We're all used to seeing the high and mighty brought down by taxes. Actor Wesley Snipes is currently sitting in federal prison for failing to pay tax on millions of dollars of movie income. Representative Charlie Rangel was censured by the House of Representatives, in part for failing to report $75,000 of rental income on his villa in the Dominican Republic. Even Florida mom Casey Anthony, on trial for the murder of her daughter Caylee, faces a $68,520 IRS lien, apparently for failure to pay tax on money paid by ABC for family photos and video. (Maybe she thought paying her lawyer was more important than paying her taxes?)
Would it surprise you, then, to learn that one of our highest-profile scoundrels is counting on the IRS to help get him out of trouble?
Few Americans have fallen further from grace than John Edwards. We knew him first as a successful trial lawyer, a model family man with a wife courageously battling cancer, a United States Senator, and even a credible candidate for President. But when the National Enquirer, of all sources, blew the whistle on his affair with campaign videographer Rielle Hunter — then later fingered him as the father of Hunter's child — Edwards' golden world came crashing down.
Then things got really bad. On June 3, federal prosecutors indicted Edwards on six counts related to payments made to his former campaign aide and mistress. They allege that Edwards solicited $925,000 from two wealthy donors to cover up the affair and pregnancy. The prosecutors argue that the gifts were actually used for campaign purposes because, if the public knew of the affair, the campaign would have been over. As such, they contend, the gifts were subject to campaign finance laws that limit contributions to $2,300 per person and require public reporting.
Edwards' first donor, reclusive billionaire Rachel "Bunny" Mellon, gave $725,000 in the form of seven checks. Those checks were made payable to an interior decorator friend, and falsely indicated they were payment for items of furniture, such as "chairs," "antique Charleston table," and "book case." The checks were then forwarded to Edwards' former aide Andrew Young, endorsed by Young's wife in her maiden name, and deposited in the Youngs' personal accounts. (Mellon's attorney, the unfortunately-named Alexander Forger, insists Mellon had no idea the money was going to support Hunter.)
Edwards' second donor, his former campaign finance chair Fred Baron, allegedly paid several travel and lodging expenses for Hunter and the Youngs. These included a $29,259.85 charter flight from Fort Lauderdale to Aspen (!), a $25,283.50 tab at the Four Seasons Hotel in Santa Barbara (!!), and a $58,667 rental payment for a house in Santa Barbara (!!!). Not a bad lifestyle, right? Looks like "candidate's mistress" and "bagman" are still cushy gigs, even in today's recessionary economy.
Here's the tax twist. Mellon treated the $725,000 she gave as a personal gift, and even filed a gift tax return reporting it! Mellon is heir to the Mellon banking and the Listerine mouthwash fortunes, with fully-staffed homes in Virginia, Antigua, Paris, New York, Washington, Nantucket, and Cape Cod. Given her general wealth, she probably paid the maximum $326,250 tax on that gift. Edwards is certainly counting on that tax return to argue that the gifts were legal.
What do you think? Does Mellon's gift tax return legitimize her gift? Or is the tax payment just a part of a broader cover up?
Here at our firm, we focus on proactive tax-planning. Everything we do is court-tested and IRS-approved. Our strategies will never make headlines. And we think that's a good thing!
Monday, June 13, 2011
Monday, June 6, 2011
Crazy Cat Lady Takes On IRS
Every town has a crazy cat lady, with way too many cats littering her property. Neighborhood kids walk past the house and wonder if it's haunted. Adults drive past and imagine the interior looks like a scene from Hoarders. But — what if the crazy cat lady is a sharp-as-a-claw attorney who's not afraid to take on the IRS?
Jan Elizabeth Van Dusen is a graduate of UC Hastings College of Law and an attorney in Oakland, CA. She's also a volunteer for Fix Our Ferals, an IRS-recognized 501(c)(3) nonprofit organization dedicated to providing free spay/neuter clinics for feral cats in San Francisco's East Bay area. Van Dusen devoted essentially her entire life outside work to the organization. She trapped feral cats, had them neutered, obtained vaccinations and necessary medical treatments, housed them while they recuperated, placed some of them for adoption, and released others back into the wild.
