Posts Tagged ‘Tax Foundation’

Tax Roundup, 8/27/15: Iowa cheap for the factory, costly for the headquarters. And: Instant Tax indictments.

Thursday, August 27th, 2015 by Joe Kristan

All the state taxes. The Tax Foundation has issued its 2015 Location Matters report, “a comparative analysis of state tax costs on business.” It provides a summary of the costs of operating different kinds of business, state by state, with wonderful charts like this one for Iowa:

Source: The Tax Foundation

Source: The Tax Foundation

This chart seems to show that Iowa is relatively easy on manufacturing, but a very expensive place for a service business or a distribution center — with an effective state and local rate of around 40% for distribution facilities. It also shows that the corporation income tax really only clobbers retailers and corporate headquarters.

The charts really get interesting when you compare states. Let’s turn to our neighbors in South Dakota:

20150827sd

Source: The Tax Foundation

While most industries fare much better in South Dakota than in Iowa, capital-intensive manufacturers — especially new ones — do a little worse. This is because South Dakota has a higher sales tax, and, presumably, because of the presence of Iowa’s tax incentives for new manufacturers. Once you settle in, there is little difference.

Here’s what the report says about Iowa (my emphasis):

Despite having the highest top corporate income tax rate in the nation at 12.0 percent, Iowa’s mature capital-intensive manufacturing firm experiences the lowest effective tax burden in the nation at 3.9 percent, due in large part to Iowa’s single sales factor apportionment formula and the lack of a throwback rule, which have the effect of exempting nearly all of a firm’s income from in-state taxation. The operation also experiences a relatively low property tax burden due to the lack of property taxes on equipment and inventory.

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa offers a 50 percent deduction for federal income taxes paid, which helps mitigate the burden of the state’s high corporate and individual income taxes but is also responsible for those high rates.

In addition to its favorable apportionment factors for businesses selling goods out of state, Iowa’s benefits-based sourcing rules work to the advantage of Iowa-based firms selling services out of state. However, effective property tax rates can be exceedingly high for some firms—nearly double the national average for mature distribution centers, for instance—greatly increasing overall tax costs. Qualifying new firms (the manufacturing operations and the distribution center) receive a full abatement of the property tax on improvements for three years, though the abatement does not cover taxes on the value of the land itself.

Manufacturing machinery and research and development (R&D) equipment are exempt from the state sales tax, and the R&D facility receives other incentives as well. Iowa also offers generous investment and job creation tax incentives to new firms, though due to the state’s high tax rates, most new firms continue to experience above-average tax burdens.

This offers some lessons for Iowa’s ongoing tax reform debate:

– The Iowa Corporation Income Tax, where it isn’t futile, is a job killer, making it very expensive to locate a corporate headquarters here.

– Iowa’s vaunted tax incentives benefit the lucky and the well connected, while stifling start ups: “most new firms continue to experience above-average tax burdens.”

– Despite the recently enacted property tax reforms, Iowa’s real estate taxes still are a big cost for Iowa businesses.

The full report can be found here.

Related:

Can Iowa tax reform happen?

Tax Update’s Quick and Dirty Iowa Tax Reform Plan

 

20150827-1

 

Instant tax unhappinessThe tax prep franchise outfit Instant Tax Service had a colorful history before it was ordered to close by a federal judge. It was notorious for “paystub” returns, prepared to claim refunds for a mostly low-income clientele before they got their W-2s. That’s something preparers aren’t supposed to do.

Yesterday things got worse for the owners of Instant Tax Service with an indictment on tax charges. A Department of Justice Press Release lists some of the allegations (my emphasis):

From about January 2004 through November 2012, Ogbazion and Wade executed a scheme to obstruct the Internal Revenue Service (IRS), wherein numerous ITS franchises filed false federal income tax returns without valid Forms W-2 and without the permission of their taxpayer clients.  The false returns included false and inflated sole proprietorship Schedule C income in an attempt to increase the Earned Income Tax Credit.  Over the course of several years, Ogbazion also instructed an ITS employee to electronically file large volumes of unsigned tax returns on the first day of the “tax filing season,” then falsely backdated customer filing authorizations.  In an attempt to obstruct IRS civil compliance audits, ITS maintained and filed false documents with the IRS, including fabricated Forms W-2 created by ITS employees using tax preparation software, and forged client signatures on various false IRS forms.

Earned income tax credit skeptics are often scolded that the 25% rate of improper payments isn’t all due to fraud; it’s because taxes are hard and all. Taxes are hard, but if there isn’t massive fraud, it’s not for lack of trying. Rather than trying to run a welfare system through the tax code, we should be looking at a universal benefit along the lines proposed by Arnold Kling.

Related:

Arnold Kling, The EITC in Practice

Tax Update, Helping the poor by increasing their marginal tax rate.

 

Vox.com, H&R Block snuck language into a Senate bill to make taxes more confusing for poor people (Via the TaxProf).

H&R Block’s entire business model is premised on taxes being confusing and hard to file.

Well, that and promoting IRS preparer regulation to put competitors out of business.

