Posts Tagged ‘Senator Grassley’

Tax Roundup, 1/16/2013: Iowa legislators to push Alternative Maximum Tax? Also: new home office deduction option.

Wednesday, January 16th, 2013 by Joe Kristan
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Kraig Paulsen

It looks like the Republican leadership in the Iowa House of Representatives will be pushing income tax changes this year.  Unfortunately, it looks like they are pushing the plan I call an “alternative maximum tax” like the one floated by Governor Branstad last year and quietly dropped after the election.  O. Kay Henderson reports:

House Republicans are calling for a “flat” state income tax. If their idea becomes law, Iowans would have the option of filing their personal income taxes under the current system — which has a top rate of nearly nine percent — or opting to pay a four-and-a-half percent rate, with no deductions.

 The governor has made it clear property tax reform is his top priority,
but House Speaker Kraig Paulsen of Hiawatha, the top Republican in the
legislature, says Branstad hasn’t said no to cutting income taxes.

20130116-2Any tax practitioner will point out that this will in practice just be one more complication in computing Iowa taxes.  Taxpayers will compute their taxes under both the current system and the flat system and choose the one that results in the lower tax.  I assume the legislative leaders are resorting to this awkward plan to get around the implacable opposition of the powerful Muscatine-based Iowans for Tax Relief to any tax reform that would repeal the deduction for federal taxes on Iowa returns.  Their plan is likely based on that proposed by Iowans for Discounted Taxes.

Far better to just clean up Iowa’s tax law.  Repeal the special interest loopholes and corporate welfare tax credits, get rid of all non-federal deductions, get rid of the deduction for federal taxes, tie the tax law to the federal code, drastically lower the rates, and eliminate the corporation income tax entirely.  In short, enact The Quick and Dirty Iowa Tax Reform Plan.

 

Flickr image courtesy e53 under Creative Commons license

Flickr image courtesy e53 under Creative Commons license

Whether or not Governor Branstad wants to deal with income taxes, he may have to.  His neighbor in Nebraska may be forcing his hand.  1011Now.com reports:

Gov. Dave Heineman is calling for an overhaul of Nebraska’s tax system, saying the state needs to get rid of its individual and corporate income taxes and make up the lost revenue by shutting off as much as $2.4 billion in tax breaks for businesses.

The Republican governor unveiled his tax plan Tuesday during his annual State of the State address to lawmakers.

Heineman says his plan would keep the state competitive with two neighboring states, Wyoming and South Dakota. Both have no individual income tax.

It sounds much like the plan proposed by Louisiana Governor Jindal this week.   If the other states massively improve their income tax systems and Iowa doesn’t, all of the fertilizer tax credits in the world won’t help Iowa’s business climate.

 

 

IRS unveils simplified home office deduction for 2013.  The IRS yesterday unveiled a new optional way to compute home office deductions.  From IR-2013-5:

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

This will be handy.  When you depreciate part of your home for a home office deduction, you lose the ability to exclude that much gain on a later home sale.  Home office deductions are also complicated and a magnet for IRS examiners.  This looks like it will be useful for the growing ranks of people who run businesses out of their home.  Taxpayers will still be allowed to opt out of this new method and compute their home office deductions the old way.  Full details are found in Revenue Procedure 2013-13.

Other coverage:

TaxProf,  IRS Announces Optional $1,500 Home Office Deduction in Lieu of Depreciation

Russ Fox, Is A Simplified Home Office Deduction Better?  “The reality is that $5 per square foot understates the cost of most home offices, especially when factoring in depreciation.”

 

Paul Neiffer,  Senator Grassley Wants Extension of March 1 Filing Deadline:

Due to the passage of the new tax law, the ability of the IRS to accept most farmers tax returns by March 1 is very uncertain.  Senator Grassley’s letter indicates that the IRS has granted an extension in the  past, most recently last year when the MF Global mess occurred.  In that case, the IRS did not actually extend the filing date, but granted  waivers of the penalty for any estimated tax penalty caused by MF Global  untimely mailing of form 1099.

Farmers don’t have to make estimated tax payments if they file by March 1.  If they can’t do that, the IRS can impose estimated tax penalties on the whole balance due.  The late enactment of new tax laws for 2012 may make it impossible for the IRS to process returns by then.

 

January: the month to start your 2013 year-end tax planning!  My new post at IowaBiz.com, the Des Moines Business Record’s blog for entrepreneurs.

Jason Dinesen, Rental Properties and Basis Allocation

TaxGrrrl,  IRS Announces 2013 Tax Rates, Standard Deduction Amounts and More

Mary Ellen Goode,  A Stark Reminder of the Excessive Cost of Complying with the Tax Code

Rush Nigut,  Iowa Business Specialty Court Pilot Project.  I hope it leads to a specialized Iowa Court for tax cases.  Taxpayers are at a huge disadvantage arguing before District Court judges with no tax expertise.

Kay Bell, The 1040 is ready! The 1040 is ready!

Anthony Nitti,  Dear America: Your Higher Payroll Taxes Are Not The Result Of A Tax Increase.  Only if the multi-year payroll tax break didn’t count as a tax cut.

Janet Novack,  11 Ways To Tap Retirement Cash Early, Without A 10% Penalty

David Brunori, Virginia’s Gas Tax Reform (Tax.com)

Howard Gleckman,  A Budget Deal is Staring Them in the Face, But Here’s Why Lawmakers Won’t Compromise in 2013 (TaxVox)

Robert D. Flach has a new Buzz!  He responds to my take on his take on CPAs.

