Monday, December 27, 2010

Happy New Year, time to change your oil!

As I’ve written previously, we defend a lot of people that have been selected by IRS for examination. Sometimes these exams go well, particularly if the taxpayer has tight records and good explanations, and other times it’s more difficult, such as when documentation is spotty, or the explanations defy logic.

Our office is good at dealing with these issues, but recently we were surprised by an audit that had tight records, good explanations, and still is a struggle. The case involves automobile deductions for a business.

Most of you are (or should be) aware of the IRS’ requirement that business auto use be substantiated by contemporaneous records, commonly referred to as a logbook. The log should show business and personal use, and these records are the basis for determining how much of the cost of the auto can be deducted. The regulations require the log be kept by the taxpayer on a current basis, not constructed after the fact.

An IRS agent we are dealing with in the Long Beach office has a different take on the use of a logbook. Our client in question DID keep a log book (really!) and DID document his costs for the auto. He also wrote down the odometer readings at the beginning and end of the year in question in order to determine a percentage of business use. So far, so good, and this effort probably puts him in the top 5% of taxpayers in terms of documentation.

However, our agent has decided that the odometer readings must be corroborated by an outside third party! In our case the taxpayer maintained the vehicle himself or had friends do his service and repairs, and he has no independent service records showing odometer readings as of Jan.1 or Dec 31. This apparently is enough for the IRS agent to disregard the logbook and arbitrarily disregard the taxpayer’s calculations. Nowhere in the Code or Regulations is there a requirement for annual independent third party corroboration of odometers, yet our agent is insisting.

Unfortunately for our client this delays concluding the exam and creates unnecessary angst for the taxpayer. The IRS agent’s position will be unsustainable if we take it to Appeals, but in the meantime the poor taxpayer must deal with the stress and costs of an unresolved IRS audit.

So, in order to protect you from egregious interpretations of the law such as this one, my advice to you: Take your business vehicles in to a garage and get them serviced in the next week or two, and keep the service receipt that shows the odometer reading.

It’s an easy way to protect you from overzealous auditors.

Friday, December 17, 2010

A little clarity…

By now you’ve probably seen the headlines and heard the political rhetoric about the new tax law that was enacted yesterday. While a complete discussion of all the aspects of the law is more than I can fit in here (and more than you want to read, no doubt), I want to clarify a couple things.

First, let’s talk about “tax cuts”. Despite what you read and hear politicians say, there were only three taxes actually cut in this legislation. By cut, I mean reduced. They are 1) Alternative Minimum Tax (AMT), 2) the estate tax, and 3) Social Security payroll tax.

The AMT “cut” saved millions of taxpayers from seeing their taxes increased dramatically due to provisions that expired last December. This fix was supported by most congressional leaders as the AMT has been widely criticized as being too encompassing, potentially affecting any married couple earning anything north of about $75k. Hardly a break only for the wealthy, and every year Congress has tinkered with this to avoid hitting people too hard.

The estate tax rate, currently at ZERO, was scheduled to increase to 55%. It will now be 35%. Exemption amounts also have changed, but the net effect of this legislation was to reduce the amount of tax some future estates will pay. It’s a break for future heirs because rates will be less than what they otherwise would have risen to, but a big INCREASE from what they are today.

People who work for a living and generate earned income pay a percentage (6.2%) to the government for social security. For wage earners it comes right out of your paycheck, for Self Employed folks it takes the form of the Self Employment Tax. For 2011, the percentage will be reduced by 2%. This is a true freebie for anyone working, and isn’t based on level of income.

So where are the tax cuts for the rich? Arguably most of the above could apply to the wealthy just like the rest of us, but the big fuss was over expiring provisions that would have raised taxes on the highest earners. These provisions were not allowed to expire, thus preventing a tax increase on the wealthy.

In the world of political sound bites, preventing a tax increase is portrayed as a tax cut.

Wednesday, November 24, 2010

Stay Tuned

I haven’t written anything tax related recently for two reasons. 1) I have been doing a bit of reconnecting with nature and have been spending a lot of my spare time in the eastern sierras, local mountains, and oh yeah, scuba diving. (Fall is my favorite time of year!) and 2) there hasn’t been much tax news to write about.

The latter point is due to largely to Congress’ inaction regarding any of the pressing tax issues that must be resolved by year end. The country keeps waiting for some guidance regarding the expiration of the so called ”Bush Tax Cuts”, the estate tax, and also a promised AMT patch that will keep many American families from paying more taxes due to the Alternative Minimum Tax this year. It is extremely difficult to try and plan ahead when not only do we not know what tax rates will be in 2011, but we aren’t sure what AMT exemptions will be retroactively for 2010!

As Congress adjourned for their Thanksgiving break they had no clear plan on how to address these issues when they return. Max Baucus, Senate Finance Chair, indicated that we may not have any resolution until right before Christmas when he told members to “get their snow boots on”.

So we just have to wait. And any planning strategies we employ now may need to be changed at the last minute, if still possible, because we won’t know the rules of the game until then.

Monday, October 18, 2010

Dealing with a Deadbeat

Its now official: The state of California is stiffing everyone it owes tax refunds “until further notice” see The good news is that they were forced to take this action just before the election, so everyone voting can see how dysfunctional our state legislature is. The situation must be dire or the incumbents up for reelection would have surely found a way to paper over it a couple more weeks…..

This is especially galling given that we are talking about an involuntary loan (at zero interest) by ordinary taxpayers to the State. It’s your money they borrowed, and now they can’t return it.

If California owes you money from 2009 or prior, there isn’t much you can do except wait. But you can take steps to make sure you aren’t in this position again. How do you deal with a substance abuser? Don’t enable them. How should we deal with a chronic debt abusing legislature? Same thing! By careful planning NOW you can make sure you owe them instead of the other way around. That way it will be the Franchise Tax Board patiently waiting for you, while you earn interest, rather than you earning no interest and hoping Sacramento will someday return your money to you.

Care must be taken to not place yourself in a penalty situation, or possibly foregoing other tax benefits by delaying payments to the State, but with early, careful planning you can avoid being the unwilling lender to a flakey borrower.

Friday, October 15, 2010

Stimulate What?

Did you know that $203 Million of the Economic Stimulus money that was doled out last year was given to the IRS? Further, it was revealed this week in a report from the Treasury Inspector General that these funds are in danger of being misspent due to continued problems with contract oversight. What a surprise.

