Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for July, 2003

Posted by taxguru on July 31, 2003

Businesses find it’s better to own – Beware of “one size fits all” approaches to lease or buy decisions. Something as expensive as buying a building should be scrutinized closely with a good accountant.

Senate Panel Blocks Taxes on Web Service – This is just to prevent taxes from being levied on the Internet service. Sales of products over the Internet are still very tempting targets for State sales taxes.

Embracing the welfare state – Bush’s brand of compassionate conservatism is getting awfully close to morphing into a clone of the DemonRats’ cradle to grave control of our lives.

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The DemonRats Want To Cut the Tax Cuts

Posted by taxguru on July 31, 2003

From a very selfish perspective, I will be very glad when John F. Kerry drops from the race and we no longer have to see headlines such as these. It’s embarrassing having my name associated with any mention of higher taxes.

Kerry, Dean at odds on Bush tax cuts. Candidates clash on costs, benefits

Kerry, Dean Sharpen Debate Over Tax Cuts. Candidates Spar on How Much to Repeal

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Posted by taxguru on July 31, 2003

This puts a different spin on the old adage to “stop and smell the roses.”

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Life In A FishBowl

Posted by taxguru on July 31, 2003

There are plenty of very legitimate reasons to despise presidential wannabe John Edwards. However, I can’t get worked up over being a whole four months late on his property taxes. Big deal! I guess that goes with the territory of running for high office. You have to live your life under a microscope.

Edwards is 4 months late on taxes

Report: Sen. Edwards Owes $11,000 in Taxes

Let’s not hold our breath waiting for the media to discuss Al Sharpton‘s tax scam, where he has a supposed vow of poverty and his church pays for all of his expenses. He’s used that ruse to avoid paying off the judgments from his slander conviction, as well as to avoid any income taxes on his very large speaking fees. He gets the same kind of free pass from accusations of wrong-doing as one of the most the corrupt politicians in the PRC, Willie Brown, who is currently ruling as mayor of San Francisco. Anyone who dares to point out that these gentlemen are crooks is automatically branded as a racist.

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Posted by taxguru on July 31, 2003

Wildlife refuge rescued from tax problems – Turpentine Creek dodged a bullet this time. Hopefully, they will get some pro bono legal assistance to overturn the block-headed decision that they can’t be exempt from property taxes as with properties owned by other local charities. A refund of the extorted taxes they have already paid in will be a very useful boost to their cash flow. Thanks to Dennis Schick, Executive Director of the Arkansas Press Association, for helping to spread the word about Turpentine’s crisis. It was also timely that the APA had their semi-annual convention in Eureka Springs last week.

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Mandatory E-Filing

Posted by taxguru on July 31, 2003

I’ve written often about the reasons why electronically filing tax returns is an unwise move and I have resisted all attempts by IRS to start using that program for my clients. So far, IRS efforts to make e-filing mandatory have been shelved. However, that hasn’t stopped some State tax agencies from taking a more aggressive approach to what they perceive as a cost saving technique.

Living up to its name as the People’s Republic of California, that state’s rulers have just passed a law requiring any professional tax preparation office that prepares more than 100 individual income tax returns with computer software to file their clients’ tax returns electronically as of January 1, 2004. This requirement has been in the works for several months, with debate over the break point. There is going to be a $50 penalty for every paper return submitted by preparers who should have used e-filing.

What I will find personally interesting is the definition of 100 tax returns. Since leaving the PRC ten years ago, and transferring my 700+ California tax clients to new CPAs, I don’t prepare that many PRC returns any more. My current clientele is spread all over the country, with only about a dozen in the PRC. However, overall, I am preparing tax returns for about 150 individuals each year. The FTB has more info on this new law, but it isn’t clear as to whether or not someone in my circumstances would be covered by this new requirement. I wrote to the FTB asking for clarification.

I did notice a sort of Catch-22 in the FTB rules. In order to sign up for e-filing of PRC tax returns, a preparer has to already be enrolled in the IRS’s e-file program. It’s working out that the rulers of the PRC are doing some of IRS’s dirty work by forcing the use of electronic filing.

I have seen indications that other states are also considering requiring that their taxpayers submit tax returns electronically. I’m sure if it goes smoothly with the PRC, other states will be quick to enact such requirements.

In the meantime, I can’t help but ponder ways for people to avoid undue audit potential by continuing to file paper returns with plenty of explanatory material. Some options that come to mind at this early stage include the following.

This new rule only applies to professional tax preparers; so people could prepare their own tax returns, or have a pro do their 1040 and do the 540 themselves. Another option would be to use a tax preparer who falls under the 100 returns per year limit. Another choice would be to continue filing paper returns and pay your preparer an additional $50 to cover his/her FTB penalty. This last one will probably be my approach, if the FTB considers me to be subject to the new rule.

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Posted by taxguru on July 31, 2003

Having a backup plan would be a wise move when deciding who to leave your estate to.

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Hiding Behind Corporations

Posted by taxguru on July 31, 2003

As I’ve constantly described, using a C corporation is the best way for most people to minimize their tax burden.

Another big benefit of corporations is their ability to give some protection from the ever increasing number of frivolous lawsuits. However, some people think that using a corporation automatically gives them complete immunity from any legal attacks for their actions. That is not the case. Your personal actions will be your personal responsibility with or without a corporation. There are constant stories about doctors who screw up, such as cutting off the wrong leg or removing the wrong kidney. Many doctors are incorporated. It would be a travesty of justice to allow them to hide from the consequences of their actions by forcing the damaged parties to sue their corporations.

What corporations are great at is shielding you and your personally owned assets from the legal consequences of other people and of property. If you have employees or co-owners, using a corporation will allow you to be protected from legal actions caused by their acts. They will be sued, as will the corporation. However, unless you were also personally involved in the activity that caused the injury, your personal assets should be safe.

Likewise, if someone slips and falls on property owned by your corporation, they will have to pursue litigation against the corporation and you should be safe on a personal level.

What brought this issue up is the latest news on the Harrison Abstract collapse. Dian Brown, the owner, who has allegedly admitted improperly taking money out of the company accounts, and her attorneys, are trying to hide behind the corporate shield from litigation. This is ludicrous and will hopefully be laughed out of court. If she stole the money, that is as much a personal action, for which she will have to be personally accountable, as is a botched surgery by an incorporated physician.

As a side note on the investigation into the extent of Dian Brown’s misuse of Harrison Abstract money, this is a text book case for the skills of an independent CPA firm with experience investigating frauds.

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Geographic Illiteracy

Posted by taxguru on July 31, 2003

Since moving to Arkansas ten years ago, it’s been amusing to see how many people and media outlets are unaware of the postal abbreviation for this state of AR. I have even seen normally accurate outlets, such as the Wall Street Journal, use AK and AZ to signify Arkansas. We were watching some TV show a few weeks ago and one of the guests was shown as being from Little Rock, AK. As far as I know, Alaska doesn’t have a city named Little Rock.

Back in early June, I gave an interview to a reporter from MyBusiness Magazine about my blog. I didn’t think to point out that I am in Arkansas, so she attributed me as being in Harrison, Arizona.

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Financial Privacy

Posted by taxguru on July 30, 2003

There are fights going on over how much of our private and confidential information financial institutions can share with other parties, and what kind of permission, if any, they have to receive from us, their customers, to do that. Some recent articles on this debate.

Judge limits local privacy protections. Banks may still share financial data with their affiliates

Judge limits banks on sharing customer data. Opt-In’ Laws OK’d For Third Parties

Parts of Laws Upheld That Limit Banks’ Sharing of Personal Data

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