Jim Maule,  Still More Joys of IRC Section 86.

 

Kyle Pomerleau, New Paper on Estate Tax Misses the Mark.  (Tax Policy Bl0g). It’s about…

Caron & Repetti: Occupy the Tax Code: Using the Estate Tax to Reduce Inequality (TaxProf)

My experience in tax practice convinces me that the estate tax is unnecessary to break up and dissipate large estates.  Beneficiaries take care of that just fine.

 

Hey!  I said I was sorry!  Defendant Screws Up His Acceptance of Responsibility (Jack Townsend):

Although the defendant claimed remorse, his actions after the time of the guilty plea continued the obstructive conduct.  Hence, this defendant got no benefit from pleading guilty, and saving the Government and the court the time and expense of trial.  Not only that, his obstructive conduct convinced the judge to sentence him at the top of the unreduced Guideline range.

If you want the judge on your side, it might be a good idea to stop committing the crime for awhile.

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Tax Roundup, 11/29/2012: Lemmings, cliffs and itemized deductions. And beating you until their morale improves.

Thursday, November 29th, 2012 by Joe Kristan

Maybe this is a good year to use itemized deductions after all.  Consider this story in the Des Moines Register,  Iowa GOP delegation may break anti-tax pledge:

Grassley said Republicans are willing to ignore the pledge and tap more tax money “from the same wealthy people (President Barack Obama) wants to get it from.”

Where they differ is that Obama would bump the marginal tax rate to 39.6 percent, Grassley said, while “we would suggest raising the same amount of revenue the president wants to raise by capping deductions for wealthy people.”

If Iowa Senator Grassley and the other tax increase lemmings get their way, it will be a big backdoor tax increase on owners of pass-through businesses that have their income taxed on their 1040s.  While corporations get to deduct their state income taxes on their businesses in full, individuals have to take their state income taxes on business activities “below the line” as itemized deductions.  Treasury Regulation 1.62-1T(d) explains:

To be deductible for the purposes of determining adjusted gross income, expenses must be those directly, and not those merely remotely, connected with the conduct of a trade or business. For example, taxes are deductible in arriving at adjusted gross income only if they constitute expenditures directly attributable to a trade or business or to property from which rents or royalties are derived. Thus, property taxes paid or incurred on real property used in a trade or business are deductible, but state taxes on net income are not deductible even though the taxpayer’s income is derived from the conduct of a trade or business.

This would be bad news for business owners in high-tax states or whose businesses operate in multiple states — one of their bigger business expenses would become non-deductible if itemized deductions are capped at, say, $50,000.  Somebody should mention to Senator Grassley that Iowa has a high state tax rate.

The push for deduction caps adds another wrinkle to year-end planning.  With rates going up, you would normally defer deductions to next year to get a greater benefit from them.   The cap changes that for taxpayers with high itemized deductions.  If a deduction cap is enacted, it is likely to be effective for 2013.  Better a lower-rate benefit this year than no benefit at all next year under a deduction cap.

The saddest thing about this is the whole game of “taxing the rich” is a stupid distraction.  The $80 billion or so it would raise annually is rounding error in a $1.2 trillion deficit.  Even taxing 100% of the income of “millionaires and billionaires” won’t cover the budget deficit.  The rich guy isn’t buying.

TaxProfTwo-Thirds of Millionaires Left Britain to Avoid 50% Tax Rate.  I doubt many of them headed to France.

Don’t worry, they’ll make it up in free health care.  Iowa’s part-time workers face cut in hours (Des Moines Register):

More than 50 uninsured part-time workers for the city of Cedar Falls will see their hours cut this week so the city can avoid paying for their health insurance under President Barack Obama’s signature health care law.

The move comes as a 12-month “look back” period begins under the new Patient Protection and Affordable Care Act. During the 12 months leading up to 2014, employees working more than an average of 30 hours a week must be offered health care insurance in January 2014.

Nothing is free.

Only time for a very quick roundup today.

Roberton Williams,   TPC’s New Tax Calculator Examines Fiscal Cliff Options (TaxVox)

TaxGrrrl,  Preparedness 101: What Not To Do In 2012 As Tax Rates Creep Up

Christopher Bergin,  The Other Cliff; Hint: It’s in Your Tax Return (Tax.com):

Just think of the insanity. Millions and millions of taxpayers, who every year plan on their refunds (the wisdom of which is an issue for another day) won’t get them on time. They get screwed (a technical tax term).

Paul Neiffer,  Don’t Forget Your Form 1099 Responsibilities!

Anthony Nitti,  Predicting The Future: What Will Your 2013 Tax Liability Be?

The Eagle has landed.  IRS deal means museum home for ‘Canyon,’ no tax bill for former owners (Kay Bell)

Going Concern:  Mo’ Money Taxes Founder Won’t Let Mo’ Problems Keep Him From Serving Clients

Scott Hodge,   Buffett’s Case for Minimum Tax on the Rich Fails on All Accounts  (Tax Policy Blog)

Your beatings will continue until their morale improves.   Warren Buffett: Tax Hikes on Rich Would ‘Raise Morale of the Middle Class’ (TaxProf)

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Is Ethanol still sacred?

Monday, December 6th, 2010 by Joe Kristan

The website The Iowa Republican (“News for Republicans, by Republicans) reprinted a floor speech by Senator Grassley defending ethanol tax credits. That’s not news. What is interesting is the reaction in the comments to the post. The 12 comments all rip the Senator’s defense of ethanol. The first one:

It

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