Like drug addicts craving their next fix, politicians will stoop to any means to squeeze more money out of the little people in order to feed their out of control spending addiction, as with this story from New York that will be duplicated all over the country..

New York's phantom taxes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/08/2010 01:51:00 PM Send this post:

Labels: comix, Dims, software

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/06/2010 01:26:00 PM Send this post:

Long time readers know that one of my long running pet peeves is having to waste time debunking ridiculous theories espoused by tax protestors.  For a long time, I felt like I was doing the IRS’s job because they refused to even acknowledge publicly that those arguments were floating around under the completely mistaken belief that to even mention them would in some way legitimize them.  The promoters of those arguments used the IRS’s silence as an endorsement of their arguments.  

Finally, after decades of ignoring the idiotic arguments used by tax protestors to convince others that they don’t need to file tax returns, IRS has been taking a more pro-active approach.  They have recently updated their guide to most of these bogus claims, entitled The Truth about Frivolous Tax Arguments.

IRS Press Release – IRS Debunks Frivolous Tax Arguments

83 Page PDF File

The table of contents below gives us a good idea of the growth in this segment of our society, as there have obviously been enough stupid people advocating these ridiculous theories to earn a spot on this list of morons.

THE TRUTH ABOUT FRIVOLOUS TAX ARGUMENTS

1. Contention: Verification requires the production of certain documents.

Labels: IRS, Morons, scams

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/05/2010 03:47:00 PM Send this post:

Look at this: "The IRS Is Looking For 60 12-Gauge Pump Action Guns To Arm Its Investigators." This is from BusinessInsider.com. "Working for the IRS doesn't sound so wimpy anymore. The IRS apparently has plans to buy 60 Remington Model 870 police 12 gauge pump action shotguns for the Criminal Investigation Unit. According to the federal business government website, these guns are serious. The Remington parkerized shotguns come fully loaded with:

A fourteen inch barrel
Modified choke
Wilson Combat Ghost Ring rear sight
XS4 Contour Bead front sight
Knoxx Reduced Recoil Adjustable Stock
Speedfeed ribbed black forend

"We're not sure what kind of IRS duty requires this kind of combat artillery, but it sounds badass. And oddly, these are the only guns the IRS is allowed to use, 'based on compatibility with IRS existing shotgun inventory.'" (interruption) No, I don't think this is for Geithner. You mean to get him to repay? You know, I'll tell you what, with as much as they're going to raise taxes they're going to have to be a big problem. It won't be long before they bring the military in to do this. Sixty 12-gauge pump action shotguns for the IRS?

Labels: IRS, weapons

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/04/2010 07:04:00 PM Send this post:

Next in Line for a Bailout: Social Security – All Ponzi schemes eventually collapse on their own.

Labels: SSA

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/04/2010 05:39:00 PM Send this post:

Drudge had some interesting tax related stories in today’s headlines:

Case backs need for sex-change surgery. US tax court rules costs deductible – A new more generous interpretation of the dispute between “required” medical costs and “elective,”

Budget-strapped states avoid the word 'taxes.' Rise disguised as penalty, fee. - This trick has long been used by slimy politicians to pretend they aren’t raising taxes, while using various other means to steal money from us peons.

Acquiring Shotguns – This bid by IRS to purchase 60 shotguns illustrates that I haven’t been exaggerating when I say that we are forced to pay taxes and for the Social Security Ponzi scheme at the point of a gun.  It’s also another example of how “voluntary” paying taxes is, for those idiot tax protestors still clinging to that stupid argument.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/03/2010 09:44:00 AM Send this post:

Unfortunately, it is much more likely that the DemonRats in DC will let Bush’s tax cuts expire, resulting in huge tax increases for everyone. 

Tax Cuts to Expire for Top Earners

Backdoor taxes to hit middle class

Labels: TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/02/2010 11:42:00 AM Send this post:

Labels: comix, TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/31/2010 04:22:00 PM Send this post:

I must admit that I hadn’t heard this rumor that Snopes.com debunks regarding all 2009 Federal tax refunds being in the form of US Savings bonds.  However, after last year’s ridiculous situation in the PRC, where they did actually issue IOUs in place of refunds for state income tax refunds, it would be a natural progression to think that this nutty idea would be used by the IRS and our imperial rulers in DC. 

