Tax Law Writers Turn to Pros Come April

There are a lot of things that I could say on this tax day. Many others are opining on the state of the system, or just hurrying to get last minute filings in. But I think this AP article (via Forbes) says everything I could say. Let's hear how easy the tax system is from those that are responsible for writing the tax law.

"It's onerous and everybody knows it," said Rep. Richard Neal, D-Mass.

Three of the four top lawmakers on the Senate Finance and House Ways and Means committees, which are in charge of writing tax laws, pay a professional to file their annual tax returns with the Internal Revenue Service.

So, three of the top four tax law writers can't even figure out the garbage their committee spits out on a regular basis. Ways and Means Chairman Thomas (R-CA) is the only one that actually does his own return (surprising since he blasted lobbyists for complicating the tax law when doing his job).

One of the favorites to take over Ways and Means had an interesting answer when asked if he does his own returns.

"Absolutely not," said Rep. Jim McCrery, R-La. "I'm not an accountant. I'm a lawyer."

Gee, you think that's any reason why the Code is so freakin' complicated and gets more so every year that industry targeted tax cuts are passed? (cue Thomas) Get accountants on the tax writing committees! Make tax law writers do their own taxes before voting on any tax legislation!

As long as we have people that pay someone else to do their taxes writing the law, we'll never see an easier system. For these guys the system is easy: hand the documents your assistants prepared to the accountant (well, actually the mailroom guy will) and sign the return when he's done. What's easier than that?

Oh, and happy Tax Return Day!

Free Personal Finance Excel Templates

I found this resource through work. It's a boatload of free templates for Excel. It includes tax forms, personal finance templates, calendars, etc.

Even though I've developed my own version of many of these, it looks like the ones I looked through would work really well for someone to determine if their retirement plans are on track, for example. Or to get started on a budget. So, go check them out.

Tax Protestors Day to Shine

The Christian Science Monitor hasa profile of various tax protestors who are refusing to file their taxes. Most of the ones profiled refuse to file their taxes due to their non-support of the US Military. Some don't file at all, some withhold what they believe is the military's share of the national budget. All of the protestors in this article claim that they donate what they would pay in tax to charity. It makes them all seem like righteous freedom fighters.

Of course, the US Government doesn't see it that way. The article points out, over and over again, that the IRS rarely goes after tax protestors. The problem with this theory is that the IRS does tend to go after very public protestors. I would imagine everyone in this article (which used real names and locations) will be getting a visit from the taxman. They may want to look up the names "Al Thompson" and "Irwin Schiff" to see what happens when tax protestors publicize their ways.

Remember, you must pay taxes. If you don't the IRS will catch up to you. All of the matching technology they have now means it will likely be sooner rather than later. So, be a good citizen and pay your taxes.

The Investimist in The Carnival of Investing This Week

I am participating in the Carnival of Investing hosted by A Financial Revolution. Go check out all of the posts (there's 50 some to choose from).

It's about time

I can fully support this.

Starlets at the Academy Awards receive lavish gift bags worth north of $100,000, just for being special. It's about time tax preparers got some of that.

Maybe that time is coming. The Tickmarks blog reports that Bank of America is distributing iPod shuffles and stress balls to friendly tax preparers. Good, good. Of course, we wouldn't want other banks to feel slighted, so we are prepared to accept gifts from all comers. The Tax Update Blog is partial to good bourbon, if you're interested.

I don't drink, so bourbon's no good. Cash money is the best kickback for me. Though, the Motorola PEBL the nominees received are pretty sweet.

Free Small Business Workshops in Massachusetts

If you live in Massachusetts and run a small business, the Department of Revenue will host a series of tax workshops over the summer. It's a chance for free tax advice from the Department (and if you live in Massachusetts, you may need it).

Once again, DOR will be offering free Small Business Workshops from May to August. These workshops are designed for the tax novice, and are intended for new business owners or those that are considering starting their own business.

Speakers will continue to provide the latest information on a wide array of topics, including, but not limited to WebFile for Business, sales and use taxes, meals tax, certificates and exemptions, and state information (registration, employment issues, new hire reporting, estimated income tax payments, filing and payment procedures, etc.). Attendees will also have the opportunity to ask questions regarding taxes that apply specifically to their business.

The Small Business Workshops will take place on the following dates and locations: May 3 (Boston), May 23 (Worcester), June 9 (West Barnstable), July 13 (Springfield) and August 10 (Andover).

If you or your clients are interested in attending one of the Department's free Small Business Workshops, please visit http://www.mass.gov/dor and click on "Workshops and Seminars" for additional information. If you have any questions, please do not hesitate to contact DOR's Speaker's Bureau at speakerboard@dor.state.ma.us or at (617) 887-5660.

The Investimist in The Carnival of Personal Finance This Week

I am participating in the Carnival of Personal Finance hosted by MyMoneyBlog.com. Go check out all of the posts (there's 50 some to choose from).