I know the older I get the more my memory is fading (especially when it comes to my anniversary or my family's birthdays), but it seems to me that the entire premise around the economic stimulus payments was to stimulate the economy by putting money to work on projects that would multiply the dollar impact and create private sector jobs. The term “Shovel ready projects” was what I could swear I heard used to rationalize the expansion in deficit spending that would result. The tradeoff was supposed to be new construction jobs and improvements to infrastructure. Did I misunderstand?

The Treasury Inspector General’s revelation that some of the funds might be misspent is an understatement. I would submit that ALL of the funds are being misspent since they are to be used to support the reprogramming of IRS’s computer systems, the updating of corresponding tax forms and publications, and taxpayer services. All of these projects are normal, annually recurring activities of that agency. The fact that we had to expand the deficit in one time legislation to pay for these is a good indication of the absence of fiscal acumen in Washington.

Friday, October 1, 2010

Why didn’t Congress think of this?

Last week the IRS announced that they will no longer be printing and mailing tax forms to individuals. The printed forms will now only be available by internet or from libraries and Government offices.

Of course, the reason for this change in policy is to save the taxpayers' money by avoiding printing, handling and postage costs.

I think it’s a great idea, but it falls short of its potential. While there is no question that the costs to send out these forms must be significant, the real costs to taxpayers occurs on the return trip.

If they really wanted to save us money we could just forget the whole deal.

Monday, September 27, 2010

Tax law signed today

Even though Congress is avoiding major decisions on tax law changes that must occur this year until after they see who is reelected, they managed to pass a bill which Pres Obama signed earlier today into law. You will hear media hype about the Small Business Jobs Act of 2010, but what you may not hear are the details of the tax provisions that were included. Lets take a look at some of them:

The Act allows businesses to expense equipment purchases up to $500K for 2010 and 2011. It also allows for a bonus expensing of 50% of the excess for assets bought in 2010 only.

Gain on sale of certain “qualified” small business stocks are 100% excluded from income tax. This only applies for qualified stocks purchased between today and Dec. 31. Big Deal.

Certain tax credits (think R&D) formerly rendered useless by Alternative Minimum Tax will be allowed. This only applies to credits determined in 2010 and later years.

Self Employed Health insurance deductions will now also be a deduction against the self employment tax. Previously these only lowered income taxes but did not help self employed folks lower the SE tax too. This provision will actually affect a lot of taxpayers and will be a welcome change.

1099 forms are now clearly required to be issued by owners of rental real estate. Same $600 requirement as small business owners. This starts in 2011. The Act also increases first tier penalties for failure to file 1099 forms to $30 each, second tier $60.

Cell phones were pulled from the listed asset list which requires detailed record keeping to substantiate business use. No longer will IRS be able to claim that you must keep a log of all cell phone calls to determine business use.

As you can see most of these provisions have a very limited impact to a narrow group of taxpayers. What we really need is major reform, or at least certainty, on the bulk of the tax changes that expire this year (and the estate tax that expired last year) and are going to slam virtually every taxpayer unless something is done.

Wednesday, September 22, 2010

Are tests always this hard?

This week I finally received notice that my application for Accreditation in Business Valuation was accepted. I now have three more letters after my name. This was an inordinately difficult credential to obtain.

Last year I spent the better part of six months pouring over books and official materials studying for the ABV exam. I spent 40 hours in classroom lectures on the subject. All that was hard work, but the painful part was the exam.

When I arrived at the test center last fall, it started to rain. On top of that I wasn’t feeling well. Perhaps it was nervous tension over the test or possibly something I had eaten the night before. Whatever it was, my stomach wasn’t contemplating sitting in a testing center for two 4 hour blocks of time. I made it through the first 4 hour block OK, but that’s when things turned ugly.

I went out to my car to eat lunch and got soaked by the pouring rain. As I went back in to continue the test, my stomach suddenly woke up and gave me the 2 minute warning - find a restroom, NOW. I was told that the only restroom was around the outside corner of the building. After walking in the rain around the building a security guard noticed my panic stricken look and directed me down an alleyway (no roof here either) to the restroom. I made it to the restroom in time but took on several gallons of water in the journey. I returned to the test center so cold & wet that I squished when I sat down.

Once inside the testing room, you cannot leave without terminating the test. I lasted about 3 hours before round #2 began in my stomach. It felt like two cats chasing a ball of yarn inside me. The last hour alternated between me trying to focus on the questions or my rapidly pressurizing abdomen. The last 15 minutes of the exam I could barely sit still and feared a major environmental disaster was imminent. I clicked through the final questions with the fastest guesses I could muster, grabbed my stuff and duckwalked to the restroom. At this point I didn’t even care that it was still raining. (no further details here…)

By the time I got home I was soaking wet, felt like I had been slugged in the stomach, had a cold, and was convinced I had failed and would have to retake the exam. Also, my daughter’s car had broken down in the middle of nowhere on her way home from Northern California for the holiday. She abandoned it 180 miles from home and needed a ride. All in all, just another day in paradise!

All I can say is that it’s a good thing I did pass, because I don’t think I’d be willing to do that again anytime soon.

Wednesday, September 15, 2010

Deficit Solution?

My wife and I recently returned from an Alaskan fishing trip. The fishing was good, the weather was OK (for Alaska it was great), and the friends we traveled with were a lot of fun. The not so fun part came when I totaled up the credit card bills and realized how much we had “stimulated” the domestic economy. I sure hope Sarah Palin appreciates it.

While pondering my cash flow damage I recalled an article I had just read regarding the Federal deficit, and how for the nine months ending Sept 30 the government will have spent over one trillion dollars more than it took in. Makes my problem seem trivial in comparison, unfortunately I can’t ignore it like politicians do.

But I may have stumbled on a solution to both the federal deficit and my own money issues: It was recently announced by Russia’s finance minister that they have similar budget problems, and he has gone public with a request that Russians smoke and drink more. It seems the Russians tax alcohol and cigarettes heavily (as do we), and although Russian per capita consumption of these things is already very high, he acknowledges that the sin taxes raised by increased consumption of alcohol and cigarettes would help solve their budget woes and supplement funding for social services.

I don’t know why we don’t have similarly open minded politicians in this country, but I think it’s about time that someone stood up and encouraged more of this type of spending. We could solve all manner of fiscal problems if we encouraged people to drink and smoke, and there wouldn’t be any complaining about paying taxes, either. Remember, it’s for the children!