Robert Wood, Trump Firing H&R Block Could Actually Help Immigrants

 

20150827-2

 

Jason Dinesen, Things a Business Owner Needs to Know Before Hiring Employees

Robert D. Flach, WHAT DEDUCTIONS WOULD YOU KEEP?

Tony Nitti, 2013 Tax Changes Raised The Tax Bill On The Wealthiest 2 Percent By $60 Billion. “Whether an additional $60 billion in revenue is enough to satisfy the current administration remains to be seen.” No, we already know it won’t.

TaxProf, The IRS Scandal, Day 840. More about Toby Miles. Meanwhile, Commissioner Koskinen dismisses the revelations of Lois Lerner’s canine email address under the “old news” ploy, and tells Tax Analysts ($link) that even though she hates Republicans and Tea Partiers, Lerner’s team was fair and square in dealing with their exemption applications.

Kay Bell, Lois Lerner used her dog’s email to conduct IRS business

 

Joseph Thorndike, When it Comes to Taxes, Americans Are of Two Minds – or Three, or Five or Eight. “While trying to make sense of Donald Trump’s statements on tax policy, I was struck by their disparate quality; to call them random is to exaggerate their coherence.”

Share

Tax Roundup, 9/16/14: U.S. taxes are worse than the Cubs. And: the last month of extension season has begun!

Tuesday, September 16th, 2014 by Joe Kristan

Now to finish off the extended 1040s.  The extension season for business returns ended yesterday. Now it’s time to mop up the remaining extended individual returns — the “GDEs,” as Robert D. Flach calls them.

 

CubsIf the U.S. tax system were a baseball team, it would be worse than the Cubs. That’s the conclusion I draw from the Tax Foundation’s first International Tax Competitiveness Index released yesterday. The U.S. ranked 32nd out of the 34 rated countries, ahead of only Portugal and France. At 66-84 this morning, the Cubs are ahead of four other teams out of the 30 in the major leagues. Small but mighty Estonia is number 1 (in the Index, not in baseball).

Some “key findings” of the study:

The ITCI finds that Estonia has the most competitive tax system in the OECD. Estonia has a relatively low corporate tax rate at 21 percent, no double taxation on dividend income, a nearly flat 21 percent income tax rate, and a property tax that taxes only land (not buildings and structures).

France has the least competitive tax system in the OECD. It has one of the highest corporate tax rates in the OECD at 34.4 percent, high property taxes that include an annual wealth tax, and high, progressive individual taxes that also apply to capital gains and dividend income.

The ITCI finds that the United States has the 32nd most competitive tax system out of the 34 OECD member countries.

The largest factors behind the United States’ score are that the U.S. has the highest corporate tax rate in the developed world and that it is one of the six remaining countries in the OECD with a worldwide system of taxation.

The United States also scores poorly on property taxes due to its estate tax and poorly structured state and local property taxes

Other pitfalls for the United States are its individual taxes with a high top marginal tax rate and the double taxation of capital gains and dividend income.

20140916-1Unlike the Cubs, the U.S. tax system shows little hope for improvement. What changes we’ve seen recently, or are likely to see in the coming year, only make things worse. The implementation of FATCA doubles down on the committment to worldwide taxation, while putting U.S. taxpayers at a disadvantage abroad.  The inversion frenzy is likely to promote legislation to place even more burdens on U.S.-based businesses.  This legislation responds to the failures of worldwide taxation by doing it harder. In baseball terms, it’s the opposite of Moneyball.

 

TaxGrrrl has more with U.S. Ranks Near The Bottom For Tax Competitiveness: We’re #32! “The United States is one of just six OECD countries that imposes a global tax on corporations meaning that its reach extends beyond its own border.”

Martin Sullivan, REIT Conversions: Good for Wall Street. Not Good for America. (Tax Analysts Blog). REITs are a corporate form that allows some real estate income to be taxed only once. They are a do-it-yourself response to a dysfunctional corporation income tax. It would be good for America if all corporations could move to something more like the REIT model, with a deduction for dividends paid to eliminate the multiplication of tax on corporate income.

 

 

20120511-2Leslie Book, Tax Court Finds Reliance On Advisor In Messy Small Business Setting (Procedurally Taxing), addressing a case we discussed here.  “VisionMonitor is a useful case for practitioners seeking a reliance defense even when advice does not come in the way of a formal opinion, and the advice and corporate formalities reflect less than perfect attention to detail. In other words, this case is representative of the way many small businesses operate.”

Peter Reilly, Grandfather Beats IRS In Tax Court Without Lawyer. “They mystery to me is why when the IRS decided to drop the penalty, they did not drop the case entirely, since, by dropping the penalty, they were indicating that they did not think Mr. Roberts was lying and, given that, it’s pretty clear that he wins.”

Jack Townsend, More on the Warner Sentencing Appeal. Did the Beanie Baby Billionaire get off easy?

 

Jim Maule discusses The Persistence and Danger of Tax and Other Ignorance. It’s fascinating how a man who accurately notes the prevalence of ignorance among voters still thinks policy concocted by politicians elected by these same ignorant voters is better than private solutions .

TaxProf, The IRS Scandal, Day 495. I like this point: Why Focus on Ray Rice Instead of Lois Lerner? The relative attention to Rice and Lerner is roughly inverse to their relative importance.

