How Not to Balance a Budget – The WSJ looks at how higher state taxes motivate more people to leave those states.  This is common sense to almost everyone except the rulers in Sacramento and Albany. They continue to believe that people will just stick around and subject themselves to more and more financial rape.

California as No. 1 – This mindset of the rulers in the PRC, to tax the heck out of everything and everybody, was one of the contributing factors to my decision to leave that state 16 years ago.  With a RINO as governor, there is no stopping the tax hiking mania that can only get worse.

From a professional perspective, this will be great for our business; those of us who understand the techniques for helping clients legally avoid having to pay Calif. taxes. 

We have been having a ton of rain and nasty weather in this part of the Ozarks for the past several weeks. I received this from a client with whom I have been working on establishing payment amounts for their extensions:

Kerry, I thought our county got an auto extension because of the flooding until late may.  If not, I can come up with 52k like i did last year without a lot of pain. 

I checked both the IRS and DFA websites and found this notice on the DFA site:

April 11, 2008

Tax Relief for Disaster Victims

LITTLE ROCK, AR— The Department of Finance and Administration announced today that taxpayers in 52 counties declared state disaster areas due to damages caused by severe storms, tornadoes, and flooding will be provided special tax relief. The Department is extending the deadline for taxpayers who reside or have a business in the disaster areas to file and pay any tax due on their individual or corporate income tax returns until August 15, 2008.

Affected Counties The affected counties are: Arkansas, Baxter, Benton, Boone, Carroll, Clark, Clay, Cleburne, Conway, Crawford, Craighead, Cross, Faulkner, Fulton, Garland, Greene, Hot Springs, Howard, Independence, Izard, Jackson, Jefferson, Johnson, Lawrence, Lee, Logan, Lonoke, Madison, Marion, Mississippi, Monroe, Nevada, Newton, Perry, Phillips, Pike, Pope, Prairie, Pulaski, Randolph, St. Francis, Saline, Scott, Searcy, Sharp, Stone, Van Buren, Washington, White, Woodruff, and Yell.

In addition the Department will waive the failure to file, failure to pay, and interest charges for businesses unable to make withholding deposits for tax payments due April 3, 2008 to May 27, 2008 because of the recent storms, tornadoes, and flooding.

When claiming the special extension on a 2007 State income tax return payment document, please write Disaster Storms” on the front of the mailing envelope and on the top left corner of the income tax form. This helps speed-up processing of your return. If you receive a notice of penalties and interest, call (501) 682-1100 to request relief.

My reply to the client:

The floods were only a state level disaster, not Federal.  DFA has put out announcement that they are giving people in the flood counties until 8/15/08 to file their Arkansas tax returns.  This does not apply to IRS.  I just checked the IRS news site and there is no mention of any special extensions.

My experience with DFA is that they are terrible about actually following through with this kind of special deal.  The relief notice even says that anyone receiving penalty notices will have to call a special phone number in order to get them dropped.

If you have the money, it would be safest to just pay both the IRS and DFA amounts by Tuesday.

Kerry

Additional Info:

Because these severe weather problems also affected the Missouri part of the Ozarks, I wondered if that state had a similar extension of the tax deadline.  I just checked on the MDOR’s website and they have given people in the affected counties until May 19, 2008 to file their 2007 tax returns..

Q-1:

Subject: Tax question and Help

HI:

I found your website after spending several hours researching my situation and looking for answers.

I am hoping you could point me in the right direction or give me suggestions of what my options are.

My husband and I currently provide safety programs to businesses.  We operate in three states – Washington, Oregon and California.  In 2008 right now we will make at least 500K if not $100-200K more.  The income breaks down as follows per state.  Washington – $250K, California – $200K and Oregon – $50K.  

We are currently incorporated as an s-corp in Oregon.  For the last three years we have had a large NOL from a previous business (sole prop) that we carried over, so we never really felt the potential high taxes from Oregon.  We tried our best to expense out all the other income from the other states, except Washington which has a gross B&O tax that was not that bad, but they don’t have personal income tax.  