For my personal situation, I doubt smoking would help, but I think a few stiff drinks certainly will make these credit card bills easier to swallow. So, after I write this I think I’ll start doing my part to reduce the deficit. I'm sure I'll feel much better.

Tuesday, August 24, 2010

Pay your taxes off at 10 cents on the dollar?

These claims are touted on cable TV and radio ads frequently, and at times we have received inquiries from clients about them. Our advice is usually unpleasant, but pragmatic: If you owe the money and have the ability to pay (whether you want to or not), you will not qualify for any special negotiated settlement, and to try and get one will only drag the process out and drive your ultimate costs up.

This was reinforced Monday with the announcement from the California Attorney General’s Office of a lawsuit filed against the nation’s largest tax resolution law firm. The suit alleges that the firm engages in unfair business practices, defrauds customers, makes false promises while taking large up front payments and provides little or no help in lowering tax bills. The lawsuit says that one ad featuring three individuals and claiming to have saved them $86,000 is misleading since all three still owe the IRS the tax plus interest and penalties and have only temporarily delayed their payments.

The best advice for anyone owing back taxes: Take the steps necessary to minimize any penalties incurred, and pay off old balances as quickly as possible. Interest and penalty assessments can in many cases exceed the amount of original taxes owed had they been paid on time. The government is not a cheap lender, and in collection cases they are not here to help. While they will work with you to facilitate payment of back taxes, your best interest in the long run is never incurring any penalties or interest by keeping your payments current.

Tuesday, August 10, 2010

Taxpayers get Burned

In a recent court case, the court struck down a tax deduction for a couple who donated their house to a local fire department. It seems they were in need of the house being removed from their property, and the fire department was in need of a burning house to train in. The couple obtained an appraisal of the house at $287,000, donated the home to the fire department, who burned it to the ground and trained their firefighters. The couple deducted the appraised value as a charitable deduction.

The district court denied the charitable deduction, but not on theoretical grounds. The deduction was denied because the appraisal of the property was faulty. The appraisal failed to lay out specifically the dates of the donation, the qualifications of the appraiser, the terms of the agreement with the fire department, and to state that the appraisal was done for tax purposes. These are all requirements spelled out in regulations. Whatever merit there might have been in taking the deduction for the house, it was lost because they failed to follow the rules and document the deduction properly.

The punch line: If there is big money at stake, it pays to do right, otherwise your tax savings might well go up in flames.

Tuesday, July 27, 2010

Will that be Spray or Ray?

You might not have noticed it yet, but the first new tax from Obamacare has kicked in.

Tanning salons must now collect a 10% surcharge on indoor tanning services. This new law is rumored to have been inserted in the Obamacare legislation in retaliation to the “Boob & Botox tax” which was in the original version (see my blog posting at: It was said that there were a few Senators on the Democrat side who use tanning salons to maintain themselves in camera-ready condition, and Republicans were incensed enough about the attempt to tax cosmetic surgeries they created this tax in an effort to get even. In response to public ridicule the Boob Tax was dropped, but the tanning tax survived.

Not surprisingly, people have already enlisted strategies for effective tanning tax planning. These strategies include spray on tanning solutions which are not taxed (think: Dancing with the Stars orange), and just going outside. The latter strategy is cheapest, but apparently does not yield that “true tanned look” as well as the other methods.

I don’t know about you, but this doesn’t affect me. I go from pasty white to beet red in a manner of seconds. I am so sensitive to sun that I can get sunburned fishing at night. But while this is somebody else’s ox being gored, I think we should all be sympathetic. On the one hand, our government is singling out some small boutique businesses for capricious treatment, and on the other they are currently trying to convince us they are not anti-business.

Go figure.

Friday, July 23, 2010

Home Sweet Home

Thinking of selling your home sometime in the next couple years? If so, consider this: In order to try and pay for all the goodies included in Obamacare, Congress created a 3.8 % Medicare surtax on investment income starting in 2013. This surtax is placed on top of the normal tax on all investment income, including capital gains, for singles with Adjusted Gross Income over $200k, or married couples with AGI over $250k.

So, if you sell a home in 2013 that was a principal residence and your gain exceeds the $250k/$500k exclusion amount, any gain will likely be taxed at capital gains rates PLUS the 3.8% surtax. It’s even worse on a second residence as there is no exclusion available for gains on sales of homes that aren’t a principal residence.

So if you are considering selling your home soon, you may want to plan to have the sale close before January 1, 2013 in order to avoid something other than termites taking a chunk out of it.

Thursday, July 22, 2010

Do you feel lucky, Punk?

While statistically speaking your chances of being audited by the IRS are very low, It is important to prepare each tax return as if you will be audited. Having proper documentation for expenses claimed and being certain to declare all income items is far more effective if you do the work when its fresh in your mind and the records are available. Waiting two or three years to put this stuff together can torpedo your chances of prevailing in an audit if you no longer remember who was at that business meal, or where you put all those receipts.

Some people play the odds game and bank on never being selected for audit. This can be a great time saver initially, but often will backfire if you’re the one selected. It’s sort of like being deployed to Afghanistan. The death toll in that war is relatively low, but of little comfort if you’re the unlucky one.

A year ago we had one tax examination going on in our office. Right now we are defending about six. Further, IRS is expanding its auditing of payroll tax returns (and independent contractor status) and has begun to audit 2000 small businesses each year on employment taxes. One of the rumors that came out of the Obamacare debate was the mandate to hire thousands of new IRS agents to enforce all the tax provisions. This was hotly denied, but seems a logical result of increased taxes and more government mandates.

So if you want to play the audit lottery and have inadequate records, I would refer you to Clint Eastwood’s famous exchange from the movie Dirty Harry while pointing a gun to the head of a bad guy: “Do you feel lucky, Punk?”

Tuesday, July 13, 2010

If you’re going to kill your spouse…

The California Legislature is very adept at killing jobs and increasing unemployment, but this may be the only time that nobody will object.

The Assembly has come to the rescue of one constituent who has a problem. It seems that his ex wife keeps hiring hit men to “off” the guy. Ex wife is currently in prison, but apparently she still stands to benefit financially if something unpleasant just happens to befall her former hubby.

Tired of constantly looking over his shoulder, former hubby asked his assemblyman to sponsor AB 2674 which provides that when one spouse is convicted of soliciting the murder of another spouse, the injured spouse is entitled to all of the community property interests in retirement and pension benefits, as well as all life insurance. Further, the injured spouse is relieved from awards of spousal support, medical insurance benefits or other payments to the convicted spouse.

