After hearing arguments for extending the Bush-era tax cuts for some of the nation’s wealthiest, I thought it would be a long time before I heard anyone publicly argue against it. Turns out that there’s a group of over 40 of the nation’s wealthiest (including Ben Cohen of Ben & Jerry’s fame) doing just that. The group, calling themselves Patriotic Millionaires for Fiscal Strength, has written a letter urging President Obama to let the Bush-era tax cuts expire, but only for the nation’s wealthiest, specifically those making over $1,000,000.

Of course, there are some that don’t exactly agree with what they’re doing. Rob Port of Say Anything Blog has this to say:

If these people want to pay more in taxes…there’s nothing stopping them. If they truly believe it’s patriotic to raise taxes by eliminating the Bush tax cuts (and they clearly due given the name of this group) then they should figure out what they would have paid had those tax cuts not been put in place and cut a check to the IRS for that amount.

I think it can be argued that the Bush-era tax cuts favored the wealthy. I’m in favor of letting most of those tax cuts expire and, while we’re at it, getting rid of AMT. My only concern is whether now is the right time to let them expire. If the tax cuts are done away with completely it may not help with the nation’s economic recovery.

Warren Buffet thinks the wealthy should be paying a lot more in taxes. What do you think?

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The IRS Wants to Give You Money

Really. They do.

This year, like all the others before it, the IRS is trying to return undeliverable refund checks to a few taxpayers. This time around they’re on a mission to return $164.6 million, with an average of $1,471 per check. Do the math; that’s 83 million cups of coffee or clean drinking water for 8.2 million people in Africa, in case you’re the charitable kind.

While that number represents only a small percentage of the total amount refunded by the IRS, it never ceases to amaze me.

Think some of that money belongs to you? Visit Where’s My Refund to find out. From there you can update your address, and from what I understand, the IRS should then automatically mail the check to you. You can also check the status of your refund by calling 800-829-1954.

Direct deposit is almost always faster and more reliable than getting a check mailed. Next time you’re getting a refund from the IRS, think about getting it direct deposited.

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HUZHU COUNTY, CHINA - MARCH 8: (CHINA OUT) A villager works at her plasterboard workshop on March 8, 2005 in Huzhu County of Qinghai Province, China. The national legislature's annual session has specially targeted the widening gap between the east and west regions in economic and social development. The GDP of the western region has risen to 2,295.5 billion Yuan (USD 277 billion), but its ratio in the national total dropped to 16.9 percent. The Chinese government is seeking ways to boost the development of the region, with agricultural taxes initially to be scrapped in the west next year. China will also spend 13.78 percent more in budgets on beefing up weak links in west social development, including education, science and technology and health in 2005, according to a report on the central and local budgets. (Photo by China Photos/Getty Images)

Recently the IRS issued guidance on deducting costs associated with repairing damages due to Chinese corrosive drywall.  I personally know a couple of people who will be pretty happy about this.

If you’re wondering whether or not you were affected by Chinese drywall or if you don’t know what Chinese drywall is, then chances are you weren’t affected. You’d know if you were. Trust me

Essentially, when we were going through our housing boom and at the same time facing massive rebuilding efforts due to the hurricanes that hit Florida and Lousiana, American-made building supplies were in high demand, and developers were facing limited supply.  What’d we do to combat this problem? You guessed it; we started importing it from China. Turns out that while we were facing limited supply of drywall, China had it in abundance, and it was cheap, too.

Now, the problem with the imported drywall is, not only does it smell like rotten eggs, but it can cause damages to a home’s fixtures and poses health and safety risks.  The sulfurous gas emissions from the drywall causes copper to turn black.  So naturally things such as appliances, fixtures, pipes, wiring, and A/C coils were affected.  And, apparently, even silver jewelry.  High heat and humidity causes an increase in these emissions, which explains why more than 50% of the claims came from Florida. Louisiana, along with other states in the Southeast were also impacted by this.

