Jerry Coon


October 4, 2012 // 0 Comments

Michigan changes affect tax returns The questions are starting to flow in with more frequency as we get closer to the end of the year. An increasing number of people are beginning to wonder how all of the changes made by the State of Michigan will affect their tax return to be filed this coming tax season. I don’t blame them for wondering. It’s a fair question to ask because almost every person filing a Michigan return will be affected. There are four major areas of change that we should review. First, there were substantial changes for those receiving retirement benefits. Second, almost all of the non-refundable tax credits were eliminated. Third, exemption amounts were decreased. Fourth, the homestead property tax credit was revamped. This week, let’s discuss the retirement benefit taxability changes. They are categorized based upon the age of the recipient. For those born before 1946, the pre-2012 rules remain in effect. If I was a baker, I might say they will continue to get the whole loaf of deductions. Their social security is totally exempt from tax. 100 percent of their public pension amount is totally exempt. For private pension recipients, up to $47,309 for single filers and $94,618 for joint filers is exempt. Taxpayers not receiving a pension will continue to receive a subtraction for interest, dividends and capital gains. Taxpayers born in 1946 through 1952 will get only half a loaf of deductions. Before these taxpayers reach age 67, their social security will be exempt; their railroad pension will be exempt; and their military pension will be exempt. However, they will not receive the subtraction for interest, dividends and capital gains. In addition, the total pension subtraction for public and private pensions will be limited to $20,000 for singles and $40,000 for joint filers. After these taxpayers reach age 67, the rules will change once again. Social security will remain exempt. Railroad and military pension amounts will be exempt but if the taxpayer chooses this deduction, the $20,000/40,000 deduction will not be allowed. The subtraction for interest, dividends and capital gains will not be allowed. Finally, and of most importance, the taxpayer’s $20,000/40,000 deduction will be allowed as a subtraction against all income. Currently, the subtraction is only allowed against […]

THE TAX ATTIC with Jerry Coon

September 20, 2012 // 0 Comments

Municipal bonds, yea or nay? The Coon family made a trip to Nashville, Indiana recently. Nashville is a larger version of Rockford with lots of shops that is located in Brown County, about 75 miles south of Indianapolis. They have an Ace Hardware that looked like it sells everything; just like Pete’s Ace does for us. They have the Big Woods Brewery located downtown with several nice brews; just like Rockford Brewing Company will provide when it opens next month. They have many, many shops just like Aunt Candy’s, Kimberly’s Boutique, and Great Northern. They had a festival going on just like our Harvest Festival and the town was packed. What Nashville has that Rockford doesn’t is a log cabin on the side of a mountain with a wonderful view of the surrounding valley. What a view it was, too. It’s very hilly around Nashville. We toured the Brown County State Park that contains over 15,000 acres. It has a few places with such steep grades that the signs warn bike riders to get off their bikes and walk them down the slope. That doesn’t quite jive with my thoughts of Indiana. I have spent most of my time visiting the relatively flat northern and central Indiana counties. However, after spending the weekend in the Nashville area, I have adjusted my thinking. It’s a beautiful area. It’s still Indiana, but it is beautiful. There have been many articles published recently about the fiscal state of municipalities. Across the United States, here and there, municipalities have either declared bankruptcy or have defaulted on municipal obligations. Earlier this year, Stockton, California initially defaulted and then declared bankruptcy. According to Kiplinger’s Personal Finance magazine, up to 341 million dollars of investor money could be lost in the process. In 2011, Jefferson County, Alabama filed for bankruptcy. It is thought likely that up to 3.47 billion dollars could be lost. Before these poor economic times, it was almost unheard of for a municipality to not pay its debts. The instances of default could be counted on one hand. It’s a different world now it seems. When times were good, some cities over-spent on capital assets. Stockton sold millions of bonds to finance a marina, a stadium, a sports arena, […]

