TAX COURT HOLDS MEDICAL MARIJUANA RETAILER UNDERREPORTED INCOME

The owner of a California medical marijuana dispensary was found to have underreported income. Moreover, he was precluded from deducting most of the expenses he claimed because the business consisted of trafficking in controlled substances.

OBAMA ADMINISTRATION BOOSTS FUNDING FOR BIG LABOR

As the Obama administration aggressively backs regulatory agencies' enforcement efforts, it's cutting back on programs that educate businesses on how to comply with regulations.

The White House's proposed 2013 budget allocates more funding for federal and independent labor agency enforcement, including whistleblower programs and cracking down on unpaid overtime and worker misclassification.

The boost in funding is tied to an increase in initiatives to investigate and fine businesses for failure to comply with labor regulations. "They're going out of their way to aggresively investigate businesses, turning over stones to see if they're doing anything wrong,"said Elizabeth Milito, senior executive counsel of NFIB's Small Business Legal Center.

The budget outlines:

• $1.8 billion for worker protection agencies within the Department of Labor.
• $374 million for the Equal Employment Opportunity Commission, up from $360 million in 2012.
• $293 million for the National Labor Relations Board, up $15 million from the prior year.

To make matters worse, the Obama administration is also cutting back on programs that educate businesses on how to comply with new regulations - such as websites, webinars and hotlines, Milito said.

The complexity and expense of new regulations is adding to the climate of fear for small business owners. "Hiring and business expansion come to a halt when small business owners are unsure of the effect of new rules coming out of Washington," Milito said.

COPY OF OLD TAX RETURN

Q:  I need a copy of my old tax return in order to get a loan. I can't find my return. Any suggestions?

A:  If you used a tax a tax preparer, you should first check with them. They should have a copy. If not, the IRS can help.There are 3 ways that you can get the information from the IRS.

Transcripts are free and are available for the currentand past three tax years. You can quickly receive a transcript. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.

You can also receive a tax account transcript that shows any later adjustments either you or the IRS made after you filed your tax return. This transcript shows basic data including marital status, type of return filed, adjusted gross income and taxable income.

To request either type of transcript online, go to IRS.gov and use the online tool called Order A Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message.

To request a copy of your 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use Form 4506-T, Request for Transcript of Tax Return.

If you order online or by phone, you should receive your tax return transcript within five to 10 days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail.

If you need an actual copy of a previously filed and processed tax return, it will cost $57 for each tax year you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. Please allow 60 days for delivery.

Good luck on the loan.

HOW MUCH WORK HAS CONGRESS COMPLETED THIS YEAR

This year Congress has passed 54 bills and sent to the president the following:

•       14 to rename post offices

•         9 to approve real estate transactions

•         6 to renew existing leases

TEN TAX TIPS FOR INDIVIDUALS SELLING THEIR HOME

The Internal Revenue Service has some important information for those who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income.

Here are 10 tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the full exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale of your home on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523, Selling Your Home, for details.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

THE FORMULA FOR "SUCCESsful" IDEAS

I read a lot of business books. I'm a big believer in "one good idea," so I'm happy if I actually get one good useable idea from a book. But every so often, I come across a book that just spills ideas. And that was the case with Made to Stick: Why Some Ideas Survive and Others Die, by brothers Chip Heath (a professor at Stanford University) and Dan Heath (founder of an adult-education company).

The Heaths examine how to make ideas stick. And their answers hold lessons for all businesses. In fact, they've actually created a formula for launching an idea with "SUCCESs": a Simple Unexpected Concrete Credible Emotional Story. Let's look at each of these in turn:

• Simple: Strip the idea down to its core. For example, military commanders draft complex battle plans, specifying "scheme of maneuver" and "concept of fires" (what each unit will do, how it will replace munitions, and so on) even though they realize no plan survives contact with the enemy. So they also announce a broader "Commander's Intent" that lets them improvise where needed.
• Unexpected: Use surprise to engage your audience and generate interest and curiosity. For example, Nordstrom's department store trains new employees with stories about employees who ironed a shirt for a customer who needed it for a meeting that afternoon, gift-wrapped a present bought at competitor Macy's, and refunded a customer money for a set of tire chains — even though Nordstrom's doesn't sell tire chains.
• Concrete: Explain your ideas with concrete images, not abstract concepts or meaningless generalities. In the example above, Nordstrom's could brag about "world-class customer service" -- or they could make it concrete with the story about the tire chains. Which communication is more effective?
• Credible: Give your ideas credentials to impress your audience. Where possible, use authority figures, social proof, and vivid details to strengthen your case.
• Emotional: Make your audience feel something about your ideas. It's one thing to solicit money for "Save the Children." It's another thing entirely to solicit money for "Reika, a seven-year-old girl in Guatemala who was born with no fingers, who spends her days sewing blankets for the unfortunate children in her village who were born with no arms."
• Stories: Tell stories that teach your audience how to act and motivate them to do so. For example, firefighters tell their stories after every blaze as a way to share the lessons they learned.

The authors cite John F. Kennedy's 1961 call to "put a man on the moon and return him safely by the end of the decade" as a classic "sticky" idea:

"Simple? Yes. Unexpected? Yes. Concrete? Amazingly so. Credible? The goal seemed like science fiction, but the source was credible. Emotional? Yes. Story? In miniature."

And it sure sounds better than becoming "the international leader in the space industry through maximum team-centered innovation and strategically developed aerospace initiatives"!

So about how you can apply the formula to growing your business or your personal life?

THE INTERNET RUMORS ARE NOT TRUE - MOST HOUSE SALES ARE NOT SUBJECT TO THE 3.8% MEDICARE TAX

The impending 3.8% Medicare surtax has fueled a spate of chain e-mails regarding a federal "real estate transaction tax" on home sales, and I have been hearing from worried clients. Here are the facts.

Gain on the sale of your house is not taxable unless your gain is greater than $250,000 for singles or $500,000 for married taxpayers.

That's the facts Jack.

WORSE ECONOMIC WRECKAGE FORECAST FROM "FISCAL CLIFF"

Even the Congressional Budget Office is warning us about the economic problems that we are facing.  Here is a good summary form Reuters.

By David Lawder

WASHINGTON Aug 22 (Reuters) - Massive spending cuts and tax increases due next year will cause even worse economic damage than previously thought if Washington fails to come up with a solution, Congress's budget office said on Wednesday.

Without congressional action to avoid a "fiscal cliff," Americans should expect a "significant recession" and the loss of some 2 million jobs, Congressional Budget Office director Doug Elmendorf said in his gloomiest assessment yet.

He said the economy was already being "held back" by the mere anticipation of the cliff and the uncertainty surrounding it. "The sooner that uncertainty is eliminated, the better," Elmendorf said.

The report could intensify pressure on Congress and the White House to resolve their differences. But the likelihood of a resolution any time soon, particularly before the November election, is seen as slim. Chances could improve after the election for action during the lame-duck session of Congress, but that's unpredictable as well.

Neither Democrats nor Republicans have shown a willingness to back away from fixed positions on either budget cuts or extension of tax cuts originally enacted during the administration of President George W. Bush.

The "cliff" refers to the impact of expiring tax cuts and automatic spending reductions set for 2013 as a result of successive failures by Congress to agree on some orderly alternative method of addressing the deficit.

The CBO said failure to avoid the cliff would deliver a shock to the economy that would cause U.S. gross domestic product to shrink 0.5 percent in 2013. Previously, the CBO had forecast full-year GDP growth of 0.5 percent.

MEDICAL PREMIUMS - W-2

Q: Larry, I heard for someone that we are going to have to put any medical/dental premiums that we pay for our employees on the W2s starting this year. Do you have any information about this or know where I would be able to look that up? We just want to make sure that we have it covered sooner rather than later.

A: As long as a business had less than 250 employees in 2011, then there is relief, in that, there will not be a requirement to report in 2012.

Use this link to see Q and A sheer on IRS website -

http://www.irs.gov/newsroom/article/0,,id=237894,00.html

TAX COURT SHOWS THAT YOU NEED TO FOLLOW THE RULES

For donated property the law is quite clear.  Failing to get a qualified appraisal for donated property and you lose the tax write-off, even if you value the property low. 

