Tax writers in house reviewing the sacred cow?

Even though both Republican and Democrats agree that simplifying the tax structure is imminent, they are both hedging on rolling back the deduction for home mortgage interest.  It’s become a sort of sacred cow.

 

Ways and Means committee members see the deduction as a lifeline for those in the middle class and essential to help new home buyers achieve their dreams of ownership.

 

The mortgage deduction is not only popular but also expensive to maintain, however, lawmakers on both sides are reluctant to make radical changes to it. Considering the housing crisis, Dave Camp (R-Mich) of the Ways and Means committee mentioned “Real estate taxes require careful and thoughtful review and although the tax code is 10 times larger than the Bible, not all the code is bad.”  The mortgage interest deduction has not been overhauled since 1986.

 

The tax break, according the JCT, will cost an estimated $364 billion between 2012-2016.  Other expensive deductions, such as employer-sponsored health insurance, and the deduction for state and local income taxes do not see signs of being touched as well.

 

Camp wants to see an extensive review of the tax code with a target of reducing the top individual and corporate rate to 25 percent.  Democrats are not buying it, saying it will shift the tax burden to the middle class.  Camp is saying that the offsets needed to lower taxes don’t have to come from eliminating tax breaks but can come from other areas in the 1986 bill.

 

Both parties say that the majority of benefits (2 thirds in 2012) from the mortgage interest deduction go to households making less than $200,000.  Only 14% came from households making over $200,000.

 

The goal, according to Rep. Richard Neal (D-Mass) of the Ways and Means committee, is to get people into home ownership. Rep Tim Griffin (R-Ark) says that “at its core, this benefits middle-class, working Americans.”

 

Gary Thomas, president of the National Association of Realtors, doesn’t agree that the deduction should cover second homes and that the amount of mortgage covered should be trimmed from $1 million to $500,000.

 

Eric Todar, a scholar from the Urban-Brookings Tax Policy Center is skeptical and believes that the deduction mostly allows those who don’t need a subsidy to buy a bigger home.

 

Only a quarter of the deduction benefits went to households making less than $100,000 in 2012, according the JCT and it’s only available to about 1/3 of households that itemize.

 

Mark Calabria of the Libertarian Cato Institute argues that the deduction gives consumers another opportunity to incur debt and that tax provisions that encourage home ownership should instead, incentivize home equity.  Rather than be tied to a large mortgage, it’s more important own a home outright.

 

Original Article

 

For tax help and information please contact Kevin Thompson CPA at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

 

 

Republicans Work Toward a Tax Reform Budget and Away From Entitlements

Republicans in the House have begun to cut back on their desire to incur hard cuts to retirement programs and are now focusing more on simplifying the tax code which is a more popular topic for taxpayers.  They still want to cut spending for Social Security and Medicare but have launched a series of meetings to make tax reform a top priority.

 

Just weeks ago, President Obama offered to reduce Social Security cost of living adjustments, and raise Medicare premiums in an effort to work with Republicans.  This ended up angering seniors and some Republicans as well who feel the move was political suicide.

 

However, all parties agree with simplifying the tax code and feel the time is right.  The Ways and Means committee has done surveys and polls that show that taxpayers are getting tired of the current, complicated tax structure and want simpler and fairer laws.  Dave Camp (R-Mich) would like to see it streamlined to just two brackets and a top rate of 25 percent.

 

This strategy is also echoed in the Senate where Republicans feel that it offers a more reasonable alternative to negotiating directly with the President.  Senators are being pressured to come up with their own debt reduction plan to circumvent Obama’s proposal to reduce borrowing by $1.8 billion over the next 10 years by implementing higher taxes and cuts to retirement programs.

 

Camp and Treasury Secretary Jack Lew’s aides have begun discussions about tax reforms.  Democrats are not taking this seriously and say it’s a fantasy that legislation will be finished before the next elections in 2014 much less than September when lawmakers must pass legislation to raise the debt limit or risk national default.

 

Democrats also argue that tax reform doesn’t meet the requirements Republicans have set for supporting an increase in the debt limit.  Even though House Speaker John A Boehner (R-Ohio) says he will demand “cuts and reforms” to balance the budget, the vision of the GOP regarding tax reform is “neutral revenue.”  This means all cash raised from reducing tax breaks would be returned to taxpayers in lower rates with no money left to reduce annual budget deficits.