THE TAX ATTIC with Jerry Coon

September 13, 2012 // 0 Comments

The tax profession industry is regularly given updates of the areas that the Internal Revenue Service will emphasize in the near future. The IRS doesn’t keep these areas secret. Especially in compliance, they want all of us to know what they are going to be looking at in audits and the areas they are going to emphasize in their educational efforts. I have noted in past articles that the current tax gap runs about 450 billion dollars. Right or wrong, it is presumed that small-business underreporting accounts for a significant portion of this 450 billion. Based on that premise, it’s no great surprise that small business bears the brunt of IRS compliance. According to recent IRS communications as compiled by Beyond 415, a tax professional educational resource, here are the eight small-business compliance areas the IRS will be looking at through the end of 2013. First, they are going to look at the reporting of an employee’s, specifically the owner’s, personal use of company cars. This personal use is to be reported on either a 1099 or directly on the employee’s W-2. While looking at past audits, it was found that, as a whole, small-business employers don’t do a good job of reporting the personal use of company cars on any form. The overall area of fringe benefits including medical insurance, medical expense reimbursement plans, and retirement plans reporting will also be looked at. Second, as I noted in last week’s article, generally high income/high wealth taxpayers will draw special scrutiny. Using the IRS’ current definition of high income/high wealth, taxpayers with positive income of $200,000 meet the definition of high income/high wealth. Positive income is defined as gross income or sales income before all expense deductions. Specifically, the IRS says they will focus on Schedule C Sole Proprietors who have positive income or sales of more than $1,000,000. More of those taxpayers can expect to be audited. Third, the IRS is going to match 1099-K reporting with tax returns. A 1099-K is used to report credit card transactions that are cleared through a financial institution. An example might be transactions cleared through eBay. These will be reported to the taxpayer via a 1099-K. The taxpayer then reports these transactions on a business return, quite […]

THE TAX ATTIC with Jerry Coon

September 6, 2012 // 0 Comments

Mitt Romney and Paul Ryan officially became the Republican candidates for the offices of president and vice president last week. Now the fun can really begin as President Obama and Joe Biden will do their best to make those two guys look bad, and Romney and Ryan will equally reciprocate. We may look at Romney and Ryan as the conservatives and Obama and Biden as the liberals, but I think the Internal Revenue Service looks at all four of them as belonging to the “wealthy” class of taxpayers. It’s interesting that these four multi-millionaires all want to downplay their wealth. This is just my opinion, but since each of them worked hard for their money, shouldn’t they be somewhat proud of their accomplishments? Obama has written several books that have earned him millions. You would swear he paid someone to author and publish those books instead of him getting paid. Romney has run several businesses that have earned him millions. You would think he was an assistant to the CEO instead of the CEO. Biden and Ryan both have regular backgrounds but today have nice portfolios at their disposal. However, it’s almost like not one of them can afford the taxi ride home. We know that’s not true. It’s just fashionable to behave like they are “regular” people. They are not but let’s get back to the Internal Revenue Service’s treatment of the wealthy. The IRS does give special treatment to wealthier taxpayers. Approximately 30% of all taxpayers with earnings of 10 million dollars or more are audited on an annual basis. I would say that when Mitt Romney says he paid 15% in tax, there would probably be a good chance that he could produce an IRS audit that confirms that figure. Comparing that 30% figure to the 1.1% of taxpayers overall that are audited gives you an indication of just how special the IRS figures the wealthy are. Taxpayers with incomes of between 5 and 10 million dollars are audited less frequently; 20.75% are audited on an annual basis. Taxpayers with earnings between 1 and 5 million dollars are audited 11.8% of the time. That is still substantially more than the 1.1% overall audit figure. All of these audits take place because two […]

THE TAX ATTIC with Jerry Coon

August 30, 2012 // 0 Comments

From a professional improvement viewpoint, it has been a busy summer at Action Tax Service. Continuing education is always the name of the game in the tax business, but this summer was special. Tax professionals Kathy Anderson, Rochel Barnes and Darlene Norden all took a class and passed a competency test created and administered by the Internal Revenue Service. By passing the test, each of them became a Registered Tax Return Preparer (RTRP). In addition, another Action Tax Service employee, Shelley Parker, went through the lengthy process of reinstating her Certified Public Accountant (CPA) license. Going into this tax season, we will have one Enrolled Agent (myself), four Registered Tax Return Preparers (myself, Kathy, Rochel, Darlene)and one CPA (Shelley) on staff. A preparer can be licensed in more than one category. I’m both an Enrolled Agent and a Registered Tax Return Preparer. This test-taking, continuing education, and licensing is important because, in the near future, as of January 1, 2014, only RTRPs, EAs, CPAs, and attorneys will be allowed to sign a tax return as a paid preparer. The IRS is making a concerted effort to better monitor and control the tax preparation process. Limiting those who can sign a tax return is one of the best ways to get a handle on both monitoring and controlling that process. I’m extremely proud of these employees. Congratulations to Kathy, Rochel, Darlene and Shelley. Action Tax Service is ready today for that 2014 date. We are all also hoping that the Internal Revenue Service is ready for 2014. The current estimate for the tax gap is $450,000,000,000. The definition of the tax gap is the amount of money collected by the IRS as opposed to the amount of money that taxpayers should be paying if all of the rules and regulations were followed. The IRS is charged with eliminating that figure. There were 141 million individual tax returns filed in the 2010 tax year. There were 1.8 billion informational returns, such as W-2s and 1099s, sent to the IRS. The IRS matched up these informational returns with the tax returns. Unfortunately, they found approximately 20,000,000 discrepancies that resulted in the IRS sending out almost 5 million notices proposing to assess additional tax due. Just as unfortunately, according […]

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