 

np2102904Norton Francis, How Michigan Blocked a $1 Billion Tax Windfall for Corporations (TaxVox). “The case involved the way multistate corporations calculated their state income tax liability from 2008 to 2010. The trouble for Michigan is that, during this time, they had two ways to apportion state income on the books: one, which they thought no longer applied, based on a three-factor formula—the shares of a firm’s property, payroll, and sales present in the state—and the other based only on sales in the state.”

Matt Gardner, New S&P Report Helps Make the Case for Progressive State Taxes (Tax Justice Blog). I link, but I sure don’t endorse.  Using high individual tax rates at the federal level to redistribute income is futile and unwise, but at least it’s plausible. Using state income taxes for that purpose is just absurd.

 

News from the Profession. We Can’t Help But Wonder if This EY Conference Room Cactus Is Trying to Say Something (Adrienne Gonzalez, Going Concern)

He lost the job after he told his client to get a haircut.  Former Sampson consultant guilty of fraud, conspiracy*

*For those of you who will point out that the guy in the Bible is named “Samson,” just you be quiet.

 

Share

Tax Roundup, 7/30/14: Iowa Illustrated! And: an unhappy take on IRS offshore account enforcement.

Wednesday, July 30th, 2014 by Joe Kristan

iowa-illustrated_Page_01Iowa’s tax system in pictures.  The Tax Foundation yesterday posted “Iowa Illustrated: A Visual Guide to Taxes & the Economy.”  It is a valuable and sobering introduction into Iowa tax policy.  Anybody interested in Iowa’s tax policy mess should start here.

The Tax Foundation summary:

Here are just a few examples of the more than 30 key findings:

  • Iowa relies on federal funding for one-third of its budget
  • Iowa’s sales tax rate has tripled since its creation
  • Iowa’s business taxes rank poorly nationally, and are uncompetitive regionally
  • Iowa has had a net loss of 63,287 people over the last 20 years
  • Effective tax rates in Iowa vary widely across different industries.

By offering a broader perspective of Iowa’s taxes and illustrating some of the lesser-known aspects of Iowa’s business environment, this guide provides the necessary facts for having an honest debate about how to improve the structure of The Hawkeye State’s tax system. 

There’s too much good stuff to summarize, but I will highlight a few items.

This might explain why property tax reform is such a big deal here:

iowa-illustrated_Page_38

 

Raising individual tax rates on “the rich” means taxing employment:

iowa-illustrated_Page_39

 

Despite its highest-in-the-nation corporation tax rate, Iowa’s corporate tax is a sub-par revenue generator:

iowa-illustrated_Page_41

While agriculture is important in Iowa, financial services are a bigger industry:

iowa-illustrated_Page_13

Iowa has a diverse economy, but our tax system still parties like it’s 1983:

iowa-illustrated_Page_40

A lot of the tax receipts go out the back door to the well-connected via tax credits:

iowa-illustrated_Page_42

It’s hard to make a case for the current Iowa tax system.  Maybe the legislature will finally be ready to do something about it next session.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a great place to start.

 

Now to our regular programming:

 

20130419-1Jack TownsendTime for an IRS Ass Kicking? Herein of Lack of Honor and a Dumb Decision in OVDI/P and Streamlined:

So, one could ask, why wouldn’t it be an easy decision for the IRS to let taxpayers in OVDI/P who had not yet signed a Form 906 to proceed fully under Streamlined.  Well, it appears, that the IRS wanted to keep all of the income tax, penalties and interest for closed income tax years and penalties for open years that it was not entitled to, while giving a partial benefit of the Streamlined program (the 5% penalty applied to innocents, many of whom should owe no penalty).  Basically, the IRS wanted something that it was not entitled to. 

Bad faith seems to be a part of the IRS culture in dealing with offshore issues.

 

Peter Reilly, Retailer Can Only Deduct Perks When Redeemed  “I suspect that the accrual is probably not what makes or breaks these programs.”

Jim Maule continued his “Tax Myths” series while I was away.   I like his “The Internal Revenue Code Fills 70,000 Pages” post.

 

David Brunori, Lawyers Whining About Taxes (Tax Analysts Blog):

For the record, I don’t like taxes. But if you’re going to have a government, you should pay for it the right way. Sales tax should be paid by consumers on all their purchases. Business inputs should never be subject to sales tax. Everyone who has ever studied or even thought about consumption taxes knows that. So it makes sense that legal services should be taxed. Lawyers don’t like that because, well, people might use less of their services. That would be a tragedy beyond comprehension.

Not that I’m in a hurry to charge sales taxes to my individual clients, but David is right on the policy.

 

20140730-1Howard Gleckman, Are Tax Inversions Really Unpatriotic? (TaxVox)  “Selling war material to an enemy or financing a terrorist organization is unpatriotic—and illegal. Using legal avoidance strategies to reduce taxes may be distasteful or unseemly, but it is not unpatriotic.”

Kay Bell, Defense Department workers, some with top security clearance, owed $730 million in back federal taxes.  So tell me again about corporate tax “deserters.”

 

Annette Nellen, IRS Voluntary Preparer Regulation System – Worthwhile? Legal?