All this is good, unless the convicted spouse was successful. It would probably be of little consolation to the deceased to know that the ex spouse wouldn’t get any money after all. I can just hear him thinking now as he fades away…”well she got me, but at least she won’t get my IRA account!”

If signed by the Governor, this bill will remove the financial incentive of spouses to hire hit men, but is silent on what happens if they were to do the deed themselves. Hopefully that is covered somewhere else.

Thursday, July 8, 2010

2010 Missing In Action List

Many popular tax breaks that folks have previously used to reduce their personal income taxes were either repealed or allowed to expire for 2010 and may not be around this year to help reduce your taxes.

These breaks include the college tuition deduction, deductions for teaching supplies, deductions for state sales taxes, deductions for property taxes for nonitemizers, and tax free IRA payouts to charities.

Further, the Alternative Minimum Tax is a huge deal this year as the exemption amounts that were used to keep many folks from being trapped by this tax have readjusted to pre-2001 levels, subjecting millions more people to the hated AMT in 2010.

Meanwhile, Congress is still (amazingly) diddling around with the estate tax for 2010, and are still trying to reinstate it retroactively to Jan 1.They are also talking about extending some of the foregoing income tax breaks and “fix” AMT. But along with the estate tax issue these are all hung up in a Congress that is afraid to raise taxes before the next election but also concerned about the public’s increased anger over the rising deficit.

So, at the top of our 2010 Missing in Action list maybe we should put POLITICAL LEADERSHIP.

Thursday, July 1, 2010

Second Place

Coming in second place in most contests is not best, but it ain’t all that bad. Some notable exceptions: Wars, Ultimate Fighting, and the latest US News and World Report study of states that raised taxes the highest in 2009. Guess what? California had the second highest per capita tax increase in 2009 (right behind New York) with $312 per person of increased taxes last year.

If that isn’t dismal enough, the study did not take into account taxes disguised as “fee” increases, or regulatory rulings that require people or businesses to incur more costs to comply with some bureaucratic new rule. If these hidden costs were quantified, the per capita tax increases would have been much higher.

Business will ultimately leave for less expensive places to operate, or they will simply be unable to compete and will fail. In 2006, California was host to 23 of the nation’s Fortune 500 companies. Now the count is 19. Those company headquarters and all the related jobs left this state because it’s too costly and difficult to do business here.

Here’s an idea for our politicians: If you want to make a political statement and boycott Arizona, How about starting by no longer exporting our jobs to that business friendly state?

Friday, June 25, 2010

Think about this...

Most folks don’t think much about taxes until around April when they start to ponder what kind of damage the IRS will inflict on them for the prior year. We encourage, beg and cajole our clients to be proactive about taxes, and in so doing we can minimize the damage and also help plan for it. Alas, some folks are just hardwired to procrastinate when it comes to this issue and do little, if any, advance prep for April 15th.

However, this year advance prep will be important. In 2011, ordinary tax rates will be going up for most folks. Capital Gains tax rates will be going up for everyone. This means that the dollar you earn in 2010 will be taxed less than the same dollar earned in 2011, particularly for capital gains. If you have the ability to accelerate taxable income this year, or put off paying tax deductible bills until 2011, you may well be making a 3-5% spread by doing so. That’s a pretty good return in today’s world, and it can be had by almost anyone with a little advance planning. Doing something as simple as not paying your second property tax installment, or perhaps your state estimated tax payments, until 2011 could make you money.

In 2010 anyone can convert an existing IRA to a Roth. This could be a great time to do that if your income is low this year due to the economy or a layoff, and you are in a lower tax bracket. A Roth IRA that does not create tax when drawn out can be a nice thing to have in retirement. In 2011 and beyond tax rates will be higher and a conversion may not make sense under those circumstances.

Since capital gains rates are increasing from 15% in 2010 to 20% in 2011, or if you are in the lowest tax brackets from 0% (that’s no tax for you recent college grads) in 2010 to 10%, if you’ve got something to sell at a gain, this year just might be the time to do it. However, if you have investments to sell at a loss, you may be better off selling them next year when it will offset tax at higher rates.

All this boils down to a bit of advanced planning and calculation, and you will hear me beat this drum louder when we get closer to the end of the year.

Monday, June 21, 2010

Internet Tax scams

From time to time people forward me chain emails related to tax issues that are swirling around the internet, asking me if they are true or not. Lately, a couple of them have been sent to me repeatedly. Let’s deal with them here:

Scam #1
AN EMAIL SAYS THE NEW HEALTH CARE LAW WILL REQUIRE THE VALUE OF EMPLOYER PROVIDED HEALTH CARE TO BE SHOWN ON YOUR W-2 FORMS AND FOR YOU TO BE TAXED ON IT. This is not entirely correct, but also not completely incorrect either. While it is true that the Obamacare law will require employers to disclose the value of employer provided health care benefits on your annual W-2 forms, the law does not make them taxable. Presumably the bill writers wanted all of us to know how much our health care costs are, and will require employers to also show it to IRS. The more cynical amongst you might suspect that taxation will come later…..but it isn’t here now.

Scam #2
AN EMAIL SAYS THAT THE IRS WILL REQUIRE ALL GUN OWNERS TO LIST ALL FIREARMS THEY OWN ON TAX RETURNS AND PAY AN ANNUAL TAX ON THEM. It also usually states that the registration and tax scheme will be imposed by the Senate Finance Committee without ever getting a floor vote in Congress. This one lit up a bunch of my friends, and got my inbox plugged faster than a blackpowder rifle shooting FFg! It’s completely untrue, but actually has some basis for its origin. Apparently a congressman from Rhode Island proposed something very similar in the year 2000, offering up a bill which languished and ultimately died in committee. However even if it had progressed through the system it would have had to have been voted on.

Thursday, June 17, 2010

No Equality, No Justice!

Here in California, the State granted Registered Domestic Partners (RDPs) the same legal status and rights as married couples. For tax purposes, this change forced RDPs to file income tax returns as either married jointly or married filing separately. Anyone who is a RDP must use the married rates on their California state tax return. However since the Federal government does not recognize such unions, for Federal tax purposes RDPs must use the Single (or Head of Household if there is a qualifying dependant) filing status. This causes no small amount of hassle if you are preparing a tax return that is joint with someone for state but single for Federal….

Further, since California is a community property state all items that are considered community income and deductions must be allocated equally between spouses or RDPs if they file separate returns.

