Anyone Else Would Be Audited

This is a good recap of how Roger Clinton was used to launder bribes for the Clinton organized crime family and was paid considerable sums of hush money. If this were anyone else but a member of the Clinton gang, IRS would be auditing him so fast that it would make your head spin. Having worked on hundreds of IRS audits, I know what a dogged fixation the agents have on deposits into bank accounts. They start with the assumption that every dollar is taxable income and the taxpayer has the burden of proving otherwise. I am not a gambling person; but this is an easy bet that Roger didn’t report any of this money on his tax returns. Why should he? Bill & Hillary perfected the use of the IRS as their personal hit squad to attack their enemies and assist their friends.

For those who consider any talk of these kinds of Clinton crimes & scandals as old news, a few reminders. Hillary is still very serious about winning another term as President, this time under her name. It is also a fact that the IRS is still filled with Clinton cronies who are continuing their attacks on Clinton critics and harboring Clinton pals from normal scrutiny.

KMK

Killer Tax

One of the most insidious taxes the geniuses in DC ever created is the Alternative Minimum Tax (AMT). As with almost everything our rulers in DC do, this monstrosity accomplishes the exact opposite of its intended goal. Rather than nail the evil rich fat cats, it more often hits lower income people. Here is an excellent article on it from the current Forbes magazine.

For those who want to see the AMT fixed, please check out this group. They have my full support and admiration for tackling this beast.

KMK

Taking Undue Credit

Is it just me or is the current commercial for the United States Postal Service the stupidest thing they have done in a long time? It shows a high school student opening a college acceptance letter and then claims that the next four years are courtesy of the United States Postal Service. Come on! The postman delivered the letter. That’s it. I’m sure that makes all the difference in the world whether or not someone is accepted to college. It’s not as if the mailman took the SAT or is paying for the tuition.

If the geniuses at the USPS want to claim credit for all of the good news they deliver, why shouldn’t they receive the blame for all of the bad news and bills that are put into our mailboxes? That makes just as much sense as their idiotic commercial.

KMK

QuickBooks Help

The technical assistance for QuickBooks from Intuit can get fairly expensive. A very handy free resource for answering all kinds of QuickBooks questions is this free users group. It is populated by users, as well as QuickBooks experts who are willing to answer questions, for free.

While browsing through the question boards, I came across someone who has addressed a very big shortcoming in the QuickBooks program, how to transfer data between QuickBooks files. This program does it by running a QuickBooks journal through Excel and converting it into the format that can be imported into another QuickBooks file. Why Intuit didn’t do this on their own escapes me; but I’m glad to see that an outside programmer has filled the gap. I can already see it as saving us a ton of time in merging company files for clients who set up separate QuickBooks files for different businesses instead of just using one file and using the Class function to separate the businesses.

KMK

Oscar Dodges A Bullet

As a life-long movie buff, I will again be avoiding the annual Hollywood circle jerk this Sunday. The only part of these telecasts worth watching was the first five minutes of the Billy Crystal shows, when he had his hilarious movie spoofs. I literally can’t stomach the sight of Caryn Johnson; so I won’t even be checking any part of this year’s show. I don’t know what to say about someone so out of touch with reality on this planet that she still claims that her idol, Bill Clinton, never did the nasty with Monica.

I couldn’t help wondering how different the entire Academy Awards would be if 68 years ago, they had chosen Arthur Andersen to count their ballots instead of Price Waterhouse. With AA’s current reputation for creative accounting, it would sure make all of the winners & losers very suspect.

KMK

IRS Encouraging Extensions

As I have repeated for decades, filing 1040s by April 15 is not the wisest move, for several reasons. I have actually done such a good job explaining that to my clients that I have only prepared a few 2001 tax returns so far and am still working on several 1999 & 2000 tax returns.

This year, there are some more reasons why filing your tax return later is a wise move, including one encouraged by IRS.

A new tax law giving more generous tax breaks for small businesses was passed by Congress on March 8, 2002 and signed into law the next day by President Bush. Rather than make it effective for 2002, it is retroactive to 2001. This is requiring IRS to revise many of its 2001 tax forms during the most hectic part of its tax filing season. In complete agreement with my policy, IRS has actually announced that it would prefer that taxpayers file for an extension until the new forms are available rather than file tax returns now that will need to be amended.

The other new reason for filing tax returns later is the IRS’s announced plans to select 50,000 early filed returns for its extensive line by line audit. I will have more on this later.

KMK

Government Efficiency

As we all know, incompetence is no reason for someone to be fired from a cushy government job. INS announced that the employees responsible for sending the visas to the dead murderers are being reassigned to positions more suited to their talents. My guess is that means they will turn up at the IRS, where that kind of screw-up is normal every day practice.

