Family Employees

As humorous as this may seem, there are several very lucrative tax breaks for hiring your kids to help out in your business. Besides deducting what you pay them, the kids under 18 are exempt from payroll taxes and you can deduct their employee benefits, such as medical and school costs. Payments for any kind of business support services, including filing and cleaning work, are perfectly valid deductions. With a closely held corporation, many of these tax breaks can be doubled.  If you have kids and a small business and are not claiming these deductions, you are literally throwing away thousands of dollars every year. There are also lucrative business deductions available for animal helpers, such as pest control handled by feline friends and security services by canine companions.  

Left hypocritically asks how much the war cost

Although I am a numbers type person, I have always understood that there are some things more important than money.  It has long been bugging the heck out of me to hear the Bush critics complain about the cost of defending ourselves against terrorism.  They are true hypocrites because they never worry about the cost of any of their other government welfare programs; yet the one most important thing that the Federal government is supposed to do, protect the people, can’t be afforded.

I see this as similar to another pet peeve that I have written about before.  Any time I see or hear a news story about a murder, where the reporter mentions how terrible it was due to the small amount of money involved, it sets me off.  I’ve lost track of how many letters I’ve written to news organizations asking for their thresholds to justify murder.  When they express such shock because someone was killed for just a few dollars, I ask them if the murder would be more acceptable if the amount had been a million dollars.  To date, no news person has had the decency to respond to my requests.

Putting a ceiling on what we can spend to prevent another September 11 terrorist attack just seems to be the same kind of mind set.

KMK

Tax Myths of ’86 

I remember the Tax Reform Act of 1986 very well.  It had been sold as the most wide sweeping simplification of the tax code ever.  The reality was exactly the opposite; making the tax code more complicated than it had ever been.  I inherited several clients after it passed when their tax preparers quit rather than have to learn the new rules.  It was also the inspiration for my infamous poster.  

Iraqi Currency Hot on EBay  – It’s like Confederate money, worth much more as a collector novelty than its face value

War, Deficit Fears Didn�t Slow Spending Binge

Bush must now apply his popularity to the full dividend tax cut

Senate likely to accept smaller tax cuts – Better than nothing

House, Senate GOP at Odds Over Tax Cut – Those dim-bulb GOP Senators who sided with the Dims need some lessons in economics. 

The Dims Want No New Tax Cuts – No surprise here

Senate Rolls a Pork Barrel Into War Bill – Incurable Spendaholics are still in control in DC.  On a similar note, you can check on how your rulers have plundered the Treasury in this online version of the CAGW’s Pig Book and download a 49 page pdf summary of the Pig Book.

Simplifying Your Own taxes

The trite and true answer to anyone who asks how to eliminate his/her income tax has long been to stop working.  No income = no income tax.  Since our taxes are not at 100% level, and most of us appreciate the good things we can do with money, that is not a very realistic approach; so we are forced to deal with the income tax system.

This advice column on how to simplify your taxes from Jonathan Clements strikes me as similarly naive.  While his idea to have good records is obviously something I have always endorsed, his others ideas are not the most practical. 

While it is true that fewer stock trades would save time in preparing Schedule D, that is a crazy way to make investment decisions. If a stock has peaked and on the way down, it would be ridiculous to hold onto it just to reduce the tax return paperwork.

Likewise, the recommendation to avoid partnerships is overly naive.  There are plenty of very good reasons to use a partnership or LLC format for certain business endeavors.  With several clients, each having dozens of partnership investments, it is a bit of a hassle to integrate all of their data into a 1040.  Luckily, my Lacerte software does an excellent job of making that task as painless as possible.

The advice to refrain from claiming the home office deduction is extremely short sighted.  While it is true that the actual dollar amount of the deduction is often relatively small, that doesn’t account for the full range of benefits.  For example, having a home office allows all miles driven to be deductible, rather than have a lot of nondeductible commuting miles to an outside work location.  I have actually amended dozens of tax returns where we added in the home office and saved thousands of dollars in taxes just from the additional deductible miles, while the actual home office deduction was just a few hundred dollars.

KMK

Apples & Oranges

This comic is a perfect illustration of some very common misconceptions regarding tax returns and tax preparers.

 First is the cost of tax pros. Tax work is by no means a commodity that can be comparison shopped based on price. Anyone who chooses a tax preparer based on the lowest fee is, for lack of a better word, an idiot. As I have often reminded people, which is a better move: paying H&R Block $100 to have your tax returns prepared, or paying someone like me $1,000, when the total taxes on my returns are $10,000 less than on the Block returns?

No two tax returns are exactly the same. I get this one a lot. Why are the taxes higher for one person, while his/her co-worker or neighbor, who supposedly makes the same amount of money, has a completely different amount? Such comparisons are ridiculous. There are literally dozens of things that can make tax returns of co-workers completely different, such as expenses and dependents. In my 27+ years of tax work, I have never seen two tax returns exactly the same, even for the same people from year to year. Tax returns are like snow flakes. This also goes for the cost to prepare tax returns. We have never charged flat rates and have based everything we do on the amount of time it takes us because everyone has very different issues to deal with and different levels of organization of their records.

It’s also all too easy to criticize investment ideas after the fact, with 20/20 hindsight.  Of course, anyone who continues to follow the lead of someone who consistently picks losers is too stupid to feel sorry for.

KMK