In 2004, Van Dusen reported keeping between 70-80 cats — so many, in fact, that she couldn't recall where they all came from. Seven of the cats were her own pets; the rest were foster cats she cared for as part of her volunteer activity. Most of them roamed freely around her home (except for bathrooms); however, some of the less-domesticated cats stayed in a room called the "feral room" or lived in cages for taming or because of illness. Every day she fed, cleaned, and looked after the cats, laundered their bedding, and sanitized the floors, household surfaces, and cages. She even bought her house "with the idea of fostering in mind."
Van Dusen also spent a small fortune taking care of the cats, including pet supplies (food, medicine, litter and litter boxes, pet dishes, and other supplies), cleaning supplies (garbage bags, paper towels, laundry and dish detergent, and other similar cleaning supplies), and even higher utility bills from laundering so many loads of cat bedding and running a special ventilation system to ensure fresh air. (Let's face it, folks, with 80 cats in the house, it had to smell at least a little gamey.) Even her garbage bill went up because of all the cat waste!
For 2004, Van Dusen claimed $12,068 in noncash charitable contributions for her rescue work on behalf of Fix Our Ferals — $1,381 in supplies, $9,607 in vet bills, and $1,080 in utilities. The IRS shot her down. But tax deductions for foster cats, like Van Dusen's cats themselves, may really have nine lives — so Van Dusen appealed to the Tax Court and even chose to represent herself.
Last week, the Court issued a 42-page opinion in Van Dusen v. Commissioner. The Court found that portions of Van Dusen's veterinary expenses, pet supplies, cleaning supplies, and utilities were "directly connected with and solely attributable to" her services to Fix Our Ferals. After several pages examining the state of Van Dusen's records (including three full pages on the woodstove pellets she used as cat litter), the Court let her take 90% of her vet bills and 50% of the supplies and utilities. However, charitable contributions of $250 or more must be substantiated with a contemporaneous written record from the charity itself. Since Van Dusen had no such acknowledgment, the Court disallowed all expenses above $250.
You don't have to be a crazy cat lady to deduct your volunteer expenses. You just have to know the rules. Keep good records! Make sure you get a statement from the organization acknowledging any expenses over $250. And call us with your questions, so we can help you make the most of those often-overlooked deductions!
Jan Elizabeth Van Dusen is a graduate of UC Hastings College of Law and an attorney in Oakland, CA. She's also a volunteer for Fix Our Ferals, an IRS-recognized 501(c)(3) nonprofit organization dedicated to providing free spay/neuter clinics for feral cats in San Francisco's East Bay area. Van Dusen devoted essentially her entire life outside work to the organization. She trapped feral cats, had them neutered, obtained vaccinations and necessary medical treatments, housed them while they recuperated, placed some of them for adoption, and released others back into the wild.
In 2004, Van Dusen reported keeping between 70-80 cats — so many, in fact, that she couldn't recall where they all came from. Seven of the cats were her own pets; the rest were foster cats she cared for as part of her volunteer activity. Most of them roamed freely around her home (except for bathrooms); however, some of the less-domesticated cats stayed in a room called the "feral room" or lived in cages for taming or because of illness. Every day she fed, cleaned, and looked after the cats, laundered their bedding, and sanitized the floors, household surfaces, and cages. She even bought her house "with the idea of fostering in mind."
Van Dusen also spent a small fortune taking care of the cats, including pet supplies (food, medicine, litter and litter boxes, pet dishes, and other supplies), cleaning supplies (garbage bags, paper towels, laundry and dish detergent, and other similar cleaning supplies), and even higher utility bills from laundering so many loads of cat bedding and running a special ventilation system to ensure fresh air. (Let's face it, folks, with 80 cats in the house, it had to smell at least a little gamey.) Even her garbage bill went up because of all the cat waste!
For 2004, Van Dusen claimed $12,068 in noncash charitable contributions for her rescue work on behalf of Fix Our Ferals — $1,381 in supplies, $9,607 in vet bills, and $1,080 in utilities. The IRS shot her down. But tax deductions for foster cats, like Van Dusen's cats themselves, may really have nine lives — so Van Dusen appealed to the Tax Court and even chose to represent herself.
Last week, the Court issued a 42-page opinion in Van Dusen v. Commissioner. The Court found that portions of Van Dusen's veterinary expenses, pet supplies, cleaning supplies, and utilities were "directly connected with and solely attributable to" her services to Fix Our Ferals. After several pages examining the state of Van Dusen's records (including three full pages on the woodstove pellets she used as cat litter), the Court let her take 90% of her vet bills and 50% of the supplies and utilities. However, charitable contributions of $250 or more must be substantiated with a contemporaneous written record from the charity itself. Since Van Dusen had no such acknowledgment, the Court disallowed all expenses above $250.
