Posts Tagged ‘TaxTV’

Tax Roundup, 1/17/2013: Iowa alternative maximum tax introduced. Also: cash for clunkers, firearms edition!

Thursday, January 17th, 2013 by Joe Kristan

20130117-1Alternative Maximum Tax introduced in Iowa House.  The Republican leadership of the Iowa House of Representatives has introduced a new way to compute Iowa personal income tax.  HF 3 would create an optional “alternative base income tax”at a 4.5% flat rate.   The bill would allow taxpayers to elect to be taxed on their federal Adjusted Gross Income before net operating losses, less a $6,200 standard deduction ($12,400 for joint filers and heads of households).  The only credits allowed would be for estimated taxes and withholding.  Taxpayers could instead continue to follow the existing tax law.

There is an obvious flaw in the statute as drafted: federal AGI includes interest on federal debt, which states aren’t allowed to tax.  Maybe that’s just assumed, but the existing Iowa income tax law specifically excludes U.S. interest.  This tax is different from that proposed by Iowans for Discounted Taxes, which would exempt all investment income from the tax base.

The bill would be a huge step forward for Iowa tax policy if it were enacted as a replacement for Iowa’s current tax, rather than an option.  Eliminating all of the tax credits and special state deductions would greatly simplify everyone’s tax life, and lowering the rate would make Iowa much more attractive to businesses and newcomers.  In this form, though, it’s just another computation, an alternative maximum tax.  It’s like the alternative minimum tax, except you pay the lower tax computed, rather than the higher one.   It was probably drafted this way to avoid a fight over eliminating the current deduction for federal income taxes on Iowa returns.

I will run some numbers to see how the HF 3 tax would compare with taxes computed the current way.  The bill is co-sponsored by 54 representatives, including House Speaker Paulsen, so it’s a given that it will pass the House in some form.  It will be interesting to see whether the Senate, controlled by Democrats, will bring this to a vote.  The Governor has made clear income tax reform isn’t his priority this year.

 

This plan might be half-cocked.  From William McBride at the Tax Policy Blog:

This week Rep. Rosa DeLauro (D-CT) proposed an assault weapon buy-back program that would operate through the tax code:

“The SAFER Streets Act creates a $2,000 refundable tax credit ($1,000 for two consecutive years) for an assault weapon owner who turns in their firearm to the state police.”

This assumes the gun manufacturers cannot produce additional guns as
fast as the old ones are destroyed, and that they cannot be produced, at
this rate of production, cheaper than the buy-back price. 

Cash for Clunkers, firearms edition.

Kay Bell,  Guns, ammo, violence and taxes

 

TaxProf, TIGTA: IRS Has 60% Error Rate in Policing Noncash Charitable Contribution Deduction.  I’m sure they’ll do lots better implementing the Affordable Care Act.

Patrick Temple-West,  New Yorkers face higher real estate taxes, and more

Peter Reilly,  Are Tax Protesters Actually Winning ?:

Ms. Curtis lost as badly as it is possible to lose in Tax Court.  There is the 75% fraud penalty and the maximum sanction, $25,000, for frivolous arguments. She still might appeal, though.  Presumably the Circuit will make relatively quick work of that and maybe pile on some more sanctions.  Fine.  Now the IRS has to start trying to collect from her. 

Tax protester arguments can slow down the tax collector, but the tax man wins in the end.

 

Robert D. Flach, THE RETURN OF A HOME OFFICE STANDARD DEDUCTION

Kerry Kerstetter,  New option for Home Office deduction

Jason Dinesen,  How the Fiscal Cliff Deal Affects Teachers

Trish McIntire,  Red Forms

Cara Griffith, Should States Just Enforce Use Tax Collection? (Tax.com)

Russ Fox,  California Supreme Court Takes Gillette Case

Joseph Henchman,  The Al Bundy Tax Rule: New Hampshire Governor Pledges to Veto Beer Tax (Tax.com)

If it’s your identity, pretty bad.  IDENTITY THEFT AND TAX FRAUD – HOW BAD IS IT? (TaxTV.com)

Brian Mahany,  Steelers’ Plaxico Burress Pays Off $98,000 IRS Tax Lien

Christopher Bergin, Everybody’s Gone Surfing (Tax.com)

News you can use: Going Concern’s Guide to a Healthy Busy Season: Because No One Should Die at Work

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Tax Roundup, 1/3/2013: Now Iowa’s filing season is a mess.