 

“A simpler tax code will spur economic activity, create jobs, increase wages and thus, raise revenue offering ‘one way out of our debt’” says Camp.

 

Almost 30 Republican lawmakers attended the first meeting about tax reform with more sessions planned.

 

The White House is saying it will not negotiate over the debt limit.  It feels that Republicans have been given a common sense budget offer and now the ball is in their court. The debt limit is not negotiable because it has come from bills the Congress has “racked up.”

 

The House is still not clear on how it will be accomplished.  Republicans and Democrats will be required to resolve their long standing bickering over whether tax reform will generate new tax revenue to reduce the deficit or if it will lower taxes.  The compromise would be tax reform and finding common ground to cut taxes for American families as well as help businesses create jobs and reduce the deficit.

 

Original Article

 

For tax help and information please contact Kevin Thompson CPA at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

 

Tax Reform Coming Soon and What it Means for You

Taxpayers and accountants have been fighting to bring about tax reform for years and finally the House and Senate are offering alternatives to streamline and simplify them.

 

Rep Dave Camp from Michigan who is chair of the Ways and Means Committee issued a news release in February suggesting changes in the complicated set of rules that our tax system currently has.  The Senate finance committee issued 3 papers this year regarding tax reform alternatives.  Even though both the Senate and House proposals are different, the common theme is simplifying the process and making it more business friendly.

 

Although reform changes cannot take place immediately, they will include individual, corporate, partnership and international taxation.  Lawmakers must balance managing governmental revenue as well as simplifying the process for taxpayers and tax professionals.

 

An example of reform proposals would affect corporate taxpayers.  Filing deadlines would be altered, increased expensing of qualifying assets would be permanent, the limitation on the use of the cash method of accounting would be increased, and startup and organizational costs would be consolidated into a single provision.

 

President Obama released his proposed budget for 2014 in April which includes tax reform measures. Some of the House and Senate proposals are not included in this plan.  However, whatever the outcome, both the President, House, and Senate all agree that simplification and making it easier for taxpayers to comply is the goal.

 

Original Article

 

For tax help and information please contact Kevin Thompson CPA at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

 

Obama’s Proposed Budget for 2014 adding New Estate Tax Provisions

The President recently released his proposals for the 2014 budget.  To read the entire proposal click here.  These proposals include several that will affect estate, gift and generation-skipping. (GST)  One would return the estate, gift and GST tax regimes to the 2009 rules.  What this means, is that there will be a 45% top tax rate, and a $3.5 million exemption for estate and GST tax and a $1 exemption for gift taxes.  Neither will be indexed for inflation.

 

You may recall that the law that passed in late 2012 made changes to estate and gift taxes “permanent.” Hmm, my idea of permanent is a little longer than 120 days.

 

A new proposal states that GST tax exclusion does not apply to certain distributions made from health and education trusts used for medical care and education.

 

Other facets of the proposed budget include:

 

Consistency would be required in value for income tax purposes and transfer.

 

Coordination of grantor trusts for certain income and tax rules may alter estate planning methods and could transfer tax benefits of sales to grantor trusts that are defective.

 

A minimum 10 year term for grantor retained annuity trusts will be required and 10 years will be added to life expectancy of the annuitant.

 

The duration of a GST exemption will be limited to 90 years.

 

The lien on estate tax deferrals will be extended to up to 15 years and 3 months from the time of death.

 

Original Article

 

For tax help and information please contact Kevin Thompson CPA at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

Are You Swapping Emails with Your Accountant to Cheat on Your Taxes?

Did you know that the IRS could be reading emails you’ve written to your accountant that discuss how to avoid paying taxes?

 

The American Civil Liberties Union has filed a request to find out if the IRS is reading your emails without a warrant.  The IRS has yet to disclose whether or not it obtains warrants on every occasion, but the ACLU says they do not.

 

The Electronic Communications Privacy Act, enacted in 1986, before email usage was common, states that the government can read your emails without a warrant if the email has been opened or has been sitting in your inbox for over 180 days.   Warrants are only required if the email has not been opened.  The law is obviously outdated.  However, in 2010, a Sixth Circuit appeals court ruled that agencies needed to get a warrant for all emails, either opened or unopened.  It still isn’t clear if the IRS is observing this change in the law.

