Fox News

I was quite honored to have this blog selected as this week’s featured guest blog for the Fox News website. The comments it has generated have been very interesting. The last time I checked, it’s no longer showing up on the opening page, so here’s a direct link to it.

KMK

Half Right

This piece by Pete Du Pont has it half right. Lowering tax rates does stimulate the economy and increase overall tax revenues for the government. In fact, one of my biggest pet peeves with the politicians in DC, of both parties, is their unwillingness to tell the truth about the Reagan tax cuts of the early 1980s. Whenever I hear anyone say that lower tax rates caused the deficit, I automatically know that that person is a liar and cannot be trusted for anything. Revenues to the Feds doubled because of the lower tax rates; but the deficit grew because the level of spending tripled.

Back to the incorrect part of Mr. Du Pont’s article; that a flat tax would simplify the hassles we have to go through this time of year. It is a widely held misconception that a flat tax rate will simplify the tax return process. That’s not even close to being accurate. There is still a need to calculate the taxable income, which is where all the fun & games are. What kinds of income are subject to tax. What kinds of things are deductible. If anyone thinks Congress can refrain from complicating these issues, you should let Bill Clinton babysit your teenage daughter.

I agree that the income tax system is beyond repair, and I make a very good living working with it. Only something radically different, such as a sales tax, will simplify anything.

KMK

Are You Filthy Rich?

As I have explained on numerous occasions, the tax code is rife with secret taxes on those people who our rulers in DC consider to be undeserving by phasing out or eliminating tax breaks for people over certain income levels. I sarcastically refer to these people as the evil rich. In this article from Fox News, Radley Balko finds that he is among the filthy rich because his income is so high that he loses the deduction for interest on student loans.

The way in which our rulers in DC define who is too wealthy to receive tax breaks is just another example of their twisted logic. A similar one is their definition of what constitutes a luxury car for tax purposes. Any vehicle that costs more than $15,300 is a luxury auto and deductions for vehicles weighing less than 6,000 pounds are limited based on that amount, which anyone who has priced new vehicles knows, bears little resemblance to reality. That’s as valid as calling retired couples earning over $32,000 a year filthy rich.

KMK

Black Tax Scam

I am really tired of debunking the story that blacks are entitled to a special tax credit. However, it is still floating around like a lot of Internet supported urban legends. So, let Thomas Sowell try to get make the point, in his so eloquent way, that anyone stupid enough to fall for this will be hit with serious fines from IRS.

This is as good a time as any to remind everyone to check out stories with Snopes.com before passing them on. A friend of Sherry’s sent her the Bonsai Kitten spoof yesterday as if it were real and they were all upset. It’s just a joke.

KMK

Due Dates For 2000 Tax Returns

There is a lot of confusion regarding the later allowable due dates for 2000 tax returns because of the disruption caused by the 9/11/01 terrorist attacks and the resulting aftermath. I admit that I added somewhat to the confusion; so I want to clear things up…at least until the law changes again.

Shortly after the 9/11 attacks, with the normal extension due date of October 15 approaching, IRS announced that it was extending that due date for 120 more days, the longest it had authority to do at that time. This moved the due date to February 12, 2002. Having been through literally thousands of messy IRS confrontations over the past 26+ years, I understand the value of official documentation of as much as possible. For that reason, before 10/15/01, I sent IRS extension forms for several clients documenting the new due date of 2/12/02 for their 2000 tax returns. As I mentioned earlier, this caused a lot of confusion with IRS personnel, and for some of my clients.

Then, there was another change. On January 23, 2002 the President signed into law H.R. 2884, the Victims of Terrorism Tax Relief Act of 2001 (Public Law Number 107-134). The new law provides income and estate tax relief for victims of the terrorist attacks in Oklahoma City in 1995, the September 11, 2001 attacks on New York City and Washington D.C., and those affected by the anthrax attacks between September 11 and the end of 2001.

You can see the full explanation of this law here.

The provision that applies to the due dates is as follows:

IRS Authority to Postpone Tax-related Deadlines:

IRC �7508A was amended to allow the IRS to postpone certain tax-related deadlines due to a Presidentially declared disaster or terroristic or military action. Under the old rules, the IRS could postpone deadlines for up to 120 days. Under the new rules, the IRS can postpone deadlines for up to 1 year. In addition to Presidentially declared disasters, the IRS can also postpone deadlines due to terroristic or military action as defined in section 692(c)(2).