TaxProf, The IRS Scandal, Day 447

 

Because Hollywood needs more taxpayer money!  29 Members of Congress Ask California to Boost Film Tax Credits (Joseph Henchman, Tax Policy Blog).  In a just world, this would automatically cost all 29 of these critters their seats.

 

Rebecca Wilkins, Stop the Bleeding from Inversions before the Corporate Tax Dies (Tax Justice Blog).  Darn, I’ll have to stroll into town for a Band-aid.

 

Share

Tax Roundup, 10/10/13: Climate change edition. And great moments in web design!

Thursday, October 10th, 2013 by Joe Kristan

Iowa has moved out of the bottom 10 in the Tax Foundation’s State Business Tax Climate Index for 2014.  That’s the good news.  The bad news is that it’s not the result of Iowa’s tax climate improving, but because Connecticut’s got worse.

 

2014 State Business Tax Climate Index

Iowa’s 49th-place rating for Corporation taxes accounts for much of Iowa’s poor showing.  Iowa has the highest stated corporate tax rate, at 12%.  It has a state corporation alternative minimum tax and is full of complexity — yet is so full of loopholes and carve-outs that it generated only around $425 million of Iowa’s $7.8 billion in 2012 tax revenues.  By comparison, Iowa’s (also complex and loophole-ridden) individual income tax generated over $3 billion of that revenue.

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa’s Association of Business and Industry has made improving Iowa’s business tax climate its legislative priority for the upcoming session.  Here’s what I think we need:

Repeal of the futile Iowa corporation income tax.

Repeal of every last economic development credit, including the refundable research credit and especially including enterprise zone and similar credits.  No company is so important that it should be receiving cash subsidies in excess of taxes paid to Iowa.

–  Drastic simplification of the Iowa individual tax, including repeal the deduction for federal taxes and of as many special breaks and credits as possible, in exchange for rates of 4% or lower.

In other words, the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  We can do a lot worse — in fact, we do now.

Related:

Russ FoxThe 2014 State Business Tax Climate Index: Bring Me the Usual Suspects.  “And for those who think that taxes don’t matter, I’m in Nevada as a result of taxes and California’s miserable business climate.”

TaxGrrrl, Go West, Young Man: Best States For Businesses Are In The West

Joseph Hechman and Scott Drenkard, A Response to Matt Yglesias on the 2014 State Business Tax Climate Index (Tax Policy Blog):

There is however a brief blog post by Slate’s Matt Yglesias that went up this morning, which is along the lines of (1) there’s businesses in California and New York, (2) Tax Foundation criticizes California and New York for their tax policy, so therefore (3) taxes don’t affect business and individual location decisions. Center for Budget and Policy Priorities’ affiliates have already started spreading around Yglesias’s post on Twitter, and we imagine it will show up in other places.

The answer to this is easy. Those high-tax states also have other non-tax qualities—and often legacy investments and industries—that overcome the obstacle of a broken mess of a tax system for many businesses and individuals.

Taxes aren’t everything, but they’re definitely something.

 

 

The Tax Foundation has helped draft a new tax reform proposal for Nebraska. Some thoughts from David Brunori in A Solid, Albeit Mild, Tax Reform Proposal:

The primary plan is relatively straightforward. It is revenue neutral, reduces personal and corporate income tax rates, reduces incentives, expands the sales tax to more services, and simplifies administration. Moreover, belying the assertion that conservatives hate poor people, it doubles the earned income tax credit, greatly increases the personal exemption, and indexes the tax rates. In other words, the plan is consistent with virtually every notion of sound tax policy. It would make the Nebraska tax system fairer, simpler, and more conducive to retaining people and firms.

I think increases in the earned income credit are unwise because their high hidden marginal rates as taxpayers improve their incomes serve to punish emergence from poverty.  Still, the plan would be a big improvement for Nebraska — and for Iowa, for that matter.

 


Tony Nitti, Custom Homebuilders Are Subject To Section 263A And A Primer On The UNICAP Rules.  “Today is the day we discuss Section 263A, among the more dry topics in the driest area of law known to man”  I covered the case Tony writes about here.

Jason Dinesen, Basics of the Iowa Pension Exclusion

Kay Bell, Avoid common mistakes on your extended Oct. 15 tax filing

Paul Neiffer, Watch our for FBAR.  As Paul points out, you don’t have to be even trying to hide anything from the IRS to get clobbered.

 

 

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Jack Townsend, IRS Information on Operations During Government Shutdown 

William Perez, IRS Shut Down, Week 2


Peter Reilly,  Blame It On the Lawyers – Creating Basis Out Of Thin Air Not The Taxpayer’s Fault   

 

TaxProf, The IRS Scandal, Day 154

Howard Gleckman,  It is Never Good When the U.S. Treasury Gets Compared to Brazil (TaxVox)

Tax Justice Blog, Stop the Presses: Apple Has Not Been Cleared on Tax Avoidance Charges.  So they should seek out new taxes to pay?

Keith Fogg, Vince Fumo: Local Political Corruption Meets Tax Procedure (Procedurally Taxing)

 

Going Concern, The Definitive Guide to Accounting as a Second Career.  Maybe I should consider that.