 

In addition to being cautious about email correspondence, it’s also a good practice to be careful with any social media commentary regarding tax issues. The IRS will search your social media profiles for incriminating evidence.

 

The ACLU is calling on the IRS to align their procedures with the 4th amendment. However, until it is certain they are doing this, tax payers must be careful to protect any private conversations about taxes online.  And remember, Accountant’s do not have the same privilege that lawyers do in regards to discussions, research and tax planning. An accountant’s entire file is available for scrutiny. And with email and social media that file extends to the virtual world.

 

Rather than work with an accountant who will blatantly risk altering your taxes illegally to keep you as a customer, hire a CPA skilled in tax laws who will be able to find “legal” deductions that will save you money and still keep you safe from audits.  Start planning for next year now.

 

Original Article and Video Below:

http://www.dailyfinance.com/on/irs-audit-emails-warrant-aclu/?icid=maing-grid10%7Chtmlws-main-bb%7Cdl39%7Csec1_lnk3%26pLid%3D296798

 

For tax help and information please contact Kevin Thompson CPA at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

Beware of Using Tax Software – or you May Find Your Tax Return Stalled

10,000 taxpayers in Minnesota will be seeing delays in their tax returns due to Turbo Tax software glitches.  13 lines in the program were defective. The software program is used by the majority of electronic filers.

 

The software issues have now been fixed, but for the 10,000 who filed early they will have to wait much longer than they intended.

 

The errors were caused by Intuit programming and so far the only problem has been seen in Minnesota.

 

When using computer software tax programs you risk the chance of similar technical errors, and may possibly miss important deductions that would be easily spotted by a professional CPA.

 

Read this Mercury News article for more information:

 

http://www.mercurynews.com/business-headlines/ci_22771498/10-000-turbotax-filings-error-minnesotans-advised-not?goback=.gde_3253582_member_222138761 

 

For tax help and information please contact Kevin Thompson CPA at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

Wasteful spending? Not in our code!

The Senate Budget committee held a hearing on Tuesday, March 5th, to get to the bottom of wasteful spending, reduce the deficit and avoid key spending cuts caused by the sequester.  At stake is either raising taxes on the wealthy and large corporations or slashing programs vital to seniors, families and communities all over the country.

 

USC law professor Edward D Kleinbard (http://weblaw.usc.edu/contact/contactInfo.cfm?detailID=68912) stated that because of the Great Recession, the government has lost around $2 trillion in revenue over the last few years and that the Fiscal Cliff will reduce revenues by $4 trillion.  He argued that it is especially important to focus on personal itemized deductions such as home mortgage, charitable contributions and state and local taxes. They take about $250 billion out of revenues and help the wealthy rather than low income people.

 

He suggests replacing personal itemized deductions and the standard deduction with 15% tax credits. In doing so, it would raise approx. $1.5 trillion in revenues over the next 10 years.

 

He is also in favor of scaling back the home mortgage deduction, which is known to be a “sacred cow.”  His rationale is that it is a sacred cow we can no longer afford.  “Either we corral these sacred cows, or we allow them to stampede all over us.”

 

Jared Bernstein, (http://jaredbernsteinblog.com/) senior fellow at the Center for Budget and Policy Priorities wants tax expenditures assessed. He would like to see tax deductions for tax payers of certain incomes capped.  However, he agrees that a cap would overlook other tax expenditures that are ripe for reform.  “Tax expenditure reform offers an excellent option to reduce wasteful spending through the tax system, while helping to meet our fiscal challenges in ways that will simultaneously improve our deficit outlook, increase economic efficiency, and add much‐needed fairness back into the code,” he said.

 

Sen Patty Murray, D-Wash, (http://www.murray.senate.gov/public/) chair of the Senate Budget Committee stressed that it’s important that we look at government programs carefully and put families and our economy first.  However, she also agrees that expenditures in our tax code must be closely examined as well. “There’s no good reason, for example, that taxpayers currently subsidize millionaires more, when they purchase a second home, or a yacht, than they do middle-class families purchasing their first home. And why should a hedge fund manager pay a lower tax rate on his income than a soldier, police officer or a teacher?”