You don't have to be a crazy cat lady to deduct your volunteer expenses. You just have to know the rules. Keep good records! Make sure you get a statement from the organization acknowledging any expenses over $250. And call us with your questions, so we can help you make the most of those often-overlooked deductions!
Wednesday, June 1, 2011
Oops, Our Bad
Have you ever wondered how Washington can set out to make tax policy — starting with the best possible information and most up-to-date projections — and get it so completely wrong?
Last month, the Congressional Budget Office (CBO) released an eye-opening report on changes in baseline projections for the past 10 years. CBO states that "those projections are not intended as a forecast of future outcomes; rather, they are estimates of spending and revenues under the laws that are in effect at that time and are designed to provide a benchmark against which to measure future policy changes." In other words, they start by estimating what will happen under current law — then report what really happens after a decade's worth of policy changes and economic reality. (Sounds grim already, right?)
CBO's budget geeks are good. Yes, they probably got more than their fair share of wedgies growing up. But they understand federal spending better than anyone else. And they realize the federal budget, like the US Constitution, is a "living document."
Ten years ago, former President Clinton was just leaving office. The federal budget showed a surplus of $230 billion, at least according to the particular mathematics that Washington calls "accounting." (Remember, private-sector accountants have done hard time for reporting numbers less inaccurate than the federal government's.) And CBO felt confident projecting that, under the current baseline, the period from 2002-2011 would show a cumulative surplus of $5.6 trillion.
So, how did the budget geeks do? Well, as the insurance commercials say, "life comes at you fast." Washington cut taxes, shrinking revenue by $2.8 trillion. We fought major wars in Iraq and Afghanistan, costing trillions more. The housing and credit bubbles burst, prompting billions in stimulus and relief spending. Soaring deficits cost us $1.375 trillion in unanticipated interest.
Bottom line? Instead of $5.6 trillion in cumulative surplus, we wound up with $6.2 billion in cumulative deficit. Ouch. That's an $11.8 trillion swing over just 10 years! It would be nice if someone in Washington would come out and say "oops . . . our bad" — but don't hold your breath waiting.
Right now, the looming debt ceiling and 2012 presidential race are forcing Washington into a crucial debate over getting out of this mess. Democrats generally advocate a combination of revenue enhancements (in plain English, "tax increases") and spending cuts. Republicans have embraced a plan to take serious aim at entitlement spending, but generally reject tax increases. Regardless of which path Washington ultimately takes, the new plan will be subject to the same "real world" adjustments that produced CBO's $11.8 trillion difference.
The good news is, you can take steps to minimize your contribution no matter how much Washington spends. Proactive tax planning is the first step, of course. But just as CBO adjusts their numbers in light of real-world experience, we have to monitor and adjust your plan in light of your real-world experience. Be sure to let us know how your finances change, so we can do the best job possible!
Last month, the Congressional Budget Office (CBO) released an eye-opening report on changes in baseline projections for the past 10 years. CBO states that "those projections are not intended as a forecast of future outcomes; rather, they are estimates of spending and revenues under the laws that are in effect at that time and are designed to provide a benchmark against which to measure future policy changes." In other words, they start by estimating what will happen under current law — then report what really happens after a decade's worth of policy changes and economic reality. (Sounds grim already, right?)
CBO's budget geeks are good. Yes, they probably got more than their fair share of wedgies growing up. But they understand federal spending better than anyone else. And they realize the federal budget, like the US Constitution, is a "living document."
Ten years ago, former President Clinton was just leaving office. The federal budget showed a surplus of $230 billion, at least according to the particular mathematics that Washington calls "accounting." (Remember, private-sector accountants have done hard time for reporting numbers less inaccurate than the federal government's.) And CBO felt confident projecting that, under the current baseline, the period from 2002-2011 would show a cumulative surplus of $5.6 trillion.
So, how did the budget geeks do? Well, as the insurance commercials say, "life comes at you fast." Washington cut taxes, shrinking revenue by $2.8 trillion. We fought major wars in Iraq and Afghanistan, costing trillions more. The housing and credit bubbles burst, prompting billions in stimulus and relief spending. Soaring deficits cost us $1.375 trillion in unanticipated interest.