Thursday, January 3rd, 2013 by Joe Kristan
The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Fiscal Cliff Bill complicates Iowa tax returns for 2012.  Iowa doesn’t automatically adopt federal tax law changes, so some retroactive tax law provisions in the Fiscal Cliff bill won’t apply to Iowa state income taxes absent action by the Iowa General Assembly.  From an Iowa Department of Revenue e-mail to practitioners yesterday:

The federal legislation passed on January 1, 2013 to avert the “fiscal cliff” included provisions for what are commonly referred to as the federal “extenders.” The federal “extenders” are not currently reflected on Iowa tax forms for 2012 and will require approval by the Iowa legislature before being allowed for Iowa tax purposes. Should legislative approval be given, Iowa online forms will be updated accordingly. The federal extender provisions include:

  • Educator Expenses (Line 24; IA 1040)
  • Tuition and Fees (Line 24; IA 1040)
  • Itemized Deduction for State Sales /Use Tax Paid (Line 4; IA Schedule A)
  • Treatment of mortgage insurance premiums as qualified residence interest (line 11, schedule A)
  • The federal section 179 expensing limit of $500,000 for 2012 and 2013 

Iowa income tax returns must be filed based upon current Iowa law. Therefore, the extenders should not be included on Iowa returns at this time.

Let’s hope the legislature acts quickly to pass conformity legislation, or we will have another messy Iowa tax season.

 

Why 12%?  Today’s Des Moines Register story on reactions by Iowa business people to the Fiscal Cliff bill quotes me as saying that Iowa businesses may face a 12% reduction in their after-tax income.  Where did I get that number?

I started by computing the after-tax amount of a dollar earned by a top-bracket taxpayer under 2012 law, assuming full detectability of Iowa taxes on the federal return and vice-versa.  That results in a combined rate of 38.92%, leaving 60.18 cents in the taxpayer’s pocket.  Under the same assumptions using the 2013 39.6% top rate and the 3.8% surtax on “passive” income, the combined federal-state effective rate goes up to 46.39%, leaving 53.61 cents after-tax.  That’s a 7.48 cent reduction in after-tax income — 12.24% of the 60.18 cent 2012 after-tax number.

The 12.24% number is actually too low because it doesn’t account for the phase-out of itemized deductions for high-income taxpayers in the new bill.  For top-bracket taxpayers, itemized deductions will be reduced 3 cents for each additional dollar of income.  The result is a hidden 1.188% additional tax.  Plugging that into our tax computation gives a combined federal and Iowa rate of 47.46%, leaving 52.54 cents after-tax.  That reduces after tax income from 2012 law by 8.54 cents, or 13.99%.

Should I assume the 3.8% passive income tax, like I do in the above examples?  It won’t apply to K-1 income if all owners “materially participate” in a pass-through business.  Those taxpayers face “only” an 8.41% reduction in their after-tax income.  If you don’t think that’s significant, consider whet your reaction would be if your employer said that your after-tax pay was going down that much.

But the 3.8% tax will apply to family members that don’t participate in the business, like out-of-town siblings, retired founders, or children of owners.  The business has to distribute at least enough to let owners pay their taxes, which means the taxpayer in the highest bracket has to be covered.  For that reason many family-owned businesses will have to distribute enough to cover the 3.8% Obamacare net investment income tax, making the combined 47.46% rate their real rate.

 

Fiscal Cliff Notes

TaxProf,  House Approves Fiscal Cliff Tax Deal

Megan McArdle, After the Fiscal Cliff: What do Democrats Want?  “I submit that just as Republicans are more interested in entitlement cuts as talking points than as actual new laws, Democrats will prove much more interested in tax hikes in theory than in practice.”

Robert D. Flach, THE AMERICAN TAXPAYER RELIEF ACT OF 2012

William McBride, Fiscal Cliff Resolved, Still Likely to Get Downgraded

TaxGrrrl, The World Will Keep Turning, Even With The Expiration Of The Payroll Tax Cuts

Patrick Temple-West, Cliff bill means some pay more taxes, and more

Trish McIntire, American Taxpayer Relief Act of 2012

Paul Neiffer, Help! What Is My Capital Gains Tax Rate?!