Although these type of damages don’t normally qualify as a deductible casualty loss, the IRS is allowing anyone who paid to repair damages to their home or appliances due to the imported drywall to deduct the costs of repairs on their tax return for the year they paid for the repairs. If a return was already filed, no sweat.  So long as the statute of limitations hasn’t run out (normally 3 years from the date filed) an amend return can be filed.

The amount that can be deducted depends on whether or not there’s a pending claim for reimbursement & whether you intend to pursue a claim.  Anyone who has a pending claim or intend to pursue a claim, is allowed to claim a loss for only 75% of the unreimbursed amounts paid during the tax year. Taxpayers who don’t have a pending claim and have no intentions of pursuing one can deduct all the repair costs paid as a loss.  And since they apparently thought that allowing a deduction for these repair costs was enough, these amounts still have to be exceed the $100 (which increased to $500 for 2009 and beyond) and the 10-percent-of-AGI limitation.

Also, there’s a process (a two-step one at that) for determining exactly what qualifies as corrosive drywall.  This process, published by the Consumer Product Safety Commission and the Department of Housing and Urban Development can be found here.

For those of you that were affected, while it does not reduce your tax dollar for dollar, being able to deduct these repair costs as a casualty loss certainly should help.

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IRS Online PTIN Registration is Finally Here!

Just when I was beginning to think this wasn’t going to be ready in September as was originally announced, the IRS announced today that their online PTIN registration system is now ready.  Some of you should be relieved since, other than the 1099 debacle, it seemed as if this is all anyone talked about for months.

All return preparers who prepare all or substantially all of a tax return are required to register using the new system, and pay the $64.25 annual user fee.  If you can’t or don’t want to register online, you can submit a paper application via form W-12, which isn’t currently available, but should be shortly. Also note that the form will apparently take 4-6 weeks for processing. Ouch!

Because I’m sure some people are still unclear about this, let me just clarify: you are still required to register using the new online system even if you already have a PTIN. Yes, I agree, it doesn’t make sense to me either, especially since they will just end up reissuing the same PTIN you already have. I especially don’t like the fact that I’m going to have to pay a $64.25 fee for them to do it.

I tried to register myself, and I wish I could tell you it went through successfully, but it didn’t. The system has you verify your identity with your SSN, address, and filing status on last return. For some reason, it didn’t recognize one of these for me, and my identity couldn’t be verified. And, of course, I managed to lock my account (by unsuccessfully attempting to verify my identity too many times within a 24-hour period).

If you’re like me and you are having trouble registering, you can contact the PTIN customer service line at 877-613-PTIN (7846), which just rings a few times, then goes straight to hold music, with no indication of where or whom you’ve called. After waiting for over 10 minutes for someone to pick up, I hung up. I’m sure everyone else that’s been waiting to do this for months is either trying to register or is calling the IRS because they can’t. I’ll just wait until they’re not so busy.

If you’ve already registered or managed to get help from the IRS with registration, let me know how it went.

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01 April 2009 - Los Angeles, CA. Anne Hathaway and Valentino Garavani. Valentino: The Last Emperor Los Angeles Premiere held at LACMA. Photo Credit: Byron Purvis/AdMedia Photo via Newscom Photo via Newscom

I’d like to think the majority of you have already heard about the 10% excise tax on tanning services that was pushed through with the health care reform bill.  No? C’mon, even Jersey Shore’s Snooki keeps up to date with her tax law.  (And apparently McCain watches Jersey Shore. Who knew.)

So here’s the deal.  Effective July 1 (just in time for season 2 premiere of the Jersey Shore 2), fees charged by indoor tanning salons specifically for tanning services will be subject to an excise tax of 10%.

Like to get your tanning on at the gym?  As long as your gym doesn’t charge you extra for tanning services, then the excise tax won’t affect you.