What this means is that for Federal tax filing purposes RDPs who live in California will generally claim half of each other’s community income and deductions on each of their Federal tax returns, but instead of using Married Separate rates like married couples would, they will be entitled to use the Single rates. This may well result in a big Federal tax savings for RDPs that is not available to married couples.

Just for laughs I decided to calculate how much tax my wife and I would save if we were able to claim Single (and Head of Household) status on separate returns as RDPs will now be able to do. To my surprise it was over $1,000.

Apparently, antidiscrimination can be ugly too

Friday, June 11, 2010

Wanted: One dead Billionaire

Ever since the inheritance tax was temporarily repealed on January 1, 2010 (for only one year), there have been many that have called for its reinstatement. Regardless of how you feel about taxing estates, it can be argued that it is inherently unfair for a wealthy person’s estate to completely escape tax simply because that person happened to die in 2010 rather than 2009 or 2011, while other heirs of estates not so fortunate pay such a stiff tax.

While Congress has been promising to fix this leak since last year, like the reaction to the BP disaster in the Gulf, it just goes longer and longer without a solution. There were many assurances early on that even though Congress did not get to it before 12/31/2009, not to worry because they would pass a “fix” that would be retroactive to January 1.

Enter Dan Duncan, a soft spoken farm boy who died unexpectedly in March 2010 at age 77. Dan owned two companies he built in the natural gas business, a 5500 acre Texas ranch stocked with wild game, a gun collection ( I like this guy!), and various boats, cars, jewelry, etc. Dan’s estimated net worth was somewhere around $9 BILLION. Because he died in 2010 Dan’s heirs stand to reap a savings of anywhere between 4-5 Billion dollars if the tax law stays in effect.

If Congress continues to do nothing, the system will benefit a very few wealthy people like Dan’s heirs with a windfall. If Congress tries to pass a law reinstating the “Death Tax” to cover guys like Dan, it has been argued that it would be unconstitutional if it was made retroactive, and although the average small estate may not have the resources to take up a challenge like this in court, a very wealthy one might.

With a few billion dollars at stake I’d bet Dan’s heirs would be willing to do that.

Friday, May 28, 2010

Major S change?

There currently is a bill wending its way through the House called the American Jobs and Closing Tax Loopholes Act. Wait a minute - why don't they ever label one the "We're going to stick it to you act"? What happened to truth in advertising? Sorry. I digress. Anyway, this bill has a lot of tax stuff in it, something for (or against) almost everyone. One item that sticks out is a change in the way S corporation dividends are taxed.

S corporations do not pay tax. They are treated similar to partnerships in that the net income of the corporation is taxed directly to the shareholder. There are certain circumstances where this is preferable to the standard “C” corporation treatment of paying tax at the corporate level first and then paying taxes on any dividends received at the shareholder level. Whether this is advantageous or not depends on a lot of factors. S corporations are by definition closely held, and are commonly used by small businesses, particularly in the start up years.

Congress is attempting to take away some of the potential benefits for S corporations by adding a layer of tax to the shareholders of S corporations engaged in service type businesses. This legislation provides that the earnings of S corporations that engage in professional services will be subject to Self Employment (FICA and Medicare) taxes. This has historically been a major advantage when considering S status, and its elimination will probably be the death knell for a lot of small S corps that will no longer have an incentive to maintain S status.

The bill hasn’t left the House as of today and will be taken up by the Senate when it does. Given all the revenue raising provisions in it (read: tax increases), its probably guaranteed to pass in some form soon.

Friday, May 14, 2010

Wow – How bad was it?

In Dayton, Ohio a man who was upset at being audited by IRS fired several gunshots at an H&R Block employee whom he blamed for the audit. He approached her car in a parking lot outside a bar last Sunday morning and opened fire.

Thankfully she managed to escape with just a few new holes in her car.

There’s a better way to react to an IRS audit. If you prepare and keep good records prior to doing your taxes, an IRS letter will be nothing more than an inconvenience, and you won’t need to resort to mortal combat to make your point. Further, many government inquiries don’t rise to the level of an audit and can be handled quickly with a minimum of correspondence, if you have the proper backup documentation and are prepared.

However, the best defense for a tax return is always a good offense. Whatever you do, don’t hire a preparer who can be found outside of bars on a Sunday morning!

Friday, May 7, 2010

Who slid this in?

As reported at CNN yesterday, Buried deep within the Obamacare law is a change in rules that have a huge impact on 1099 reporting for all businesses. Currently only noncorporate vendors receive 1099 forms for amounts paid for services. However, starting January 2012, businesses will need to issue 1099 forms to all vendors that were paid over $600 in a year FOR ALL GOODS AND SERVICES.

This means that if you are an independent contractor, or landlord, or any other form of business, you will issue 1099 forms annually to every vendor (ie Office Depot, Verizon, etc.) for any amounts you paid totaling over $600, including purchases of supplies, equipment, and inventory. Corporate vendors will no longer be excluded.

This will result in a massive increase in 1099 filings, as well as a massive increase in related correspondence with IRS for all businesses. If you run a business you will need to obtain addresses and Federal ID #’s for every company you do business with and keep them on file for end of the year reporting. Further, if you are a corporation, be prepared to receive an avalanche of 1099 forms each year and be able to demonstrate to IRS how they were all reported.

Questions that should be asked: What has all this have to do with Health Care? (nothing), Who pays the hidden cost of all this record gathering, keeping and correspondence? (we do), Why was this written into the law?

To answer the last question, consider this: Once a system is set up to report to the government every business transaction that occurs, how difficult would it be to tweak it and add a VAT tax?

Thursday, May 6, 2010

Banana Republic status!

Recently, a survey of the nations CEO’s that ranked all states in terms of their business environments listed California dead last. Actually, we came in 51st out of the 50 states since they included the District of Columbia. According to Chief Executive Magazine, California has become “the Venezuela of North America”. Maybe that’s why Governor Arnold wears white suits in his TV spots promoting the state.

The reason this is tax newsworthy is because previously I wrote (see previous blog entry California Tax Freebie dtd Jan 7, 2010) about an obscure tax credit available to California businesses who hired new employees in 2009. The credit reduces California income taxes and is calculated based on a formula that compares hours worked for new hires in 2009. The credit is only available on a first come, first served basis until allocated funding is used up. Funding allocated for this employer subsidy was $400 million, and it was expected that credit applications would far exceed that amount. As a result we encouraged many of our clients to file tax returns early so as not to miss out on this giveaway.