This new authority moves the deadline for 2000 income tax returns to October 15, 2002, one year after their original extended due dates. I am still working on a number of 2000 tax returns; but I have no intention of waiting until 10/15/02 to finish them because we can’t work on the 2001 returns until the 2000 ones are completed.

That is how things stand now. If the MidEast conflict goes nuclear, as some people are predicting, it will most likely change yet again. It is an almost certainty, given the legendary (lack of) efficiency among IRS personnel, that many of them are unaware of this new law and will have to have it pointed out to them, as is so often the case.

KMK

Not the Cheapest

For my entire 26+ year career in the tax business, H&R Block has always been considered the bargain basement low end provider of tax prep services; always with the proviso that you get what you pay for. They cater to a very different clientele than I have and I have never considered them to be competition, especially in regard to the fees. I have always charged based on time and not on a per schedule basis as Block does.

The other day, I clicked on one of their ad banners to see how their new online prep service functions. Before you start giving them actual data, they provide you with a rough idea of what the fee will be. You click on the types of forms you will have. At $29.95 each, with just a few basic forms, I was up to almost a $600 projected fee in no time. Considering that the software automatically prepares the forms with very little effort for most of them, this is quite a racket. Since the average return I prepare costs costs around $500, I’m not sure how to take this, being less expensive than H&R Block. It’s a little embarrassing and may require a review of my fee structure before next year’s tax season.

KMK

Chill Out

It never ceases to amaze me how panicky people get this time of year. They feel that if they don’t get their tax returns finished and in the mail by April 15, they will be hauled off to prison on April 16. I have been preaching the benefits of extensions for decades.

Give yourself another four months to ensure that you do everything properly. Here is the Federal extension form, 4868. It is the easiest form IRS has and doesn’t even require a signature.

Most states piggy back on the Federal extensions and only require their own extension forms if there is a payment accompanying it. You can reach all of the State tax websites via SisterStates.com.

KMK

Bragging About Spending

Last night, I saw the first TV commercial for our US Senator Tim Hutchinson’s re-election campaign. I have met him on a number of occasions since moving here to the Ozarks and have always considered him to be a very nice guy. That’s why I was so surprised by the tone of his commercial. From the accomplishments he was touting, it’s impossible to tell which party he is affiliated with. His very first topic was to brag about helping to increase Federal spending on education by $20 billion. I know I have a twisted view of the world, but I couldn’t help translating that statement in my mind to say “I took $20 billion more money from the taxpayers to give to the incompetent schools.” Here’s my question to believers in the GOP. How would that campaign commercial be different if Tim Hutchinson were a Democrat?

Where is the political party that brags about spending less money and stealing less money from the people? The only one I am aware of is the Libertarian Party, but unfortunately there is no LP candidate for US Senate here in Arkansas.

KMK

Robbing Peter To Pay Paul

George Bernard Shaw had it so right when he said “A government which robs Peter to pay Paul can always count on Paul’s support.” One of the sneaky strategies our rulers in DC have been doing over the past several years is shifting the tax burden off of the lower income masses and onto the back of the few evil rich. This capitalizes on the widespread envy and hatred of successful people in this country.

I was glad to see the fairly widespread coverage of this AP story showing that the evil rich pay most of the taxes in this country. The “progressive” tax rate structure in this country confiscates a much higher percentage of the income form the top producers than of the lower income people.

When it comes to sheer voter power, the Pauls (lower income) vastly outnumber the Peters (evil rich). Is it any wonder who the politicians pander to?

For newcomers who don’t understand my use of the term “evil rich,” please check out this explanation.

KMK

Let the Squabbling Begin

For obvious reasons, estate planning has become a larger part of my practice each year. People think I am exaggerating when I tell them some of the horror stories of poor planning I have seen. I explain that even Hollywood, with all of its imagination and stereotypes, has yet to adequately capture the greed and hatred that comes out when heirs and wannabe heirs fight over an estate. It is truly vicious.

Some people hope to avoid any bickering over their estates by leaving everything to charity. That’s probably what Vermont resident Edna Louise Holt thought when she was anticipating her demise, which came in 1998. She left her entire $25 million estate to her home town of Grafton, VT. And, as could be expected, there has been nonstop fighting among the 600 residents over how to use that money ever since. It may be a cliche; but it is true that money brings out the worst in people.

It really is impossible to anticipate everything that could go wrong. I wish I had the magic formula for how to avoid this kind of thing; but at least think long & hard about what could be the consequences of your estate decisions. Of course, there may be those who would relish the idea of everyone fighting over their things, sort of like tossing a stink bomb into a party.

KMK