For better and usually worse, there is a long history of California starting ludicrous tends that soon become national.  Who knows?  If the Chi-Coms refuse to loan us more money, it could very easily evolve into mandatory loans from the taxpayers.  Again, as I’ve mentioned before, the PRC has been doing a similar thing with mandatory over-withholding of taxes from employees as a means of extracting interest free loans from them.

Labels: IRS

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/31/2010 01:31:00 PM Send this post:

Labels: comix

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/30/2010 11:23:00 AM Send this post:

Good News:

Democratic Tax Dissent. Not everyone wants the Bush tax rates to expire. – The ridiculous use of the expiration date for the Bush tax cuts is still a ticking time bomb that will result in a humongous tax increase if they are not extended or made permanent by our imperial rulers in DC.

Bad News:

Voting for Higher Taxes. The real takeaway from Oregon’s recent referendum. – Proving once again that the Left Coast isn’t just California in regard to supporting suicidal Marxist policies.

Labels: TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/29/2010 03:49:00 PM Send this post:

Taxpayers in Nine States and the District of Columbia File with Different Centers this Year – IRS’s annual re-shuffling of the Service Centers.  The annoying thing is that, although our tax software usually gets this right for the current tax year, the previous years programs are still set up for the old Service Centers, so we need to remember to manually over-ride them.   

This latest change affects taxpayers currently living in the following states:

Maine
Maryland
Massachusetts
New Hampshire
Vermont
Virginia
Indiana
Michigan
Alabama
District of Columbia

Remember, it’s where you live when you are filing the tax return that matters; not where you were living during the tax year of the 1040.

Labels: IRS

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/29/2010 03:38:00 PM Send this post:

Q:

Subject:  Accounting Business Question

Mr. Kerstetter,

I read some of your blog posts by reading up on tax strategies on the internet and found your blog and posts very informative and interesting to read through. My question is less accounting based than many of your other readers. 

I guess a little background might help first, I am a single dad and currently a CPA who was a financial auditor in my former life. Not even a year after I received my Masters in Accounting I found myself at the brunt of a fairly awesome child support dispute at the worst time possible (due to the state of our economy), it effected my work product and I lost my job. I decided not to waste my education and find a way to begin my own accounting business providing bookkeeping and tax services. 

Long story short I was able to mediate a successful workable support agreement with the mother which will allow me to move to Nashville to be close to my son and to attend a night law school to bolster my legal and tax background so that I will be able to offer additional services in the future and potentially save my a** in case I encounter any additional legal troubles in the future (I was not prepared for how fathers are treated in family court). 

Anyway, In the mean time I will begin the slow task of acquiring new clients in Nashville. My question is this, can you give me any good tips on how to attract clients. I use TaxACT as my tax software and have began familiarizing myself with Quickbooks Accountant and Pro. I have a few clients but they were acquired simply by luck almost. I have a basic fee structure but how do I know if this is competitive or if I'm under/over charging, I was used to billing myself out at $200 an hour at BDO Seidman but that seems a bit much for a new CPA on the block plus it was audit work. If you know of any good books I could read or could offer any advice I would be more than appreciative. Also, how did you go about getting your own domain address for your email? Is it expensive?

Thank you for any help you can give, it means a lot.

A:

I have discussed this a number of times in my blog; so you should search past postings.

I haven't changed my opinion that having an online presence, such as a blog, is the best way to develop a nationwide client base.

Giving free speeches to local service clubs is still the best way to grow a local client base.

Paying a marketing firm to steer clients to you is a waste of money. Those services are scams.

The right billing rate isn't an easy answer.  I would probably start in the middle of the current rates for other CPAs in your area.  That will give you room to raise your rates in future years as you become more proficient and the clients become more dependent on you.

In regard to the email address, most web hosting companies allow you to have 20 or more email addresses for each domain that you host with them.  It's obviously a subjective issue, but I have always felt that someone is more professional who has an email address based on his/her own domain rather than using one of the freebie email services.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

I will definitely look through your blog posts for the information you mentioned. Thank you very much for responding so quickly!