Bottom line? Instead of $5.6 trillion in cumulative surplus, we wound up with $6.2 billion in cumulative deficit. Ouch. That's an $11.8 trillion swing over just 10 years! It would be nice if someone in Washington would come out and say "oops . . . our bad" — but don't hold your breath waiting.
Right now, the looming debt ceiling and 2012 presidential race are forcing Washington into a crucial debate over getting out of this mess. Democrats generally advocate a combination of revenue enhancements (in plain English, "tax increases") and spending cuts. Republicans have embraced a plan to take serious aim at entitlement spending, but generally reject tax increases. Regardless of which path Washington ultimately takes, the new plan will be subject to the same "real world" adjustments that produced CBO's $11.8 trillion difference.
The good news is, you can take steps to minimize your contribution no matter how much Washington spends. Proactive tax planning is the first step, of course. But just as CBO adjusts their numbers in light of real-world experience, we have to monitor and adjust your plan in light of your real-world experience. Be sure to let us know how your finances change, so we can do the best job possible!
Tuesday, May 24, 2011
Accountants Are Fun. Really!
Every week, we send out emails loosely organized around taxes. We try to keep them entertaining because we know you don't expect anything from an accountant to be funny! But did you know how many funny, famous, and entertaining people got their start as accountants?
•Comedian Bob Newhart, famed for the dry, deadpan delivery you might expect from an accountant, started his career with US Gypsum. He claimed that his motto, "that's close enough," showed he didn't have the temperament to be an accountant. He also joked that he once worked for the unemployment office making $55 a week — but quit when he learned that unemployment benefits were $45 a week, and he "only had to come into the office one day a week to collect it."
•Novelist John Grisham is famous for his legal thrillers. But he earned a degree in accounting from Mississippi State University.
•Musician Kenny G picked up the saxophone at age 10, and by age 17 was already playing with Barry White's Love Unlimited Orchestra. His future in music looked bright — but he still wanted a backup. So he majored in accounting at University of Washington in Seattle, where he graduated magna cum laude. That business background has apparently served him well, as he was an early investor in Starbucks Coffee.
•Walter Diemer (who?) worked as an accountant for gum and candy maker Fleer. In 1928, he took an unsuccessful formulation called "Blibber-Blubber," added latex, and created what we still know today as Dubble Bubble.
•Former Texas Rangers manager Kevin Kennedy is a CPA. He prepared tax returns for his players to make extra money while he was managing in the minor leagues!
•Former San Francisco 49ers kicker Ray Wersching earned an accounting degree from the University of California at Berkeley and worked as an accountant in the off-season. He went on to run an insurance agency, but wound up indicted for embezzling $8 million in premiums and evading tax on $3.6 million of corporate income! (He ultimately pled guilty to misdemeanor failure to file a corporate tax return and served two years of probation plus six months home detention.)
•There are currently 10 CPAs serving in the US Congress: Rep. John Campbell (R–CA), Rep. Michael Conaway (R–CA), Rep. Bill Flores (R–TX), Rep. Lynn Jenkins (R–TX), Rep. Steven Palazzo (R–MS), Rep. Collin Peterson (D–MN), Rep. Jim Renacci (R–OH) and Rep. Brad Sherman (D–CA), plus Sens. Michael Enzi (R–WY) and Ron Johnson (R–WI). Maybe putting more accountants in Congress would help tame our trillion-dollar deficits!
At our firm, we don't enjoy the fame and fortune of a Bob Newhart or a Kenny G. But we're happy that our focus on proactive planning still sets us apart from the crowd. We're here for you, and for your family, friends, and colleagues too!
•Comedian Bob Newhart, famed for the dry, deadpan delivery you might expect from an accountant, started his career with US Gypsum. He claimed that his motto, "that's close enough," showed he didn't have the temperament to be an accountant. He also joked that he once worked for the unemployment office making $55 a week — but quit when he learned that unemployment benefits were $45 a week, and he "only had to come into the office one day a week to collect it."
•Novelist John Grisham is famous for his legal thrillers. But he earned a degree in accounting from Mississippi State University.
•Musician Kenny G picked up the saxophone at age 10, and by age 17 was already playing with Barry White's Love Unlimited Orchestra. His future in music looked bright — but he still wanted a backup. So he majored in accounting at University of Washington in Seattle, where he graduated magna cum laude. That business background has apparently served him well, as he was an early investor in Starbucks Coffee.
•Walter Diemer (who?) worked as an accountant for gum and candy maker Fleer. In 1928, he took an unsuccessful formulation called "Blibber-Blubber," added latex, and created what we still know today as Dubble Bubble.
