Did you hear about the terrorist that
hijacked an airplane full of lawyers? He
threatened to release one every hour if his demands weren't met.
* In honor or
Memorial Day ACCOUNTING TODAY has a slide show of “Tax Tips for the Armed Forces”.
* And, also for
Memorial Day, Kay Bell takes a look at state gas taxes in “Memorial Day motorists expected to jam highways”.
It turns out that
my new home state of PA has the highest state gas tax – 68.7 cents per gallon –
and my former home state of NJ is the second lowest (Alaska is lowest at 30.65
cents per gallon) at 32.9 cents. This is
the one time when NJ is not the, or among the, highest taxed state, and the
only time PA tops the list with the highest tax.
* New tax blogger
Chris A Johnson, EA, a long-time supporter of and commenter to TWTP, discusses
“Paying Your Past Due Taxes and Prioritizing Payments” at CAJ TAX SOLUTIONS.
Some good advice
from Chris. I especially agree with what
he has to say about owing both federal and state taxes -
“What if you owe both past due state and
federal taxes? I recommend you apply any extra funds you have toward your state
tax debt first (with a couple exceptions), provided you’ve already paid enough
on your federal tax debt to prevent wage garnishment or bank account levy. The majority of states charge higher interest
rates on past due taxes than the IRS does (currently 3% annually).”
In the case of
current taxes due, if a client, for example, has balances due on both the
federal and NJ state 2016 returns, owe both Uncles Sam and Chris (Christie –
for whom I have lost all respect and confidence in his judgment), and cannot
pay in full both balances with the filing of the returns, I always recommend
paying the NJ state balance, hopefully in full, first and maintaining a balance
due to Sam.
What if you owe
both past due state and federal taxes? I recommend you apply any extra funds
you have toward your state tax debt first (with a couple exceptions), provided
you’ve already paid enough on your federal tax debt to prevent wage garnishment
or bank account levy. The majority of
states charge higher interest rates on past due taxes than the IRS does
(currently 3% annually).
* Sarah Brenner
lists “3 Five-Year Rules for Roth IRAs You Need to Know” at THE SLOTT REPORT.
* As I have said
many times before, regardless of what you think about the IRS or its recent
lack of taxpayer service it has an excellent website chock-a-block with helpful
information.
Case in point – the
“Self-Employed Individuals Tax Center”.
* Great minds do think alike. A great response from Joe Kristan, author
of the ROTH AND COMPANY TAX UPDATE BLOG, to a Keith Fogg post referenced “TaxRoundup, 5/23/16: Prairie Meadows fights the odds. And much more Monday goodness!”.
Joe quotes from Keith’s “Return Preparer Shenanigans” - “Based on clinic clients
for almost a decade, I would like regulation that removes bad preparers from
the system and particularly from preparing returns with refundable credits.”
Joe’s answer to Keith, which would be my
answer also, is “How about getting rid of
the refundable credits, then?”
Forced regulation of tax return preparers
is not the way to reduce the massive tax fraud that accompanies such bad ideas
as refundable credits. The answer is to
fix the mucking fess that is our US Tax Code and, as Joe suggests, get rid of
refundable credits!
* CNBS’s ADVISOR INSIGHT gives us a slide
show of “Best Ways to Spend that IRS Refund Check”.
I highly recommend the first two –
·
“Pay down debt” – Paying off
high-interest credit cards should be a priority (as long as you don’t just go
out and build-up the balances again). If
you are paying 20+% in finance charges on your balance it is like getting a
20+% return on your investment – much, much better than you can do by putting
the money in the bank or even the stock market.
·
“Fund your retirement” – Check out my
post “Everybody Ought To Have An IRA”.
If you do not have an IRA open one with at least part of your
refund. Preferably a ROTH account, if
you qualify. But a traditional IRA,
either deductible or non-deductible, is also a good idea.
* Bill Perez deals with the oft-asked
question “Can One Spouse Claim Another Spouse as a Dependent?” at ABOUT.COM.
Bill provides the correct short answer -
“A
person cannot claim his or her spouse as a dependent on their tax return. The
IRS makes this clear in Publication 501, Exemptions, Standard Deduction, and
Filing Information, where they write, ‘Your spouse is never considered your
dependent.’"
He again correctly, explains that one spouse
does, in effect, claim the other spouse as a dependent because the primary tax
benefit of a dependent (although there are many other potential tax benefits)
is claiming a “personal exemption” for that person – and on a joint return the
earning spouse gets a deduction for the personal exemption of the non-earning
spouse.
Bill then goes on to say –
“If
all of the following conditions are true, then one person can claim the
personal exemption for his or her spouse without filing a joint return:
•You are filing a
separate return (that is, you are not filing a joint return with your spouse);
•Your spouse has
zero gross income for the year;
•Your spouse does
not file a tax return for the year; and
•Your spouse is not
a dependent of another person, regardless of whether the other person actually
claims your spouse as a dependent.”