Labels: Accounting

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/25/2010 04:17:00 PM Send this post:

Haiti Relief Donations Qualify for Immediate Tax Relief – IRS clarifies this recently enacted law.

People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

They also remind people:

Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

Of course, a year from now, there will be plenty of people who will very innocently accidentally deduct these same payments on their 2010 1040 as they total up payments made during the 2010 calendar year.

Labels: Charity

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/25/2010 04:08:00 PM Send this post:

From Late Night with Jimmy Fallon via NewsMax:

During a recent interview on C-SPAN, IRS Commissioner Douglas Shulman said he doesn’t do his own taxes because he finds “the tax code complex.” That’s like a surgeon saying, “You guys, blood grosses me out. So I don’t wanna . . . ”

From The Hill:

IRS commissioner doesn't file his own taxes – This is actually a misleading headline because the writer doesn’t seem to understand the difference between preparing tax returns and filing them with IRS.  The Commissioner does file tax returns, but he uses a paid professional to prepare them.  As embarrassing as this may be for the person in charge of enforcing this country’s tax laws, it doesn’t seem to be as bad as a Treasury Secretary or the Chairman of the House Ways and Means Committee who both intentionally cheat on their tax returns by omitting thousands of dollars of income.

 

Labels: IRS

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/14/2010 07:17:00 PM Send this post:

Labels: comix, IRS

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/13/2010 06:33:00 PM Send this post:

Q:

Subject:  Taxable Prizes

Hi Mr. Kerstetter,
 
I won a prize during July 2009.  The official rules posted in June stated the value of the prize to be $5,084.  I received part of the prize in October 2009 and on that day I priced that model at a nearby store to be $3,010.  About a month later I received the final part of the prize and I again valued it at the same store, $599.  A total fair market value of $3,609.  I contacted both the sponsor and the fullfillment company regarding the 1099 they will send me later this month.  Both stated it would be for the amount posted in the rules and that if I disagreed I could dispute it with the IRS. I requested a copy of the invoices to see the actual fair market value of what the spent and they declined. The 1099 instructions state the FMV of any prizes should be used.  So I am not sure how they are getting away with the fraud using average retail value when they had to actually order these items.  Is my only recourse to wait to have the 1099 in hand and call the IRS to issue them a 4589?
 
Thank you

A:

You must either be trying to prepare your own tax returns or are working with a new inexperienced professional tax advisor because this is a very easy situation to deal with.  I have had several similar cases over the years exactly like this.

There is no need to get into a fight with the company that awarded you the prizes over the 1099.  It is standard practice for them to use as high a value on the prizes as they can justify for their own publicity purposes.  They couldn't care any less about any tax problems this may cause you.

Only fools accept the figures on 1099s as gospel and use them unchanged on tax returns if there is good reason to suspect that they are incorrect.

As you should know, the legal burden of proving the accuracy of the figures on your tax return is on you.  If you have done your homework and properly documented the true fair market value of the items you won as of the same dates, you can use those figures as your actual prize income.  In fact, I would even attach copies of the documentation to your 1040 to avoid any IRS need to ask for it later on.

The way you avoid any problems with IRS not matching up their 1099 figures to your tax return is to use a backup schedule for Line 21 (Other Income) of your 1040.  On it, your professional tax preparer should enter the full amount shown on the 1099 you received as a positive number.  Below that, enter "Adjustments to reflect real world retail values per attached documentation" and enter negative numbers that will bring the net value into line with what you have determined to be reality.

I have done this literally dozens and dozens of times on client tax returns over the years, and IRS has never once disputed our adjusted values.

What you didn't mention or ask about are the deductions that you can claim due to your reporting this prize income.  Prizes of the kind you received are in the same category as Gambling income.  When you report gambling and prize income on Line 21, you are eligible to deduct gambling losses on Schedule A of up to the amount of the reported net winnings.  Of course, these have to be legitimate and reasonable.

