam a tax credit into the Internal Revenue Code that reduces the tax liability of the taxpayers operating that pet project, not only is the give-away not treated as federal spending, it is also much more likely that no one will notice. But a few of us do, and my hope and goal is to cause most of us to notice. Perhaps then the betrayal will be sufficiently visible to bring about the electoral upheaval that betrayal should bring.”
Right on, Jim!
* Darrin Mish asks an excellent question at his IRS PROBLEM SOLVER BLOG – “Does E-filing Taxes Lead to Increase in Identity Theft?” (the highlight below is mine).
“Over the last few years, there has been a surge in the percentage of taxpayers who e-file their tax returns. Last year, a total of 71% of American taxpayers used the e-filing system to submit their tax returns. At the same time, there has also been a massive increase in the number of identity thefts in relation to taxes. The number of tax-related identity theft incidents has increased fivefold, from about 50,000 in 2008 to nearly 250,000 in 2010, out of about 140 million returns.”
Darrin tells us that IRS Commissioner Shulman says this is merely a coincidence. The Government Accountability Office (GAO) somewhat agrees, but its Director Jim White has “said that it would be worthwhile for the IRS to learn more about the number of identity thieves who e-file fraudulent returns or who request that refunds be paid out to debit cards rather than in paper checks or direct deposits to checking accounts as this could help the IRS to increase their rate of fraud detection”.
I have been filing only paper federal income tax returns for 40 tax seasons and have never come across an incidence of 1040-related identity fraud.
* I learned about a study by the Mercatus Center from a post by Joe Kristan at the ROTH AND COMPANY TAX UPDATE BLOG. The study "comprehensively ranks the American states on their public policies that affect individual freedoms in the economic, social, and personal spheres”.
Joe told us that his home state of Iowa was #13 on the list. It is no surprise that New Jersey is at the bottom of the barrel again - #49 overall, $#47 for economic freedom, and #45 for personal freedom.
As we all know by now -
“New Jersey is a highly regulated state all around, near the bottom in both personal and economic freedom, and it deteriorated further in 2007–2008. Taxes are high, and spending is about average. Spending on education is particularly high. Property taxes are among the highest in the country.”
The study also stated the following about the “Garden State”, which I do not think is bad -
“New Jersey has primary seat belt enforcement, motorcycle and bicycle helmet laws, a cell-phone driving ban, an open-container law, sobriety checkpoints, and mandatory under insured motorist and personal injury coverage for drivers. Fireworks are prohibited.”
New Hampshire is #1 on the list – the most free – and New York is #50 – the least free (after NJ).
TTFN
Right on, Jim!
* Darrin Mish asks an excellent question at his IRS PROBLEM SOLVER BLOG – “Does E-filing Taxes Lead to Increase in Identity Theft?” (the highlight below is mine).
“Over the last few years, there has been a surge in the percentage of taxpayers who e-file their tax returns. Last year, a total of 71% of American taxpayers used the e-filing system to submit their tax returns. At the same time, there has also been a massive increase in the number of identity thefts in relation to taxes. The number of tax-related identity theft incidents has increased fivefold, from about 50,000 in 2008 to nearly 250,000 in 2010, out of about 140 million returns.”
Darrin tells us that IRS Commissioner Shulman says this is merely a coincidence. The Government Accountability Office (GAO) somewhat agrees, but its Director Jim White has “said that it would be worthwhile for the IRS to learn more about the number of identity thieves who e-file fraudulent returns or who request that refunds be paid out to debit cards rather than in paper checks or direct deposits to checking accounts as this could help the IRS to increase their rate of fraud detection”.
I have been filing only paper federal income tax returns for 40 tax seasons and have never come across an incidence of 1040-related identity fraud.
* I learned about a study by the Mercatus Center from a post by Joe Kristan at the ROTH AND COMPANY TAX UPDATE BLOG. The study "comprehensively ranks the American states on their public policies that affect individual freedoms in the economic, social, and personal spheres”.
Joe told us that his home state of Iowa was #13 on the list. It is no surprise that New Jersey is at the bottom of the barrel again - #49 overall, $#47 for economic freedom, and #45 for personal freedom.
As we all know by now -
“New Jersey is a highly regulated state all around, near the bottom in both personal and economic freedom, and it deteriorated further in 2007–2008. Taxes are high, and spending is about average. Spending on education is particularly high. Property taxes are among the highest in the country.”
The study also stated the following about the “Garden State”, which I do not think is bad -
“New Jersey has primary seat belt enforcement, motorcycle and bicycle helmet laws, a cell-phone driving ban, an open-container law, sobriety checkpoints, and mandatory under insured motorist and personal injury coverage for drivers. Fireworks are prohibited.”
New Hampshire is #1 on the list – the most free – and New York is #50 – the least free (after NJ).
TTFN
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