Tax Attic

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

The Tax Attic with Jerry Coon — December 31, 2009

December 31, 2009 // 0 Comments

  Fight for your freedom, rights A good friend of mine, Al Kraker, recently gave me a book authored by John W. Whitehead, executive director of the Rutherford Institute, entitled “Stand and Fight.” Whitehead, a constitutional attorney, founded the Rutherford Institute in 1982 with the mission of specializing in cases that involve the curtailment of American’s religious freedoms and civil liberties. This is a complicated area. What one person perceives as a curtailment of his religious freedom is perceived by another person as a violation of his civil rights. For example, there are 100 people in attendance at a banquet; 60 are Christians, 15 are members of various other religious organizations, 23 don’t practice any religion, and two are agnostics. The speaker is a Christian and, as is his custom, says an invocation before the meal, asking God to bless the food and bless the activities of the evening. The 60 Christians are okay with that, and 30 of the remaining 40 are also okay with that, but that leaves 10 people who are offended by this gesture of seeming goodwill. Of such things, in today’s litigious society, court cases are made. One of the 10 offended people is so deeply offended that he sues the organization sponsoring the banquet to stop this outrageous activity of seeming goodwill. The next time a banquet is held at that place, when the speaker starts to say an invocation, he is told he can’t do that because they were sued the last time it happened. The speaker can’t say an invocation even though 90 people, the overwhelming majority, favored the invocation. When one person overrules 90, the tail is wagging the dog, so to speak. Of such things, more court cases are made. This is where the Rutherford Institute might step in and offer to defend the speaker’s right to say an invocation. The book details many such cases going on right now throughout the country. All of them are difficult. I heard a speaker one time say, “My name is not Solomon. I just do the best that I can.” I like that saying. Well, none of the judges deciding these difficult cases are named Solomon either, but let’s hope they are doing the best they can […]

The Tax Attic with Jerry Coon — December 23, 2009

December 23, 2009 // 0 Comments

Issues beyond our comprehension As we near the end of the year, many taxpayers review their financial and tax situations to see if there are any steps that can be taken to reduce their tax bill. There are multitudes of ways to decrease a tax bill. Many of them I have gone over in the past few weeks, such as paying property taxes by December 31. This will then qualify you to receive a 2009 deduction. That deduction reduces the tax bill by the tax rate of the taxpayer. For example, a taxpayer in the 25% tax bracket pays a $1,000 property tax bill in December. This payment will save him $250 in taxes, or $1,000 times 25%. That’s how a deduction works. Your actual tax savings are based on the highest tax bracket of the taxpayer. Our tax system is based on the fundamental that the more income a taxpayer has, the more tax he will pay but the more the deductions are worth. It is an outright fallacy when you hear anything different. The fact is the more income a taxpayer has, the higher will be that taxpayer’s tax bill. For example, two taxpayers under the age of 65 with no children and filing a joint tax return will pay zero tax on the first $18,700 of income they report. The next $16,700 of income is taxable at 10%. If the taxpayers’ total income was $35,400 ($18,700 plus $16,700), their total tax will be $1,670. The next highest tax bracket is 15%. The 15% tax bracket extends from the end of the 10% tax bracket at $16,700 all the way up to $67,900 of income, so the next $51,200 is taxed at 15%. If the taxpayers’ total income was $86,600 ($18,700 plus $16,700 plus $51,200), their total tax will be $9,350. I want to include in this example the 25% tax bracket. The 0%, 10%, 15% and 25% encompass the large majority of all tax returns filed. The 25% tax bracket extends from the end of the 15% tax bracket at $67,900 all the way up to $137,050, so the next $69,150 of income is taxed at 25%. If the taxpayers’ total income was $155,750 ($18,700 plus $16,700 plus $51,200 plus $69,150), their […]

