The Tax Attic with Jerry Coon — October 14, 2010

October 14, 2010 // 0 Comments

Integrity is a way of life My minister at Rockford Reformed Church, Rick Tigchon, sometimes hits a “grand slam” of a sermon. Since the baseball playoffs are in full swing, I thought I would borrow one of its terms to describe his wonderful sermon given to us this last Sunday. Since the Lions finally won a game, I know I should be using a football term. But I love baseball, while I just like football, so I’m sticking to the baseball term. The sermon dealt with the subject of “integrity.” One of the examples he cited involved a father and son buried close to each other. The father had a very lengthy list of accomplishments on his gravestone detailing his life’s accomplishments. He must have been quite the fellow. The son, however, had only five words inscribed on his grave marker: “A man of unquestioned integrity.” Now that’s my kind of guy. Those words are powerful and say as much as we need to know about the son. It doesn’t say that his middle name was Solomon and he was the wisest man of the day. It doesn’t say he was a great athlete, or the best man at his job, or the best businessman in the area. It doesn’t say he was a great family guy, or the wealthiest man in the region, or even the nicest of guys. What it does say is that he dealt with people on an honorable basis and with “unquestioned” integrity. He was a man of his word. Oh, he could have been wise, probably was a great family man, perhaps was someone who could hit a curveball, and may have operated a successful business. Those characteristics and abilities are items that his dad would have listed on his tombstone. Those accomplishments in and of themselves don’t tell the whole story. The son took it all one step further and let integrity be his guide. Those who knew him honored him with that five-word inscription: “A man of unquestioned integrity.” What a different type of world this would be if everyone followed the son and let integrity be their guide. Rick and I are members of the Reformed Church, but integrity is much greater than the Reformed Church. It […]

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 — 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 […]

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