 

Janet Novack, Dumbest Identity Thief Ever? “He contacts police looking for wallet he lost stuffed with debit cards issued in 13 stolen names.”  Yes, he may be dumb, but what does it say about the IRS that he and other dummies are stealing $5 billion of our money through identity theft fraud annually?

Great moments in web design.  From Instapundit: “HEALTHCARE.GOV NOT ONLY THE WORLD’S WORST WEBSITE, it’s also the world’s most expensive, with a price tag of $634,320,919.”  The Tax Update website cost approximately 1/400,000 of that, and we may have enrolled as many folks in Obamacare as Healthcare.gov has so far.

 

Share

Bloggers on Brief against preparer regulation

Tuesday, May 28th, 2013 by Joe Kristan
Flickr image courtesy Tim under Creative Commons license

Flickr image courtesy Tim under Creative Commons license

I have joined an “amicus” brief to the D.C. Circuit Court of Appeals on the Loving case against the IRS preparer regulation regime.  Also on the brief are boggers Russ Fox and Jason Dinesen, as well as The Tax Foundation.

The IRS is appealing the district court ruling rejecting their power grab over preparers.  Accounting Today reports:

The brief argues that the IRS violated the APA’s arbitrary and capricious standard in issuing the regulations, for example, by engaging in a flawed cost/benefit analysis under Executive Order 12866 in rejecting alternative approaches. “The IRS ignored the increased costs to consumers of tax-return preparation services in making this analysis,” said the brief.

Jason’s argument:

As an Enrolled Agent, Mr. Dinesen is not directly affected by the regulations. Nevertheless, Mr. Dinesen believes the regulations would have an indirect adverse effect on his business (and on Enrolled Agents generally) because the Registered Tax Return Preparer designation created by the regulations would have the effect of diminishing the value of the Enrolled Agent designation in the market for tax-preparation services, largely because the number of Registered Tax Return Preparers would be substantially greater than the number of Enrolled Agents.

Next to consumers, I think enrolled agents are the folks most harmed by the regulations.  The RTRP designation would make it very difficult for EAs to market their much higher level of credentials.

Russ Fox is also an enrolled agent,  but he raises different points:

As an Enrolled Agent, Mr. Fox is not directly affected by the regulations. Nevertheless, based on his extensive experience in tax practice, he has a number of objections to the regulations. In addition to the defects in the regulations described by the district court, the plaintiffs-appellees, and this brief, Mr. Fox objects to the regulations because the IRS already has ample statutorily authorized tools to apply against incompetent or unscrupulous tax-return preparers; because the regulations will not be effective in eliminating incompetent or unscrupulous tax-return preparers; because they will give a tacit stamp of approval to preparers who are not competent; because they will have the effect of driving many low-volume tax-return preparers out of business, thereby increasing the cost of tax-return preparation services for the clients of those preparers; and because administering the regulations will require scarce IRS resources that could be better used for other purposes, such as combatting identity theft.

He is correct, in my view.

My case:

 Mr. Kristan objects to the regulations because they will reduce options  for consumers of tax-preparation services by driving many low-volume but competent and conscientious tax-return preparers out of business because of the cost of compliance with the regulations; will increase the compliance cost and burden on low-volume tax-return preparers that remain in business; will increase the cost of tax preparation services without increasing the value of those services; will prompt some low-income individuals to resort to tax-return preparers who will evade compliance with the regulations; will prompt some low-income individuals to prepare their own returns, rather than using paid preparers, resulting in less accurate returns; will prompt some low-income individuals to cease filing altogether; will adversely affect Enrolled Agents by diminishing the value of their Enrolled Agent designation; and will likely ultimately be extended to CPAs, attorneys, and Enrolled Agents.

After the revelations regarding the IRS treatment of the administration’s political opponents, why would anyone think it wise to let the IRS regulate preparers?  It makes as much sense as having prosecutors regulate defense attorneys.

Share

Tax Roundup, April 3, 2013: Six days to Iowa Tax Freedom Day.

Wednesday, April 3rd, 2013 by Joe Kristan

Tax Freedom Day for Iowans will arrive April 9, according to the Tax Foundation.  That’s nine days sooner than for the whole country.  From the Tax Policy Blog:

Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar-based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income.

 In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 108 days, or 29.4 percent, into the year. Americans will spend more in taxes in 2013 than they will on food,  housing, and clothing combined.

You can find Tax Freedom Day for your state from this Tax Foundation Map:

 20130403-1

The national Tax Freedom Day is five days later than last year:

Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect.

But cheer up!  If taxes were high enough to pay for all government spending without borrowing, it wouldn’t be until May 9.

 

TaxProf, ESPN: Athletes’ Charities Fall Short of IRS, Nonprofit Standards.  Chis Zorich might agree.  Actually, the arguments against athletes setting up their own charitable foundations are the same as those for anybody else.  They take more work and expertise to run than most people realize.  Compliance with federal tax laws and state laws can be costly.  It’s easy to get into trouble with them, like Mr. Zorich did.  It’s much wiser for athletes with a charitable interest to work with an established charity that knows what it’s doing.

 

So you owe the IRS on your 2012 return and cash is tight. What now?My new post at IowaBiz.com, The Des Moines Business Record blog for entrepreneurs.