•Former Texas Rangers manager Kevin Kennedy is a CPA. He prepared tax returns for his players to make extra money while he was managing in the minor leagues!
•Former San Francisco 49ers kicker Ray Wersching earned an accounting degree from the University of California at Berkeley and worked as an accountant in the off-season. He went on to run an insurance agency, but wound up indicted for embezzling $8 million in premiums and evading tax on $3.6 million of corporate income! (He ultimately pled guilty to misdemeanor failure to file a corporate tax return and served two years of probation plus six months home detention.)
•There are currently 10 CPAs serving in the US Congress: Rep. John Campbell (R–CA), Rep. Michael Conaway (R–CA), Rep. Bill Flores (R–TX), Rep. Lynn Jenkins (R–TX), Rep. Steven Palazzo (R–MS), Rep. Collin Peterson (D–MN), Rep. Jim Renacci (R–OH) and Rep. Brad Sherman (D–CA), plus Sens. Michael Enzi (R–WY) and Ron Johnson (R–WI). Maybe putting more accountants in Congress would help tame our trillion-dollar deficits!
At our firm, we don't enjoy the fame and fortune of a Bob Newhart or a Kenny G. But we're happy that our focus on proactive planning still sets us apart from the crowd. We're here for you, and for your family, friends, and colleagues too!
Monday, May 16, 2011
The Rich Are Very Different. So Are Their Taxes.
Author F. Scott Fitzgerald, chronicler of America's moneyed class, once famously said the rich are very different from you and me. Fitzgerald's jazz age compatriot Ernest Hemingway reportedly responded "yes, they have more money"! So how different do you think their tax returns look from ours?
Last week, the IRS released their annual report on the top 400 incomes in the entire country. This year's report covered 1992 through 2008 and offers a fascinating peek into the wallets of America's highest earners.
What does it take to join the club? For 2008, you had to make $109,736,000 — up from "just" $24,421,000 in 1992. 2008's top 400 reported an average adjusted gross income of $270.5 million. That amount represented 1.31% of all personal income, up from 0.52% in 1992.
How do the top 400 make their money? Just 8.18% of it came from salaries and wages. 6.78% came from taxable interest; 9.23% came from taxable dividends; and 19.92% came from partnership and S corporation net income. By far the biggest portion — 56.71%, or $155,748,000 per taxpayer — came from capital gains, taxed at just 15%. In fact, the top 400 reported 10.49% of the entire country's capital gains! This suggests that the top 400 consist largely of business and real estate owners cashing out at the end of a successful career, or of hedge fund superstars whose income consists largely of "carried interest" taxed as long-term gains.
On average, the top 400 are a generous group. 394 of them reported charitable contributions, with the average contribution weighing in at $22,688,000. The top 400 as a whole claimed 5.17% of the nation's total charitable deductions, up from 1.03% in 1992. (Of course, "on average" whitewashes a lot of exceptions. You have to wonder about the six world-class misers who made nine-figure incomes without reporting a dime in charitable contributions! Were they just born with hearts two sizes too small?)
The top 400 averaged $227,362,000 in taxable income and paid $48,983,000 in tax. That represents 1.90% of the nation's total income tax bill — nearly double the 1.04% the top 400 paid in 1992. But their average tax rate was just 18.11% — down from 26.38% in 1992. Why do they pay such a dramatically lower rate now than in 1992? The main explanation is capital gains, which have grown to represent an ever-larger share of the top 400's total income. Taxing more of their income at preferential rates (then 20%, now 15%) actually brings the overall rate down.
3,672 taxpayers have appeared in the top 400 list since the IRS started tracking them in 1992. 2,676 of them have appeared just once, 439 have appeared twice, and 171 have appeared three times. The data reveals a changing group over time, rather than a fixed group of taxpayers.
But — four lucky winners have appeared in the top 400 for all 17 years. The IRS knows who they are. But they're not telling. So who do you think they are are? Bill Gates? Warren Buffet? Oprah Winfrey?
Last week, the IRS released their annual report on the top 400 incomes in the entire country. This year's report covered 1992 through 2008 and offers a fascinating peek into the wallets of America's highest earners.
What does it take to join the club? For 2008, you had to make $109,736,000 — up from "just" $24,421,000 in 1992. 2008's top 400 reported an average adjusted gross income of $270.5 million. That amount represented 1.31% of all personal income, up from 0.52% in 1992.
