Tax Attic

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

The Tax Attic with Jerry Coon

July 15, 2010 // 0 Comments

Regulating tax return preparers Congress and the Internal Revenue Service are both extremely interested in regulating all tax return preparers. In fact, they are downright serious. Apparently, there are return preparers out there who don’t follow the rules, don’t know the rules or don’t choose to follow the rules. Either way, it’s a problem for not only the IRS but also for the overwhelming majority of return preparers who do follow the rules, who do know the rules, and who choose to follow the rules. A three step process is being put into place that will give the IRS information about preparers; will require preparers to show certain levels of competency in order to prepare returns; and will require preparers to obtain continuing education credit hours each year. The whole idea, in the end, is to get a better class of preparers. As of this coming September, all tax preparers must register and obtain a Preparer Taxpayer Identification Number (PTIN). There will also be a fee to be paid, of course. This fee is expected to be in the $75-$300 range and will have to be paid every three years. This is the first step in finding out exactly who is preparing tax returns. Evidently, the IRS doesn’t have a good data base of return preparers. Many preparers, such as Enrolled Agents, CPAs, and Attorneys, already have PTINs but they will still have to go through the registration process. They will be re-assigned their current number, but the information collected in the registration process is not necessarily information the IRS has right now. The IRS wants a complete data base of return preparers and, rest assured, they will get it. The hammer the IRS has in this process is that a preparer who does not register and obtain a PTIN by January 1, 2011 will not be allowed to prepare tax returns. That’s a big hammer. Accenture, the world-wide consulting firm who quickly dumped Tiger Woods, has contracted to develop the registration system. The second step in the process of getting return preparers is to make them show they are competent. As of January 1, 2011, all preparers will have to pass tests in order to prepare returns. There are expected to be three tests. […]

The Tax Attic with Jerry Coon — July 1, 2010

July 1, 2010 // 0 Comments

Some deductions not legitimate In today’s tax environment, where it behooves everyone to take advantage of all legitimate deductions, from time to time a program will be developed by a promoter that will look legitimate but really steps over the edge into the illegitimate. None of us has an obligation to pay more than our fair share of tax, but all of us have an obligation to pay our fair share of tax. These programs sound legal and are basically legal, but they step over that mythical line in the sand that makes them illegal and gets people fined, thrown into jail, or perhaps both. A popular one that I have seen over the years deals with the reimbursement to employees for the tools of their trade. Usually the employer is in a business where the employer and the employee spend a considerable amount of money on the tools of the trade, such as the construction business, the vehicle repair business, or the tool and die business. In the legal and allowable program, the employer sets up a reimbursement policy where the employee buys a piece of equipment and turns in the receipt to the employer. The employer reimburses the employee for the tool. This reimbursement is a non-taxable reimbursement to the employee and is deductible to the employer and is very legal. There are some rules, however, that must be followed to ensure the Internal Revenue Service will agree that the reimbursement plan is legal. I will go over those rules at the end of this article. However, before we get to the “do’s,” let’s review what makes a legal plan illegal. First, the biggest “don’t do” is for the employer to pay the employee a flat amount whether or not the employee spends or even expects to spent an amount on tools. This is a big no-no. The second “don’t do” is to make the reimbursement a substitute for wages, i.e. the employee is earning $20 per hour and the employer simply re-characterizes $3 of that $20 per hour as a non-taxable tool reimbursement. By doing this re-characterization, the $3 becomes not subject to regular taxes and payroll taxes and doesn’t show up on the W-2 of the employee but is still deductible […]