Jason Dinesen,  Taxpayer Identity Theft — Part 14 .  The latest adventures in trying to get the IRS to pay the refund of his client, an identity theft victim, for 2010.  She may have it in “another 6-8 weeks.”  We’ll see.

 

Kaye Thomas,  Last Call for Refundable AMT Credit.  Congress didn’t extend the refundability of long-term alternative minimum tax credits, making the exercise of incentive stock options once again potetially ruinous.

TaxGrrrl,  Taxes From A To Z (2013): R Is For Recapture

 

Kay Bell, What do you plan to do with your tax refund?

Jack Townsend,  FBAR Penalty Collection — Beyond the Collection Suit, Administrative Offsets Loom Large and Long

Tax Trials:  4th Circuit: District Court Abused Discretion by Allowing Evidence of CPA’s Personal Tax Situation in Tax Shelter Promoter Case

Peter Reilly:  Lawyers Unite To Keep Dark Money Dark

Howard Gleckman,  The Economics of Corporate Rate Cuts are More Complicated than Politicians Think

 

Joseph Thorndike: Hate Filing Your Tax Return? Good.  (Tax.com).  Good for those of us who charge money to prepare returns, anyway.

 

Russ Fox,  Bozo Tax Tip #8: 300 Million Witnesses Can’t Be Right:

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Of course Mr. Hatch failed to pay the taxes on income he earned in front of millions, serving a prison sentence as a result.  Sometimes watching somebody else get into real trouble can be instructive.

Share

Tax Roundup, 1/31/2013: Happy IRA mulligan day! And on brief, the Tax Update!

Thursday, January 31st, 2013 by Joe Kristan

20111109-1Today is the last day to make a charitable IRA rollover for 2012.  Yes, 2012 is over, but taxpayers who are required to make IRA minimum annual distributions may still have one 2012 transaction left in them.

Taxpayers who are born before July 1, 1942 who took cash from an IRA in December 2012 can contribute up to $100,000 to a charity today and have it excluded from their 2012 income.

Taxpayers who have failed to take their required minimum 2012 distribution can avoid the 50% penalty for failing to take their distribution by arranging for the IRA to transfer the minimum amount, up to $100,000, to a charity today.

These opportunities are part of the retroactive extension of the rule allowing up to $100,000 to be transferred from an IRA directly to a charity without including the amount in the IRA owner’s income.  This avoids the 50% of AGI charitable contribution limit.  It also avoids other potentially unpleasant consequences of having the IRA income above-the-line, like making your Social Security taxable.

 

On brief, the Tax Update Blog.  The Institute for Justice, the victorious legal team behind the shutdown of the preparer regulation program, has filed a brief opposing a stay in the injunction against the program.  Making their case airtight, they cite the Tax Update, along with tax bloggers Kelly Phillips Erb (TaxGrrrl), Robert D. Flach  and Jason Dinesen.  From Footnote 18 of the brief:

For an example of the disruption routinely caused by the IRS’s misadministration of the RTRP regulations, see Alban Decl., Ex. 3 (the comments from preparers are illustrative and reference previous examples of similar disruptions); see also Joe Kristan, IRS quietly delays CPE requirement under new preparer regulation scheme , Tax Update Blog (January 8, 2013), http://rothcpa.com/2013/01/irs-quietly-delays-cpe-requirement-under-new-preparer-regulationscheme/ (describing IRS message as “a quiet admission of failure”).

With the Tax Update Blog on their side, who can be against them?

 

What does a poor college student have that could be lucrative to a thief? A Social Security number.  From the Memphis Business Journal:

With tax season bearing down, the IRS has a warning about a new refund scam aimed at college students, seniors and church members.

The Internal Revenue Service said Tuesday the scam tries to get students to give their personal identification and file tax returns claiming fraudulent refunds. It has sent misleading and bogus refund claims using the American Opportunity Education Tax Credit on college campuses throughout the Southeast.

Be very cautious about giving anybody but your employer, your bank, a medical provider or the IRS your Social Security number.  And never give it to a scammer.

 

David Brunori, Stifling Lefty — Political Correctness in the Tax Debates (Tax.com):

So the pro tax people managed to shut Mickelson up. Rather than engaging  in a discussion about why it is okay to take his money, they stifled him.

Shut up, they explained.

 

Paul Neiffer points out that now that penalties are waived for farmers who file after March 1, they may not want to file by their usual deadline:  File Your Return After March 1 Not Before!

 

Have you mailed your 1099s and W-2s?  Today is the deadline for sending them to recipients.  Russ Fox has the scoop.

TaxGrrrl, Ask the taxgirl: Tax ID Numbers and 1099s

Kay Bell,  Tax e-filing and Free File is now available for most taxpayers

Trish McIntire,  Freebies.  Don’t ask for them.