But this year we are faced with a whole new ball game.  I have roughly figured out that our expenses will be about 30% of our gross profits.  Our business has no debt and our biggest expense is travel expenses as we go to clients to consult with them at their facilities.  We have a lot of personal debt, so leaving the money in the corporation is not an option if we go the route of a C.  But from what I can tell if we pull it out the wrong way, we then get hit with higher taxes.   Our biggest personal deduction is our mortgage interest of 60K and we have three kids.  To live personally we need approx $12,000 net each month.

We have gotten legal and accounting advice and all of the solutions seem to be way too much of a headache and the amount of work I am going to have to maintain a legal paper trail also seems overwhelming. We have been given suggestions of multiple LLC’s for each state, management corporations (c-corps), tax shelters, etc…… Go to Nevada, Wyoming, stay in your home state…………  HELP!!!!

To be honest we are the classic co-minglers, don’t keep good paperwork or annual corp meetings and have been lucky that we have not been audited.  My biggest is fear is that once we get everything reorganized that I will miss filings, will mess up on the dates, basically just not know all the in’s and out’s so i get into trouble and pay the price.  I need to get my house in order, but want to find the simplest way to do that and pay less tax from the feds to the states.

A-1:

I’m not sure what you’re expecting from me.  If you’re going to be working in multiple states and making that much money, there is no way to have a simple hassle-free life when it comes to taxes.  Tax complication comes with the territory.

When I was located in California, I had some clients who had businesses in all three left coast states; so I know what can be done to save huge amounts of state taxes by shifting as much of the profits into Washington as possible. 

You have similar opportunities to shuffle income around and save on your taxes.  What you will most likely need to do, besides working with a professional tax advisor who is experienced in multi-state businesses, is to have your own full or part time bookkeeper who can keep the QuickBooks files for each company as up to date as possible.  This is the only way you will be able to do a decent job of dealing with the tax issues that are unavoidable.  Trying to handle all of the bookkeeping tasks on your own, while conducting your actual business, is putting too much stress on you.  Since QuickBooks is the most widely used and easiest to learn accounting program in the country, you should hire someone with QB experience and synch up with a professional tax advisor who also works with QB.

Good luck.

Kerry Kerstetter

 
Q-2:

Thanks for responding, 

 

I have spent a great deal of time reading information online, books, etc…

And know there has to be a better way of doing business than we are structurally. 

 

I currently use QuickBooks for my one co-mingled account, etc….  I agree with you that hiring a bookkeeper to keep track of everything is the way to go.  

 

We have very low expenses compared to most businesses.  I probably write 10 checks or less a month for those expenses in all states of doing business. I have an online payroll service for the 2 employees that we do have in those other states. 

 

Having said all of this::::

I have been to several tax attorney’s, CPA’s, etc… Who seem to have answers wide and far from each other on what to do.  I have yet to find one who has given me a plan that will decrease my taxes in each state as well as tell me how to set things up and give me instructions so I can hire a bookkeeper to do the steps to keep my paper trail going.  

 

Do you know of anybody on the west coast that can help me with a plan of attack and tell me what structures to put in place in what state as well as tell me how we need to run the finances for each of those states and what expenses I should run in what state back and forth, etc .  I need detailed guidelines of how to move the money and expense it out legally.  

 

Thanks

A-2:

Unfortunately, we don’t have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country. 

If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you. 

You should note that geographic location should not be the main criterion for selecting a tax pro.

I wish I could be of more assistance; and I wish you the best of luck.  

Kerry Kerstetter

Follow-Up:

Thanks I will take a look at your list and go from there.

State mistakenly sends man check for $2,245,342 – A bit more than the $15 he was expecting. This man did the right thing and sent the check back. The Utah officials claim they would have eventually noticed the mistake if he had cashed it and would then ask for the money back. However, with that much dough, who knows where he would actually be by that time?