Taxing the Rich, Paying the Poor – Just this CPA’s opinion (probably not what you would expect)

Flag of the United States of America

Flag of the United States of America (Photo credit: Wikipedia)

America is based on our freedom to express ourselves and our opinions (at least for now… hehehe). The following is nothing more than MY opinion. I’m sure there are MANY that will agree, disagree, and fall somewhere in between. I love a good healthy debate (without personal attacks, please) so if you would like to add your own comments, I promise to post them wholeheartedly as long as there is not cursing, racism, or personal attacks. (Sorry.. my blog, my freedom of choice – but I promise to be completely unbiased on any comments otherwise) – Girl Scouts Honor.In my opinion, TAXING THE RICH is like penalizing the people in our country for making something of themselves – while rewarding many (not all) that do not. I believe our country was founded upon the ability to make choices and if we choose to work hard, we have the opportunity to become as successful as we want. In our country, there are no limits (or there isn’t supposed to be) on what we can do. Instead however, we are moving more and more toward a society that rewards those that do not work hard, that do not have the motivations of our forefathers, and often (not always) take advantage of the already excessive social programs we now have in place. First, let’s discuss taxes, then just a quick point on the other social programs I am mentioning here.

Taxing the RICH more and the POOR less is a very popular topic right now (and actually has been since our complicated tax laws and social programs really took off after the Great Depression). For simplicity, let’s compare someone making $300k (most would consider this in the ‘RICH’ category) versus someone making 20k (some would consider this in the ‘POOR’ category) per year.  Now suppose instead of this complicated tax law that we currently have, that each paid 10% of their gross income (not net income, no more loopholes, etc.) in TAXES. This is NOT taxing the ‘RICH’ MORE, correct? Even so, the ‘RICH’ person would pay $30,000 in taxes compared to $3,000 from the ‘POOR’ person. See? The ‘RICH’ would already be (and in our current system already IS paying) MORE TAXES.

Taxes

Taxes (Photo credit: Tax Credits)

In my opinion, our system is already unfair in increasing tax rates based upon your income. WHY should someone who works hard and is successful pay 30% compared to 5% or 0%. Don’t we all live in the same society with basically the same opportunities? Every single person in this country could start their own business or any child can go to college if it were their choice. I was very poor growing up (although my mother never let me realize that because of her love and rearing of me)… and I simply got student loans and went to college and have started numerous businesses. More importantly, I was given nothing by my parents (other than love and encouragement) and certainly nothing by our government to do this. It was my choice. Others have the same choice – why should either be penalized or rewarded because of their choices in a country that is supposed to be about freedom of choice?

On the other side (to be fair), I will say that the ‘RICH’ perhaps have the money to pay CPAs (or Tax Gurus) to find loopholes for tax avoidance where the ‘POOR’ do not have that luxury. This is a valid point and unfair truth based on our current tax system that I admit wholeheartedly. We all know that Big Corporations, Banks, Politician, etc., do exactly this and often pay NO tax whatsoever.  The only fair solution to me is to completely re-vamp our tax system altogether.

I would absolutely LOVE to see a FLAT TAX based on gross income (not net income, not after various loopholes, mind you) for everyone. GASP!!!  I say this and I am a CPA myself? Yes… because I would much rather spend my time on helping my clients grow their business, plan their future, train them on accounting, and reach their goals (i.e., counseling) than  I would working our complicated tax laws to ensure they take this deductions, get that credit, use this exemption, etc.  I know my clients would love it as well. Who likes dealing with taxes anyway, especially with our 5000 pages of tax law that comprise our current system!

The other point people often make is that the ‘RICH’ still only pay 2% of all taxes in our country while the ‘POOR’ pay the remaining 98%.  Okay… but that is misleading! If instead you look at it based on the individual instead of the group, almost every individual in the ‘RICH’ category already pays WAY more than any individual in the ‘POOR’ category – and this includes our gradual step-up of tax rates relative to income rising. The whole statement  is misleading because those in the ‘RICH’ group only make up a small percentage of our society – so of course OVERALL they pay less (as a group) than all the rest of our country’s population.

