THE TAX ATTIC with Jerry Coon

February 24, 2011 // 0 Comments

Main points of Snyder’s plan discussed Holy cow! Governor Synder has really upset the apple cart. Of course, he would argue that the apple cart needed to be upset this time. No one should be too surprised, since he was elected just over three months ago, running on a platform of fixing Michigan’s financial condition. At least he somewhat uniformly upset everyone’s apple cart. The state of Michigan has been in a tough spot for some time now. The last few years they have used smoke and mirrors to balance the budget. One year it was the cigarette lawsuit settlement. Another year it was a combination of items, including the $250 lifetime trailer license plate fees. Last year it was stimulus money and this year it was stimulus money and the federal “edujobs” dollars. There just aren’t any more rabbits in the hat. Next year was going to be a 1.8 billion dollar deficit problem. So last Thursday, the governor presented his ideas of how to right the ship. His proposed budget for the October 1, 2011 through September 30, 2012 fiscal year still spends 47 billion dollars. It does cut total spending by 1.2 billion dollars and increases revenues by 1.7 billion dollars. His idea is to flatten out and simplify the tax code. Is this the beginning of a nationwide movement to a flat tax? I would bet there are quite a few states looking at what is going on in Michigan—peacefully going on in Michigan—and waiting to see how it works out. Perhaps our federal government should be paying attention as well. Let’s go over the main tax points of the governor’s plan. There are a few main provisions and lots of minor provisions. First, corporations will pay tax at a flat 6% tax rate based upon the corporation’s federal taxable income. His bill eliminates the Michigan Business Tax (MBT) in totality. This will free up a whole staff of MBT experts to work somewhere else in the Treasury Department. If not one other simplifying measure was instituted, just getting rid of the diabolical MBT has to cut several hundred or even thousand pages out of the tax code. Good riddens. Second, the personal income tax rate will drop to 4.25% from […]

THE TAX ATTIC with Jerry Coon

February 3, 2011 // 0 Comments

Rules must be met to claim EITC  16,000,000—that’s a large figure. It’s the initial estimate of the number of taxpayers who could have their tax return processing delayed this season. When Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 17, it may have caused a few of the software people to go apoplectic. My technician friends tell me that adjusting tax return processing software on the fly is not conducive to low blood pressure. The direct result of these late changes has caused this tax season to get off to a slow start. Fortunately, the estimate of affected tax returns has now been revised downward to 9,000,000. However, the actual number of returns that we have been able to submit to the IRS has been very small. It seems that most returns that Action Tax Service prepares either itemize to claim mortgage interest and property taxes or have the tuition deduction for children in college or are able to claim the educator deduction for classroom supplies. These returns are all in the hold pattern and can’t be submitted until February 14. About the only returns that can be finished and submitted for a refund before February 14 are of the W-2 only variety. Since the IRS isn’t processing those extra 9,000,000 returns this year until February 14, as expected, they have had no trouble in processing the ones that are submitted in a very timely matter. Let’s discuss some of the returns that can be submitted quickly and do qualify, in many instances, for a large refund. That would include returns with the Earned Income Tax Credit (EITC) on them. Since our Michigan economy has gone downhill and seems to want to remain in the tank, there are now more people who qualify for the EITC. Taxpayers filing a joint tax return with three children can have income up to $48,362 and receive some EITC. Single taxpayers with three children can have income up to $43,352 and receive some EITC. There are many taxpayers today who earned well over that figure three or four years ago, but now make well under these maximum figures and therefore qualify for the EITC. This is a large credit that is […]

