Do It Right Or Else!

As the normal Tax Day approaches, IRS is releasing a slew of stories such as this one, indicating that they are ratcheting up their audit & investigation efforts. How subtle.

KMK

A Taste of Their Own Medicine

It has been widely documented that the Clinton Organized Crime Family used the IRS as its personal Hit Team to attack anyone who was critical of them. At the same time, IRS was instructed to turn a blind eye while leftist organizations blatantly violated the rules for tax exempt entities that prohibit political activities.

Now that there is someone in the White House who has more respect for the law, there are attempts to hold the leftist groups to the law. As this story explains, some outside groups are filing official complaints for IRS to investigate these long running violations of the law.

I wish them luck; but can’t be very optimistic about the outcome. The IRS is obviously still not doing its job on its own without outside prodding. This is an illustration of a point I made several months ago about the Clinton cronies still working in IRS. The skunks may be out of the White House, but their stench lingers on through all of their Fellow Travelers who have infiltrated various levels of our government.

KMK

Complicating Things Even More

Many of the States piggyback their income tax forms & calculations on the Federal forms and numbers. Some times, the link to the Federal rules is automatic, while other times, it requires a specific act by the State’s Rulers. With so many changes in the Federal tax laws in the past several months, the States are still trying to catch up. This makes for an even more complicated tax return process. As described in this story about the PRC’s attempt’s to enact conforming legislation, they may eventually do it.

If and when the various States do enact such legislation, I know one result; a lot of work preparing amended State income tax returns. There is no more secure career than tax practitioner.

KMK

Life Imitating Art

In the Beatles’ TaxMan song (part of which has been used by H&R Block recently in commercials), they sang about the government taxing everything possible. It was intended as an extreme parody. However, sooner or later, such things come true.

In its normal status as trend setter for the rest of the country, the People’s Republic of California (my former home) is currently working on new taxes on several things, including bullets, soda cans, alcohol and cigarettes. Other States learn from the Left Coast; so don’t feel safe just because you don’t live there.

As a side note, I was using Google to track down the lyrics of TaxMan, and came across this site that has the lyrics to every Beatles song. It’s a very comprehensive list. There is even an alternative take of TaxMan.

KMK

What Our Rulers Giveth, They Can Taketh Away

A popular trick by our rulers in DC is to take credit for things that will never happen or are temporary. The “huge” tax cut that was passed last year is the perfect example. It phases in over ten years and then disappears. It’s like invisible ink.

I was glad to see that President Bush reminded everyone in his radio speech this morning that the law is only temporary. I agree that everyone should put pressure on their elected officials to make the law permanent ASAP. This is an election year; so the opportunity to hold their feet to the fire will never get better.

KMK

Understanding Capitalism

Ever since the Soviet Union collapsed, I have never been very confident that Russia was sincere about converting to capitalism. I was always certain that the communist forces were lurking right below the surface, ready to take over again.

I may have been overly paranoid, if this story about recent changes in the Russian income tax code is true. Last year, President Vladimir Putin introduced a flat tax on income of 13 percent — the lowest rate in Europe — designed to draw more Russians out of the “shadow economy” and make them honest taxpayers.

This means that Putin has a better understanding of the basic supply & demand foundation of capitalism than most of the USA rulers have. The result of the Putin tax cuts has been the same as it was in the USA after the Reagan tax cuts. Tax revenues jumped dramatically.

Although the leftists in power and in the media in the US love to denigrate tax rate cuts as windfalls for the evil rich, the truth is that when tax rates are lower, people have less incentive to use tax shelters and more motivation to earn as much money as possible. It’s plain common sense, which is too rare in DC. Somebody is much more willing to accept $1,000 of taxable income if he only has to fork over $130 to the government than if he had to pay out $900 and was left with the short end of the stick.

KMK

Multiple Extensions Not Risky

As I have discussed ad infinitum, there are several benefits to filing extensions and sending in the tax returns later than April 15. I just learned last night that there is someone claming that if you do this too many years in a row, IRS will take notice and target you for an audit.

