Tax Attic

Useful tax tips and information from Jerry Coon of Action Tax Service.

The Tax Attic with Jerry Coon, September 30, 2010

September 30, 2010 // 0 Comments

Prisoners claim fraudulent tax credit  Principal Residence Exemption explained    When you go to tax seminars, you find out all kinds of information about our tax system. For example, last Friday at a seminar in Lansing, I learned some more facts about people claiming the First Time Homebuyer Credit who were not supposed to be claiming the credit. It has been a fiasco. For example, so far the Internal Revenue Service has found that 1,295 prisoners have claimed the credit. These prisoners are the ultimate first-time homebuyers, especially if they were in prison for more than the last three years. However, one of the stipulations of getting the credit is that you have to own and occupy the residence. It’s tough to occupy a residence when you are sitting in an eight-by-eight prison cell. Incredibly enough, 241 of those prisoners are in prison for the long term because they have lifetime sentences. Total fraudulent claim dollars paid out to these 1,295 prisoners was $9,100,000. A total of 10,282 claims were made on homes that were also claimed on another credit. In fact, in the worse case, there were 67 claims made on one home. Let’s do the math on that one: 10,282 times $8,000 equals $82,256,000. Total fraudulent claim dollars paid out in these 10,282 cases was $82,256,000. Finally, the IRS found that 2,555 claims were made on houses that were purchased before April 9, 2008. Only houses purchased on or after that date qualify. The total fraudulent claims made equal $17,600,000. As of now, total fraudulent claims made and paid out equal approximately $108,956,000. That’s a shocking figure. I am just stunned that these amounts were given out without better due diligence being done before the checks were issued. On a different topic, we also had a discussion of the Principal Residence Exemption (PRE). This term came into being when we passed Proposal A way back in 1994. This allows taxpayers who own and occupy their residence to be exempt from 18 mills of the local school-operating property taxes. Taxpayers file a PRE affidavit with their township or city by May 1 of the year of the claim. The local assessor then makes the adjustment on the next property tax bill sent to the […]

The Tax Attic with Jerry Coon — September 23, 2010

September 23, 2010 // 0 Comments

Bush tax cuts set to expire Congress is really making it difficult to tax plan. Eventually, they will have to make decisions on a number of tax issues. Complicating the matter is that Congress can make a decision by doing nothing. The Bush tax cuts are all set to expire on December 31, 2010. If Congress does nothing, we will revert to the tax laws that were in effect before President Bush and a Republican-controlled Congress enacted them at various times during his presidency. Most of them came into being when the Economic Growth and Tax Reconciliation Act was passed in 2001. It is highly unlikely that Congress will do nothing. This is not a do-nothing Congress. They have passed a mammoth Health Care Reform bill. The American Recovery and Reinvestment Act, i.e. the Stimulus Bill, seemed to spend more money than existed in the world in total before about 1900. (Just kidding. I don’t know the real statistic. The real year could be only before 1800.) They recently passed a Small Business Jobs Act that will spend a paltry $42 billion dollars. No, they are not afraid to spend money or to pass bills. They are just reluctant to do something immediately before the coming election that could and would influence the election. Raising taxes, even if it is for 2011, could and probably would influence the election. The Tea Party is just hoping that a Democrat-controlled Congress passes a bill that dramatically increases taxes. I will go as far as to say that they are praying for a dramatic tax increase. I would also be shocked if that happens. What is highly likely is they will pass a bill after the election that will pick and choose what to do with each of the tax cuts. Some will be modified, such as the tax brackets with the 10% tax bracket disappearing. Some will be extended, such as keeping the child tax credit at $1,000 instead of it reverting to $500. Some will be allowed to sunset and go away such as the capital gains in the 15% tax bracket getting taxed at 0%. It will be interesting to see how this all turns out. By not extending any of the relief provisions that […]