The Tax Attic — by Roger Allen, publisher

December 18, 2009 // 0 Comments

Issues beyond our comprehension My minister, Rick Tigchon, recently based his sermon on a Dr. Seuss book concerning going “beyond z.” The point of Rick’s sermon was that from time to time, we encounter events that simply just are not explainable. They go beyond our comprehension. They go where our alphabet currently ends at “z.” Of course, the number one example of this, especially applicable at this Christmas season, was the pregnancy of Mary and the subsequent birth of Christ. Mary was a virgin. Now that really was “beyond z.” All other events pale in comparison to this, but I do have one of my own to pass on. This past week, I was driving to the office on Northland Drive near 12 Mile Road when two deer just shot across the road in front of me. There was lots of traffic and they were lucky to clear all five lanes without getting hit. We all know the basic rule of thumb when it comes to deer—they travel in threes—so as I slowly continued on to the north, I looked into the woods where the other two deer came from. Sure enough, the third deer was standing in the woods. I kept watch in my rearview mirror and was surprised at what I saw. That third deer slowly walked up to the shoulder of the road and stood there, apparently looking and watching for cars to go by. When he was satisfied it was safe, he jumped across the road. Either that was the smartest deer in West Michigan or I had seen a “beyond z” event. Another example of something that goes beyond our comprehension is what has been happening with our state legislature—talk about going beyond z! The fiasco in Lansing goes beyond triple z. Tom Pearce, our local House Representative, has made several local appearances in the past few weeks. I was fortunate to hear him speak at a Rockford Chamber of Commerce luncheon last week. Tom is one of the good guys in the political arena and, in his final term, is doing his best to get good solutions to our current problems. Good luck, Tom. Among other issues, our state legislature has not dealt with the fact that our state […]

The Tax Attic with Jerry Coon — December 10, 2009

December 10, 2009 // 0 Comments

Jerry Coon, Enrolled Agent Charitable contributions  As we near the end of the year, in addition to the festivities associated with the Christmas holiday, tax professionals across these United States of America are doing their best to get the word out to their clients and the tax-paying public that December 31, 2009 is, for the most part, the cut-off date to make changes that will affect the 2009 tax return. Last week I discussed the Roth IRA conversion issue. This conversion must take place by December 31 to be considered a part of the 2009 tax return. In a previous week, I discussed the sales tax deduction available for purchasing a new vehicle. This vehicle must be purchased by December 31 to get that sales tax deduction on this year’s tax return. For taxpayers who are paying real estate property taxes, the treasurer of the collecting agency must stamp the property taxes as paid in 2009 for them to be deductible on the 2009 tax return. I bring that up because not all township offices are open daily. Don’t wait until 5 p.m. on December 31 to drop off a check at the township office and expect it to be stamped as received on December 31, especially if the office closes at noon. Don’t mail a check on December 31, expect it to be delivered on January 4 and still be marked as paid as of December 31 just because it has a December 31 postmark. As a courtesy, in both of these scenarios, the treasurer may stamp it as paid in 2009 because it was in the drop-off box before midnight or was mailed before January 1, but why depend upon the treasurer’s courtesy for a deduction? Take the time to bring the payment into the office during regular business hours and get the receipt stamped or mail the check so it is received at the offices before the end of the year. Last year, I discussed that strange court case in Texas concerning charitable contributions. A couple’s return was audited for charitable contributions and the deductions were disallowed even though the couple had checks to prove every cent of their deduction. The one piece of information they were missing at the audit was […]

The Tax Attic with Jerry Coon — December 3, 2009

December 3, 2009 // 0 Comments

Tips on converting IRA to Roth IRA A topic that has come up in multiple discussions the last few weeks is the Roth Individual Retirement Account (IRA) situation. Specifically, it seems that every financial planner and money manager is touting the conversion of traditional IRAs to Roth IRAs and, in many instances, it makes very good sense to do so. Seldom does it make sense to pay tax on income sooner than the Internal Revenue Service requires it, so there must be some very special circumstances involved. Let’s discuss those circumstances and what exactly is meant by converting an IRA to a Roth IRA. The process starts with having an IRA. This IRA might have come from making contributions to the IRA or rolling a deferred compensation plan such as a 401k from a job to an IRA. Once the money is in the IRA, the taxpayer can convert the IRA funds into a Roth IRA. The value at the time of conversion is taxable to the taxpayer. In 2009, the conversion is fully taxable as 2009 income. However, only taxpayers with income of less than $100,000, not counting the conversion amount, are eligible to make conversions. In 2010, the rules change. First, the taxpayer can elect to pay all of the tax in 2010 for a 2010 conversion, or may elect to defer paying the tax past 2010 and pay tax on 50% of the conversion in 2011 and 50% of the conversion in 2012. Second, the $100,000 income limitation is eliminated. It is estimated that between two and three trillion dollars in IRAs will be converted to Roth IRAs in the next few years. Yes, that is TWO to THREE TRILLION dollars of conversions. The federal government is going to get an instant infusion of tax revenue of gigantic proportions. Most of this two to three trillion would potentially have been taxed at much lower rates had it been left in the IRAs and withdrawn onlyawhen required. Since required distributions only start at age 70.5, those required distributions might not have started until years down the road. What would cause people to pay taxes on two to three trillion dollars of income right now? There are a couple of reasons. First, I call […]

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