In this case, the Tax Court ruled that where a couple contributed five parcels of realty worth more than $10 million to a charitable remainder trust that they established could not get a charitable contribution.

The donations were made over a two-year period. Although they attached the proper Form 8283 to their returns, they didn’t obtain timely written appraisals from an outside expert or include an appraisal summary as required by the law. These omissions cost them the entire deduction, even though they undervalued their donations. 

This was not just a few items given to the Salvation Army.  This was land valued at over $1.8 million. (Mohamed, TC Memo. 2012-152)

DO OLYMPIC ATHLETES PAY TAX IF THEY WIN GOLD?

In response to exaggerated figures floating around the web, Snopes.com has an interesting look at the income tax consequences for those who win medals in the Olympics. Click here for article.

Basically, the winners do report the cash prizes they receive as income; but their deductible expenses to train, and attend the Olympics would most likely be more than enough to cancel out that income on their tax returns.


Thats the facts Jack.

TAXPAYER SAVES $5,000 BY NOT GETTING AN APPRAISAL BUT IT COST HIM $2 MILLION IN TAX

When it comes to large charitable gifts the IRS and the courts are very strict on following the law. As the following couple found out, even if they should undervalue the gift; therefore, cheating themselves of a tax deduction ($4 million), they could lose big time by not paying attention to the rules. The penalty for not properly documenting donations properly is, in most cases, a complete disallowance of the deduction.

The most recent Tax Court case shows the folly of a “sophisticated” taxpayer not following the rules costing them a charitable deduction in excess of $4 million.

Here is a summary of the facts. The taxpayer owned several pieces of property located in the Sacramento, CA area. In 2003, the taxpayers created a charitable remainder trust and donated the property to the trust. In preparing their income tax return, the taxpayer did not get a qualified appraisal for the property. The IRS audited the return and disallowed the charitable donation claimed. The Tax Court just ruled that the IRS was correct.

The interesting part of this case is that the IRS really did not have an argument with the valuation done by the taxpayer. As a matter of fact, they basically conceded that the value was most likely higher than what the taxpayer claimed. However, the taxpayer filled out the form, did not read the instructions and had his entire donation amount disallowed. A qualified appraisal would have probably cost the taxpayer about $5-10,000. This would have allowed the donation and probably saved the taxpayer easily $2 million or more in taxes.

SENATE MAKES NO PROPOSED CHANGES TO ESTATE TAX IN EXTENSION BILL

I think that we all know that the only thing going on in Washington between the Republicans and the Democrats is positioning for the upcoming elections. Bills are submitted in the Senate (controlled by the Democrats) and in the House (controlled by the Republicans) that will never become law because it takes both bodies and the President to make the provision law. So bills are passed by one of bodies with the realization that the other body will vote it down. Just positioning. At the same time, the defective proposals give us some indication of the thinking which could eventually become law if they ever get serious about doing their job.

Senate Democrats removed any mention of the estate tax in a Bill that is currently headed to the floor. This proposed Bill will now extend the 2001 and 2003 “Bush” tax cuts for families earning $250,000 or less. An earlier version of the Bill would have included a maximum estate tax rate of 45% while dropping the exclusion level to $3.5 million. With the new changes to the Bill, the maximum rate will be 55% with only a $1 million exclusion amount.

This new Bill would set the top rates for dividends and capital gains at 20% (plus the Medicare Surtax of 3.8% if applicable); reinstate the phase-out of personal exemptions and certain itemized deductions for higher income households; and extend certain credits such as the education credit, child tax credit and earned income credit for another year. The Section 179 expensing limits would be set $250,000 for 2013 and probably most important, it would provide for another one-year“patch” to the alternative minimum tax for 2012.

The chance of this passing is about as good as farmers having record yields this year.

LOOPHOLE - A ROSE BY ANY OTHER NAME WOULD SMELL THE SAME

I was recently speaking about taxes at a convention in Orlando, Florida.   After my session one of the participants came up and said that he did not like my reference to a few of the tax "loopholes."  He felt that a loophole was a shoddy idea that was on the verge of something that was illegal.   

That conversation got me to thinking. "Loopholes" is one of those words with different connotations for different listeners. To some, it's a dirty word — I've seen editorials calling the exclusion for employer-provided health insurance a "loophole," and making it clear that a "loophole" is one small step removed from out-and-out graft. Others of us love it. In fact, from time to time I refer to myself as "Loophole Larry."