You can count all different types of gambling losses, including office pools, lottery tickets, raffle tickets, casinos, race tracks, as well as any entry fees for the drawing you won and other similar ones during the year.  If you do a thorough enough job of documenting your losses, you may well be able to completely offset the income you are reporting on Line 21.

Again, you should be working with an experienced professional tax advisor who can ensure that these items are all properly shown on your tax returns.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

Thanks Kerry - this is a great big help!

 

Sincerely,

Labels: 1099, gambling

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/12/2010 04:14:00 PM Send this post:

It’s long been a stupid cliche when athletes and others promise to give an impossible 110 or more percent effort towards their goals.  I found it funny that IRS is only promising to try to answer 71 percent of calls from the tax paying public and that is considered a great goal. 

If you are lucky enough to have your phone call answered after their expected average wait time of 12 minutes, there is then the issue of whether you will get the correct answers.  The odds of that happening are most likely going to be the same as in the past; 33% to 50%.  It’s like a lottery.

Of course, the double standard is firmly in place.  If you were to file a tax return with the stated goal of being 71% accurate in your figures, guess what hell you will be faced with.

If that were acceptable, the fine print info above the taxpayer’s signature on Page 2 of the 1040 would need to be modified to read as follows.

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are 71% true, correct, and complete. Declaration of preparer (other than taxpayer) is based on 71% of all information of which preparer has any knowledge.

There are a couple of lessons to be learned from this IRS announcement.

1.  Those people who foolishly try to save a few bucks by not utilizing the services of professional tax preparers will be risking their necks even more than ever.

2.  This same philosophy of striving for a 71% rate of answering the phone is what we can expect for our health-care after that entire segment of our society is socialized and IRS employees are put in charge of administering our medical treatment. A 29% death rate will be considered as a success.

Labels: IRS

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/07/2010 06:24:00 PM Send this post:

Labels: IRS, preparers

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/06/2010 09:43:00 PM Send this post:

Subject: Senate Bill 2099

Kerry
Senate bill 2099 will require us to put on our 1040 federal tax form all firearms that we have or own. Do you know anything about this?

That's a hoax that's been floating around the net for about a year now. The 2009 forms are in place and they don't have anything for reporting firearms.

Snopes.com has a good explanation of it.

In case you haven't seen a copy of the actual 2009 1040, here is a blank one you can look at. You'll see that there is absolutely nothing about firearms.

Kerry

Thank you for the info.

Labels: scams, TaxForms

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/05/2010 04:20:00 PM Send this post:

I’ve been teaching myself how to improve the vidcasts, and here is the first one with the semi-new style.  The built-in hyper-link to my article on corp fiscal years doesn’t seem to be working, so here it is.

Labels: corp, video

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/03/2010 09:52:00 PM Send this post:

Cash-rich real estate investors trigger bidding wars, frustrate other buyers – I knew that this eventually had to happen, as the large pools of investor money moved from the intangible and often phony assets in the stock markets to the real tangible assets such as precious metals and real property.  This is a very good sign during these extremely confusing economic times.

Labels: realty

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/03/2010 03:28:00 PM Send this post:

Lack of Estate Tax in 2010: Now Cheaper to Die? – Others are picking up on what I predicted back in 2001; that unless the law is changed, there will be a lot of mysterious deaths in 2010 as some heirs become overly aggressive in their desire to avoid the Death Tax.

Labels: DeathTax

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/02/2010 02:17:00 PM Send this post:

Q:

Subject:  Section 179

Can the two shareholders of an s-corporation take a loan to purchase a company vehicle and be able to get the 179 deduction?  The lender will not lend to the company but will personally to the 100% shareholders.
Time is of the essence to buy today or tomorrow
Thanks

A:

That is a very similar situation to the one I discussed in one of my earliest vidcasts regarding an LLC. 

LLCs and S corps are very similar for tax purposes, so this should help you.

As always, you should be working with an experienced professional tax advisor to make sure you set everything up properly.

Good luck.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/31/2009 04:52:00 PM Send this post:

These last few days of the year are historically very busy at car dealers, as people try to get their hands on a new business vehicle before New Year’s Day and thus qualify for the lucrative Section 179 deduction, especially for heavier (over 6,000 pounds) vehicles.