Chris Sanchirico,  Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains? (TaxVox)

Tax Foundation, New Report: Cell Phone Taxes Exceed 20% in Several States

Margaret Van Houten and Jodie Clark McDougal,  Iowa Trust Industry Breathes a Sigh of Relief after the Supreme Court’s Reversal in Trimble

Cara Griffith, Kentucky DOR’s Disregard of Transparency (Tax.com)

Jack Townsend,  Another UBS Depositor Pleads

Patrick Temple-West,  India sees end to Vodafone tax dispute, and more

 

News you can use. IRS: No One Is Too Old, Too Poor Or Too Sympathetic To Avoid Prosecution  (Brian Mahany)

How to catch a dinosaur.  Not Income Tax Evasion – Structuring – That’s How They Got Kent Hovind (Peter Reilly)

Robert D. Flach goes into blog hibernation for the remainder of tax season:  SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

These are a few of my favorite things…  Guns and Tax Returns. (Christopher Bergin, Tax.com).

 

Today’s morale builder: Les Misérables-Inspired Video Reminds You That Busy Season Kills Your Dreams (Going Concern)

 

Share

Tax Roundup, 1/30/2013: Bah. Humbug. And where states get their cash.

Wednesday, January 30th, 2013 by Joe Kristan

20130130-4Why so grumpy?  Because it’s the first “official” day of tax season as the IRS begins processing returns.   But only some of them.  The last-minute Fiscal Cliff tax law is delaying the processing of many forms, delaying most business filings until “late February or into March.”  They also have delayed processing of returns with education credits until sometime next month.

Oh, and the streets are a mess.

Kay Bell,  Tax filing on hold for taxpayers who need 31 federal forms

TaxGrrrl, IRS Opens For Business Today, Many Taxpayers Qualify To File For Free

 

Taking your money to give to the well connected.  From Taxing the Rich to Pay for Big Business Tax Credits by Veronique de Rugy:

 

20130130-1

Taking from the small businesses, giving to the big business with pull.

 

Brian Gongol on the decision of Senator Harkin to not seek an umpteenth U.S. Senate term:

Wouldn’t it be wonderful if we could start with a blank slate and ask ourselves (as Iowans): Who is the smartest, most dependable, most thoughtful person we could send to an august body of decision-makers who are challenged with bringing wisdom and sobriety to the decision-making process of government?

Like somebody like that would stand a chance.

 

Why bother with a state corporate income tax?  While state income taxes are a reliable source of work for people like me, they do surprisingly little for the states, according to a new report released by the Tax Foundation yesterday.  Nationwide state corporate income taxes accounted for only 3% of 2010 state revenues.  In Iowa, it’s even lower.  Here are the revenue sources from Iowa and some nearby states:

Source: Tax Foundation

Source: Tax Foundation

 

The corporation income tax raises little revenue, is expensive to administer, is exploited by the well-connected and well lobbied, and is almost certainly a job-killer.  Why not go for a low-rate, low-loophole system like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan?

TaxProf,  A Distributional Analysis of the Tax Systems in All 50 States, passing on a report from the Center on Budget and Policy Priorities says state tax systems are regressive.  Keep this in mind:

Source: Heritage Foundation/

Source: Heritage Foundation/

If you only look at the distribution of taxes paid and ignore the value of services and cash payments received, you miss a lot.

 

Janet Novack,  IRS Tips Won’t Protect You From Identity Theft Tax Fraud.

Jack Townsend,  Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases

Jason Dinesen, An Obligatory 1099-K Post for 2013

Trish McIntire,  Before You Sign.  A timely reminder that you are responsible for what’s on your return, even when you use a paid preparer.

Patrick Temple-West,  Mickelson and the sports star migration, and more (Tax Break)

William McBride, CRS: Tax Rates Do Matter for Profit Shifting (Tax Policy Blog)

Joseph Thorndike, The Income Tax Is Inquisitorial — Get Over It(Tax.com) May he have a good National Research Project exam in his future.

Robert Goulder, French Budget Minister Caught In Tax Probe (Tax.com)

That wouldn’t take much.  Payroll Tax Cuts May Boost the Economy More than You Think (Howard Gleckman, TaxVox)

 

Bad news, good news:  The Twinkie is Dead! Long Live the Twinkie! (Megan McArdle).

News you can use.  Tax Law Warning: Don’t Cut Mom a Rent Break (Jim Maule)

 

Share

Tax Roundup, 10/24/2012: Despite the Yankees, New York is #1!

Wednesday, October 24th, 2012 by Joe Kristan

A deserved number 1 rating for New York.  The Yankees may have left the postseason meekly, but their state still gets a richly deserved number 1 rating:  State and Local Tax Burdens Highest in New York (Tax Foundation):

 

It certainly is a better measure of New York’s tax system (bad) than the strange rating we reported on yesterday, ranking New York as the best system in terms of “Progressivity, adequacy and efficiency.”

Related: Russ Fox,  Tax Foundation Releases State & Local Tax Burdens

 

Jason Dinesen has an excellent analysis of how “targeted” tax breaks fail:  Small Business Health Insurance Credit — Nice in Theory But Not in Execution: 

There are many, many problems with this credit. One,  it’s quite possible that a business might be better off NOT taking the credit and instead just taking a deduction for the premiums paid. In other words, some businesses might owe more tax by claiming the credit! (I have run the numbers on this, and it’s true.)

In addition, the credit has unfriendly phaseouts: as soon as your employee count gets above 10 or average wages tick above $25,000, the credit starts to phase out. Plus, the calculation of full-time employees, and the calculation of the credit in general, is cumbersome.