Well, it turns out that due to our almost highest in the nation unemployment rate, there apparently haven’t been enough new hires to make a dent in this credit. As of March 20th the state had only allocated about $14 million of the $400 million available. The good news is that you probably have till at least June 30 to file 2009 tax returns and still claim this credit. The bad news is that due to our business climate there probably aren’t many of you that had new hires in 2009 anyway.

Thursday, April 29, 2010

Back to the Real World

Right after the April 15th crunch subsided, I took a few days to test the wild trout population in the Eastern Sierras. They are still there, and it was good to get away and detox without cell phone coverage or any other electronic devices screaming for my attention. There is absolutely nothing more therapeutic than cooking fresh caught trout and a dutch oven dessert over a mountain campfire!

My kids disagree, but sometimes the low tech way is the best way.

You may have noticed that in the last few weeks my blog submissions have been kind of sparse. That’s because of the volume of work passing through here, not because there haven’t been a lot of new pronouncements lately. I will try and catch you up on the interesting ones, while keeping these things short and relevant.

Stay tuned for more…

Wednesday, April 7, 2010

Time is running out!

Many years ago I toiled as a staff accountant at a local CPA firm in Rolling Hills, CA. The senior partner, whose name was Marty, was known to occasionally go out of his way to aggravate the office staff purely for entertainment. Example: many of the staff struggled to keep their weight under control. Marty had his own issues there, but having conquered them via draconian dieting, you would think that he would be sympathetic to those who still fought the “battle of the bulge”. Not so, and at least twice weekly we would arrive to the office and be greeted by a huge spread of cheese danishes, donuts & pastries from a local bakery, none of which Marty would partake of. He simply wanted to tempt those who should not have been eating that stuff and who by 2 or 3pm would inevitably give in.

Well, every April 1st Marty would hang a long purple banner on the railing outside the office that simply said TIME IS RUNNING OUT. It served as a reminder to those clients who came in to our office that April 15th was upon us, but mostly was a stress inducer to overworked staff accountants already putting in 70 hour weeks and not getting all of our work done. Although he never once said a word about it, the visible message was clear.

The April 15 tax filing date is once again only a couple days away, and I sometimes wish I had a similar banner to hang here to admonish our clients to get their data to us sooner, and for our people to work harder.

Then I remember how I felt about Marty and all those pastries ...

Monday, March 29, 2010

Do it for you, not for the country.

Its springtime and two annual phenomena will be reoccurring like clockwork as they have for years: 1) Trout season opens soon in the Eastern Sierras (yaay!) and, 2) lots of people are now flush with cash from tax refund checks.

The IRS has said that the average tax refund this year has been around $3,000, and that means all those folks who have been lending money to Uncle Sam at zero percent interest all year finally get their money back. The big question is, what will they do with the money?

In the past, consumers were hammered with waves of advertising offering to sell cars, boats, and electronics of all kinds on credit pending the receipt of their income tax refund for a down payment. Those voices have quieted down now (probably gone out of business) but all that extended spending did help fuel our consumer driven economy. Was it any wonder that at the same time we were being exhorted to buy stuff on easy credit, the US was racking up one of the worst per capita savings rates in the world? Without savings, how is a struggling household to weather an unexpected decline in income?

So, what’s the best thing to do with your tax refund? This is my advice: Do what’s best for you, and let someone else stimulate the economy. Pay off high interest credit card and auto debt. Sock away cash for an emergency reserve. Invest in your own retirement account. Pay off your mortgage(s). Ok that last one might be a bit tough, but you get the point. Its not real sexy advice, and you might not have that cool toy hauler and quads to take to the desert on the weekend, but you’ll breathe a little easier if the economy doesn’t pick up for a few years.

Friday, March 19, 2010

Dylan was right!

I’ve refrained from blogging for awhile as most of my spare time seems to have disappeared due to workload. Don’t get me wrong – I’m happy to have the work, its just that nowadays when I get a free moment I usually end up pondering a rising trout on a particular eastern sierra stream rather than thinking of current tax issues.

However there are some really important happenings going on that you should be aware of. Notably, the Health Care legislation being kicked about in Washington has some important changes in taxation included in it. For the first time interest, dividends, royalties, rents, annuities AND CAPITAL GAINS would all be hit with a 3.8% tax surcharge. If your income is over $200k ($250k married filing joint) then under the current proposal you will be hit with this new change in the tax law. Stay tuned for more updates as the political drama plays out.

There will be some changes definitely hitting sooner that may affect you. A new law just signed by the President will provide for a tax credit for employers who hire new employees between 2/3/2010 and 12/31/2010 who were previously unemployed for 60 days or more. The credit is equal to the employer’s 6.2% social security tax on wages. Further, for each new hire retained for at least a year employers will be eligible for up to $1000 in additional tax credits in 2011.

If you have money in a foreign bank or own 10% or more of a foreign business, the same new law discussed above now requires that these overseas investments be subject to US withholding (How are they going to enforce that???). Congress is also looking at requiring disclosure of foreign bank accounts on your tax return in 2011 or risk up to $50,000 in penalties.

Some good, some bad, but as Bob Dylan said…the times, they are a changing….

Wednesday, February 17, 2010

Red flags and white flags

Often we get asked: “If I claim (fill in the blank), is it a red flag?” Our response is usually a long winded explanation ending with, “it depends”. The truth is, the IRS’s formula for selecting returns to audit is a well kept secret. Some returns are selected completely by random, and others are scored for audit based on an internally developed rating system. The returns that score highest are reviewed and if they look like good candidates, they are sent to either a regional office for an audit by mail, or a local office for a face to face throwdown. Nobody knows exactly what will set off alarms at IRS, but there are some things you can be mindful of that will limit your likelihood of having to deal with any imperial entanglements.

First, make doubly sure you claim ALL your income that is disclosed on a 1099 form. IRS is very efficient at matching these to returns and will generate notices automatically when they do not find what they expect to see on your return. This is low hanging fruit for them as it is all handled by computer.

Second, avoid large negative numbers from your sole proprietorship. If your Schedule C is negative, you must be prepared to clearly support all of your costs here with evidence that they were “ordinary and necessary” business costs AND prove that you really paid them. A real accounting system instead of a shoebox full of paper scraps will help a lot when you are asked to produce records. Be prepared to prove that you are running a legit business instead of trying to deduct a hobby or scam.

Have a rental property? Large numbers for maintenance and repairs will invite scrutiny as many times these cost are more properly capitalized and depreciated over time.