Amazingly, there are still a lot of people who believe that the Section 179 deduction is based on the amount of actual cash paid out for the new business equipment, as in this vidcast.  This is just one more of an endless stream of emails from small business owners who think they can handle their own tax affairs. Anyone working with an experienced tax pro would know that the Section 179 deduction is the same whether you pay cash for the full price or take out a loan for the full amount, or use a credit card. 

Likewise, credit card charges as of 12/31/09 are treated the same as 2009 cash payments for tax purposes.  These are almost always missed by taxpayers acting under the misguided assumption that they can come out ahead by avoiding the cost of a professional tax preparer.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/30/2009 02:52:00 PM Send this post:

Q:

Subject:  Forfeited Earnest Money - Tax Help

Hello Kerry/Tax Guru,

I am an avid follower of your blog for all the tax help - I made a down payment on a condo in FL as part of an investment in Jan of '06. However due to the slump of the real estate, the value of condo is really down that its worth like 40% of the original value. I hired a lawyer to negotiate with the developer on the price, but the developer recently filed for bankruptcy and it looks like at this stage the earnest money is forfeited.

Is there anyway I can use this as capital gains loss for my '09 filing - It's a huge amount (41,500), so it is kind of a big blow on my investments.

Thanks in advance for all your help!

A:

It sounds as if you would have a capital loss for the amount of your down payment if you will be receiving no property or claim on property for that money and no part of the down payment in cash as part of the bankruptcy settlement.

You should be working with a professional tax advisor, who can explain the rules regarding deducting an uncollectible debt, especially in regard to the proper timing of that deduction.

If the bankruptcy case is still ongoing and there is a chance of your receiving something back from your down payment, you will have to wait until that is completed before you can claim the loss on Schedule D, which can possibly take several years.

If that kind of uncertainly is part of the equation, it may be possible to lock your loss up as being in 2009 if you were to sell your claim to the down payment to an unrelated party before 1/1/10 for a nominal amount, such as one dollar.  You would then have a valid completed disposition to report on Sch. D.

Again, your own personal tax pro should be able to offer more specific assistance for your situation.

Good luck.

Kerry Kerstetter

Labels: CapGains

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/30/2009 02:32:00 PM Send this post:

Q:

Subject:  Question about gifting

My dad passed away this year and my mom is now interested in gifting to have some money in my name only. The non taxable amount this year I know is $13,000. Does the 2009 contribution need to be written out (dated before dec 31st) or do we have until April and the end of the tax season to have the gift given? I know after Jan 1st she can gift again for 2010. I believe this is how it works according to an accountant friend of mine. Do you know if these gifts are excluded from the 5 year look back rule which applies to turning over ownership of a house?

Thanks

A:

For Gift Tax purposes, gifts are totaled up on a strict calendar year basis from January 1 through December 31.  The Gift Tax return (709), if applicable, is due on the same schedule as 1040s are, April 15 plus extensions.

So, to be a valid 2009 gift, you do have to receive the actual money before midnight New Year's Eve.

The look-back rules in regard to impoverishment planning for elderly Medicaid eligibility are state specific; so you all need to be working with an elderly law specialist in your area.

Good luck.  I hope this helps.

Kerry Kerstetter

Labels: Gifting

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/30/2009 02:24:00 PM Send this post:

War Against the Wannabe Rich – Punishing success with Marxist “progressive” tax rates has long been the cornerstone of tax policy in this country and will only get worse with an openly Marxist administration and Congress in charge of our lives.

Labels: Commies

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/27/2009 07:17:00 PM Send this post:

Just as with other kinds of entities, there are pros and cons for using LLCs.  As with any entity choice, there is no such thing as a cut and dried selection process.  It requires an intelligent judgment from an experienced professional tax advisor after asking a lot of questions, as I explain in this vidcast.

Labels: LLC

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/26/2009 01:36:00 PM Send this post:

Q:

Hello Kerry,

I was wondering if you could help me out with a few questions. I have been doing quite a bit of extensive searching for the maximum gift exclusions for years 1994, 1995, and 1996 and haven’t been able to get anywhere. Was wondering if maybe you might know what these numbers would be? I found your website during the many searches I’ve done.

