Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Eventually All Ponzi Schemes Collapse

Posted by taxguru on September 2, 2021

This shouldn’t surprise anybody.

Social Security funds could run out of money sooner than expected, forecast warns (Fox Business)

Social Security Costs Expected to Exceed Total Income in 2021 as Covid-19 Takes Financial Toll (Wall Street Journal)

Social Security trust funds now projected to run out of money sooner than expected due to Covid, Treasury says (CNBC)

Accounting Critic Says Biggest Problem Facing Social Security, Medicare Is Trillions in Unfunded Debts (The Epoch Times)   PDF version of this article

 

What is disappointing from a reporting perspective is that these supposedly objective news services use the term “Trust Fund” to describe the money allocated for Social Security benefit payments.  It has been common knowledge for decades that there is no such thing as a separate secure bank account holding the FICA and Self Employment taxes that we have been paying in during our working careers.  That money has been commingled with the Federal government’s general funds and pissed away like the rest of it. 

As I often mention, if a private non-government custodian of retirement funds were to commingle that money, s/he would be sent to the slammer for a very long time, just as Bernie Madoff was.  Instead, our rulers become multi-millionaires by diverting our “Trust Fund” to their campaign contributors (aka bribers).

Posted in SSA | Comments Off on Eventually All Ponzi Schemes Collapse

Exposing the Tax Gap

Posted by taxguru on July 23, 2021

One of my many pet peeves with the whole tax game has long been how many people blindly accept the IRS’s pronouncements of how large the Tax Gap is in this country.  The Tax Gap is supposed to represent the difference between the amount of money the IRS is collecting and the amount they should be collecting if nobody was cheating on their tax calculations.  IRS has a vested interest in promoting this number as being extremely large, with the goal of encouraging our rulers in Congress to provide them more money in order to hire more employees to squeeze more money out of everyone.

Many years ago, after seeing the publicity around the hundreds of billions of dollars supposedly lost in the Tax Gap, I was sincerely interested in learning how this figure was being calculated by IRS.  We numbers people love to see the details of such large amounts.  Just like in grade school math back in earlier times, we want to see the work behind the end result.

I contacted various people in the IRS headquarters in DC and was passed around several times before I received an uncharacteristically honest explanation from one of them.  She admitted to me that there were no actual detailed calculations to support their widely publicized Tax Gap totals.  They had estimated everything.  I would prefer the term “guesstimated” or even WAG (Wild Ass Guess) to better represent the origins of their number.  To consider it as a SWAG (Scientific Wild Ass Guess) would probably be too generous an assessment.

I am revisiting this topic once again in response to this recent article from Fox Business, which shows some Republicans in Congress actually questioning the accuracy of the IRS’s “Tax Gap” figures.  With so many obvious lies coming out of every component of the Federal government, it’s more impossible than ever to trust anything we are told.

Top Republicans question tax gap figures as IRS enforcement beef-up hangs in limbo

It’s encouraging to see some push-back against the blind acceptance of obviously biased numbers from IRS and I hope IRS is forced to show their work before spouting off any more “sky is falling” hysterics about matters such as this.

Posted in TaxGap | Comments Off on Exposing the Tax Gap

One Less Tax-Free State

Posted by taxguru on May 5, 2021

There is nothing subtle about the state of Washington’s embrace of Marxist principles, with their latest efforts in wealth redistribution.

Inslee signs off on capital gains tax for wealthy and tax rebate for lower-income workers in Washington

Now that the camel’s nose is under the tent, it won’t be long before those designated as the “Evil Rich” in that state will have to pay State taxes on more kinds of income than just Capital Gains.

Posted in StateTaxes | Comments Off on One Less Tax-Free State

The Second Year When April 15 Is Just a Regular Day

Posted by taxguru on April 15, 2021

 

MallardFillmore-TaxDayReminder(4-23-21)

 

NoNeedToRush(4-15-2021)

WastedMonth(4-15-2021)

TaxExtensions(4-15-2021)

Posted in TaxDay | Comments Off on The Second Year When April 15 Is Just a Regular Day

Tax Day is Now May 17 For Individuals

Posted by taxguru on March 17, 2021

After a lot of teasing us with “will they or won’t they,” IRS has decided to give most of the country until Monday, May 17 to file 2020 tax returns or extensions.

Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline

While we should all appreciate any extension of the filing deadline, just moving it back by one month seems a bit half-assed.  While most people were expecting another July 15 Tax Day, I was betting on June 15, which would have brought everyone else in sync with Texas, Louisiana and Oklahoma,

Of course, there is a possibility that one month from now, IRS may move Tax Day out by another month or two, adding even more confusion to the process of preparing and filing tax returns.

It’s another crazy Tax Season.

