Grasshopper States

The story of the grasshopper and the ant is an excellent illustration of why so many states are having budget deficits. Spending like a drunk sailor while revenues were up, and pretending that there would never be a down cycle, was nothing less than sheer incompetence by the State Rulers.

KMK

Social Security reform�s moment is now

Electronic IRS Payments

As I have explained on several occasions, I am not an advocate of electronic filing of Federal or State income tax returns because the format still does not allow us to add the additional documentation necessary to avoid audits. However, I am interested in learning about the IRS’s system for receiving tax payments electronically. IRS just issued a press release touting its success, piquing my interest.

One of the most frustrating matters in dealing with IRS is the application of tax payments. I always advise clients to write their SSNs and the tax year on the face of their checks to try to ensure that IRS posts it to the correct year. Even when a check is being sent in to IRS along with a payment coupon or voucher, you need to assume that the check will go in one direction and the voucher in another. The check itself has to tell the complete story as to where it should be applied. Even with this information written on the front of checks, there are at least a dozen clients each year who have their payments posted incorrectly by IRS, normally to a different year than what was intended. This results in nasty-grams from IRS for the supposedly unpaid tax. While common sense would motivate most people to automatically look into other years for an equal overpayment, IRS has never been known to have any such intuition. It normally requires a lot of time working with IRS to track down missing payments.

What is critical in this kind of investigation is the back of the cancelled checks. IRS imprints some very tiny numbers on the back that usually identify where the check was applied. Without those checks, it’s a guessing game. That is why it is important to use a bank that returns your actual checks rather than send you a photo-copy of the check’s front, as more and more banks are doing.

I am researching this service myself. I have gone to their website and will sign up both as an individual and for one of our corporations. I am also very interested in hearing from anyone who has been actually making payments through this means, especially for an older year, where most misapplications happen. I will report on my findings.

KMK

Crediting Kids

I have long advised people on many of the ways to use kids to save on taxes. Shifting income from high tax bracket parents to low or zero tax bracket kids has long been a way to dramatically reduce the income tax burden. Now, it seems a lot of parents have been shifting their credit problems to their kids.

When people have credit problems, it has long been possible to get a semi-fresh start by filing Form SS-4 with IRS and obtaining a Federal Employer Identification Number (FEIN) that can be used in place of a person’s Social Security Number (SSN). While credit repair services charge for doing this, anyone can do it for free.

Another way some people have been using to obtain credit, in spite of bad personal histories, has been to apply for credit cards under their kids’ names and SSNs, often not telling their kids they are doing this. Very sneaky. However, as this story describes, when the parents don’t pay off their kids’ accounts, it leaves a very nasty trail that ends up hurting the kids when they try to obtain credit on their own.

I have to admit that I wasn’t aware of how large this problem had become, mainly because I can still recall that credit cards weren’t issued to kids when I was growing up. I didn’t get my first credit card until I was almost out of college, and it was a special Bank of America program for college students at the time. Its limit of $300 wasn’t as dangerous as the cards that are currently being issued to young folks.

KMK