Kay Bell,  What’s your 2013 tax rate and other fiscal cliff tax bill questions

Margaret Van Houten,  Estate and Gift Law Tax Aspects of Fiscal Cliff Legislation (Davis Brown Tax Law Blog)

Courtney A. Strutt Todd,  A Permanent Fix to the AMT Problem (Davis Brown Tax Law Blog)

Jana Luttenegger, Individual Tax Rates, Deductions, and Credits (Davis Brown Tax Law Blog)

 

Greg Mankiw has a pithy post that I hope he doesn’t mind me reproducing in full:

Here are the effective federal tax rates (total taxes as a percentage of
income) for 2013 under the new tax law, as estimated by the Tax Policy Center, for various income groups:

Bottom fifth: 1.9
Second fifth: 9.5
Middle fifth: 15.6
Fourth fifth: 19.0
Top fifth: 28.1

80-90 percentile: 21.5
90-95 percentile: 23.4
95-99 percentile: 26.3
Top 1 percent: 36.9
Top 0.1 percent: 39.6

 

Russ Fox,  Your Mileage Log: Start It Now!  Great advice.  If you travel on business and the IRS comes by, you’ll be glad you have that log.

David Brunori,   Only Tax Professionals Benefit from the State Corporate Tax.  (Tax Analysts Blog) Well, the loophole lobbyists do pretty well by it too.

Peter Reilly, Form 8332 – Don’t Let The Kids Live In Another Home Without One ?

TaxTV, IRS Penalty Relief-First Time Penalty Abate Program

Robert Goulder, The Unspoken Tax Expenditure (Tax Analysts Blog)

Jack Townsend, New Article on the Emerging Consensus for Taxing Offshore Accounts

William Perez,  Social Security Tax For 2013

 

Career planning news you can use:  Life After Public Accounting: Harassing Auditors For a Living Isn’t a Bad Gig If You Can Get It  (Going Concern)

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Tax Roundup, 8/7/12: sales taxes, Olympian taxes, California fever dreaming.

Tuesday, August 7th, 2012 by Joe Kristan

Iowa’s sales taxes are right in the middle, per this map from the Tax Policy Blog:

 

Roger McEowen: 2012 Drought Raises Questions About Deferring Crop Insurance, Livestock Sales and Cash Forward Grain Contracts 

California ponders suicideCalifornia’s Proposition 30 would raise top income tax rate, sales taxes  (Kay Bell)  California already has one of the highest tax burdens in the nation, but the bill would raise the top marginal rates to 12.3% on income over $500,000 — with no deduction for state taxes.  In a state where over 12,000 public employee retirees have pensions over $100,000, the problem probably isn’t that taxes are too low.

Brian Strahle, Texas “Fresh Start” Amnesty Program Ends August 17, 2012 – What Should You Do?

TaxGrrrl, President Obama Supports Tax Exemption for Olympic Athletes.  It’s too bad that the expats and others victims of the current jaywalker-shooting policy of enforcing offshore reporting requirements never learned to run fast, do gymnastics, or play basketball.   Andrew Mitchel reports that 189 U.S. citizens expatriated in the second quarter of 2012.  No doubt IRS harassment was behind some of these.

TaxTV: The Truth on Taxation of Olympic Gold Medals

Dan Meyer, “And Uncle Sam and his IRS Revenue Agent Buddy Step to the Podium”

Is there a gold medal for this? The Title of Most Awful Accountant in the World Is Spoken For (Going Concern)

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Tax Roundup, 7/27/2012: Congressional preening, California refund dreaming; corn squeezers squeezing.

Friday, July 27th, 2012 by Joe Kristan

Flickr Image by Bryan Villegas used under Creative Commons license

Christopher Bergin ponders our congresscritters:

The point is that you could set these folks pants on fire and they still wouldn’t get it. Our tax system is a mess, and we are heading into another recession (yes, I’m “doubling down” on that bet!). And these folks squabble like children.

The tax world is a microcosm of what is going on in Washington. Our political system is completely dysfunctional. Congress, when it manages to pay attention, is totally reactionary. Our lawmakers will do nothing but bicker until catastrophe hits. Bet on it.

But, sincerely, let’s all try to have a nice summer.

Maybe setting their pants on fire wouldn’t help, but it’s worth a try.

 But Political Preening Season is. Middle Class Tax Cuts Not Extended (TaxGrrrl)

Jason Dinesen: Enrolled Agents – The Lichtenstein of the Tax World:

In terms of name recognition, EAs are far, far behind. We may outnumber attorneys but that doesn’t mean our name recognition is better than that of attorneys, and we are light years behind CPAs.

The IRS’s program to “professionalize” unenrolled preparers will help enrolled agents, with their stricter requirements, not at all.

No. Any more questions? Do Higher Education Tax Credits Make Sense? (Kim Reuben, TaxVox). 