This tax is in addition to any excise tax assessed by a particular state. Which now means that New Jersey residents will pay a total of 17% since the garden state also charges a 7% excise tax on these services. < insert Jersey Shore joke here >

The excise tax was implemented in the hopes that it would be enough to persuade tanners get out of the tanning beds due to the associated health risks. But who are they kidding? It’s highly unlikely that the additional 10% will deter anyone from visiting a tanning salon. People that get tans aren’t necessarily choosing between tanning and groceries (dear God I hope not), so the 10% increase just isn’t a big enough jump in price for it to matter to a lot of people. Would you stop tanning if instead of $20 you were paying $22? Didn’t think so. After all, taxing cigarettes got people to quite smoking, right?

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Get Help With That IRS Notice – for Free!

Did you receive a notice from the IRS or have other tax issues you need help with?  Well, you’re in luck.  Today, June 5, the IRS is hosting the second of three open houses.  You can get help with anything from IRS notices and return preparation (because let’s face it, some of you filed extensions – I hope) to setting up payment plans. They’ll even help you out with an audit.

They boast that they were able to help close to 7,000 taxpayers during their last open house on May 15.  I know it’s Saturday and the last thing you probably want to do is worry about taxes, but honestly, if you’ve got some free time and a tax issue to resolve, it may be worth paying them a visit.

The last open house is schedule for sometime this fall.

Each office will be open from 9:00 a.m. to 2:00 p.m. local time. You can find a listing of each IRS office here.

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The below question was asked by a taxpayer:

I’m the sole member of an LLC, can I take a charitable deduction on my business return for cash and services I provide to my church?

I get this question quite often.  And like most things involving tax, the answer is yes and no.   Charitable contributions of cash are deductible, but not on your Schedule C.  Instead, they’re deductible on your Form 1040, Schedule A.  This isn’t simply due to the fact that you’re an LLC.  In fact, the only business entity that can deduct charitable contributions on their tax return is a C corporation.  Every other entity, whether it’s an S Corporation, an LLC, or a partnership, has the amount contributed “flow through” to each member’s personal return.

I should add that most business owners confuse advertising expenses with charitable contributions of cash. Oftentimes, a business owner may “donate” cash to a local church or other charitable organization and, in turn, the business will get an ad placed on the organization’s website or in pamphlets.  In this event, just because the organization is a charity doesn’t mean that payments to them automatically get classified as a donation. Actually, as long as (a) the payment is for an expense that is directly related to a taxpayers business and (b) there is a reasonable expectation of financial return commensurate with the payment or transfer, then it can be deducted under Code Sec. 162—just like other normal business expenses—since this would actually be considered a valid business expense and not a charitable contribution since your business received something in return for your donation: advertising.

Please note that if you have a charitable contribution and a business deduction within the same transaction, no part of the payment can be deducted as a business expense.  As an example, if you donate $500 to a religious organization, and you then receive ad space on their website that they would normally sell for $200, that $200 could not be deducted on the business return as advertising. Your charitable contribution deduction would be limited to the $300—the amount that exceeded the value of the services or products you were provided. And that amount, unless the business is a regular corporation, would be deducted on Form 1040, Schedule A.

However, if instead of one transaction, you had two separate transactions, one for a valid donation of $300 and the other for advertising of $200, then each would be deducted as they would normally—as a charitable contribution and a business expense, respectively.

The last thing I want to make clear is that donations of time or services are never deductible.  This is true even if you can easily value the time or services you provide. If I had a dime for every time I got asked this question…

Disclaimer: like any decent tax professional will tell you, since you’re not currently a client of mine—though you can be—it’s almost impossible to provide complete and accurate tax advice over the internet without being aware of the taxpayer’s entire situation; therefore, I suggest you consult your tax professional before relying solely on any information provided on this site.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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The U.S. Tax System is Complex

Man sitting at desk, resting head in hands, frowning

But you didn’t need me to tell you that.

Anyone that knows me knows I’m a geek. Not only when it comes to taxes, but I have a true fondess for math and numbers in general. What’s the only thing I like more than numbers? Any kind of visual representation of numbers. So when this blog post from Neil Patel was forwarded to me, it quickly became one of my favorite posts. Yes, simply for the graphic. So I thought I’d share.

I’m not sure whether or not he made it himself, but what matters is that it does a pretty good job of showing just how complex the U.S. tax system really is.