How do the top 400 make their money? Just 8.18% of it came from salaries and wages. 6.78% came from taxable interest; 9.23% came from taxable dividends; and 19.92% came from partnership and S corporation net income. By far the biggest portion — 56.71%, or $155,748,000 per taxpayer — came from capital gains, taxed at just 15%. In fact, the top 400 reported 10.49% of the entire country's capital gains! This suggests that the top 400 consist largely of business and real estate owners cashing out at the end of a successful career, or of hedge fund superstars whose income consists largely of "carried interest" taxed as long-term gains.
On average, the top 400 are a generous group. 394 of them reported charitable contributions, with the average contribution weighing in at $22,688,000. The top 400 as a whole claimed 5.17% of the nation's total charitable deductions, up from 1.03% in 1992. (Of course, "on average" whitewashes a lot of exceptions. You have to wonder about the six world-class misers who made nine-figure incomes without reporting a dime in charitable contributions! Were they just born with hearts two sizes too small?)
The top 400 averaged $227,362,000 in taxable income and paid $48,983,000 in tax. That represents 1.90% of the nation's total income tax bill — nearly double the 1.04% the top 400 paid in 1992. But their average tax rate was just 18.11% — down from 26.38% in 1992. Why do they pay such a dramatically lower rate now than in 1992? The main explanation is capital gains, which have grown to represent an ever-larger share of the top 400's total income. Taxing more of their income at preferential rates (then 20%, now 15%) actually brings the overall rate down.
3,672 taxpayers have appeared in the top 400 list since the IRS started tracking them in 1992. 2,676 of them have appeared just once, 439 have appeared twice, and 171 have appeared three times. The data reveals a changing group over time, rather than a fixed group of taxpayers.
But — four lucky winners have appeared in the top 400 for all 17 years. The IRS knows who they are. But they're not telling. So who do you think they are are? Bill Gates? Warren Buffet? Oprah Winfrey?
Tuesday, May 10, 2011
Washington Finally Gets Something Right
Every great once in awhile, the legislators who make up the United States Congress set aside short-term politics to craft truly historic legislation that improves the lives of Americans for generations to come.
Other times, the party in power takes advantage of sheer numbers to jam controversial legislation down the minority's throat like a French farmer force-feeding a flock of geese to make foie gras.
We'll let you decide which of those two was the case when Washington gave us the "Patient Protection and Affordable Care Act," otherwise known as Obamacare. Congress passed the 2,500+ page act last March, and the rest of us have been trying to figure out what it means ever since. (As former House Speaker Nancy Pelosi famously said, "we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.")
But one provision drew immediate howls from small businesses across the country. Specifically, the healthcare reform law mandated that all businesses, tax-exempt organizations, and federal, state, and local governments file a Form 1099 at the end of the year for any business they spend more than $600 with. (We're talking 26 million sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farms, a million charities, and 100,000 government entities.) The goal was to help pay for healthcare reform by making it harder for businesses to underreport their income. The problem, unfortunately, is that it did so with the bureaucratic equivalent of using a howitzer to kill a fly.
Let's say Joe the Plumber is just trying to make an honest buck in a tough economy. Now he's got to collect taxpayer identification numbers and file 1099s with every gas station, plumbing supply shop, equipment rental store, and quick-lube shop he patronizes during the year. Oh, and he'll also have to track the 1099s he gets from all his business clients! Congratulations, Washington — you've just taken a guy with a pickup truck and a pipe wrench and turned him into a rolling tax whistleblower!
Congress ratcheted up the pain in September with the Small Business Jobs Act, extending the 1099 requirement to landlords filing Schedule E. Let's say you rent out your vacation home a few weeks each season to help cover expenses. Now you get to track down ID numbers and file forms with your plumber, your cleaning crew, your cable company, your insurance company, and even the kid who cuts the grass when you're not around to do it yourself. Doesn't that sound like fun?
House Republicans drew a bullseye on the 1099 requirements before they even took office this year. President Obama agreed and called for repeal in this year's State of the Union Address. So on April 15, appropriately enough, Congress and the President granted everyone's wish. Of course, nothing is ever easy in Washington. Last month's law pays for the 1099 repeal by increasing "clawback" provisions that penalize taxpayers who claim more insurance subsidies than they're actually entitled to under the original bill. (Don't feel confused, the folks who passed the new law don't understand exactly how it works either.)