The problem with all of this lies in our POLITICAL system, of course. All of the special interest groups have their hands out influencing our politicians. In order for the politician to gain support and money for their campaigns to be elected (or re-elected) they have no choice but to pick certain groups, follow the crowd, and do what is in that group’s best interest, rather than the PEOPLE. It’s called bribery and it is thought of as simply normal in our society. I think our forefathers would shoot us all if they saw what we’ve done to our country in this area.

On a personal note – I am not a staunch follower of any particular political party for those very reasons. There are valid issues and points that I believe strongly in on both sides.  Ultimately I suppose I would be considered a Libertarian or Independent because my VERY strongest belief overall is that the government should STAY OUT of our personal lives and making laws that should be individual choices. Period. Period. Period. We are not a socialist, communist, or dictator-lead country. We are supposed to a country that enables its people to make their own choices, follow their own free will, and enjoy the land of opportunity.  I believe strongly the main purpose of government is to do the following and THIS is what our taxes should be spent upon before ANY solitary other thing:

1)      Protect OUR PEOPLE here in this country – protection for us in our streets domestically and certainly internationally, but only when it is clearly warranted. I understand humanitarian efforts are needed in other countries, but until we get our own country in order we simply need to help all those here first. It’s sad, but it is necessary. There are people starving in our own country – and yet we spend $5 million on grass boats in some other country? Really? This is a Republican view, until I stated that I disagree in going abroad. A Libertarian view is one that believes we need to take care of ourselves. Selfish? Perhaps. But we should be helping one another HERE in our country, not just ourselves as a person. If we do that, then perhaps we can use our extra resources to help others abroad. Until then, we need help here now… RIGHT NOW.

2)      Take care of our Children, our Elderly and our Disabled. This is more of a Democratic viewpoint, but it is absolutely critical and even a Libertarian would agree that each community (or State) should take care of its own people (rather than having the Federal government do this. The way to the means does NOT matter to me honestly  – but spending $3 million dollars to save the whales when our children, elderly, and disabled are homeless, starving, or worse in incomprehensible to me.

3)      Provide Healthcare to All American Citizens.  If there is one thing I strongly believe on the democratic side of viewpoints it is this. It is an absolute abomination that our Citizens (not illegal aliens – I’m not going to even touch that topic in this post) do not have healthcare. I’m not talking about affordable healthcare – I’m talking about pure healthcare for every single person in our country – regardless of their status, income, ethnicity, etc. I do not agree with private insurance at all. The wealthiest can afford the best care while the poorest receive nothing. I know… this is the opposite of my view on the tax system – but my reasons here are moral and ethical. Having good health is NOT a choice and an opportunity that everyone in our country currently has (which is different than becoming successful in our country and being penalized or rewarded for it by the tax rate you pay). This issue hits directly to my heart in these days as my mother is currently not cared for by any health program. She worked all her life, but was laid off several years ago. Shortly thereafter she was diagnosed with kidney cancer and needed surgery – but had not insurance or governmental assistance. The ONLY thing she had from her entire life of working was a small (very, very small) IRA left to live on, and her home that she had worked to finally pay off. In order to receive Medicaid, the government will insist on putting liens on that home. In order to have payment arrangements with the hospital (which we felt fortunate to have found one that would even do this), every bit of that small IRA will need to be exhausted. The question is… Where will she live and how will she eat once they take this from her?  The infuriating part (other than this being caused by the Camp Lejeune Marine Base Water Contamination – which I have posted on before) is that had she actually done NOTHING responsible such as saving to own her home and putting a little money away for her retirement… HAD SHE DONE THAT INSTEAD, she would have Carte Blanche and all the state and federal help she needs to for her healthcare. But because she worked and was responsible, she receives NOTHING. Really?!?! Darn, had she only taken advantage of the system, spent all her money, never saved a dime, she could get on welfare, Medicaid, and have her local state grant programs. Hmmm… what are we teaching our citizens here, folks?

4)      Education for our Children – If our tax dollars are spent on anything, our children’s education needs to be included. Again this is a democratic viewpoint I suppose, but they are our future and without providing them this, our country’s entire future could be at risk. There is no excuse for a country like ours to not educate our children beyond the low state standards that our set. This goes hand in hand with paying our teachers a fair salary (as well as holding them accountable for their performance) and teaching our children about the opportunities for higher education, college loans, and the opportunities available to them – regardless of where they come from and to teach them that saying the ‘cycle of poverty, bad education, and crime’ is no longer true – it truly is a choice in this day and age.