Update 3/19/21:  There are a lot of critics, such as the AICPA, of this limited filing delay because it doesn’t cover businesses, which have a lot of new confusing issues to deal with from the pandemic, and the fact that IRS supposedly still wants people to send in their first estimated (ES) tax payment for 2021 by April 15.  Again, this is very much like the confusion we went through at this time last year, when for a while, IRS was requiring the second ES payment for 2020 to be made by June 15, while the first wasn’t due until July 15.  IRS is a master at complicating what should be a simple across the board delay for everyone.    

Posted in IRS, TaxDay | Comments Off on Tax Day is Now May 17 For Individuals

ARPA Tax Related Items

Posted by taxguru on March 16, 2021

Continuing a long tradition of assigning names to legislation that mean exactly the opposite of what they actually are (Affordable Care Act, etc.), our rulers in DC have just enacted a spending monstrosity they tagged as the American Rescue Plan Act of 2021.  As it was working its way through Congress, I could swear that I saw references to it being 600 plus pages.  However, this official PDF copy of the law that I just downloaded is only 242 pages.

Even that is too much text to have to wade through, especially during this busiest time of the year; so I rely on summaries that are produced by the tax reference services.

As I have mentioned on several occasions, my number one go-to for tax answers is TheTaxBook.  Once again, they did an excellent job of distilling the tax related items in those 242 pages, and have released a 25 page analysis, as well as a much more concise three page summary.  They also created this two-page client handout version of the summary.

The effective dates of the new tax items are varied.  Some are just for 2020, some are just for 2021, and others are for several years.  As we know all too well, any or all of these changes can be changed again at the whim of our out of control rulers in DC.

Luckily, I didn’t notice any changes that affect 2019 tax returns, so there won’t be any need to amend those years.  However, people who filed their 2020 returns early may need to amend if they qualify for either of the two very generous new tax breaks that only apply to 2020:

Up to $10,200 of tax free unemployment benefits

Waiver of the requirement to repay any excess Premium Tax Credits that were received during 2020 as reductions in the cost of health insurance.

As I like to do, I will be posting other useful analyses and summaries of this new law, as I come across them.

Posted in NewTaxLaws | Comments Off on ARPA Tax Related Items

Delayed Tax Day for Three States

Posted by taxguru on March 12, 2021

While we are all waiting for IRS to announce a nation-wide extension of the filing deadline for 2020 tax returns, they have officially given a two month delay – until June 15 – to three States which had some nasty weather recently.

Victims of Texas winter storms get deadline extensions and other tax relief

IRS announces tax relief for Oklahoma severe winter storm victims

IRS announces tax relief for Louisiana severe winter storm victims

 

The insane two trillion dollar “stimulus” bill that was signed into law yesterday has some tax related items that will require modifications to the IRS’s computers, as well as to the software we practitioners use.  Trying to get all of that up to speed with an April 15 filing deadline will just make an already crazy Tax Season even more so.

While everyone will still have the option to file for their own extensions, until October 15, there is a big difference between that approach and IRS delaying the initial filing deadline.  If IRS doesn’t give us all extra time, we will have to do some tax calculations and submit payments for any expected taxes due by April 15. 

If IRS gives us the extra time like we had last year, those payments won’t be due until the new Tax Day, which will hopefully be July 15 for everyone.  It would also delay the deadline for some other tax return related events, such as when money could be deposited into an IRA account and be deducted on the 2020 returns.

Posted in IRS, TaxDay | Comments Off on Delayed Tax Day for Three States

Another Uncertain Tax Season

Posted by taxguru on March 10, 2021

It’s impossible not to have déjà vu feelings related to last year, when at this same point in time, there was a confusing “will they or won’t they” tension in the country in regard to IRS extending the official filing deadlines for 2019 tax returns.  We are currently in the midst of exactly that same debate for 2020 returns, with calls for July 15 to be Tax Day again this year.

Of course until IRS makes its official declaration of a later tax filing deadline, we have to operate as if the normal due dates of March 15 and April 15 are still our targets.

Very interesting analysis of the current status of how behind IRS currently is in this article from Accounting Today:

Momentum builds for delaying tax deadline

Posted in IRS, TaxDay | Comments Off on Another Uncertain Tax Season

Tax Day For Texas is June 15

Posted by taxguru on February 22, 2021

Due to the massive Winter freeze and resulting loss of power, the entire State of Texas has been granted more time by IRS to file their 2020 income tax returns. 

Victims of Texas winter storms get deadline extensions and other tax relief

As explained in this news release from IRS, everyone in Texas, plus those outside that state who were affected by the storm, will have until June 15, 2021 to file their business (normally due March 15) and individual (normally due April 15) income tax returns.  

While there have been rumors of another nationwide extension of Tax Day based on the Covid-19 shut-downs, nothing concrete has been set regarding that. 