Pennies per Dollar of Federal Budget

The Tax Foundation used the Office of Management and Budget's FY 2007 Budget of the US Government to calculate the percentage of the Federal budget that goes to each of several broad categories.

Function	Amount
Social security	$ 0.21
National defense	$ 0.19
Income security	$ 0.14
Medicare	$ 0.13
Health	$ 0.10
Net interest on Debt	$ 0.08
Education, training, employment, and social services	$ 0.04
Transportation	$ 0.03
Veterans benefits and services	$ 0.03
All others*	$ 0.06
Total	$ 1.00
* Includes community and regional development; administration of justice; international affairs; natural resources and environment; agriculture; general science, space, and technology; general government; commerce and housing credit; energy; and undistributed offsetting receipts.
Source: Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2007 (available at http://www.whitehouse.gov/omb/budget/fy2007/); Tax Foundation calculations.

Looking at that chart, it's hard to see where the "Starve the Beast" proponents plan to cut spending. The Tax Foundation also found that most people feel the same way.

What does that mean to you? Eventually, much like a consumer, the debtload of the Federal government will break its back and something will have to be done. If we can't cut spending, the government will have to raise revenues. That means tax increases, which don't seem very popular currently.

If you've got the choice between the IRA and a Roth IRA and you're in a pretty low tax situation now you may want to select a Roth because you will be locking in today's lower tax rates. If you're self-employed, it may not make a difference because you will pay an additional 15.3% in self-employment taxes on your IRA or Roth. If you have a 401(k) at work you may be able to hedge your bets by funding the 401(k) to get the maximum match and then contributing to a Roth. Contributions to Roths are subject to income maximums, so you'll have to make sure that you can make Roth contributions.

Tax Foundation on American's Tax Feelings

The Tax Foundation released the results of their annual survey of US citizens regarding Federal taxes (PDF Link). The results are not all that surprising, I just wish that Congress would take a look at the results sometime.

52% of respondents said that they would be willing to give up some deductions to make the tax system simpler. However, 80% said the Federal tax system was overly complex and needed major adjustments (28% said "overhaul everyone else", apparently). 63% said it was unfair for one-third of all American taxpayers to pay no tax and that everyone should pay at least a little tax (that's the much-despised AMT!).

When it comes to raising taxes and Congressional spending the results are bad news. When asked if they would be willing to pay additional taxes to pay their share of the current-year U.S. deficit (approx. $2,470 per person), only 9% said they would pony up the cash. Of those that said they would pony up the cash, 63% said Congress would just increase spending with the raised taxes and wouldn't pay off a dime of the deficit.

Only 55% of respondents actually prepared their own taxes, either using software or on their own. 36% paid an outside tax preparer (more on that later this week). 59% said they paid too much in tax and 30% said they paid the right amount (the 1/3 that pay no tax?) and 66% said they get a fair or poor return on the money they pay in Federal taxes.

Federal taxes have never been popular. Everyone complains about them (some more than others) but the number of people unhappy with the current system will only get larger unless Congress does something about the complexity of the Federal tax system. Congress also needs a lesson in personal financial management in order to reverse the trend of people believing that Congress has no willpower to restrain spending.

Hopefully, we'll get more than lip service about reforming Federal taxes in the near future (certainly more than running on a platform of simplifying taxes while passing the most complex piece of tax legislation ever). I won't hold my breath.

Hybrid Credit Amounts Issued

The IRS has certified several cars for the new Federal Hybrid Credit. In previous years, a deduction was allowed up to $2,000 for purchasing a hybrid car. The credit is much better as it is a dollar-for-dollar reduction of tax. For instance, a $2,000 deduction is worth $500 if you are in the 25% tax bracket. On the other hand, a $2,000 credit is worth $2,000 no matter which bracket you are in.

The certification amounts:

• 2006 Ford Escape Hybrid Front WD $2,600
• 2006 Ford Escape Hybrid 4 WD $1,950
• 2006 Mercury Mariner Hybrid 4 WD $1,950

IR 2006-56

• 2005 Toyota Prius $3150
• 2006 Toyota Prius $3150
• 2006 Toyota Highlander 4WD Hybrid $2600
• 2006 Toyota Highlander 2WD Hybrid $2600
• 2006 Lexus RX400h 2WD $2200
• 2006 Lexus RX400h 4WD $2200

IR 2006-57

The IRS also reminds taxpayers of the details of the program.

Starting in 2006, this tax credit replaces the tax deduction of $2,000 which was previously allowed for taxpayers who purchased a new hybrid vehicle before December 31, 2005 for the clean-burning fuel deduction. The tax credit requires a different certification. Many currently available hybrid vehicles may qualify for this new tax credit.

Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

So, if you're thinking of buying a hybrid, now you'll know the amount of tax credit you'll get back.