My understanding of the word "loophole" has always been a law that's passed for one purpose that gets used for another — sort of like when a doctor prescribes a drug for off-label use. My favorite example is Code Section 132(j)(4):

(4) On-premises gyms and other athletic facilities

   (A) In general -  Gross income shall not include the value of any on-premises athletic facility provided by an employer to his employees.

   (B) On-premises athletic facility -   For purposes of this paragraph, the term 'on-premises athletic facility' means any gym or other athletic facility -

      (i) which is located on the premises of the employer,

      (ii) which is operated by the employer, and

      (iii) substantially all the use of which is by employees of the employer, their spouses, and their dependent children (within the meaning of subsection (h)).

Do you have a home-based business? Do you or any of your family qualify as employees? Do you have a pool in your backyard? Congratulations! You've got a tax-deductible on-premises employee athletic facility!

Now, we all know Washington didn't pass that law to let folks like us write off our swimming pools, treadmills, or elliptical machines. They passed it to clarify that when Corporate America sticks a gym in the basement of his big glass tower, his employees don't get stuck with taxable income for working out instead of taking lunch.

But clever planners like us take a law that was passed for one purpose, and explore it to the fullest definition. If a big employer can deduct the money it spends providing a swimming pool for its employees, should a small employer not be entitled to the same opportunity? For some, it's a "loophole" and for others it's a "strategy." Either way, it takes astute planning to take a law that was passed for one purpose and use it for a slightly different but honest and defensible purpose.

So I've never shied away from promoting "loopholes" as something my clients should want to take advantage of.

So if we want to get technical, Dictionary.com defines "loophole," in part, as "a means of escape or evasion; a means or opportunity of evading a rule, law, etc.: There are a number of loopholes in the tax laws whereby corporations can save money." Is that the same as the understanding I just outlined? Nope. Is it a pejorative? Not to me, but I see how it is for others.

So, what's our bottom line here? My job is to point out alternatives to my clients.  Let them know the color (black, white, or gray), but don't let them not follow the law. 

I try to throw in a quick definition when we use those terms. For example, I might tell a client "when I say 'loophole,' I mean a law that Congress passes for one purpose that gives someone else an unintended benefit. It's perfectly legal, even if Washington didn't realize that's how we could use that law."

HOW DOES A UNMARRIED COUPLE HANDLE A JOINT ACCOUNT FOR TAX PURP0SES

Q:  I want to open a joint savings account with another person.How do we do this and what is the potential issue with splitting the interest for income tax purposes?

A:  Well, no problem opening the account.The issue is that the bank will want a W-9 which has one of your Social Security numbers.That is the person that will get the 1099 showing the full amount of the interest.If the income is material and you want to split it on the two tax returns, we can do what is called a "Nominee 1099."With this whoever gets the original 1099 reports all the income and then we subtract half of the income and include that half on the other persons return.The nominee 1099 is then filed with both returns and with the IRS.

IT IS NOT THE 1% THAT ARE STRANGLING THE ECONOMY

Everybody should have a favorite economist. Mine is Professor Ernie Goss of Creighton University.  The following is from his July newsletter.

The 25%, Not the 1%, Are Strangling the U.S. Economy

It's not the 1 percent that is siphoning U.S. economic resources. It is the 25 percent--the portion of the U.S. population born between 1946 and 1964 or, baby boomers like me. Not only are we 25 percenters leaving the workforce at very high rates, (consuming instead of producing), we are draining the U.S. Treasury via higher Social Security (SS) benefits and greater Medicare spending. Over the past decade, SS outlays soared by 69 percent and Medicare expenditures rocketed by 135 percent, enlarging the nation's debt to $16 trillion. This debt which is the largest in the galaxy and 100 percent of GDP will ultimately be paid for by the 60 percenters (those born after 1964). We need to take steps to reduce this wealth transfer from young to old by: (1) raising the SS retirement age from 67 to 70 by increasing it 2 months per year, (2) increasing the Medicare eligibility age from 65 to 67 and, (3) cut the yearly SS inflation adjustment by 1 percent. Taking these actions would save $360-$400 billion between 2012 and 2021. Additionally to reverse the aging of the nation’s labor market, the U.S. should expand legal immigration allowing younger workers and their families to enter the U.S. Latest U.S. Census data show the median age is 38.3 for Whites, 35.3 for Asians and 27.4 for Hispanics. By increasing legal immigration and slowing the growth in SS and Medicare spending, the U.S. would avoid the stagnation and looming economic calamities threatening Japan and Europe as a result of their aging populations and expanding pensions/healthcare payments to baby boomers. Ernie Goss.