To be honest, in my 45 years of preparing
1040s I have never come across, or even heard, of a situation where a spouse
files a separate return but claims the personal exemption for his non-filing
spouse. Why would a spouse in such a
situation chose to file a separate return and not a joint return – as there are
many restrictions involved with a separate return, and may tax benefits are not
available on a separate return.
I would be very interested in hearing from
fellow tax professionals on this issue – have you ever prepared a separate
return for a married spouse and claimed the personal exemption for the other
spouse?
* TaxGirl Kelly Phillips Erb provides some
good news in “TIGTA Announces Significant Arrests In Massive IRS Phone Scam” at
FORBES.COM –
“Today,
J. Russell George, Treasury Inspector General for Tax Administration (TIGTA),
announced the arrests of five individuals made in what has been characterized
as an ‘ongoing investigation’ into the scams. The five individuals were
arrested in Miami, FL, without incident, and charged with wire fraud and
conspiracy to commit wire fraud. According to the court documents, the five
suspects are responsible for almost $2 million in schemes that defrauded more
than 1,500 victims.”
These phone scams are serious
problems. As Kelly reports-
“Scammers
are still targeting taxpayers. Nearly 6,400 victims have collectively paid over
$36.5 million to scammers posing as Internal Revenue Service (IRS) officials
since October of 2013. Over that same time period, the Treasury Inspector
General for Tax Administration (TIGTA) has received reports of roughly 1.2
million calls made to taxpayers demanding that they send cash to resolve
outstanding tax liabilities. The average amount of money lost in the scam is
$5,700.”
NEVER, NEVER, NEVER
respond to a phone call from anyone alleging to be from the IRS. If you receive a call tell the person calling
to put it in writing and hang up. If you
get a message on your machine ignore it.
* Speaking of tax-related phone scams, Kay
Bell warns us about a new one in “New telephone tax scam targets students who owe fake 'federal student tax'” at DON’T MESS WITH TAXES.
* The CHECKPOINT daily tax and accounting
e-newsletter says “House Appropriations Committee releases draft bill with more
cuts in IRS funding” (highlight is mine) –
“On
May 24, the House Appropriations Committee released a draft of a spending bill
which would cut IRS's FY 2017 budget by
$236 million from the fiscal year 2016 enacted level and which would be
$1.3 billion below President Obama's budget request. The bill provides $10.9
billion for IRS, holding the agency's budget to below the 2008 level. House
lawmakers said this amount provides sufficient
resources to perform its core duties.”
While it may provide “sufficient resources to perform its core duties”, what about the
unrelated and unnecessary duties that have been thrust upon the IRS by Congress
– forcing it to become Social Workers and administer federal welfare and other
benefit programs like the Earned Income Credit and Obamacare? The idiots in Congress erroneously gives the
IRS additional unrelated work to do but does not provide it with the proper
funding!
Do we need any more proof that the members
of Congress are idiots and need to be voted out of office?
* A good suggestion from David Waldrop, aka
THE ASTUTE ADVISOR - “Finances A Little Messy? It’s Time For Spring Cleaning”.
* Ever wonder “Does Your State Have an Estate or Inheritance Tax?”. A map from
the TAX FOUNDATION answers the question for you.
Residents of my former home state of New
Jersey are doubly screwed, something that happens a lot to NJ residents when it
comes to taxes (highlight is mine) –
“Currently,
fourteen states and the District of Columbia impose an estate tax while six
states have an inheritance tax. Maryland
and New Jersey have both.”
* Let me end this meaty BUZZ installment
with some great advice from Jason Dinesen of DINESEN TAX TIMES – “If You’re a Sole Proprietor, Think Hard Before Forming an S-Corp” –
“But
if you go into it naively believing that S-corps are full of rainbows and
unicorns and tax savings with no headaches or extra ‘stuff’ for you to deal
with, you’re going to be overwhelmed with what you’ve gotten into. I know
because I deal with this all the time with my clients.”
While I believe that all sole-proprietors
should register their business as an LLC, I also firmly believe that more often
than not the corporate entity, whether an S or a C corporation, is not the
right way for a sole proprietor to go.
THE FINAL WORD
The recent acceptance, and even support -
however reluctant, of Tronald Dump as a legitimate candidate by some Republican
politicians and leaders is truly disturbing.
It certainly shows that most politicians really do value Party above
country.
The only thing that keeps me from worrying
too much about our future is my belief that, regardless of what voters may say
now, when they are actually in the voting booth in November and realize that
their vote will decide the future of the country, and the world, those with any
intelligence and true concern will not be able in good conscience to pull the
lever for dangerous buffoon Trump.
Let us all pray that I am right – or else
we are all in very, very serious trouble.
TTFN
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