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: http://www.paulstaxblog.com/2009/12/real-boob-job.html). 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?