I found his comments on a “fix” to the deficit that the Social Security fund very interesting.  Last fall I attended the National Tax Conference in Washington D.C.  One of the sessions was on Social Security and Medicare, the speaker, Theodore Sarenski echoed some of the advise that Dr. Goss presented.  If this happened, according to Sarenski, no person over 55 would be see their benefits change and people under 55 would still receive at least 85% of their benefits. 

FEDERAL STUDENT AID NEW WEBSITE

Federal Student Aid launched a new streamlined website, StudentAid.gov, which will assist in making it easier for students, parents, and borrowers to navigate the financial aid process. These new resources offer more than just information in an easy-to-read format; they also feature interactive tools, such as videos and infographics, to help answer the most frequently asked questions about financial aid.

StudentAid.gov is the first step to develop a single point of entry for students accessing federal student aid information, applying for federal aid, repaying student loans, and navigating the college decision-making process.

WATCH SIMPLE CONTRIBUTIONS FOR EMPLOYEES WITH ANNUAL SALARY

Every time I think that I have a good grasp on the tax law I read something that humbles me. Recently I read a article on SIMPLE IRA plans which surprised me.Matches must be based on a participant’s annual salary, according to IRS, even if the employee joins or leaves the plan in midyear.

For example if a worker with a salary of $60,000 joins the plan on Oct. 1 and contributes $2,000 for the rest of the year,the plan’s matching payin is $1,800...3% of $60,000 (most SIMPLES have a 3% match).The matching contribution isn’t based on the $15,000 the employee was actually paid. If the worker in this example only put in $1,500, the match would fall to $1,500.

SHILLER’S FAVORITE FINANCIAL IDEA

The following article is from the July Forbes magazine. I thought you may be interested in what Robert J. Shiller, an economist at Yale University, view is on the American government. He predicted both the Internet and housing bubbles.

The American government should go public- literally. Here’s how it could work: The federal government would issue a trillion shares against our $15 trillion GDP and sell them to the public in an IPO. These so-called Trills would pay dividends in perpetuity or until the government decided to buy them back. Trill investors probably would accept relatively low dividends in expectation of future GDP growth, meaning America could refinance its debt at better rates. “Governments need to end their historic reliance on debt financing. Issuing shares in GDP is analogous to corporations issuing equity.” Shiller says. “Substituting Trills for conventional debt helps deleverage the government, something whose importance has become clear with the European debt crisis. Had European countries financed themselves with Trills in the past, there would be no crisis today.”

QUICKBOOKS SETUP ERROR & HOW TO FIX IT #2

This is my second Quickbooks tip posting:

QuickBooks is driven by lists – quite a few of them. You have to know your business and know what the lists mean so that you can efficiently and effectively create a database. Here is another QuickBooks setup error that we see the most AND how to fix it.

Customers and jobs
Customer and job organization not appropriate for reporting needs: Customer/Jobs don’t work for every QuickBooks user. In my experience, I’ve seen it used most often in construction, home improvement or real estate/property management companies where there are multiple & concurrent “jobs” worked for each customer that the business owner would like to track separately (typically for profitability reporting reasons). If this does not describe you and your business, then the extra level of “Jobs” is inappropriate for your reporting needs and is probably overkill.

Redundant or duplicate: Again, the same as with the Chart of Accounts, you don’t want a bloated list of Customers/Jobs. Periodically review the list for duplicates and merge the Customers.

Jobs not properly assigned to customers: If you use Jobs, you want to make sure that they are properly assigned to Customers. Periodically review your customer &  job list to make sure that everything is as it should be.

Don’t be afraid to ask for some help.