Posted in disaster, TaxDay | Comments Off on Tax Day For Texas is June 15

New Year Tax Changes

Posted by taxguru on December 31, 2020

It was publicized that the infamous 5,593 page Covid relief bill (Consolidated Appropriations Act, 2021) that President Trump recently signed contained a number of tax law changes.  Rather than comment on those based on speculation and rumors, I have been waiting for a detailed official analysis by one of the reputable tax publishing companies. 

I didn’t have time to read through all 5,593 pages of the law to spot the tax issues.  Heck, even our rulers in DC who vote on these monstrosities don’t ever read them, and they are paid the big bucks and treated like royalty.  Besides being a clear dereliction of duty, this enables staffers and lobbyists to sneak in all kinds of special provisions for their masters.

Once again, the first well written analysis of this new law that I have seen has been produced by the brilliant folks at The TaxBook, which has been my number one tax reference source for several years.  They were able to distill the tax related topics from those 5,593 pages into a much more reader friendly 22 page PDF document

This coming Tax Season, for 2020 returns, is certain to be confusing for many reasons. It’s not just business issues that are affected by these new changes.  There are plenty of new developments for personal matters, such as donations, medical expenses, and retirement plan withdrawals.  IRS is going to have to work like crazy to get their 2020 forms and software adjusted to be consistent with these last minute changes.

I don’t have the time or the inclination to discuss all of the tax topics covered in this summary; but I do want to cover two that I have been following and discussing for quite some time: the deductibility of business expenses paid from forgiven loans and a more generous deduction for the cost of business meals. 

Business Meals
With thousands of restaurants hit hard by the mandatory pandemic closures, it’s almost a no-brainer that one excellent way to steer more money into their accounts would be to allow businesses to deduct the full cost of business meals instead of the long-running ridiculous 50%.  I knew there had been proposals to make this change over the past several months, but there was no agreement on when the effective date of such a change would be.  Here is part of The TaxBook’s recap of this provision, from Page 5 of their newly released summary.   

The new law temporarily increases the business meal deduction to 100% for amounts
paid or incurred after December 31, 2020 and before January 1, 2023. This 100% deduction is allowed if the food or beverages are provided by a restaurant. Thus, food and beverages purchased at a venue other than a restaurant would still be subject to the 50% limitation rule. The new law does not define the term “restaurant” for purposes of this 100% deduction provision.

There is no mention if the deduction for business entertainment costs, which was eliminated in the late 2017 tax law, will be reinstated at 50% or 100% in order to help theaters and live music venues, which have been decimated by the Covid shut-downs.

 

Deducting Expenses Paid With Forgiven Loans
This is a topic that I have discussed on several occasions because even though the IRS and Treasury Secretary Mnuchin had publicly ruled that there would be no deduction for expenses that were paid from tax free income, there was always an undercurrent of discussion that Congress had not intended for that to be the case.  They had just forgotten to be more specific in their legislation, as they did their typical slap-dash job of drafting the legal language.  This new law officially specifies that there will be what many consider to be double-dipping; full deductions for all business expenses even if they were paid from PPP or EIDL loans or grants that never have to be repaid.

PPP Loans – from Page 11 of The TaxBook summary:

The new law clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. The new law also reverses the IRS interpretation of related expenses. The new law clarifies that no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied by reason of the exclusion from gross income under the PPP loan program.

EIDL Grants – from Page 17 of The TaxBook summary:

The new law clarifies that gross income does not include forgiveness of certain loans,
emergency EIDL grants, and certain loan repayment assistance, as provided by the
CARES Act. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. This provision is effective for tax years ending after March 27, 2020. A similar treatment applies for Targeted EIDL advances and Grants for Shuttered Venue Operators, effective for tax years ending after December 27, 2020.

As has been my M.O. since I began this blog, I will be posting other summaries and analyses of this new law as I come across them.


Update 1/5/21
– Another of my favorite reference services, NCPE Fellowship, has posted some nice and concise summaries of the new tax law:

Items Affecting Individual Taxes (6 six page pdf)

Items Affecting Business Taxes (6 six page pdf)

Update 1/7/21 – IRS has announced their acceptance of the new law that allows deductions for expenses paid with forgiven loan funds and declared their earlier pronouncements forbidding that as obsolete.

Eligible Paycheck Protection Program expenses now deductible

Update 1/8/21 – As with any law of this size, there will be a constant stream of rules, regulations and interpretations on how to implement its details in real life.  Yesterday, I attended the first of what will be many webinars over the next few years on this topic from my favorite CPE provider, CCH-CPELink.  It was too short at only 60 minutes, and there were changes that needed to be covered since the slides had been prepared, but it was still very informative.  Some of the useful supporting documents that were provided to attendees:  

Five page summary of the law from CCH

32 page PDF version of the slides used during the webinar

Update 2/23/21 – For today’s monthly tax update webinar on CPELink, the instructor had this updated 53 page pdf of the tax law portions of the almost 6,000 CAA bill.

Posted in meals, NewTaxLaws, PPP | Comments Off on New Year Tax Changes