KMK

Investing In Death

For several years now, there have been investors who have earned very good rates of return by purchasing the rights to life insurance policies from AIDS sufferers. It is actually a good idea in concept, because what good is a big windfall of money after you are gone? Since most AIDS victims don’t have large families to leave their estates to, the money is much more needed in their final months & years. This started a fairly good sized viatical settlement industry, where investors reviewed T-cell counts and other indicators of declining health. The returns for investors could be quite lucrative. Say you paid an AIDS sufferer $250,000 for the rights to his $500,000 life insurance policy. If he dies shortly thereafter, you’ve doubled your money.

What brought this up was this article in today’s Wall Street Journal on the next evolution of this kind of investment, which they have called Death Bonds. Basically, the number of AIDS sufferers with investment grade life insurance is dwindling, so other persons with limited life spans are becoming more attractive. They are being marketed with expected deaths within 10 years. This makes me wonder what investors will do if their insured parties outlive the 10 year or other predicted lifespan. Will there be a motive to help nature along?

KMK

Converting IRAs

With the depressed stock market dropping values of many IRA accounts, I have noticed several people tempted to want to convert them from traditional IRAs to the newer Roth IRAs. While in theory, this looks like a good move – pay tax on today’s lower value, and receive much more years later fully tax free – I’m still not a big fan of this idea.

I understand the temptation to want to capitalize on the down stock market in terms of IRA accounts. However, my initial warnings about converting normal IRAs to Roths still apply today; so I can’t say that is a good idea.

To convert an IRA, you have to actually roll the money or stock over from a traditional IRA account into a new Roth IRA account. The taxation will be in the year that the rollover actually happens.

In order to qualify for a conversion, your AGI (not including the IRA income) must be under $100,000. The IRA income will be taxed as ordinary income; but there will be no early withdrawal penalty, as there would be if you didn’t roll the funds over. Depending on the size of the rollover, it could push you into a very high tax bracket. It would also increase the AGI figure that is used to limit other tax breaks, such as deductions and exemptions.

You may have heard of the four-year payment option. This was only available for people who converted their IRAs in 1998. They had the option of picking up one-quarter of the amount on their 1998, 1999, 2000 & 2001 1040s. Any conversion after 1998 has to include the full amount in income in the same year.

Now for my biggest concern, the promise of our rulers in DC to leave Roth IRAs as fully tax free if you leave the money in for at least five years and don’t start withdrawing it until you are 59.5 years old. From the very beginning of Roth IRAs, I distrusted this promise. People doing conversions must pay real tax dollars out now in exchange for a promise of tax free status several years down the road.

My prediction then, and even more strongly now, is that the promise will be broken for those people who our rulers consider to be among the evil rich. Means Testing, which allows tax breaks only for lower income people, is still very popular and will continue to be the gauge used. Just in the past week, none other than Rush Limbaugh, a person I agree with on most issues, was advocating Means Testing to freeze “wealthier” people out of Medicare and Social Security benefits. When he is on that side of the argument, that leaves very few of us to handle the fight for fairness.

I’m not saying that you shouldn’t put new money into Roths, and hope that it will be tax free. I am just very very nervous about having you pay several thousand dollars in taxes on a conversion and then having to pay tax again on the same money when you draw it out. It isn’t in the least bit fair; but it is what I fear our rulers will be doing. I may be overly pessimistic and paranoid about this; but I think it is perfectly justified. Future tax breaks are routinely erased by our rulers in DC who have no qualms about breaking their promises.

On a more trivial note, I have heard some people claim that to say “IRA Account” is being redundant, in the same way as it is to say “PIN Number” or “ATM Machine.” That is not true. IRA stands for Individual Retirement Arrangement.

KMK

Keep A Low Profile

I have discussed on several occasions ways in which to avoid paying State taxes. Most of them require establishing a tax free state as your tax home. However, as with all tax related matters, the burden of proof lies with the taxpayer to prove s/he is not subject to a specific State’s taxes. The State merely has to claim that you are subject to its jurisdiction and then you have to make the case that you aren’t.

Besides the normal steps for establishing a tax home in tax free States, it would be smart to maintain a low profile in the taxable States. Here is a story of some pilots who live in Minnesota who were pretending to live in tax free States, while being far too active in their MN communities. I’m sure they were also flaunting their ability to avoid MN taxes. More tax breaks have been lost over the past decades by big-mouthed beneficiaries who can’t resist the temptation to brag about it. Envy is widely prevalent in this country. It is just a matter of time before people who don’t receive the same tax breaks are going to try to get yours taken away.

KMK