In my opinion, other than the main issues mentioned above, I think just about every other social program should disappear, except under extreme circumstances that are reviewed and approved on a case by case basis.

  • Welfare is the most widely abused social program I know of.  If it didn’t exist people WOULD get jobs, even if it meant finding jobs where childcare is provided or childcare swapping groups would be formed.  Again there are extreme cases, but they should be reviewed case-by-case and approved only when absolutely necessary for a limited time while the person is being taught how to get back on track.
  • Unemployment is also abused. Although certainly needed by so many today, it is ABUSED by 80% of its recipients and the people who pay for this program are those that pay taxes (i.e., those that are working). How can someone be on unemployment for 18 months (now reduced to six months recently) and still own luxurious assets and go on vacation? Is anyone really verifying they are trying to find work? Again, this is another social program that is overly abused and should be monitored much more extensively and provided under certain circumstances and guidelines to be awarded.

Overall, I believe, the Federal government should pretty much STAY OUT of our personal lives. Why do so many groups out there insist on trying to pass laws that are personal and of moral and ethical basis? In my opinion, the government should NOT be able to tell me that guns are illegal, that marijuana is illegal (although I personally wouldn’t smoke it if you paid me to), and that religion is not allowed in schools, that abortion is legal or illegal. These are all personal choices and every time the government tells us or passes a law involving moral and ethical issues, we take one step closer to being a Socialistic society and one step away from living in the Land of the Free.

Thanks to Leslie for inspiring this topic this morning. Although her views on this are different from mine, I love that even more – because in our country, we do have freedom of speech (at least for now).

Extension to pay vs Extension to file

Taxes

Taxes (Photo credit: Tax Credits)

Individual income tax returns are due on April 17, 2012 (tomorrow). If you need to file an extension to file your tax returns, you can do so by completing Form 4868 http://www.irs.gov/pub/irs-pdf/f4868.pdf – or online at any free third-party IRS approved vendor site http://apps.irs.gov/app/freeFile/jsp/index.jsp?ck. This is an extension to file your income tax returns… it is NOT an extension to PAY your income tax returns.

The IRS announced last month it’s Fresh Start initiative program. One part of this program offers relief to certain taxpayers in PAYING their taxes.  To be eligible for this, you must have either 1) been unemployed for at least 30 days in 2011 and/or through April 15, 2012.. OR 2) been self-employed and had a 25% decrease in revenue (relative to 2010) due to the economic downturn. If you fall into one of these categories you can file Form 1127-A http://www.irs.gov/pub/irs-pdf/f1127a.pdf to request a six month extension to pay your taxes (only eligible if owing under $50k in taxes). As long as your taxes are paid by October 15, 2012 this program gives the taxpayer an extension to pay their taxes without the 5% per month late filing penalty. Interest charges will still apply.

Remember, if you also need an extension to FILE your taxes, make sure your Form 4868 is also sent in by April 17, 2010.

Trucking and Per Diem Pay

Scania 164 L 480 K & E trucking.

Image via Wikipedia

http://www.ehow.com/info_8745652_trucking-per-diem-pay.html

Per diem, a Latin term meaning “per day,” is a way for truckers to recover a portion of the expenses they incur while traveling long distances away from home for work. Instead of paying the actual travel expenses, per diem pays only a percentage of expenses incurred while traveling for work.

Covered Expenses

  • According to the Internal Revenue Service, expenses eligible for federal per diem tax deductions include meals, lodging, room service, dry cleaning and other laundering services, tips for service providers and travel-related incidentals. Lavish expenses and personal expenditures do not qualify. Truckers are eligible for per diem if a covered expense occurs during travel away from home as defined by IRS Publication 17. According to the publication, travel away from home includes travel that requires a driver to sleep while away and to be away from home longer than an ordinary day of work.

Deduction

  • Truckers may choose to claim actual expenses for travel or otherwise claim the standard daily per diem deduction in place of actual costs. Those who choose to claim actual costs must keep meticulous records and receipts, and may only deduct 50 percent of the cost of meals while traveling for work. Those who claim the standard deduction need not keep records of actual costs, but must still have records of their time of travel and destination, as well as the business purpose of their trip.