Do you have a lot of unreimbursed employee expenses? If you incur job related costs that are not covered by your employer, they may be questioned if they have a large impact on your tax. You will need to be able to prove that they were clearly job related and explain why they weren’t reimbursed by your employer.

If legit, you should not back away from claiming deductions that are so called red flags. But, unless you want to be hoisting a white flag at audit time you must prepare for it when you prepare your return.

Thursday, February 11, 2010

More on charitable deductions

This is the third installment in my blogs about charitable donation deductions. Previously, we discussed the new rules for Haitian Relief deductions (1/27/2010), and donations of autos & boats (12/7/2009).

We are now seeing a steady inflow of individuals bringing in their 2009 data for tax return prep. One common question is: What can I deduct as charitable donations? Many people think that if you give money to a nonprofit you can always deduct it. But its not necessarily so. Let me give you a few examples.

Money given to a charity or religious organization in exchange for a service or product is only deductible to the extent that the value of the service or product received is less than what you paid for it. Example – you attend a fundraising dinner and pay $50 for a plate of spaghetti. If the value of the meal was $5, then you may take a deduction of $45 for the excess. Most large fundraising events will disclose this amount on your receipt or ticket so you don’t have to become a food critic to support your deduction.

Same thing applies when you buy a book, DVD’s CD’s etc for a package price. These have a value, and the charity will disclose to you how much you can deduct for tax purposes out of the total you actually gave for all that stuff you bought.

But what about money spent for charity raffles, bingo, games, etc? No deduction, says IRS, for any money spent on games of chance.

However, if you spend your own funds on behalf of a charity for unreimbursed travel, meals, supplies, educational seminars, uniforms or anything that supports the organization, and you are acting as an official representative of the organization, you can deduct these costs. An example would be a scout leader taking training, buying a uniform, and paying for gas to take a scout troop on a campout. In this case you would need to not only prove your expenses, but also have some documentation from the organization that you were acting in some official capacity, not just on your own behalf.

Monday, February 8, 2010

Here we go again

California’s fiscal crisis does not show any signs of resolution. Despite assurances from the Governor and legislators that the state will remain able to pay its bills through June 30, John Chiang, State Controller, has released a warning that that may not be the case.

According to Mr Chiang, California could very well run out of cash by March 30.

Does this mean that we will be treated to IOU’s and delayed tax refunds? Right now it’s not looking very clear and if you take steps to prepare for it you can limit your exposure to making involuntary loans to the State legislature.

But what should you do? Well, first of all you need to get your tax returns filed ASAP. Right now there are no delays in processing refunds. If they owe you money, an electronic return with automatic deposit of refund will get you your money in a few short weeks.

What if they start issuing IOU’s and you’re still waiting for missing data? Here’s where it gets tricky. First of all, if you are typically looking for a big refund you should take steps to avoid overpaying your taxes by reducing withholding. That s a good rule in general. Second, if you already have a built up refund that may not be received back soon, you may want to bank on applying that refund to your 2010 taxes. In so doing you pay your 2010 estimated tax with their IOU. Next, dramatically reduce your 2010 withholding so that your current employer increases your paycheck right now, returning the money to you a little every payday, starting immediately.

Next post: More on charitable deductions

Thursday, February 4, 2010

No tax deduction for the good looking!

As I‘ve previously shared with you, we frequently receive questions from clients asking what else they can deduct to lower taxable income. In the “bet you haven’t tried this one” category falls a recent tax court decision that allowed a taxpayer to deduct the costs of a sex change operation as a medical deduction.

The taxpayer was born male, but was diagnosed with gender identity disorder. The treatments for the disorder included gender reassignment surgery and breast augmentation. IRS disallowed all of it, calling it cosmetic surgery and claiming that the disease had to arise from an organic pathology.

Enter the tax court. The court determined that gender identity disorder was a disease along the lines of a mental disorder and that treatments for it fell within the parameters of allowable medical costs. However, the court balked at the breast augmentation, stating that its goal was to improve the taxpayer’s appearance and not promote proper body function. Was that a nice way of saying that not only was this person seriously conflicted, but she was ugly to start with too?

We won’t know. Court decisions don’t include pictures.

Wednesday, January 27, 2010

Haitian heads up!

Driving in to the office today I was able to see clouds dumping snow on the local mountains. It was a good reminder that nature sometimes has an effect on our lives, and I thought it would be appropriate to discuss the tax incentive signed into law this week to help the Haitian earthquake victims. Here’s the straight scoop:

If you donate money after January 11, 2010 and before March 1, 2010 to a qualified US charity and it is earmarked to aid Haitian earthquake victims you have the choice to take the deduction on your 2009 or your 2010 tax return. Pretty simple, but there are a few things to point out.

1) It must be a US based charity. If you aren’t sure, look up the organization on the IRS website,,id=96136,00.html .

2) The donation must be made in money. Checks, credit card charges, and designated text message fees on your phone bill will all count. Donations of blankets, tents and food will not.

3) You cannot deduct the donation in both 2009 and 2010!

4) Those who do not itemize deductions will not get to deduct these donations.

At this point in time California does not conform to this legislation, meaning you will still be able to deduct these donations but will only do so in 2010 unless the legislature enacts a conforming bill. It is expected they will do so, but we will have to wait and see.

Monday, January 25, 2010

The cost of free money

Albert Campbell was a whistlebower. He turned in his former employer, Lockheed Martin for defrauding the Federal government and ultimately received a reward of $8.75 Million under a law dating back to the civil war designed to catch contractors who were gouging Uncle Sam during the war effort. Good job, Albert!

But in what can best be described as greed induced stupidity, Albert decided (on his own) that the reward he was paid was not taxable income to him. Dumb move, Albert.

In the year he received his settlement of $8.75mil, Albert disclosed part of the settlement (net of a whopping 40% contingent attorney’s fee) on his tax return, but failed to add it to taxable income. His taxable income as shown on the return was only $793.

Since he received a 1099 issued from the US Treasury for the $8.75 mil, IRS initially though he had just made a simple math error and sent him a friendly notice with a revised calculation showing tax owed of $3,044,110. Albert fought back, claiming that the money was nontaxable since it came from the Federal Government. Using the same case that Albert cited in his defense, noting that the case actually held against his position, the Tax Court disagreed. A reward is income, no matter who pays it.