Here's the bottom line. Nobody really wanted to deal with the hassle. Even the IRS National Taxpayer Advocate Nina Olson testified before Congress that the rule's burden may turn out to exceed its benefits. Washington listened, and made life just a little easier for those of us who work and pay taxes in the real world.
What do you think? Now that the 1099 requirement is history, what would you say is the next thing Washington should do to make tax time easier?
Other times, the party in power takes advantage of sheer numbers to jam controversial legislation down the minority's throat like a French farmer force-feeding a flock of geese to make foie gras.
We'll let you decide which of those two was the case when Washington gave us the "Patient Protection and Affordable Care Act," otherwise known as Obamacare. Congress passed the 2,500+ page act last March, and the rest of us have been trying to figure out what it means ever since. (As former House Speaker Nancy Pelosi famously said, "we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.")
But one provision drew immediate howls from small businesses across the country. Specifically, the healthcare reform law mandated that all businesses, tax-exempt organizations, and federal, state, and local governments file a Form 1099 at the end of the year for any business they spend more than $600 with. (We're talking 26 million sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farms, a million charities, and 100,000 government entities.) The goal was to help pay for healthcare reform by making it harder for businesses to underreport their income. The problem, unfortunately, is that it did so with the bureaucratic equivalent of using a howitzer to kill a fly.
Let's say Joe the Plumber is just trying to make an honest buck in a tough economy. Now he's got to collect taxpayer identification numbers and file 1099s with every gas station, plumbing supply shop, equipment rental store, and quick-lube shop he patronizes during the year. Oh, and he'll also have to track the 1099s he gets from all his business clients! Congratulations, Washington — you've just taken a guy with a pickup truck and a pipe wrench and turned him into a rolling tax whistleblower!
Congress ratcheted up the pain in September with the Small Business Jobs Act, extending the 1099 requirement to landlords filing Schedule E. Let's say you rent out your vacation home a few weeks each season to help cover expenses. Now you get to track down ID numbers and file forms with your plumber, your cleaning crew, your cable company, your insurance company, and even the kid who cuts the grass when you're not around to do it yourself. Doesn't that sound like fun?
House Republicans drew a bullseye on the 1099 requirements before they even took office this year. President Obama agreed and called for repeal in this year's State of the Union Address. So on April 15, appropriately enough, Congress and the President granted everyone's wish. Of course, nothing is ever easy in Washington. Last month's law pays for the 1099 repeal by increasing "clawback" provisions that penalize taxpayers who claim more insurance subsidies than they're actually entitled to under the original bill. (Don't feel confused, the folks who passed the new law don't understand exactly how it works either.)
Here's the bottom line. Nobody really wanted to deal with the hassle. Even the IRS National Taxpayer Advocate Nina Olson testified before Congress that the rule's burden may turn out to exceed its benefits. Washington listened, and made life just a little easier for those of us who work and pay taxes in the real world.
What do you think? Now that the 1099 requirement is history, what would you say is the next thing Washington should do to make tax time easier?
Wednesday, May 4, 2011
Royal Wedding Notes
Hi!-
Last week's royal wedding between England's Prince William and Catherine "Waitie Katie" Middleton, now Duchess of Cambridge, drew millions of viewers across the globe, including 22.8 million here. The wedding offered a dose of royal pageantry for every little girl who grew up idolizing Disney princesses. And it offered a rare peek inside the fabled life of the world's most glamorous royals.
England's economy is struggling just like ours, so the royal family took pains not to burden the Exchequer (that would be "taxpayers" to us Yanks) with an expensive wedding. While the total cost has been estimated at $30 million, the royals themselves paid for everything but security for the event. (This doubtless came as a great relief to the parents of the bride.)
While the Queen enjoyed a great reason to show off last week, she's not actually as wealthy as most people imagine. Forbes magazine ranks her personal net worth at "just" $450 million, 12th among the world's royals. That's because she doesn't really own Buckingham Palace, Windsor Castle, the Crown Jewels, or the Royal Collection. They're held in trust and can never be sold. The "Crown Estate," which dates back to 1066, generates income of about £110 million/year. However, the Queen turns that income over to the government in exchange for about £40 million in "Head of State" expenses.
