Death and Taxes

09/16/2025

One more reason I hate partnerships. If you invest in a partnership, you are doing business in every state where the partnership does business. Think about it. If Starbucks was a partnership and you bought 100 units, you’d be doing business in every state.

Oh, you say, but I only made $200 in Alabama based on the schedule. Surely I’m under the threshhold for filing. Wrong. May have been true in the Fifties, but not now. Say your Federal income was $100,000 and the Alabama tax on $100,000 is $5,000. You’re already over the filing thresshold because your Federal income is what counts. So you owe Alabama $10 (200/100,000 times $$5,000) an your return preparer is going to charge you a minimum of $200 for preparing the Alabama return. (It would be $300 if it were California or New York.)

For the umpteenth time, think before you buy one of these publicly traded partnerships.

09/07/2025

I was thinking that YouGov is an excellent pollster. It's run by the Economist and has no dog in the hunt on US politics. But then I thought "You have to be able to use a computer for something besides social media and video games and they have "Are you paying attention to what's being asked?" so you have to read carefully. That immediately means liberal bias.

07/16/2025

Old joke. Santa Claus, Travis Kelce, and a cheap tax accountat are walking down the street. They see a thousand dollar bill. Who picks it up?

Answer: Travis Kelce. The other two are figments of your imagination.

Now this stretches the point a bit. Most people con’t even need a return preparer. They can pull out TaxAct, Turbotax, TaxSlayer, or any other of the software programs and if they are not 100%, pure D DA’s, they can get their tax right within a few dollars. (I use the DA exception because I saw one at AARP in 2023 where the dude didn’t file his 2021 return, so he just put his 2021 and 2022 W-2’s on the 2022 return. That takes the prize.)

Where a cheap return preparer can really cost you money is when you have foreign (non-US) stuff. Say you worked in the UK and had a savings account worth $12K. You need to file a report with FINCEN reporting the acount and the highest balance. The penalty could be up to $10,000 each year. Now say you invested that amount in a private pension. You have to file form 3520 and 3520-A. And you will probably need separate extensions.

Let’s say you and a Brit you met in a bar decide to form Widgets, Inc. (a Wyoming corporation) to import and export widgets, 50-50. You have to file Form 5472 with the corporation’s return. Say the cheap preparer is doing your personal return and the corporate return but blows the extension for the corporation. Files on April 20. Surprise! You have a penalty of $25,000 and you have to beg and plead to get it reduced or go to Tax Court.

Don’t like it? Write your Congressmen. The IRS is just doing its job.

07/11/2025

For those who are over 70 and a half, you know what a qualified charitable distribution is. You can tell the broker that handles your IRA to send a grand or two to your church, mosque, museum, Main Street Theater, whatever. It’s not income to you and a charitable deduction – it never comes into your tax return at all.
The thing is, ALL of it must be a charitable donation. No “membership”, no coffee mug, no T-shirt, no free tickets to a gold tournament. Nada back! Squat! Zip! Nothing but the nice thank you letter acknowledging the gift.

An enormous amount of QCDs is coming of IRA’s – the total amount in the US increased nearly 74% from 2017 to 2018. Coincidence? No – that’s about when the first Boomers started having to withdraw from their IRA’s and they chose to be savvy and do QCDs rather than write a check to the charity. In 2024, the national total was almost $593 billion.

Those charities with some snap have a separate form for these, or at least a separate page on the website telling you where you tell the broker to send the money. Then there are those who don’t. They are stuck in the Twentieth century. Tell them so and if thery send you a coffee mug, quit giving to them. If they can’t manage this simple thing, they can’t be saved.

06/07/2025

06/06/2025

Every time we pick up Michael and Elija,there’s a big honking pickup that is Pepto Bismol pink. I wonder if that’s the Mary Kay incentive of the Twenties.

04/15/2025

I have explained before why I always file for an extension for clients. For example, if you take an extension on January 1 and pay $100 with the extension, you can then file on February 14, and would have had a refund of $100, you then get a refund of $200. If you’re the normal procrastinator type (and we ALL are) and file on April 19 owing $1,100 (less the $100 extension payment), the penalty is $5, whereas if you didn’t extend, the penalty is $55 (5% of $1,100). But say you own 10 percent of a foreign corporation or partnership and don’t file until April 19. You have to file a particular form by the due date. The penalty the IRS will assess is $10,000 plus another $10,000 for every month you are late in paying the original penalty. Take the extension and file with the form by October 15 and the penalty is zero. So merely not owing any money is not the be-all and end-all to avoiding penalties, though it usually is.