With these things in mind, it’s no wonder that most businesses aren’t taking the credit.

The tax law is a big clumsy hammer.  When you try to use it as a scalpel, nothing good happens.

 

A parting gift to preparers from Doug Shulman:  IRS Sells Confidential Information of 850,000 Tax Preparers for $35 (TaxProf)

Jim Maule thinks its fine for the government to track your auto use: Defending the Mileage-Based Road Fee.  He trusts the government much more than it deserves.

Robert D. Flach posts his Wednesday Buzz roundup of tax posts.

 

Brutal Assault on Reason Watch: 

Kay Bell,  Tax talk sneaks into foreign policy debate

Patrick Temple-West,  Essential reading: Checking tax facts from the presidential debate, and more (Tax Break)

Howard Gleckman,  The Ten Biggest Differences between the Romney and Obama Tax Plans (TaxVox)

Philistines.  NY’s Highest Court Rules 4-3: Lap Dances Are Not ‘Art’ and Thus Not Exempt From Sales Tax  (TaxProf).  More from Peter Reilly and Anthony Nitti. Lest you think this is of interest only to the boy bloggers, Adrienne Gonzalez posts Majority of New York Court Rules Lap Dances Taxable; Questions the Artistic Integrity of Strippers Everywhere.

Share

Tax Roundup, 10/19/2012: How big can small be? Plus: gift tax annual limit goes to $14,000 in 2013.

Friday, October 19th, 2012 by Joe Kristan

I don’t support increasing taxes on small businesses, as long as they stay that way.  Taxes have become an issue in the race for Congress in Iowa’s 4th district.  Sioux City Journal reports:

Officials with Christie Vilsack’s congressional campaign are asking eight Iowa television stations to pull a political action group advertisement that says Vilsack supports raising taxes on small businesses.

Lawyers for Vilsack, a Democrat, have sent a letter Thursday to television station managers arguing the ad makes the unfounded accusation that Vilsack supports raising taxes on small businesses.

It apparently comes down to what the meaning of “small” is.  From Christie Vilsack’s web site:

Christie Vilsack has proposed allowing the Bush Tax Cuts to expire for those making over a million dollars a year, asking them to pay their fair share. According to the nonpartisan Tax Foundation, as of 2010, less than .1 percent of all income tax filers in the state of Iowa reported an annual income over one million dollars.

That would increase the top tax rate to 39.6% for pass-through businesses successful enough to get their owners to over $1 million in taxable income.   There are plenty of Iowans whose closely-held businesses put them over $1 million.  It’s a small portion of returns filed,  but it’s surely a large portion of Iowa form 1040 business income.  Nationwide, 36% of pass-through income is taxed on returns reporting over $1 million, according to the Tax Foundation.

 

Is a business that makes over $1 million “small?”  Obviously it’s bigger than your office Mary Kay reseller’s business, but they are small compared to publicly-traded companies.  Are you only small until you are successful?   As to whether they are paying their “fair share,” millionaires have an 11% share of national income, but pay 26% of income taxes.   Whether that’s “fair,” like whether a business that makes $1 million is “small,” is inherently a matter of opinion.

 

 Brinkmanship at the fiscal cliff.  Tax Analysts reports ($link):

President Obama will veto any bill that comes before him if it includes an extension of the 2001 and 2003 tax cuts for income exceeding $200,000 for individuals or $250,000 for joint filers, White House spokesman Jay Carney confirmed October 18.

Speaking of taxes on small businesses.

 

More inflation adjustments.  In addition to the new limits for 2013 pension contributions and the new FICA base, the IRS has issued other inflation adjustments (Rev. Proc. 2012-41) for next year.  One key number: the annual exclusion for gift taxes rises to $14,000 per donor, per donee, from $13,000.

 

Tax Prof,    2d Circuit: Denial of Estate Tax Marital Deduction to Same-Sex Couple Violates Equal Protection

Linda Beale,  Another Court Strikes Down DOMA

Robert D. Flach,  2013 INFLATION ADJUSTMENTS

 

Brutal Assault on Reason Watch: 

Obama threatens veto of any ‘fiscal cliff’ bill that doesn’t hike taxes on the rich

Patrick Temple-West,   Essential reading: Officials say Obama could veto a bill blocking ‘fiscal cliff’ without tax hike for rich, and more

TaxGrrrl,   More on Romney’s Tax Returns

Howard Gleckman,   The Real Lesson About Capping Itemized Deductions  (TaxVox)

 

Jim Maule ponders Fishing for Deductions

News you can use:  Why the 2013 Tax Season May Give Me Lots More Gray Hair  (Russ Fox)

 

You can’t make this stuff up.  Tax return numbers, that is.  From the Washington Post:

A local make-up manufacturer who sold lipstick, nail polish and blush to retailers around the world pleaded guilty to tax evasion on Thursday in federal court in Maryland.

Bae Soo “Chris” Chon, the former owner of Mirage Cosmetics in Greenbelt, engaged in a scheme to divert at least $1.8 million from overseas cosmetics sales to foreign bank accounts, according to the plea deal.

The IRS prefers to see your taxable income without the benefit of foundation or blush.

Share