Thanks so much for your help in advance.

It was $10,000 for each of those years, as you can see in the attached chart, which was part of the more extensive history of the gift tax that you can download from here.

Good luck. I hope this helps.

Kerry Kerstetter

Labels: Gifting

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/26/2009 01:05:00 PM Send this post:

Q:

Subject: Section 179 question

I found your organization via Google, and the information is very helpful!
I own a Dental Laboratory, and want to purchase a $33,000 cad cam system.  My question:  can I take advantage of a year-end purchase incentive by the manufacturer, and have the purchase documents dated December 2009, but take advantage of the section 179 deduction in 2010?  I won't begin using the new equipment until January.
 
Thank you for your help!

A:

You seem to have the opposite situation than most people present; when they want to claim Section 179 in the year prior to actually using the equipment.

If you don't actually place the new equipment into service until 2010, you shouldn't have any problem setting it up on your 2010 tax return's depreciation schedule and claiming Section 179, subject to the other limitations that could affect the actual deduction.

Your own personal professional tax advisor should be able to give you more specific advice on this.

Good-luck.

 Kerry Kerstetter 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/26/2009 12:58:00 PM Send this post:

Santa Harry’s Sleigh Full of New Health Taxes – Another look at some of the new taxes we will have to cope with thanks to our new socialized health care system.

Labels: TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/23/2009 06:37:00 PM Send this post:

Comprehensive List of Tax Hikes in Reid-Obama Health Bill UPDATED – As always, much more work for us in the tax profession.

Labels: TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/21/2009 10:29:00 AM Send this post:

From the latest issue of Intuit’s ProConnection newsletter: 

Quick Tax Relief for Clients with Net Operating Losses. Longer Carryback, Larger Scope

Three Versions of Homebuyer Credit May Confuse Clients  – On a related note, the folks at Jennings Seminars have a handy table of the different applications of the homebuyer’s credits available for download.

New Law Mandates Electronic Filing by Return Preparers If Filing Ten or More Returns – As a stubborn hold-out on e-filing so that I can attach a lot of explanatory details to tax returns, this was something I was not happy to see.  I will be investigating the penalties for not complying with  this request and will most likely continue to only prepare paper tax returns. The Bob Jennings seminar speaker a few weeks ago mentioned that e-filing is going to allow attachments of pdf pages in the next few years, so that may be what I need to be able to attach all of the self defense documents that I like to include with tax returns.  Until that is possible, I will continue to refuse to e-file.

Labels: NewTaxLaws

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/19/2009 01:53:00 PM Send this post:

At the risk of further offending stockbrokers, there are enough of them who worry about their own commissions more than their clients’ welfare to be concerned when they advise a lot of sales without proper substantiation. 

This letter from a client is typical of many that we will be seeing as the year comes to an end and the stockbrokers need to get their own numbers up.

Dear Kerry:

Keep coming back to doing absolutely nothing in regard to what I am presenting to you.  But want to out fox Congress and Obama, I had planned to sell stock and take profits.  But recall, we sold and closed on our rent house and $46,000 profit without calculating 2009 expenses.  This rental profit may affect these stocks sales.

 

Should we sell some stock for $25,000+/- Net Gain (Gross = $105,000+/-) so as to take the 15% Capital Gains instead of the 25% retro 2010 Capital Gains?  Our Financial Advisor (who is merely an order taker) claims we have $20,000. profit for 2009.  In fact, he called and asked if we wanted to sell some stock at a $20,000. loss so to pay no Capital Gains for 2009.  This seems stupid and I have yet to explore his assertion.  But he would get his commissions. I am not feeling benevolent to him.

 Following is his message.  If we sold stock we would propose selling all Home Banc (3,302 sh)$75,000) Apple. (120sh),$24,000 & Acxiom (1,600 sh) $18,900.