The upshot of this case is that Albert was slapped with accuracy related penalties of 20%. The court noted that he was a smart guy (or should have been), having been a financial analyst and then chief of cost control for a huge project. Smart enough to hire help. In assessing the penalty, the court opinion mentioned twice that he failed to consult a tax professional in preparing his return and formulating his positions.

So lets do the math: $8,750,000 less $3,500,000 attorneys fees, less $3,044,110 Federal tax, less $608,800 in accuracy related penalties leaves a mere $1,597,090 left over, before interest. Nothing to sneer at, but a far cry from $8.75mil.
You’d think with that kind of money laying around he could have paid someone to do his taxes!

Monday, January 18, 2010

Something good from IRS

Cell phones used for business purposes currently are one of the “Listed” assets that IRS has special rules for. If you use a cell phone for business, there are draconian rules which you are supposed to be following that force you to document all of your calls and make a distinction between business and personal use. Personal use is deemed to be a taxable fringe benefit if the phone is provided by your employer or a nondeductible expense if you pay for the cell phone and try to deduct it yourself.

As you can imagine, people rarely itemize out a cell phone bill in order to reduce the available tax deduction. It would take too much time to analyze a year’s worth of phone statements, and many cell phone bills don’t list individual calls, only minutes of usage. Further, as cell phones get more sophisticated and are put to use doing other things such as sending and retrieving emails, taking notes, scheduling appointments, etc., the IRS documentation requirements become even harder to comply with.

This has resulted in much contention during audits and given the amounts of the deductions generally involved has been a poor use of resources on both sides of the audit table.

Recently, IRS Commissioner Doug Shulman and US Treasury Secretary “Turbotax” Timmy Geithner asked Congress to “make clear that there will be no tax consequences to employers or employees for personal use of work related devices such as cell phones provided by employers”. Further, Shulman said the IRS will not be moving forward with any of its cell phone substantiation initiatives. So, add cell phone relief to the list of things Congress is supposed to address this year, along with the other tax issues they failed to resolve in 2009.

Friday, January 15, 2010

Are you in the IRS’s crosshairs?

Recent public announcements and internal memos to IRS agents give us an indication of some areas that will be scrutinized heavily in the coming months. Several areas to note:

Tax returns for S corporations have been statistically shown to have a very high error rate – 68%. Look for increased audits on these entities focusing on travel expenses, meals and entertainment, automobile expenses, and the big favorite, taking dividends in lieu of compensation to avoid payroll taxes.

Refund claims involving R&D credits are being looked at closely.

Random audits of payroll tax returns will commence next month. This is an area that has historically received little attention but is on the “A” list now. Agents will be looking to classify independent contractors as employees, and making sure fringe benefits are taxed properly.

Appraisers and valuation professionals will be on the hook for their work too. If an appraiser improperly misstates a value resulting in an overstated deduction or a lower tax, the appraiser could be on the hook for some large fines.

These are a few of the areas IRS will be focusing their sights on. If any of these apply to you it would be wise to get your ducks in order before you find out too late that its duck season!

Wednesday, January 13, 2010

2010 the Year of Uncertainty

Many Federal tax breaks expired on 12/31/2009 that were widely expected to be extended. Congress, primarily the Senate, failed to take up many provisions that we have taken as permanent. Consider how many of these will affect you:

The AMT exemption amounts automatically roll back to pre-2001 levels. This will make many more of us subject to this tax.
Sales tax, college tuition and teacher’s supply deductions have been suspended.
R&D credits are suspended
Tax free IRA payouts to charities are no longer allowed.
50% bonus for first year depreciation and high limits for expensing assets are gone.

And of course the estate tax and stepped up basis rules are gone (see previous posts on this subject)

These changes are widely expected to be reinstated, some expect retroactively, but who knows what the politicians will eventually do and when they will do it.

Stay tuned for updates!

Monday, January 11, 2010

Deducting Pornography and Prostitutes

Never let it be said that taxes are boring. William Halby, an attorney in New York, recently appeared before the tax court to argue that the $7,373 he spent on pornography and the $108,086 he spent on prostitutes over a two year period should be allowed as deductible medical expenses. Mr. Halby argued that these expenditures should be allowed as medical expenses due to the positive health effects of sex therapy, and presented a detailed log of “treatments” and “service providers” as support for the deductions.

Not surprisingly, Mr. Halby lost his case. Not only did the Tax Court deny all his deductions forcing him to cough up over $21,000 in tax, but because he is an attorney and should have known better, they slapped him with accuracy related penalties of over $4,000 as well.

However, in coming to the conclusion of denying the deductions, the court stated that the reasons for disallowing the expenses paid to prostitutes were because they were illegal payments, and that they were not prescribed by a doctor. This begs the question: What if they were legal payments and what if they were prescribed by a doctor? Could he then successfully deduct prostitutes and porn? The opinion is silent on this point.

Now, I DO NOT recommend that any of you try this, but consider this: Mr. Halby’s failure may not have been an excess of chutzpah (or libido), but more of a lack of proper planning. Had he secured a prescription for his “therapeutic” treatments, and had he received said treatments in a place where they are legal such as Nevada, perhaps he would have had a better case. He might even have been able to deduct his travel costs to Vegas too.

Note to Harry Reid - If this concept were buried in health care reform legislation it would have sailed through Congress in minutes.

Thursday, January 7, 2010

California Tax freebie

In the “if its good policy lets limit it” category:

Our state legislature feels that in this economic climate, small businesses need an incentive to hire new employees. As a result, there is a new law that provides that if you own a small business that employed 20 or less employees as of 1/1/2009, and if you hired any new full time employees during 2009, you may be entitled to as much as $3000 in tax credits for each new full time hire.

The glitch here is that there is a finite amount of funding available for this giveaway, and once a certain statewide threshold of total credits have been claimed, further credits will be disallowed. The question is, if granting this credit was a good idea, and I believe any time you lower taxes on small business it’s a good idea, then why wouldn’t extending the credit permanently, or even to all businesses be a better idea? Sacramento has no problem saddling us with tax increases across the board, why tax reductions on a tiny basis? Given that we have one of the highest (if not the highest) unemployment rates in the nation, I would think that any pro-hiring incentives, if valuable at all, should be implemented without limitation.

But that assumes that this credit is valuable. It might be if it were permanent. Given that few businesses even know about it, and that smart business people don’t make hiring decisions based on a “maybe” one time tax subsidy, rather than spur hiring I suspect that this will simply be a windfall to the well informed few.

So, consider yourself well informed. If you qualify for the credit, file your tax returns quickly and hope for the freebie!