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

Unclear On the Concept

Proving yet again that membership in Mensa is not a requirement to be elected to public office is Arkansas Representative Don House. He wonders why truckers would prefer to license their vehicles in Oklahoma for $51 instead of in Arkansas for $6,380. What a mystery. We should convene a special session of the legislature to figure that one out. Oh, that’s right. That’s what they did in Little Rock.

This is a perfect illustration of why I never worry about having a career. Whenever the issue of replacing the income tax with a sales tax comes up, people very sincerely wonder what I will do to make a living. Money is money. People will still use creative accountants to help them save thousands of dollars in sales taxes, just as they do for income and estate taxes.

KMK

Taxing The Web

Here’s another look at the attempt by States to tax sales over the Internet. Obviously, with their fiscal problems, they are now much more motivated to implement something like this “simplified” system than they were a few years ago, when capital gains taxes were rolling in and they had plenty of money.

KMK

Higher State Taxes On The Way

This isn’t news; but another warning that most of the states will be looking for all kinds of ways to increase their tax revenues. Depending on which types of taxes are increased where you live (income, property, sales, etc), it might be a good time to re-evaluate where you want to make your tax home.

KMK

Tax Cuts Don’t Cause Deficits

I have expounded ad nauseam on how the liberals persist in mis-characterizing actual historical events by blaming the huge federal budget deficits of the 1980s and 1990s on the Reagan tax rate cuts. Some are even so blatant as to blame the current deficit on the tiny little rebate checks that were sent out. As the debate over making the tax rate cuts permanent, and hopefully even accelerating them, becomes more serious, we will be exposed to more of these lies. These two articles, by Larry Kudlow and by Victor Canto, are good at explaining that deficits are more a function of the overall economy than tax rate cuts.

It’s always been a puzzler that liberals are always so opposed to tax rate cuts, when they actually result in much more money for the Imperial Federal Government, which they can then spend as their hearts desire. While I haven’t heard any liberal actually address this inconsistency (mainly because they persist in pretending that tax rate cuts don’t result in more revenue), my theory is one of power. If they can snatch 70% of everyone’s paycheck, they have much more power over the lives of us commoners than if they were only able to grab 28%. The fact that people will work less hard as a result is simply immaterial to the mind of a power-mad liberal. It really isn’t much different than classic communism, where all money and wealth belong to the central government and the elite rulers decide how much to allow the little people to have.

KMK

Gambling With The Home

It sounds too stupid to be true; but I’m failing to find the ironic wink to indicate that this is a joke. Who in their right mind would advise people pulling out all of their home equity to invest in the stock market? Why not take the money and go on a gambling spree to Las Vegas or Atlantic City? At least they would get some free drinks and cheap buffets; amenities most stockbrokers don’t offer as their clients lose their money.

Considering the fact that, for most people, their homes represent the major portion of their net worth, and an essential resource for their retirement years, gambling it all on stocks is insanity.

KMK

You can’t take it with you; so you might as well enjoy it while you’re here.