The Tax Attic with Jerry Coon — December 30, 2010

December 30, 2010 // 0 Comments

Consider 10 items before 2011 Leave it to the Internal Revenue Service to assume the role of the “Grinch who stole Christmas” one more time. They announced last Thursday that due to late changes made by Congress, the IRS will require some extra time to revise their processing software. The extra time means that approximately 16 million taxpayers will see their refunds delayed by up to one full month. Said IRS Commissioner Douglas Shulman, “The majority of taxpayers will be able to fill out their tax returns and file them as they normally do.” However, the 16 million taxpayers who want to claim one of the deductions that Congress added with the passing of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 are not included in this “majority.” For those taxpayers, it may mean they will have to wait until mid- to late-February to have their return processed. If the taxpayer has a balance due, this is no big thing. It is only those taxpayers expecting a refund in late-January that the one-month wait will seem to be interminable. The taxpayers affected include those who claim the $250 teacher’s classroom supplies deduction, the $4,000 tuition deduction, the mortgage insurance premium deduction, and those claiming state sales tax and certain charitable deductions. I’m surprised there are only 16 million affected taxpayers. Spending a refund before it actually is in the bank this year is not a good idea. There are many good ideas available, however. Some will make a refund larger or a balance due smaller, and some will take advantage of an expiring tax provision. The most common strategy available is to accelerate deductions into the current year. By accelerating deductions into December 2010 and then filing the tax return in 2011, the tax benefit is realized quickly. By waiting to make the deduction in 2011 and filing the return in 2012, a whole year elapses before the tax benefit is realized. If you believe in the time value of money, making the deduction in December makes perfect sense. Here are 10 items to consider before the stroke of midnight on December 31: 1. Make a charitable contribution in December that you were going to make in January. Remember that Michigan […]

THE TAX ATTIC with Jerry Coon — December 16, 2010

December 16, 2010 // 0 Comments

Negotiations to benefit economy Chicago is a great place to spend a weekend. Our daughter, Kim, is working on her master’s degree at DePaul University, so visiting her provides the perfect excuse to go to Chicago and take in some of the sights. On Friday night, we went to the Christkindlmarkt in downtown Chicago. The Christkindlmarkt is an outdoor bazaar that originated in Germany. Knowing the Germans, it most likely was really just a great reason to get together and drink some beer. It has evolved and now has many merchants from many European countries displaying their Christmas wares. Beautiful handcrafted ornaments, Christmas decorations and gifts were available from a variety of countries. We sampled and bought some made-on-the-spot chocolate. Hot, spiced wine was available as well as German beer. It was a clear, cold perfect night for strolling around Daley Plaza. Of course, that changed on Saturday. It was still cold, but the clear went away. It rained all day Saturday so we went inside to the Museum of Science and Industry. Among the attractions we looked at were the Christmas trees on display from around the world. The museum has more trees than Meijer Gardens, but all of us agreed that the Meijer trees are better. When we left, we were greeted by much windier, much colder, and thicker rain that eventually did freeze and then turned to snow. Sunday was brutal and it took us about twice the normal time to get home, but we did get home safely. Friday, on the way down, we did stop at the Cabalas in Hammond. Too bad the Cabalas in Walker was never built. That could have been a destination-type of attraction for Walker. Rockford could use a large destination-type of attraction. Chicago has several attractions to bring people into the area such as the Ferris wheel on Navy Pier, the U-505 German submarine within the Museum of Science and Industry, the Shedd Aquarium, and the Goose Island Brew Pub. I had to throw in the brew pub because we aren’t going to match Chicago on those other attractions, but I believe our city would support a Brew Pub. Sometime in the future, I hope to not have to travel to Chicago, Holland or even […]

THE TAX ATTIC with Jerry Coon — December 9, 2010

December 9, 2010 // 0 Comments

Ensure end-of-year deductions will be allowable   As we approach the end of this year, December 31 is the magic date. In order to include most items on this year’s tax return, payment must occur on or before December 31. The definition of “payment,” however, takes on a special meaning on December 31. The general definition today is that when a check is written, the item is paid. If I write a check on December 31, 2010, and can prove that I mailed it on December 31, 2010, in most instances—but not always—that item is going to be counted as being paid in 2010. We can look to April 15 for some guidance in this matter. If taxpayers have a balance due on their tax return, that amount is due and payable no later than April 15. The taxpayers can write a check on April 15, mail it on April 15, and it will be considered as paid on April 15 even though the check doesn’t arrive at the Internal Revenue Service until a few days later. However, the burden of proving the check was in the mail on April 15 lies squarely on the backs of the taxpayers. Since the check won’t arrive at the IRS until sometime after April 15, the IRS might question if it indeed was mailed on April 15. Anything short of certified mail with proof of mailing and proof of delivery could be questioned. Private carriers such as UPS and FedEx also provide proof of mailing and proof of delivery. A copy of an envelope with a stamp or even a meter showing April 15 can still be questioned because the stamp or meter normally doesn’t have a post office cancellation showing the envelope was mailed on April 15. Taking these same rules back to December 31 tells us that we must be able to prove the check was written and mailed on December 31 and not in January. Anything short of this proof could put the deduction in danger. In other words, if a check is written on December 31, 2010, but not mailed until January 2011, that deduction is questionable. To be safe, just write the check before December 31 so it gets to its destination before […]

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