So complex it takes the average person 24.2 hours to complete their return.

Also, if you haven’t seen Jess Bachman’s Death & Taxes poster as yet, it’s definitely worth seeing, if not owning.

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Paycheck a Bit Lower in 2010?

You may have noticed that your paychecks are a little lower than they were in 2009. This could be due the the Making Work Pay Credit or, even worse, they’ve lowered your salary or hourly rate and no one’s bothered to inform you of this. Let’s hope it’s the former.

The American Recovery and Reinvestment Act of 2009 (ARRA), which was enacted in February 2009, made provisions for the Making Work Pay Credit that allows working individuals to claim a credit of either 6.2% of earned income or $400, whichever is lesser. Instead of receiving a check or having to wait to claim the credit on your 2009 or 2010 tax return, the withholding tables were adjusted so most of the credit could be distributed through a decrease in income tax withholding.  So, yes, this meant that you saw a slight increase in your take-home pay. Now, because ARRA was enacted in February, the withholding tables weren’t adjusted until March, so the credit was spread out over 9 months.

In 2010, the $400 credit is actually spread out over 12 months instead of 9.  So a little less credit in each paycheck, you’ve guessed it, means increased income tax withholding. It’ll all add up in the end.

I should note that some individuals, especially those with multiple jobs, should pay close attention to their withholding. Here’s why: If you have multiple employers, each employer will deduct withholding tax from each paycheck as if you were eligible for the credit. Now, if you have 3 employers all using the adjusted tables, they’re essentially withholding taxes from your check as if you were eligible for a $1,200 credit (400 x 3). In which case you may want to complete a new Form W-4 to increased your payroll withholdings so you don’t have any nasty surprises come time to file your 2010 income tax return.

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2009, What a Year You’ve Been.

2009 was definitely a very eventful year. I accomplished a few goals that I set for myself and even some that I didn’t.

I obtained my license
After months of toting around review books and studying during lunch breaks, I did it.  Becoming an Enrolled Agent has definitely been one of my most significant accomplishments to date. Let’s just hope having a license actually helps to differentiate me from those “other” tax preparers.

I met an amazing guy
Easily one of the best things that has happened to me in 2009. I met, and quickly became good friends with this guy. Somehow he managed to woo me, and almost a year later, here we are… together… happy.

Finally went on that European Vacation
I’ve always planned on going to Europe, but for some reason or another, it just never worked out. The main culprit being work. Finally, In mid-December, Davide & I travelled to Italy to spend Christmas with his family.  We also spent two days in Paris before returning home right before the new year.  Though I didn’t get to see as much of Italy as I would have liked to, it was the best vacation I’ve ever been on.  Ever.  And, honestly, I’m just grateful for the experience. More about this in a later post.

Met a few amazing people
Some of the people I now consider good friends are people I met in 2009.  There’s Willie who spends so much time with us he may or may not have moved into our apartment without us knowing.  It’s an extremel rare occurrence for me  to meet someone that I can hang out with just to hang out, doing nothing in particular, just to be in their presence.  Willie’s one of those people.

And then there’s Steph Rose & Robert Murray who are both awesome. I met them a week apart from each other and both through Twitter.  What’s unique about these two is the simple fact that their friendships don’t require work, it just is.  We’ll go for weeks, even months, of not speaking to each other, and pickup right where we left off.

In 2010, there are tons that I want to do, big and small, personal and professional, but unlike most, I won’t be making any resolutions. I know every year most people resolve to do lots of things: lose weight, eat better, work out more, spend less money, etc. Who are they kidding? Aren’t most resolutions forgotten by mid-April anyway? I don’t plan on setting myself up for disappointment. There are things I’d like to happen, things I’d like to do, things that I’d like to change, but those will all happen in due time.

So, here’s what I’m looking forward to in 2010:

  • Going to SXSW for the first time
  • Travelling more
  • Improving my photography skills
  • Brewing my own beer

And just like that, I do away with 2009 (albeit a month late) and welcome 2010.

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