I can state unequivocally that this just isn’t true. I have scores of clients for whom we have been filing extensions every year for well over 20 years running. We have never experienced any IRS problems with any of these people. Likewise, I have never heard of this being a problem from anyone else. That sounds like one of those urban legends, such as the one that claims using the IRS provided label triggers audits. Not true.

Because of my heavy work schedule this time of year, there have only been a few times in the past 25 years that I have filed my own tax return by April 15. I have only been selected for audit by IRS twice, and neither had anything to do with the extensions. The first time was due to a vengeful ex-wife who was trying to extort money from me. The second one was a few years ago because of some hard hitting articles I wrote about the Clinton organized crime family in my newsletter.

KMK

New IRA Limits Are For 2002 Tax Returns

A very common question I have been receiving deals with the new higher limits of $3,000 per person for traditional and Roth IRA contributions. Many people are under the assumption that they are effective for the 2001 tax returns which we are currently working on. That is not the case. The $3,000 limit is effective for 2002, 2003 and 2004 tax returns.

However, while you may not be able to deduct the new higher amount until next filing season, you can still take advantage of the new higher limit now. 2002 IRA money can be deposited any time between January 1, 2002 and April 15, 2003. The sooner you can afford to put that money in, the sooner it will start earning tax deferred or tax free income.

Under the existing law, which we all know is subject to change at the whim of our rulers in DC, the limits for traditional and Roth IRAs will rise to $4,000 for the 2005 through 2007 tax years. It will be $5,000 for 2008. After 2008, the annual limit will be adjusted for inflation. Again, this all depends on our masters in DC not messing with the tax law between now and 2008, which is about as likely as little green men from Mars joining the starting lineup of the New York Yankees.

KMK

PDF Is Very Handy

Anyone who has been surfing the net for very long soon realizes that the PDF file format by Adobe has become the standard method of passing on forms and documents. IRS uses it for the forms and publications that you can find on its site. For the first time, the tax prep software that I have been using since 1985, Lacerte, finally allows forms to be prepared in pdf format for 2001. This has been extremely handy in the past few weeks, as I prepare extensions and email them to clients as attachments. As I tell them, we are doing everything possible to keep the Postal Service out of the loop because they have proven themselves over and over again to be the Weakest Link.

If you don’t already have the free program from Adobe that allows you to open and read pdf files, you can download it from here. It’s something everyone should have on their computers. In fact, as you realize how handy pdf files are, you may want to upgrade to the full Adobe Acrobat program that allows you to produce pdf files from many programs. When installed, the pdf appears as another printer on your system. When printing a form or report, you just select the pdf printer instead of your regular one and give a name for the file. I use it quite often for preparing financial statements and reports from QuickBooks that I can then email to clients.

KMK

Fringe Benefits

Back when I was in college for my Bachelor’s in Accounting (1973-77), there were three main types of employers recruiting among the Senior class.

Private Industry Companies offered by far the highest starting pay and benefit packages for those willing to work in their finance and accounting departments.

The Big 8 CPA Firms were offering about two-thirds the starting pay of the private industry companies plus extra long hours and almost no benefits. They were able to do this because of the potential high pay for those who could stick it out and make Partner within 10 years. They also had (& still have) a captive employee pool because in order to qualify to become a CPA in California, you were required to work for at least two years with a CPA firm, with a certain number of hours spent performing certified audits. It’s a mandatory paid intern program that many other states don’t require for their licensed CPAs.

Government Agencies, State and Federal, including IRS and FBI. Starting pay was about a third of that offered by private companies, with an upper range much lower than with either of the other two types of employers. This meant that most people who accepted government jobs did so because they were passionate about the cause they were working for, or because nobody else would hire them.

Because of the relatively low pay that most government workers receive, some of them make up for it in other ways. For many, it’s a power trip, where they can intimidate other people and get their jollies that way. For others, it’s more direct extortion for financial gain. This IRS auditor in Denver probably had worked out deals all around the area where his position enabled him to obtain freebies and discounts. He was busted when he got too greedy with his car mechanic.

KMK