Unfortunately, we are flying blind in our efforts to reform these subsidies. There are limited data to help  evaluate the effects of these programs, including  recent expansions.  We know little about what the grants and credits mean for students over time. A key question is whether either or both programs result in higher tuition.

The key answer is almost certainly yes.

California refund claim opportunity? A California court rules that California’s double-weighted sales factor apportionment factor is optional, reports Russ Fox.  The traditional three-factor formula weighs payroll, property and sales equally.  Extra weight on the sales factor punishes out-of-state corporations, which is why Iowa uses only sales.  Brian Strahle has more.  If the decision holds up, taxpayers may want to file amended California returns to use the traditional three-factor formula.

Got Drought? Roger McEowen explains the rules for deferring crop insurance and disaster payments for farmers.

So stop making it. Ethanol Makers are Getting Squeezed (Paul Neiffer)

Kay Bell: Mississippi sales tax holiday begins today.  Iowa’s holiday for clothes is August 3 and 4.

Joining the rest of us:  Senate, House Take Turns Hatin’ On One Another (Anthony Nitti)

Peter Reilly says  Lowell Yoder Has Some Great Tax Posts – Read Them.  And he’s right.

Peter Pappas is posting again: Obamacare Will Cost Taxpayers $1 Trillion Over Next Ten Years

Tax Policy Blog has Updates to Bush Tax Cuts Calculator

TaxTv, Self-Directed IRAs: Prohibited Transactions Can Get You in Trouble

Young Buck’s IRS auction raises $53,000 (Sohh.com, via Going Concern)

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Tax Roundup, 6/27/2012: IRS secret shoppers and illegal hillbilly handfishing!

Wednesday, June 27th, 2012 by Joe Kristan

Another reason to file honest tax returns:Trying To Sell Bar To Undercover IRS Agents Gets Owner Free Federal Housing,” reports Peter Reilly.  A Chicagoan got ready to sell his bar, but he had to explain a little discrepancy between how profitable he told potential buyers that the business was, and what he told the IRS:  

 A couple showed significant interest in the place and met with him three times.  Mr. Psihos’s tax saving plan was elegant in its simplicity.  He simply did not report his entire gross income.  Besides not being a legitimate strategy, the plan has another flaw.  If you decide to sell the business, it will not appear to be worth nearly as much as it really is.  Mr. Psihos addressed that contingency by keeping extremely detailed records of his actual cash receipts.  He told the couple that he had the records that showed what he was “actually getting”.

Unfortunately for Mr. Psihos, the “couple” were really IRS agents.  As you might imagine, things went downhill quickly for Mr. Psihos, and now the Seventh Circuit Court of Appeals has upheld his two-year prison sentence.  Related: I lie to the IRS, but of course I’m telling you the truth!

75 years of pushing that rock uphill.  The Tax Foundation is celebrating its 75th anniversary of pushing for simple tax systems with low rates and without special interest breaks.  Much has been accomplished, but much work remains:

The tax structure of the 1950s was complex and over-burdensome, with a top marginal rate of 91 percent. 

Thankfully we have managed to move away from such a high marginal rate, yet many of the other issues mentioned persist, and in many ways our contemporary tax code is even more inefficient and stifling than it was in the late 1950s. Our concern over the growing “distorting effects” of taxation was well-founded; today, federal, state and local governments implement a host of taxes that exist primarily to alter individual and family behavior, often to the detriment of taxpayers.

Use the tax law to collect revenue, and forget using it to accomplish your wildest dreams.  Measuring income is hard enough to do by itself.

Look, Mom, no hands!  Iowa DNR cracks down on hillbilly handfishers.

 Anthony Nitti: If You Want To Argue A Home is Your Primary Residence, Perhaps You Shouldn’t Claim a Home Office Deduction on A Different Residence

Margaret Van Houten: Farmer’s Markets May Not Be Tax Exempt Organizations.  Banding together to sell things isn’t considered a charitable activity.  (Davis Law Firm Tax Blog)

Ways & Means members demand data on failed, costly debit card tax refund test  (Kay Bell)

It’s Wednesday, so it’s a Buzz Day for Robert D. Flach!

Kaye A. Thomas: Estate Exclusion Portability Regs Confirm Critical Deadline 

That casino buffet isn’t really free, high rollers: Nevada Tax Commission Votes to Approve Regulations to Tax Complementary Meals (TaxTV.com)

Tax policy nerds having too much fun: Bowles-Simpson Budget Reform and Ecstatic Memory (Howard Gleckman, TaxVox)

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