 

Russell Roberts, (http://en.wikipedia.org/wiki/Russell_Roberts_(economist) research fellow at the Hoover Institution feels that the tax code needs to be simpler and more transparent. But even more important, the government needs to spend money wisely.  “We spend too much and much of it we spend poorly.”

 

To learn more:

 

Click here: Senate Eyes Wasteful Spending in Tax Code

 

For more information please contact Kevin Thompson at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

How Much is it Costing You to Interrupt Your Day?

In a study by Ninlabs Research, it was found that the difference between operating on a maker’s schedule vs. a manager’s schedule can cost you time and income.

 

Interruptions such as meetings will often cause an employee to have a significant lag time before resuming work again.

 

For example:  A computer programmer that has been interrupted during work, will usually take between 10-15 minutes before he or she resumes writing code.  Only 10% of those studied resumed work within a minute.   In addition, the programmer sometimes needed to navigate to several different locations before he or she was able to re-focus and resume editing.

 

A person using a manager’s schedule, such as a boss, may have the day cut into 1 hour intervals. That means that every hour the manager will switch over to performing a different task.

 

A maker (or employee) who performs a singular task throughout the day, will find their schedule disrupted when called to attend a meeting and it may cause them to blow their entire afternoon.  They are so focused on their task that simply remembering to attend the meeting is a challenge.

 

Each type of schedule is efficient for that particular person. (boss or employee)  The problem arises when both collide. Usually the boss’s schedule takes precedence, as that person is usually the stronger of the two, however a savvy boss will recognize when an employee needs longer chunks of time in order to complete a project.

 

Some companies are turning to run more on a maker’s schedule by allowing work to be performed without interruption during “office hours.”  Meetings take place at the end  of the day so as not to interrupt employee work flow.

 

A manager’s schedule, on the other hand, is often filled with “speculative” meetings such as grabbing coffee with a prospect that can turn out to be quite costly in terms of time.  To cancel a meeting could result in either blowing the afternoon or offending the other party.  As a manager it’s wise to consider the potential cost of scheduling unnecessary meetings.

 

For more information on The Cost of Interruption read:

 

http://thefuturebuzz.com/2013/01/22/the-high-cost-of-interruption/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheFutureBuzz+%28The+Future+Buzz%29

 

For more information please contact Kevin Thompson at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

Absorbing the Frustration

Today, I received an email from a long time client followed shortly by a lengthy fax of a letter from the IRS. The client is of renown and I shall not reveal his name. In the communication from the Department of the Treasury, the IRS laid out their case for why they had to extract some additional quid from his purse. He was clearly annoyed and of course, so was I. I told him we’d get on it and figure it out and report back.

 

In his reply, he said “Thanks for absorbing the frustration.”

 

That statement caused me to look deeply at what we do for our clients, the taxpayers of the United States of America. For this client we prepare the following tax returns:

 

  • US Income Tax
  • State of California Income Tax
  • State of New York Income Tax
  • Los Angeles County Personal Property Taxes
  • Los Angeles County Real Property Taxes
  • City of Los Angeles Business Taxes
  • Secretary of State annual Corporate filing
  • State Board of Equalization Use Taxes

 

With each of these returns, he pays some form of taxation. And if not, he still has to file to comply and we extract a pittance or two for our services.

 

In addition, he pays a State of California sales tax, a utility users tax, a cell phone and telephone tax and a fee to register his automobile. His automobile that consumes gasoline; which of course is burdened with tax at the pump. I have probably forgotten 5 or 6 other taxes that he pays but I think you get my point. It is annoying to be constantly reminded to what degree taxes intrude on our lives.

 

And meanwhile, we just absorb the frustration.

 

For more information please contact Kevin Thompson at

kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.

More on the America Tax Relief Act (ATRA) of 2013 from Ed Slott

Below is a PDF of more information on the America Tax Relief Act (ATRA) of 2013.

 

Ed Slott is perhaps the most renowned professional in the retirement field. Kevin Thompson has received training from Ed Slott and is particularly familiar with these issues surrounding your IRA and Retirement.

 

I highly recommend that you read this article before planning your tax strategy for 2013.

 

CLICK HERE TO VIEW PDF

 

For more information please contact Kevin Thompson atkevin@kevinthompsoncpa.com or call him @ (310) 450-4625.