Filing Taxes

  • In order to claim a travel expense deduction, drivers must itemize deductions on Schedule A instead of taking the standard deduction. IRS Form 2106 and Form 2106-EZ help truckers calculate deductible travel expenses, and the total transfers to Schedule A to be filed with Form 1040. The IRS only allows taxpayers to claim business travel expenses that exceed the value of 2 percent of adjusted gross income. Effective for the 2010 tax year, the standard per diem rate for the continental United States is $70 per night for lodging and $46 for meals and incidentals. However, IRS Publication 1542 lists exceptions for multiple localities within the U.S. with high costs of travel. Truckers who travel to these areas receive a higher standard per diem deduction as specified by the IRS.

Considerations

  • Though many truck drivers are self-employed, some work for employers that pay all of or a portion of their travel expenses related to work. The IRS forbids truckers from claiming a per diem deduction or travel expense deduction for expenses for which employer provides a reimbursement. If an employer reimburses a portion of travel expenses, truckers cannot claim the standard per Diem deduction, and must instead claim only the portion of actual travel expenses that were not reimbursed by an employer.

 

Per Diem Tax CREDIT for Truck Drivers:

http://www.ehow.com/info_12168951_per-diem-tax-credit-truck-drivers.html

One way that truck drivers are able to offset some of their earnings and receive a tax deduction is to use the per diem allowance established by the Internal Revenue Service. This information is published in IRS Publication 463 and establishes the limits for daily meal deductions that truck drivers can take. Employers, on the other hand, adhere to Publication 1542, which establishes the maximum per diem rates the employer can pay the employee as a reimbursement of expenses.

Qualifications

  • To qualify to receive a tax deduction on a per diem basis, you must first be able to meet the requirements established by the Internal Revenue Service. In general, you must be a transportation worker whose job requires that you be away from home on a regular basis. Furthermore, you must be away from home longer than a normal day’s work. In other words, truck drivers who start and end their day where they live are not generally eligible for a per diem deduction. The IRS instead requires that your job requires that you sleep away from home for a substantial period of time.

Employers

  • Those wanting to take a tax deduction for travel expenses cannot take one if they receive reimbursement from their employers for such expenses. This reimbursement is generally expressed as a payment made to the truck driver on a per-mile basis, but trucking companies may elect to use the per diem reimbursement instead. Allen Smith of AsktheTrucker.com notes that companies used to pay drivers a per diem allowance over and above their regular pay. When payment comes as an expense reimbursement and not regular income, truckers see a reduction in their taxable income, but this can affect their finances in adverse ways because they cannot report the reimbursement as income to get a loan.

Allowances

  • The IRS specifies a scale of per diem allowances that a truck driver can deduct from his taxable income, thus reducing his amount of tax liability. These can be taken when his company does not provide its own standard per diem allowance. Publication 463 indicates that the standard per diem meal allowance is $46 per day, as of 2010, for most small communities. More money is allowed in other metro locations throughout the country. This information is listed in Publication 1542. If he so chooses, a truck driver can take a per diem deduction for meals and all incidental expenses as one expense, rather than itemizing them. Effective October 1, 2010, the IRS set the standard per diem rate at $233 for all qualified high-cost locations and $160 for all other locations.

Partial Days

  • Truckers who decide to take the per diem deduction for meals alone must prorate the deduction for the days in which they are not gone for a 24-hour period. Generally, the prorated amount is three-fourths of the standard allowance on the day that the trucker departs from his home or place of work. The day he returns is not counted in the per diem deduction. Instead, the same three-fourths rule is applied to the day before he returns home.

 

Is your activity a HOBBY or a BUSINESS??

Is your activity considered a HOBBY (where expenses can be deducted) or is it actually a FOR-PROFIT endeavor?

The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

  1. Does the time and effort put into the activity indicate an intention to make a profit?
  2. Do you depend on income from the activity?
  3. If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  4. Have you changed methods of operation to improve profitability?
  5. Do you have the knowledge needed to carry on the activity as a successful      business?
  6. Have you made a profit in similar activities in the past?
  7. Does the activity make a profit in some years?
  8. Do you expect to make a profit in the future from the appreciation of      assets used in the activity?

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

What are allowable hobby deductions under IRC 183?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

CPA ramblings to help businesses grow…

Owner of Cloud CPA Services, LLC