The Tax Attic with Jerry Coon

June 17, 2010 // 0 Comments

How can the Social Security system be fixed?     Why does it need to be fixed? Without some adjustments or fixes, the system will be totally bankrupt in about 2037, even though it has a two trillion dollar surplus at this moment in time. If no adjustments are made, when the system goes bankrupt, it will be run on a money-in, money-out basis. According to projections, there will only be enough money coming in to support benefits going out at a 75% level, i.e. benefits will be immediately reduced by 25%. There have been a number of reports issued with ideas of what can be done to put off reaching this 2037 bankruptcy date. According to the U.S. Department of the Treasury’s paper titled “Social Security Reform: The Nature of the Problem,” “Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or to increasing the present value of scheduled tax benefits… only these changes can restore solvency permanently.” Translation: Cut benefits and/or raise taxes. The present value of scheduled benefits is calculated to be $13.6 trillion dollars. This figure can be reduced in a number of ways. The bottom line is you and I would draw less in benefits over our retirement years or will pay more in taxes. First, benefits can be cut by 20%. According to the experts, cutting benefits by 20% immediately would put the system on a firm footing for at least the next 75 years and perhaps permanently. No other changes would have to be made. Second, barring this major change, the age at which retirement benefits can be accessed can be raised. Currently, the maximum full retirement age is 65 for those born in 1937 or earlier, increasing to age 67 for those born in 1960 or later. Most everyone, however, can begin drawing at age 62, albeit with up to a 30% reduction in benefits. When President Roosevelt initiated Social Security, benefits could be accessed only when reaching age 65. Back then, coincidentally, the life expectancy was 65 so the system was stacked to not pay out many benefits. There was no drawing at age 62, even with a reduced benefit. Theoretically, if the age 65 life expectancy had been […]

The Tax Attic — June 10, 2010

June 10, 2010 // 0 Comments

Social Security benefits to dwindle Since The Rockford Squire doesn’t have a writer covering Major League Baseball—and I love baseball—I’m obligated to comment on the Detroit Tigers’ Armando Galarraga’s brush with fame. Galarraga could have had a permanent piece of fame had Umpire Jim Joyce gone to that last eye doctor appointment. But alas and alack, Joyce missed the appointment and he also missed the obvious out call at first base that relegated Galarraga to a one-hitter instead of the 21st perfect game in all of major league baseball history. Oh, by the way, no Detroit pitcher in the 100-plus years of Tigers baseball has ever pitched a perfect game. Talk about a rare occurrence. All Galarraga got was his 21st regular career victory, and it’s doubtful he will get anywhere close to that perfect game for the rest of his career. Maybe in his next life, he won’t have Joyce umpiring first base when he gets to two out in the ninth and that umpire makes the right call. Current baseball rules just do not allow anyone, even Commissioner Selig, to change a call once the umpire says “play ball” and throws the next ball into play. The only one who could have made a difference in this whole sad state of affairs was Tigers Manager Jim Leyland. He knew or should have known that once he left the field and the home plate umpire directed Galarraga to “play ball,” the perfect game was dead. Forever. Leyland could have not left the field of play until he demanded that Joyce ask the other umpires if one of them, particularly the second base umpire, had a good look at the play. Joyce then either had the choice of throwing Leyland out of the game or asking the other umpires for help. I’m thinking that at some point with 18,000 fans booing him, with the Tigers’ normally quiet Miguel Cabrera chewing on him, and Galarraga smiling at him, Joyce would have gotten the message that something was wrong and he would have consulted with the other umpires and ultimately the call would have been reversed. Then Galarraga’s 21st victory would have been the 21st perfect game thrown in baseball history thus assuring him of his rightful […]

The Tax Attic with Jerry Coon — May 27, 2010

May 27, 2010 // 0 Comments

Can Social Security be Fixed? Last Thursday and Friday, I attended a tax conference in Traverse City. This spring conference is always held in a great location and is well attended. It’s always good to see fellow tax professionals after a long tax season and interesting to see how they fared through another arduous tax season. Our federal Congress and Michigan legislature, in their infinite wisdom, ensure that there is always a never-ending supply of subjects to be covered. Of course, some years they pass more laws than others, and this year they seem to be off to a particularly good start, especially the federal Congress. I think they want all of us tax professionals to stay in business forever.  At these conferences, since it is two days long, we are afforded the luxury of covering a few new subjects and also a myriad of “old” subjects. The more proficient we can be in these old subjects, the better level of service we can give to our clients. One of the old subjects we covered was the topic of Social Security.  Tax professionals like me answer questions all year long on various aspects of Social Security. As we ourselves are getting older, our clientele is also getting older. According to the National Association of Tax Professionals (NATP), the average tax professional in the United States is 56 years old.  In Michigan, the 800+ NATP members average 57 years old. What this means is we tax professionals have just as much of a vested interest in the Social Security system as our clients do. We are all in the same boat.  If the Social Security system goes belly-up, that’s a problem of epic proportions. Since a significant portion of many taxpayers’ retirement income will come from Social Security, it’s in our national best interest to keep the system solvent and afloat. There are a number of reasons the system is going bankrupt. There are a number of fixes that the government can make that will prolong the time at which Social Security might go bankrupt.  Over the next few weeks, I will look at these reasons and these fixes. At the same time, in order to help our clients, we have to be able to answer […]

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