09/28/2024

When Dumb Things Happen to Smart People - Some expressions are terms of art. Case in point - estimated tax. This is not an estimate of the amount you believe you will owe after all your withholding. It is a series of four installment s of tax paid on four due dates to cover your shortfall so you won't be assessed a penalty. For example, your total tax, after child tax credit, was $20,000. Your total withholding on your 2024 income is going to be $16,000. You would pay $1,000 on April 15, 2024, $1,000 on June 15, 2024, another $1,000 on September 15, 2024, and a final $1,000 on January 15, 2025.

If you wake up on January 18 and realize you forgot the January 15 installment, you can pay it, but DO NOT label it an estimated tax payment - that ship has sailed. Label it "balance due 2024 tax" or "extension payment 2024 tax.". If you label it " estimated tax", it will be credited to 2025. Then you will have to wait on hold for two hours to get the credit transferred to 2024. (By the way, the bulk of the agents hired as part of the recent increase in funds for the IRS will be manning phones to help dummies with just such problems.)

A letter will also do it, but that takes three months to process, if you're lucky.

I have had four clients make this error this year. As a tax pro, I can call a dedicated line at the IRS and sort it out. If you are doing your own return on TurboTax o whatever, you're SOL.

08/13/2024

Trump has two ideas on taxes that sound great – until you think about them.
The first is eliminating taxes on tips. Sounds good, but it will only put money in the pcokets of servers who are at the top of the food chain. Those at the lower end will lose out on earned income tax credit and in some cases child tax credits because those are both based on earned income. Secondly, aren’t these baristas going to retire some day. Their Social Security checks will be even more anemic. But then, they can be servers in their eighties, right?
Speaking of which, the Social Security and Medicare tax won’t go into the trust fund, so instead of running out in 2037 (when I will probably ne dead), it will run out in, say 2035, when I might be alive. Plus, instead of paying 78 percent of current benefits as at present, it will only pay maybe 72 percent.
And on Social Security, he wants to make that completely tax free. Sounds great, and it will benefit me in the short run. Martha and I pay about $10,000 on our Social Security benefits under present law. So I’d get 10k. The problem is that most senrios pay zip in tax on their Social Security and another 40 percent pay very little. because you have to have other income of about $40,000 to $50,000 before you get past the hurdle of the extra income from the Social Security income and the standard deduction. So I’m all for getting another $10k a year that would have gone into the trust fund, which will then run out in 2032.
All taxes are a deilicate balance and I don’t trust an unbalanced person with this,

08/12/2024

Just a little word of tax advice – DO NOT BUY A HOLDING IN A PARTNERSHIP. The benefits are almost all illusory, and your tax preparer will charge you between $300 and $800 more for each partnership you have invested in. If you try and fill the information in yourself you will tie yourself in knots.

The reporting form for a corporation or mutual fund is a Form 1099-DIV. These average about 6 entries. A Schedule K-1, the analagous form for a partnership, can easily have over 200 entries. Not only that, but there are so many different types of ambiguous information that must be chosen from that you have to look back and forth at detail schedules, which in turn can refer to other detail schedules.

OK, you have been warned. Don't.

06/23/2024

In Moore v. United States, the majority affirmed the Mandatory Repatriation Tax and basically got it right on the Sixteent Amendment. Income realized by a corporation is income realized by the shareholders. The reason for not taxing it in the same manner as a partner’s share of income realized by a partnership is logistics rather than realization. If every corporation traded on the NASDAQ or NYSE had to produce a Schedule K-1 for every investor, even if they only owned the stock for a day, it would probably use up all the computing capacity in America.
In Moore, they were talking about a Controlled Foreign Corporation – one controlled by ten or fewer US shareholders (shareholders sho owned 10% or more of the voting power of the stock). The stock ownership remained stable during the eriod in question. Not a Herculean task to figure out each shareholder’s share of income realized. Though I disagree of the merits on tax policy grounds, Congress has ample authority to tax these earning.
Gorsuch and Thomas tried to blow smoke with the old “dividends not paid are earnings not realized” guff, but that failed.
The other party who got it wrong is the Elizabeth Warren crowd. This is not a wealth tax. The court said the earnngs from 2016 to 2017 could be taxed. It did not say that the $40,000 the Moores invested could be taxed. That would be a wealth tax and would be stretching the 16th Amendment to the breaking point.

03/13/2024

Relearning Waltz Across Texas, San Antonio Rose, and El Paso for Elija. You can actually sing these while sober. Who knew?