The Tax Attic with Jerry Coon — September 16, 2010

September 16, 2010 // 0 Comments

Tax school begins I may end up buying my salmon this fall at Meijer or D&W. In past years, I could depend on going fishing a few times throughout the summer and catching a few fish each time. Then, to finish off the summer, over Labor Day, my brother-in-law Don and I could always count on coming home with some nice salmon fillets. We are far from experts, but we have good equipment and we are persistent. That strategy got off to a slow start this summer. Every time I had plans to go Lake Michigan fishing, it was either raining or there were small-craft warnings on the big lake. I did convince Deb to go once, but there were two-to-three-footers with white caps and, under those conditions, it’s tough fishing. The boat can take the waves, but it’s tough to steer a boat when it’s rocking and rolling that much. It also takes about twice as much time to get the lines into the water. We stuck it out for a while and did catch one small one, but that’s not exactly what I envisioned when we left Rockford. As of Friday morning on Labor Day weekend, I still had great hopes for catching our self-calculated quota—after all, we had never failed on Labor Day. Those hopes went by the wayside when we drove into Muskegon State Park and took one look at Lake Michigan. You have all seen the pictures; seeing those huge waves in person was truly impressive. Fishing in Lake Michigan was out of the question and would remain out of the question for the entire weekend. We still had the channel and Muskegon Lake. Being an optimist, in my mind success was still possible. I was wrong. There were white caps on the channel off and on, gale warnings much of the time, and white caps on Muskegon Lake most of the weekend. We fished for about two hours the whole weekend and caught no fish. The weather was so bad we went bowling on Saturday. We had fun bowling, but pulling in a 15-pound salmon would have been fun, too. We always have a great time camping and, despite the lack of fish, this Labor Day was no different. […]

The Tax Attic with Jerry Coon

September 9, 2010 // 0 Comments

NKSC donations now qualify for Michigan tax credit The Michigan Treasury Department works year round. It may be a slimmed-down version compared to the tax season, but those working seem to be working hard. Those of us in the professional tax business see evidence of their efforts from time to time. Usually a taxpayer will receive a letter or some correspondence from Treasury, requesting verification of a transaction or requesting that the taxpayer send Treasury some money for an error on a tax return. That is the type of effort that we could really live without. However, once in a while, we get some really good news from Treasury. Recently, the North Kent Service Center (NKSC) received a letter determining that it qualifies as a certified Homeless Shelter/Food Bank. This is extremely good news for NKSC. As a certified Homeless Shelter/Food Bank organization, monetary contributions made direct to NKSC qualify for a credit on the Michigan tax return. This particular credit is one of the best credits known to mankind. On a joint Michigan tax return, 50% of a contribution up to $400 qualifies as a credit against income tax liability. Give $400 to NKSC and receive $200 of tax credit. On a single return, the limit is 50% of up to $200, which generates $100 of tax credit. This is a non-refundable credit, so the taxpayer has to have some liability. But for those with a tax liability, this is a wonderful way to reduce that tax liability and help out a local organization. A further advantage of making contributions is that they are also allowable on the federal Schedule A as a charitable contribution. For taxpayers who do itemize their deductions, this really reduces the final net out-of-pocket cost. For example, taxpayers in the 25% federal income tax bracket make a $400 contribution to NKSC. They will receive a $200 tax credit on their Michigan tax return. They will also receive a $400 deduction on their Schedule A. This deduction, since they are in the 25% tax bracket, saves them $100 in taxes ($400 times 25%). They will save $200 of Michigan tax and $100 of federal tax for a total tax savings of $300. Their net out-of-pocket cost for writing a $400 […]

The Tax Attic — by Jerry Coon — August 26, 2010

August 26, 2010 // 0 Comments

Business federal tax rules revised  The Internal Revenue Service is keeping busy this summer. In a previous article, I discussed various court cases that involved the IRS and taxpayers. Auditing taxpayers is one way the IRS keeps busy. Those audits from time to time develop into court cases. Another manner of staying busy is by revising the various rules under which businesses operate. They recently issued Proposed Regulation Number 153340-09 that revises, effective January 1, 2011, how businesses deposit and pay federal taxes. Currently, businesses have four choices to pay federal taxes. First, they can take a paper coupon, a Form 8109, and a check to a federal bank. The bank processes the check and scans in the coupon. The money and the coupon are then forwarded to the IRS. Unfortunately, errors occur in this system. Taxpayers complete the Form 8109 by hand, writing in the amount of the check and filling in a box that indicates the type of tax being paid. Anytime anyone handwrites anything, there are opportunities for error. Most people are dyslexic to some extent, and it’s very easy to write a check for $1,019.25 and enter $1,109.25 in the Form 8109 amount box. It’s also very easy to fill in the wrong box indicating the type of tax to be paid. Making either one of these errors causes all types of problems at a later time when the IRS tries to match the tax paid with the amount paid and type of tax paid on the coupon. It can and is a real mess. Second, the business can mail the Form 8109 and a check directly to a federal reserve bank. That brings a whole new set of problems into play. It’s called the United States Post Office. In this area, we mail our checks and coupons to the Federal Reserve bank located in St. Louis, Mo. If a tax payment is due on the 15th of the month, how many days before the 15th must the check and coupon be mailed for it to make it to St. Louis by the 15th? It should be three or four days, but it could be eight or nine days. It’s better to be safe than sorry. I know the Post Office […]

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