The Queen's own assets consist mainly of Balmoral Castle in Scotland, Sandringham House near Norfolk, smaller jewelry and art collections, and one of the world's great stamp collections (built up by her father and grandfather). She also makes about £12.5 million/year from her holdings as Duchess of Lancaster. Since 1992, she's voluntarily paid tax on her income, at regular rates up to 50%. (A spokeswoman for Buckingham Palace told London's Telegraph earlier this week that "the Queen's personal wealth has always been vastly exaggerated." But let's make no mistake here, folks - it's still good to be the Queen!)
Here on our side of "the pond," we treat our President to many of the same privileges as England's royals enjoy. The White House isn't quite as grand as the Queen's digs (just 55,000 square feet versus 830,000 for Buckingham Palace). There aren't any Crown Jewels to speak of, although the First Lady could probably borrow something nice from Tiffany's. And the President tools around town an armored Cadillac, as opposed to the Queen's custom Bentley.
But here in America, our President is more open about his income. Last month, the Obamas posted their Form 1040 on the White House website. For 2010, they reported $1,728,096 in adjusted gross income, mainly from book sales. They claimed $373,289 in deductions, including $245,075 in charitable gifts. And they paid $453,770 in actual tax. Those numbers already sound big to most Americans. But the real money won't come in until Obama leaves office. Former President Clinton reported $109 million in income between 2000 and 2007, and former President George W. Bush makes $150,000 for a single speech (plus first-class airfare or private jet transportation for a party of four).
What do you think? Should the Queen post her tax returns online for all the world to see? Should the Obamas be jealous that the Queen has a bigger house? Should the Queen share some of her jewels with her former colonists? American taxpayers might not mind a little bit of royal trappings - but they sure don't want to pay the bill!
Last week's royal wedding between England's Prince William and Catherine "Waitie Katie" Middleton, now Duchess of Cambridge, drew millions of viewers across the globe, including 22.8 million here. The wedding offered a dose of royal pageantry for every little girl who grew up idolizing Disney princesses. And it offered a rare peek inside the fabled life of the world's most glamorous royals.
England's economy is struggling just like ours, so the royal family took pains not to burden the Exchequer (that would be "taxpayers" to us Yanks) with an expensive wedding. While the total cost has been estimated at $30 million, the royals themselves paid for everything but security for the event. (This doubtless came as a great relief to the parents of the bride.)
While the Queen enjoyed a great reason to show off last week, she's not actually as wealthy as most people imagine. Forbes magazine ranks her personal net worth at "just" $450 million, 12th among the world's royals. That's because she doesn't really own Buckingham Palace, Windsor Castle, the Crown Jewels, or the Royal Collection. They're held in trust and can never be sold. The "Crown Estate," which dates back to 1066, generates income of about £110 million/year. However, the Queen turns that income over to the government in exchange for about £40 million in "Head of State" expenses.
The Queen's own assets consist mainly of Balmoral Castle in Scotland, Sandringham House near Norfolk, smaller jewelry and art collections, and one of the world's great stamp collections (built up by her father and grandfather). She also makes about £12.5 million/year from her holdings as Duchess of Lancaster. Since 1992, she's voluntarily paid tax on her income, at regular rates up to 50%. (A spokeswoman for Buckingham Palace told London's Telegraph earlier this week that "the Queen's personal wealth has always been vastly exaggerated." But let's make no mistake here, folks - it's still good to be the Queen!)
Here on our side of "the pond," we treat our President to many of the same privileges as England's royals enjoy. The White House isn't quite as grand as the Queen's digs (just 55,000 square feet versus 830,000 for Buckingham Palace). There aren't any Crown Jewels to speak of, although the First Lady could probably borrow something nice from Tiffany's. And the President tools around town an armored Cadillac, as opposed to the Queen's custom Bentley.
But here in America, our President is more open about his income. Last month, the Obamas posted their Form 1040 on the White House website. For 2010, they reported $1,728,096 in adjusted gross income, mainly from book sales. They claimed $373,289 in deductions, including $245,075 in charitable gifts. And they paid $453,770 in actual tax. Those numbers already sound big to most Americans. But the real money won't come in until Obama leaves office. Former President Clinton reported $109 million in income between 2000 and 2007, and former President George W. Bush makes $150,000 for a single speech (plus first-class airfare or private jet transportation for a party of four).
What do you think? Should the Queen post her tax returns online for all the world to see? Should the Obamas be jealous that the Queen has a bigger house? Should the Queen share some of her jewels with her former colonists? American taxpayers might not mind a little bit of royal trappings - but they sure don't want to pay the bill!
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