I would look at selling 1/3 of your HOMB or $25,000.  Your cost basis is 8.60 and it is currently at 23.00.  Sell 1/2 your Apple or approximately $11,600.  Your cost basis is 120.57 and is currently at $195.  Sell ACXM or %19,200.  Cost basis is 9.64 and is currently 12.02.  This would take about $55,000 out of the market.  I think we should take it and look at something more conservative or in the bond market as you need to get your assets larger in that area.   Call me and we can go over it.

My Reply:

 While there have been indications that Obama wants to raise long term capital gains (LTCG) tax rates as part of his twisted concept of "fairness," nothing has been done yet to change what we have for the next few years.  2010 rates are scheduled to be the same 15% max as they are for 2009.  If no new legislation is enacted before 2011, the LTCG rate is scheduled to rise to a 20% max for 2011 and beyond.

While I have seen a lot of people advising investors to sell off appreciated assets in 2009 and 2010 so they can avoid the higher rates in future years, I'm not a big fan of intentionally paying a lot of taxes sooner rather than later.

As I constantly have to remind people, any sane investment strategy should be based on the fundamental economic realities and not on tax aspects. This means that you should sell off stocks when they appear to have peaked in value and are close to dropping.

The other reason to sell prematurely would be if there is an alternative investment opportunity for the money you have tied up in stocks that will be much more profitable than you are currently earning, including enough extra to cover the taxes you would have to pay on the sale of the stocks.

I don't want to accuse your stockbroker of partaking in the time honored tradition commission based professionals have of churning your account simply to generate commissions, but it is smelling a lot like that to me.

Danger sign #1: If the stocks he is advising you to sell have peaked and will soon be on their way down, why is he only advising you to sell off part of your holdings in those stocks?  If they are still a good stock to hold onto for basic investment fundamentals, why sell off any?

If he has a new investment opportunity that he can guarantee will outperform the stocks you currently have, a wiser move would probably be to invest new money into some of that rather than selling off stocks that are still doing well.

While it has always been a truism to diversify investment portfolios and not keep all of your eggs in one basket, the stockbroker comments about this are a little too vague to give me any confidence that moving the money from the stocks to something else will be any better for anyone other than his commissions.

I don't have a crystal ball in regard to predicting future stock values; but I have developed a keen sense of smell for churning.  It may sound extremely cynical, but I have seen so many cases where clients' accounts have been literally wiped out by transaction costs that served no purpose other than to generate commissions for the stockbrokers that I wouldn't advise making any such trades until he can make a strong and valid case for the deal on its basic investment principles, regardless of the tax consequences.

Using vague and possibly nonexistent tax savings as the reasoning for a sale of stocks is another big danger sign that you are dealing with an incompetent or unscrupulous advisor.

This is obviously another one of my vague replies to your investment inquiries; but I hope you understand the gist of my philosophy in regard to this kind of thing and it is of some help to you.

Let me know if you have any other specific questions or ideas you want to discuss.

Kerry

Labels: stocks

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/18/2009 12:29:00 PM Send this post:

Each taxpayer can only have one primary residence at a time.  However, if a married couple can prove that they lived in separate homes, a couple can have two primary residences, as discussed in this vidcast.

Labels: 121, video

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/17/2009 06:38:00 PM Send this post:

Labels: comix, TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/17/2009 12:58:00 PM Send this post:

Taxes and the Family – Interesting look at the family aspects in our tax system from National Affairs.

Postal Service Employees Owed $300M in Taxes, IRS Data Shows – It’s not just cabinet secretaries who are allowed to avoid paying their taxes and still hold onto their lucrative Federal government jobs.

How Many Ways Can You Tax the Rich? – The most politically correct target for fiscal rape continues to be the evil rich.  Exploiting class envy never goes out of style with leftists.

IRS hires "hundreds" for new wealth unit – The infrastructure is being expanded for nailing those evil rich folks who have to carry most of the tax load in this country.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/14/2009 07:44:00 PM Send this post:

Labels: audits, IRS, video

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/13/2009 05:42:00 PM Send this post:

The Highest Tax Increases Ever. State and local governments demand that their residents shut up and pay up during a recession. – An interesting look at some of the recent State tax hikes.

Labels: StateTaxes, TaxHikes

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/12/2009 04:14:00 PM Send this post: