PatrickDougher.com’s Better Biz Radio

Patrick: And welcome to Tax Talk. This is Pat Dougher and we’ve got a great show for you today. In this country, we have two tax systems. We’ve got one for the people that know how to save money on taxes and then, there’s everybody else that doesn’t and they pay more taxes. Which side of the fence would you rather be on? Pay less, of course, right?

Well, that’s what we’re going to talk about today is ways that you can pay less for this year’s taxes and really begin to structure even your business and your personal life in a way that the government just doesn’t walk off with as much of what they think is theirs already.

So, today, we’re going to talk about things like the government’s action or inaction on some of the things that are happening on Capitol Hill. We’ll talk about the Democrats pulling a bill for firing some people that are walking on their taxes. We’re also going to talk about how some of the areas of the government are just totally out touch.

California homeowners have a shock coming up. We’ve got some good news and bad news reports. And also, we’re going to talk about foreign bank accounts and how to – well, I’ll say some of the mistakes that people make just signing the checks and using checks.

We’ve got so much to cover and I’m so thankful that I’ve got Jeff Pickering CPA. He has a Master’s in Taxation. You will want to call in and ask your questions to Jeff and then, there’s also Rex Hogue, an Attorney with Bolinger and Hogue in the North Texas area.

If you want to cal in, it’s 214-787-1570 or #KLIF on your Sprint wireless phone. Well, guys, we have some deadlines coming up, don’t we, Jeff?

Jeff: We definitely do. This is deadline time. Taxes are deadline driven. We’ve got March 15^th which is the deadline for filing your corporate tax return or filing you extension. So, if you have a company that’s named Inc, Corp, Incorporated, or Corporation or an LLC taxed like one, then you’ll want to file your extension by March 15^th.

We’ve got March 31^st is the deadline to buy a Ford Fusion or Mercury Mariner hybrids and still get the tax Credit. April 15^th – big deadline; individuals, partnerships, trusts – if you’re making your estimated payments, it’s the first payment due. Ouch! It’s the due date for your extensions, your property tax renditions and it is the deadline to claim your refund from your 2006 tax return.

So, tax payers have $1.3 billion in unclaimed refunds from 2006 and if you are one of those, you have until April 15^th of 2010 to file your return and get your refund back. In Texas alone, there’s 114 million dollars of tax refunds that are unclaimed.

Patrick: Wow. Is there a way to get any? We have to go and file for that to get it if there’s anything out there?

Jeff: You have to file. You have to file in order to get the refund.

Patrick: Wow, that’s amazing. So, what’s going on in Capitol Hill?

Jeff: Well, there was a Republican, a Congressman who introduced a bill after he found out that many of the tax deadbeats were actually in Congress which we did report. We reported that before.

We said, “Okay, the biggest tax deadbeats that are on the government side are in the House and the second biggest are the Senate.” And then, the third, of course, is the office of the President.

So, we reported that and this Congressman got a hold of that and he said, “Okay. Well, let’s make a bill to fire all the staffers that owe the IRS money.”

Patrick: Sweet.

Jeff: So, the Democrats actually pulled that. They pulled that bill for some reason. I think it’s because before they fire them, they want to give them a little chance to clear it up or something like that.

Patrick: That’s right. I remember reading that in your report.

Jeff: Yeah. So, that’s what’s going on. The Democrats pulled that idea, but it was a neat idea. Basically, you work for the government. You owe the IRS money. You’re getting a paycheck. Why are you getting a paycheck when you owe us money? That was the point.

Patrick: Exactly. So, what’s the out of touch? How is the government out of touch right now?

Jeff: Yeah. Well, this is a report, the first annual report on the White House panel headed by Vice President Biden and I guess they have to have stuff to do, so this is what he did. He put a report and he’s calling for a system of automatic IRAs in the workplace.

So, they’re saying that the employers who don’t currently offer a retirement plan would be required to enroll their employees in a payroll deduction IRA. However, workers would be able to voluntarily opt out of the system.

So, what that is – there’s no reason for a law like that because if anybody’s working and they’re not covered by a qualified plan, they can just go get it. There’s no reason to make employers put some kind of mechanism in place to force people and then, “Oh, they can opt out.” So, maybe it’s a little too much government intervention.

Patrick: Intervention. Mandatory is un-fun.

Jeff: Right.

Patrick: Very good. So, what’s going on in California?

Jeff: So, in California – California has their own separate tax system and they need the money. Believe me. They’re in big trouble. So, many of the people who are in trouble with their homes, they have short sales or they have foreclosures. They’re safe on the federal tax side because we passed a law that says for qualified residents, you can exclude up to $2 million of discharge of debt income.

So, the rule is, if somebody forgives your debt, that’s income to you. That’s the tax rule. And because of late, they’ve had so many of these short sales and foreclosures, they said, “Okay, we’re going to give people a break.” And they did, in the federal side.

What they didn’t do is they didn’t put that same break on the California state tax system. So, these people who are down and out, who don’t have any money, they’re going to owe huge amounts of money on their California tax returns.

Rex: It looks to me like it averages about $3,000 a piece.

Jeff: $3,000 a piece.

Rex: People out of a job and lost their home; what a nightmare.

Jeff: That’s all they need.

Patrick: And don’t forget, it’s only – what’s the interest rate that the IRS usually has right now? Is it 25% plus 12?

Jeff: Yeah, for late payments and stuff like that, it can go up to 25% per year.

Patrick: Ow! That’s usury if I’ve ever seen it. Here’s what we’re going to do. Call in at 214-787-1570. You really want to talk to these guys. They both have a tremendous amount of information that can help you save some money this year on your taxes.

And more specifically, you need to talk to them about planning for the next few years. None of us can avoid the fact that the government has overspent its income in a massive way in the last 30 years, but especially in the last few and they’ve got to fund it. The only way they’ve got to fund it, really, is to raise taxes.

So, you know that taxes are going to be something that are going to grow. Well, like I said at the beginning of the show, the more you know, the more you get to keep.

And I have to tell you, this is the time to get to know what you can do to lower your taxes. 214-787-1570. You need to talk to Jeff Pickering CPA, Rex Hogue, Attorney. We’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Patrick Dougher. We’ve got Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area for Bolinger and Hogue.

You know, a lot of people don’t realize that we really do have a tax system that just – well, the more you know, you really do get to keep. That’s the thing we really want you to understand. We want you to call in, 214-787-1570.

You know the government’s got to raise taxes. You know that they’re going to find ways to increase you obligation unless you find the keys to help you avoid some of those pitfalls. Jeff, I know we’ve got another sports team in the news.

Jeff: Right. These are the New Jersey Nets, so this is our good news/bad news. The good news is you might get some free tax return preparation. The bad news is, you have to go a Nets game. So, this isn’t what the promotion is.

Rex: And with their 6 and 53 record, that might actually be an 8^th Amendment violation of rights for cruel and unusual punishment.

Jeff: That’s right.

Patrick: I wondered when you were going to offer that with the Mavericks.

Jeff: Well, they haven’t approached me yet.

Rex: They’re in first place.

Jeff: I don’t think they need free tax returns to get people into the stadium.

Patrick: I get it. I’ll just go on from there.

Jeff: So, that’s the promotion they’re doing. Let’s move on next to the FBAR. If anybody knows what an FBAR is, it’s the Foreign Bank Account Reporting. So, there’s a little bit of news in the Foreign Bank Account Reporting.

For those of you who have foreign bank accounts – I know some of you out there do, so here’s the news. You have to do the Foreign Bank Account Reporting if you are a citizen or a resident. For everybody else, it’s pretty much waived for the 2009 and previous tax years.

Rex: They’ve waived it for people who aren’t in the US and are not citizens.

Jeff: Right, nonresidents.

Rex: You know, there’s really no secrecy with that stuff anymore. Every country shares with the IRS on US citizens and US residents. So, one great way to get in trouble is to not report.

Jeff: Yeah. The penalties for not reporting – this is a different kind of penalty because it’s actually under the criminal code and you can actually go to jail if you have a foreign bank account and do not report it on the FBAR, the TDF 90.22-1; big long name for a form.

But, they’re due in June and if you have an account that you control; they’re in your name or you control it, it’s over $10,000 in that account, then you do want to file the form and just comply with the government. It’s not that big a deal. I mean, how much interest are you going to make on a foreign bank account?

Patrick: It depends on how much is in the bank account.

Jeff: Well, it’s all relative, but right now, interest is not a whole heck of a lot. So, just claim the interest, report your foreign bank account and sleep easily.

Patrick: That’s very good. Talking about banks, I want to go to a special report that Rex wrote on what your bank doesn’t want you to know about checks. I hope you’ll call in and ask some questions about this, folks. It’s 214-787-1570. There’s an interesting story about how this even started, wasn’t it, Rex?

Rex: It was. I used to be in charge of counting offerings at our church and we saw all the checks coming in. I was just amazed at the number of mistakes I saw on checks from people who are businessmen, people who are highly educated – just an incredible number of mistakes that they made writing checks that could cost them a lot of money.

Patrick: What were some of the examples of some of that?

Rex: You wouldn’t believe how many people have their driver’s license or a Social Security number on their check. It opens the door for their identity to be stolen, opens the door for somebody to get a bogus driver’s license in their name with the criminal’s picture, but your name and address on it. It opens the door for your Social Security information to be stolen. So, somebody else can go get a job and have that reported.

A lot of people don’t know the old trick or they don’t realize it’s still around; that you have a phone number on a check and somebody steals a check, they’ll call your house to find out if you’re not there and if you’re not there, they may come by and do some free shopping. That’s still around. So, information that people should have on checks – one of the biggest problem areas.

Patrick: Very good.

Rex: Another problem area is the ‘pay for’ account on the top line of the check, who you pay it to. They don’t draw a line to the end. They don’t realize that if you leave that blank, somebody can come along and write ‘Or Charlie Conman,’ go cash that check and you still owe that money to the company you wrote it to even though Charlie Conman got your check, went and cashed it, doesn’t pay ABC company who you wrote the check to.

Patrick: I had no idea that was even an issue. I know years ago, even in my own checking account, I would post my driver’s license on there because they were always writing it anyways. I figured why not make it convenient – big mistake.

Rex: Yeah. People try to save time, but it just ends up being a nightmare. They’re actually making all kinds of problems for themselves.

Patrick: Very good. We’ve got some callers on the line, so I’m going to go to Mike. Mike, your question?

Mike: Yes, Sir. Thanks for taking my call.

Patrick: Sure.

Mike: I’m fixing to convert my home to a rental property. In terms of remodeling and such, one I move out of it, how much can you write that off? Can you write it off?

Jeff: Yeah. So, Mike, your biggest question is going to be what’s an improvement and what’s a repair. You probably want to do this once you place it in service. Once you put your property up for rental, then you want to do all these repairs and things like that.

So, an improvement is something that improves that improves the existing thing that was there. Let’s say if you replace a 30 year roof to 50 year roof, that’s an improvement and that’s got to be depreciated.

Mike: Or if I went from a 9 SEER to a 12 SEER?

Jeff: Yeah, that’s right. You got the idea.

Mike: Or, if I put a radiant barrier in.

Jeff: That’s right. That’s definitely an improvement. Now, a repair is just what you think. You have a fence. It’s broken. You put the same kind of fence up. That’s a repair. That’s completely deductible.

Mike: Repairs are deductible?

Jeff: Repairs are completely deductible in the year that you spend the money. The improvement has got to be – they call it capitalized which means you’ve got to depreciate it over the 27 ½ year life of your rental property.

Mike: Can you take an accelerated capitalization on that?

Jeff: Generally, for rental properties, you don’t want to do that. I’ll tell you, theoretically, it is possible because there’s something call a cost segregation. This is what the big boys do. Somebody with a million or more in property would normally get a cost segregation done. They would break out the components into fast depreciation. But, for most of us mortals, we just capitalize or expense based on improvement or repair.

Mike: One 27^th of the life of the repairs.

Jeff: Right, 27 ½ years.

Mike: Right. So, if I replace, upgrade – now, is replacing a worn-out air-conditioner unit or a roof, that is considered a repair or an improvement?

Jeff: It depends on what you replace it with.

Mike: Okay. So, if you upgrade it, is an…

Jeff: Improvement.

Mike: Is it better, then, to do an improvement or a repair?

Jeff: If it’s an upgrade, it’s an improvement.

Mike: Yeah, income tax-wise, is it better to upgrade or improve?

Jeff: I always tell people when you focus a lot on the income tax consequences, sometimes you make decisions that really don’t make sense. So, I wouldn’t recommend you to get a nice air-conditioner just because there might be a favorable tax treatment. Actually, there’s not.

I would say put the stuff in there that’s going to help you get the money out of your rental. Your tenants will probably not appreciate what you’ve done. So, I would say you just want to put things back the way they are, usually. You just want to repair and put the same quality. Most of the time, your tenants will not appreciate the extra mile that you go.

Mike: Yeah, I understand what you’re saying. Now, did I understand you correctly to say that if I make a repair, that is deductible the year in which the repair was?

Jeff: That’s right, Mike.

Mike: Oh, okay. That’s an even better way to go. Same thing if I trimmed the trees – how about if I come in and remodel everything before the next tenant moves in? Is that all write-offable or is that one 27^th?

Jeff: It depends on what it is. Maintenance, by itself, you deduct it. Just try to keep the general rule. The capital improvements are the ones that you improve and they’re improving the existing thing that’s there.

Mike: So, it would be better for me just to replace the roof, or the 25-year roof, and take it as a repair.

Jeff: Yes.

Mike: And write it off this year.

Jeff: Yes.

Mike: Oh, I see. You’ve been most helpful.

Patrick: Thanks again, Mike.

Mike: Thank you.

Patrick: Okay. We’re coming up on a break, but I wanted to make sure you knew, 214-787-1570 to talk to Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area. The one thing you need to know is these guys are local and you can visit them.

I know Jeff’s office is at 6533 Preston Rd., Suite 300 in Plano, Texas. Rex is up in Frisco at 2595 Dallas Parkway, Suite 100. So, both these guys are local boys. They can really help you get where you want to go tax-wise which is, for all of us mortals, it’s less taxes, right?

Jeff: There you go.

Patrick: So, it’s 214-787-1570. We’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Pat Dougher. We have a phone bank full of calls and we’re so excited about helping you get the answers to the questions you have about how to save money on your taxes.

I know that we’ve had a great show so far and we’ve got so much more to cover, but we want to go straight to the calls. We’ve got Johnny. Johnny, you’ve got a question about – you’re retired? Go ahead.

Johnny: Yes, Sir. This past year, I have retired 100% and the last income tax I filed with a guy that helped me all these years says I don’t have to file this coming year.

Some of my friends say, yes, you should go ahead and file your income tax, and some other folks says, “No, you don’t have to.” So, I’m not sure if there’s an advantage or disadvantage one way or the other. What should I do?

Jeff: Well, Johnny, you have to file unless your income is less than the standard deduction and the personal exemption. Those are the two numbers on page two of your 1040.

Johnny: Okay. My income was just Social Security. That was about $16,000. Then, I had about $3,000 on a CD that I have. That $20,000 thereabout is what my income was for last year.

Jeff: Right. So, your Social Security; sometimes, it’s taxable. Sometimes, it’s not. Because of the $3,000, your Social Security won’t be taxable, so you won’t have to file. But, just for other people out there, you will have to file even if you don’t owe any taxes. You will have to file if you have Social Security and Medicare tip, or Social Security/Medicare tax, or AMT.

Johnny: Well, there wasn’t anything taxed or anything like that. It was just my monthly check.

Jeff: Okay. Johnny, in your case, you won’t have to file.

Johnny: But, would there be an advantage if I did?

Jeff: You know what? I’m used to dealing with a lot of folks and I honestly tell people to go ahead and file just to get it out of the way. There can be some legal advantages that are non-tax to filing a tax return.

Johnny: I was kind of leaning the other way, but I was just listening to you guys this morning and I thought I’ll just put that question to ya’ll. I really appreciate it and enjoy the program.

Jeff: Great, Johnny.

Patrick: Thanks so much, Johnny.

Johnny: Yes, Sir.

Rex: Yeah. You do get to start the statute of limitations running just in case income pops up that you don’t know about.

Patrick: Oh, that’s good. That’s very good. Well, let’s go on. We’ve got Walter. Walter, you’ve got a question about an IRA?

Walter: Yes. What kind of tip can you give us – they talked about this is the year that you can convert and IRA to a Roth IRA.

Jeff: Right. Basically, it’s not as much tip as traps because you have to watch out. You have to do it very carefully because you might wind up paying more and being in a worse situation. So, you’ve got to calculate the tax impact. You’ve got to figure the affect of the rollover on your Social Security because if you do the rollover, it’s going to increase your ordinary income and that will make your Social Security taxable.

You’ve got to calculate the Medicare consequences because once your adjusted gross income goes over $85,000, then you’ve got the higher Part B premiums that kick in.

If it’s in a 401K, you don’t want to convert to a Roth because you may have some net unrealized appreciation in employee stock, so that would be the wrong thing to do. You’d be turning capital gain into ordinary income.

You’ve got to be sure to fill out the beneficiary designee form because if you do the Roth, if you don’t fill out that beneficiary designee, the account’s got to be liquidated after five years of your passing.

So, really, there’s a lot of mines, bombs, that you’ve got to avoid. For most of my clients, I tell them to contact me after April 15^th and we’ll go for it. We’ll have to go through a thorough analysis and see how it’s going to affect people.

Walter: Okay. A couple other questions. You said on the repair of the house, you get to deduct it in the year that it’s done. Is that only if that’s converted into commercial rental property or is that on a Homestead too?

Jeff: It’s only on a rental.

Walter: Okay. And one last question. An older gentleman at our church went to the bank and the loan officer told him he was making less money or less interest on his IRA than he was paying on a home loan. So, he convinced him to take money out of his IRA to make the payment on his home loan.

He’s concerned. Is he going to have to pay some money? As far as I would know, he would have to pay income tax on that IRA money, wouldn’t he, even if he is paying a loan, right?

Jeff: Unless he has a basis in his IRA, then he would normally have to pay taxes on withdrawals, yeah.

Walter: Oh, okay.

Rex: It sounds like advice to help the banker and not necessarily the individual.

Walter: Yeah, he’s no longer there, so I think the loan officer really made a bad suggestion to this man.

Jeff: I call it water cooler tax advice. There’s a lot of it going around.

Rex: That’s what we call it.

Patrick: Thanks so much, Walter. We appreciate it.

Walter: Sure, thank you very much.

Patrick: You bet. The number to call, 214-787-1570, if you want your tax questions answered. I know that we haven’t even given out how to get a hold of you guys this show. I want to make sure that we cover that. Jeff, your office number is 972-378-5200 and people can call you to set an appointment, come in.

Jeff: Right. There are people there right now. If anybody wants to call and make an appointment, they can do it just by calling 972-378-5200.

Patrick: So, 972-378-5200. They can get in touch with somebody right now. And Rex, you guys, it’s 972-309-0104.

Rex: Yes.

Patrick: So, 972-309-0104. One thing we mentioned, you were talking about this almost packet of information you guys usually sell for almost $60, but you’ll email it to somebody if they email you at Rex@bigtexlaw.com.

Rex: Rex@bigtexlaw.com.

Patrick: I’ll tell you, this information is what you want to have because when it comes to writing checks, there are so many ways to just open the door for some con artist to step in and take your identity, take your income, take your bank account and all of the information in there.

So, we’ve got Ellis. Ellis, you’ve got a question on your taxes?

Ellis: My question is I filed my taxes last month and I made a Thrift Plan withdrawal earlier in 2009, but they just sent me the information concerning the withdrawal this month and I’ve already filed. They’ve already taken the taxes out on the money that I withdrew. Should I file something showing that money was withdrawn or should I not worry about it?

Jeff: Well, Ellis, was it a 1099-R?

Ellis: Yes.

Jeff: Okay. So, the IRS has your social security, your name, the amount of income and they’re expecting you to report that because the IRS already has a copy of that on their computer. So, I would go ahead and before April 15^th, amend your return. That way, you won’t have any penalties if you actually owe extra money.

Ellis: Okay. So, just go ahead and do an amendment to my return.

Jeff: Before April 15^th.

Ellis: Okay, will do. I appreciate it.

Jeff: Glad to, Ellis.

Patrick: Thank you so much. It’s 214-787-1570. We’ve got some callers lining up. Again, I’m going to make sure that people know how to get a hold of you two. It’s Jeff Pickering CPA. That’s PickeringCPA.com and his number is 972-378-5200 up in the Plano area.

And Rex, you guys are at 972-309-0104 in Frisco, and they can get this special report, What Your Bank Doesn’t Want You to Know About Checks, at Rex@bigtexlaw.com.

We have got some people calling in looking forward to get to you. It’s 214-787-1570. We’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Pat Dougher. We have a great show going. We’ve got a phone bank full of calls. We’re going to be going to those in just one second. Rex had a call a little earlier that didn’t want to go on the air, but he wanted to ask about checks.

Rex: Yes, he wanted to know whether you have to put your address on the check. The answer is no. You don’t actually have to put your address. You can use a PO Box. The issue is complicated. You can’t say which way somebody should go. If he would call and get our report, or email me and get our report, we address that in the report. We’ve got the information there for you.

Patrick: Excellent. It’s Rex@bigtexlaw.com to get that report. We’ve got Doreen. You’ve got a question on vouchers?

Doreen: [44:34 inaudible] which I have withholding taken out. I have Social Security which I do not have withholding taken out. But now, they sent me vouchers for the year to send in quarterly payments.

Jeff: Right.

Doreen: Am I required to do that?

Jeff: The vouchers are so that you don’t get a penalty next time you file. No, you’re not really required to. But, I always tell people to go ahead and do that unless they know for sure their 2010 tax situation is going to much lower than their 2009.

Doreen: But, you just estimate how much? So, if I have to pay $1,000 this year, I just pay in?

Jeff: Yeah, you are able to – if you did this with a program, what you do is you do the vouchers for 100% of your prior year taxes. So, take the total tax that you owe – this is a safe way to do it – the amount of money that you pay this time, divide it by four. Each one of those, there should be a voucher. Your first voucher is due April 15^th.

Doreen: Yeah, the same time the rest is due.

Jeff: Yeah.

Doreen: Okay. But, I am required to do it?

Jeff: Well, it’s like I say, if you want to keep yourself out of hot water, out of penalties, then you do it.

Doreen: Okay, thank you.

Patrick: Thanks so much. You bet. Okay, we’re going to go onto Terry. You’ve got a question about a bankruptcy company?

Terry: Yes, I do.

Patrick: Go ahead.

Terry: I hold a note from a bankrupt company that paid interest on a monthly basis. They went bankrupt last year and I have the SEC notification that they’re in court during the bankruptcy.

Now, my question is, is this interest that’s paid at the beginning of the year declarable as income tax or is it a return on principle only? And how far back do they go?

Jeff: That’s a good question. Did they give you a 1099 with an interest?

Terry: Yes. The trustee gave me a 1099.

Jeff: Okay. Then, you should have to claim it as interest. But, remember, Terry, you have three years to change anything. So, if later turns out that it wasn’t interest instead of return of principle, then you can amend three years back.

Terry: But, how do I prove that it is a return of principle? Now, I’ve gone through this before with another company and the bankruptcy trustee, or the bankruptcy receiver, sent me a note saying that interest paid on this note is actually a return of principle and not.

Jeff: Okay. I had a situation kind of like that with one of my clients. He actually got interest income from Ponzi scheme. So, I put a note on the return saying “adjustment for Ponzi scheme.” If you are sure and you’re able to back up your argument…

Terry: Oh, I am, because I have the note from the SEC that says this company is in bankruptcy and the receiver has been appointed.

Jeff: Right. But, you have to be able to calculate how much was principle and how much was your interest. That’s the part that you need to be able to back up.

Terry: Well, I know that – for example, the note is for $100,000 and the interest that was paid on this last year was about $2,400.

Jeff: Okay. So, what you may have is you may have interest income and a loss on your debt. So, that may be what you have. You may have loss on your principle which would be a capital loss.

Terry: The question is do I just put a note on my return for this year?

Jeff: I would ask to see the accountant’s calculations for the bankrupt company just to make sure that he’s got it right.

Terry: You mean the receiver?

Jeff: Right. They have to engage an accountant to do the bankruptcy.

Terry: What if this hasn’t been done yet? All I have is a note from the SEC, or a letter from the SEC, stating that this company is in bankruptcy and under the process of liquidation.

Jeff: It’s possible that they’re right. It’s possible that it is interest. So, I would go ahead and claim it or file an extension until you can actually figure out what’s going on.

Terry: I see. In other words, I have to wait for the receiver to come through with some information.

Jeff: That’s a safe way to handle it.

Terry: Okay.

Patrick: Thanks so much, Terry.

Terry: Thank you.

Patrick: Okay, we’ve got two more callers real quick and remember, they could always contact you Jeff, right?

Jeff: Yeah, we’ve got a lot of callers on the line. So, if we didn’t get to you, you can call our office at 972-378-5200. I’ll be happy to help you.

Patrick: 972-378-5200. And Rex, I know yours is at 972-309-0104. We’ll go onto Dan. Go ahead. Turbo Tax?

Dan: Yes. I have a question about Turbo Tax. My son-in-law died this past year and so, I’m filling out a return for him. I’ve got it all filled out. Actually, he was in Turbo Tax and it filled it out. It printed out and it looks pretty much like the one that came out in 2008 that I did on Turbo Tax too. When he sent in 2008, he got a note back from the IRS saying that he overpaid, so they refunded some of his taxes from 2008.

I never did see the letter he got from the IRS and so, if everything looks the same in 2008 and 2009 as far as the form goes, I was just wondering, is there something that – I thought he had to pay $600 last year and this year, I think he would have paid $400.

Jeff: Dan, you’ve got to attach a certified copy of the death certificate. I’m sorry for your loss. Be sure to do that. Do you have a specific question?

Dan: Yeah, how can I find out why he got money back in 2008 so I can see if the situation exists again in 2009?

Jeff: Do you have a copy of his 2008 return?

Dan: Yeah.

Jeff: Okay. Then, you need to have somebody just examine it. It’s not something you can do. The software is not going to tell you…

Dan: Just go to somebody like H&R Block or whatever?

Rex: Or Jeff.

Jeff: Yeah, or me. That’s fine.

Dan: Yeah, but I’m down here in Mansfield.

Jeff: Any competent tax preparer would be able to analyze it for you.

Dan: Okay, I’ll do that. Thank you very much.

Patrick: Thanks again, Dan. Okay, we’re going to go real quick. We’re going to try to fire through, Bernie, your question?

Bernie: I have a question about RMDs. I have been notified that I have to start taking distributions this year and I’m wondering, is there a table or chart that tells me what the percentage is and does that percentage vary from year to year? Do I have to take it all from one source?

Reason being, I have several IRAS. In other words, I have two for $25,000. Can I take whatever amount is required just from one source or do I have to take the exact amount from each one?

Jeff: Bernie, your question is very – it requires a very complex answer, so I’ll give you a short one which is, basically, got to your advisor and they love to tell you how much your required minimum distributions are.

Bernie: Okay. From the source itself – is that what you’re saying?

Jeff: They’ll compute based on your age and some tables.

Patrick: Very good. Thank you so much, Bernie. We’ve got just a few seconds before we’ve got to get off the air. Okay. Well, that’s been a flying show. This is great. This is Tax Talk with Pat Dougher, Jeff Pickering, Rex Hogue in the Frisco area of Bolinger and Hogue.

Thank you so much. We’ve got a great show coming next week and we’re going to learn more about ways to save you money on your taxes. We’ll talk to you next week.

Patrick: The more you know, the more you get to keep. There really are two standards in this country for taxes. There’s the ones that pay little and know a lot, or the ones that pay a lot and know a little. Which side of that equation do you want to be on?

This is Patrick Dougher with Tax Talk. We’ve got Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area with estate taxes and business preparation.

The one thing that I really want to get to is we have got a great show. You need to look at ways that you can save money on your taxes. Most of us would rather not pay more. Would you guys agree with that? Yeah.

So, let’s do this. We’re going to talk about a couple of things. We’ve got deadlines that are quickly coming up and then, we’ve got Escape from New Jersey. We’ve also got the President Obama’s healthcare tax increases and the IRS, of all things, is asking for more money; and we’ve got tons more for you this hour on Tax Talk. Jeff, let’s talk about some deadlines.

Jeff: Sure. So, we’ve got some deadlines coming up. February 28^th is W2s, W3s, 1099s, 1098s, 1096s and it’s the last day for 2009 Haitian donations. That’s actually today.

So, all that other stuff; all the forms are actually due the next day, next business day because whenever a deadline falls on a weekend, it’s due the next business day. But, today is the last day for your Haitian donations if you want to deduct them on your 2009 tax return.

We’ve got March 15^th coming up; calendar year corporations extensions for returns. So, extensions for a lot of people. And March 31^st deadline to buy a Ford Fusion or a Mercury Mariner hybrid and still get the tax credit.

And then, April 15^th, of course, individuals, partnerships, trusts. If you do 1040-ES, your first payment is due on April 15^th, property tax renditions if you’re a business owner.

And then, April 30^th is the deadline for the home buyer credit. So, you should have a contract in place if you want to take advantage of the home buyer credit.

Patrick: So, all of those things that you’ve just rattled off, which I know everybody was taking notes, but if they wanted to get more information, they could call your office and get some of that information as well, couldn’t they?

Jeff: Sure, 972-378-5200. That’s our office.

Patrick: Very good. And I know that you’ve also got some things that you want to give away during the show. So, be listening because you want to get Jeff’s information that will help you save taxes this year.

As we move forward, the Escape from New Jersey. We touched on it last week. What’s happening in New Jersey?

Jeff: Okay. So, this is a study and people aren’t always doing studies on taxes. This is a study by Boston College Center on wealth and philanthropy. They did a study of New Jersey tax rates from, basically, the last decade.

They found that the first half of the decade, people were moving into New Jersey and the gross national product, the gross state product, if you want to call it that. The assets of New Jersey grew in that time period and in the last half of the decade, they shrank substantially.

And what caused the shrink is people moving out of New Jersey because the tax rates basically went up from, let’s see, about 6% and 9% basically. They call it 8.97%. So, people move out when you raise taxes and that’s definitely happened in New Jersey.

So, the real point is that New Jersey, if you look at New Jersey, you can project that to the United States because we’re playing in a global economy. If we raise taxes here, our investors, or money is going to flee the United States.

Patrick: That’s a huge concern, isn’t it?

Jeff: It is.

Patrick: I know that a lot of people want to ask questions of these two guys and I encourage you to do that. It’s 214-787-1570. Call and get your questions answered on taxes. Nothing’s really off base. We want to make sure that you get your answers to your questions. 214-787-1570.

We always bring some information up front just to really wet your appetite and show you that the IRS is not going away and Obama has really overspent his income, so he’s going to have to pay for that, isn’t he?

Jeff: Well, the money has got to come from somewhere to pay all this and we all know where it’s coming from really.

Patrick: What’s Obama want with healthcare now?

Jeff: Okay. So, the next thing; the healthcare has got to be paid for some way. So, one of the ways that our President’s budget, or his healthcare tax increases, are going to pay for this is by increasing the Medicare tax by 0.9%, so it’s a percent, and also, by applying the Medicare tax to investment income.

So, this is an antigrowth measure. When we talk about investment income, we’re talking about interest, capital gains, dividends. So, why should we make that stuff lower?

Well, the reason why is because – it’s an economics thing – people that want to invest in the United States, they want to have incentives to do stuff, they make those tax rates lower so that people go out and start businesses, and do jobs, and keep our income and jobs here.

Patrick: Very good. Well, I know one of the things that we also want to add to what you’re saying there is a FACTA training that’s coming up this week; this Thursday at the Prestonwood Country Club. It’s only $17.50. It’s kind of a luncheon learn.

One of the things that a lot of people don’t really understand is the FACT Act is really critical that business owners learn more about how to protect themselves from a ton of pain, is one way to say it. Rex, give me some more information on that.

Rex: That’s right. We’re talking about the Fair and Accurate Credit Transactions Act which applies to just a slew of small businesses if they keep customer information, employee information.

Really, this has to do with identify theft. If an identity is stolen and the most common way that identities are stolen is through business. Somebody can break into the business computers, they get the information from company records somehow.

Well, the problem is when it’s used to steal an identity, the business owner, under FACT, under the FACT Act, is liable for the actual damages that occur and up to $2,500 in fines per incident.

One of the questions we’re trying to get business owners to deal with is how do you protect yourself from that? We’re going to be talking about that at the luncheon this week.

So, if you are interested in attending the luncheon, call my office – 972-309-0104. Tell us you want to go to the luncheon. Leave a message in our general mailbox and, please, leave us a phone number or an email address where we can call you back, or email me at Rex@Bigtexlaw.com and tell me you want to come and let us get back to you.

We do have limited spaces available, but this is something that every business owner ought to know about. It’s critical that you take steps to avoid the problem.

I was talking to a corporate attorney here just a few days ago and we were talking about the fact that he has a lot of clients that are subject to this and I sent him some info on it. I’m supposed to get back to him this week. Folks, protect yourself. This is something that you can prepare for.

Patrick: Very good. Again, call 972-309-0104 for the FACTA training that’s happening this week, general mailbox. I would encourage you to leave your message, your phone number and email twice. Say it slow. Get it in there. Be present. We’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk with Patrick Dougher, Jeff Pickering CPA and Rex Hogue, Attorney in the North Texas area of Bolinger and Hogue.

We’re so thankful that you’re here and I really encourage you guys to call. Call now and talk to these two because Jeff’s got a Master’s in Taxation. He’s not just an average CPA. I’m not saying anything against that. Actually, it’s more tremendous value that’s on the table and he’s answering your questions today for free.

Rex, estate Attorney. These guys work with extremely – I will tell you, a lot of high end folks and they’re here to answer your questions.

Jeff: Actually, Pat, I want to mention one thing. I had never really told you this, but I actually to tax returns for some CPAs and three of those CPAs actually have a Master’s too, and I do their returns.

Patrick: Really?

Jeff: Yeah, that’s right.

Patrick: Well, there’s a lot of covering in that. That’s one of the things that even Geithner missed is that you’ve got somebody that has the ability and the knowledge to help you, and they’re not using it.

So, the biggest thing I want to say is call 214-787-1570 and talk to these two about what’s going on with your taxes and how you can save more money this year on your tax return.

Most of us, we don’t really enjoy filling out our stuff, but we’re still thankful for guys like you, Jeff and Rex, that can make a difference.

Jeff: Well, I always like to make it worth it for my clients. I’m not a call center. I’m a revenue generator. That’s the way I think of myself.

Patrick: I was blown away just sitting around talking to you and you started asking me questions about some of the things that I don’t use as a tax write-off. It was furniture and it was several other things that I just never thought of. So, believe me, you’ve got a real treat. 214-787-1570, Tax Talk, and call in now. Well, I know we wanted to get also to the fact that the IRs wants more money.

Jeff: Right. So, the IRS needs more money. They’re asking for more money. So, what they have is they have a call center. This is the government. The IRS is more of a premier branch of government because they’re the one that the revenue comes to.

So, they’re asking for money. They’re asking for the call center. The call center is setting priorities so that nearly three out of every ten calls won’t get through. That’s their target, their mark. If they meet their goal, then three out of every ten calls will not get through.

Patrick: Ow! How many of us, if we ran our businesses that way would get very far?

Jeff: It wouldn’t happen in the private sector.

Rex: And the sad thing is the IRS is in it only for the money.

Patrick: Well, what’s your statement?

Rex: THE + IRS = THEIRS. Have you all heard their new motto?

Jeff: No.

Rex: We’ve got what it takes to take what you’ve got.

Jeff: Right. There you go. So, we’ve got another little story. The IRS = ATM. We’re talking about acronyms. So, the IRS has sent over $100,000 in bogus tax refunds to 50 inmates in a South Florida jail. Let’s go to a call. I think we’ve got somebody.

Patrick: We do. They’re getting loaded up right now. One of the things that I just want to make sure though is that you also wanted to answer a question of a guy that called in last week – Bob.

Jeff: Right. So, Bob, what he did was he had an IRA which had a basis which means he can put after tax money into his IRA. He’s been filing 8606, which is a form that reports your basis, every year because he’s at the age where he’s required to take money out. They’re called required minimum distributions.

So, last year, 2009, they waved thee RMD rules, the required minimum distribution rules. He’s wondering, “Do I still have to file this 8606?” The answer is no.

Patrick: Wow. That’s interesting. Well, one of the things that I want to try to get to is the death of two heiresses because I know that is something a lot of people just don’t really know is how much money they actually could pay in taxes if they don’t take care of it right.

Now, call in – 214-787-1570 and we’ll get to your questions today on Tax Talk. So, tell me about the two heiresses.

Jeff: Okay. So, there are a couple of heiresses, Casey Johnson and Ruth Lilly. They’re both heiresses from Johnson & Johnson and Eli Lilly and Company. Casey Johnson was 30 and Miss Lilly died at 94. Casey Johnson was a party animal and Miss Lilly made her biggest contribution in charitable contributions.

Patrick: Oh, very nice.

Jeff: Yeah, she was a very charitable person. So, they both had massive personal wealth. It was all tied up in estates and trusts. The way they died was very sad. Miss Lilly died on December 31^st and Miss Johnson, age 30, the party animal, we don’t know exactly when she died.

Rex: We don’t. Her last Twitter post was on December 29^th. But, she was not found until January the 4^th and under California law, the date of death is presumed to be the date that you found the body.

Well, what a problem because on January the 4^th there was no estate tax, but on December 31^st, the estate tax exemption was $3.5 million. So, Miss Lilly with an estate of over $800 million is going to pay a huge amount in estate tax while Casey Johnson, in theory, won’t pay any.

Patrick: Oh, really?

Rex: Yeah, because of the quirky thing of both California law and our estate tax law which disappeared for a year starting January the 1^st of this year.

Patrick: Wow. That’s amazing. Well, let’s go to the next call. We’ve got Fernando and Mother’s Day childcare. Is that correct?

Fernando: Yes, Sir. My mother runs a child day care at her house and I have a question. I wanted to know what kind of expenses could she write off?

Jeff: Well, Fernando, the biggest expense for you is going to be the office and home, only it works a little different for daycares. You basically take the area of the home that’s used for daycare which, for most daycares, it’s almost all of it, and then you prorate that based on the number of hours the daycare is open. So the more hours she’s open then the bigger deduction you’re going to get.

Other typical things you would have for a daycare would be supplies, which would include wipes, food, cleaning. There’s an inventory of toys that’s always circulating in and out. She might have some advertising, but she may not. The typical stuff is basically your food and your supplies, and I don’t know how many baby wipes there must be, but there must be a lot.

Rex: And Jeff, let’s not forget the possibility of doing something like incorporating that could save her some taxes.

Jeff: Right. Incorporating would have to be a decision you’d have to make. Rex and I both agree that somewhere around 20,000 – 30,000 of the net income is about the point where it would make sense for you to incorporate.

Fernando: Let me see if I understand this. I wasn’t clear on the size of the house. Can you explain that to me again?

Jeff: Okay. So, any time you have an asset that’s used for business and personal, you have to come up with a way to allocate. So, for daycares, you do it based on square footage of the home. So, square footage of the home used for daycare divided by total square footage of the home. Then, you have to use the hours test because for daycares, they make daycares use the hours test in addition to that.

Fernando: Oh, I see. Okay. Well that’s a great help. Thank you so much, guys.

Jeff: You’re welcome.

Rex: Thank you so much Fernando.

Patrick: We’ve got another caller who’s getting lined up on the phone and why don’t we just go ahead. Next, we’ve got Joyce. You’ve got a question?

Jeff: Oops. Joyce, call us back.

Patrick: Yeah. Joyce, call us back. We were talking about the death of the tourist. Did you guys finish that one?

Jeff: Well, Rex was making the point that under California law, the date of death is when the body is actually found and there was a huge difference in the way the states are going to pan out.

Patrick: Oh, just because of the way we’re in transition right now? Is that what you’re saying?

Jeff: Right.

Rex: Yeah, and another thing that will be kind of interesting – if Congress passes an estate tax bill this year and they made it retroactive to the first, Casey Johnson’s family is going to be really ticked off because they’ll go back and reinstitute that exemption amount at $3.5 million or whatever they decided on.

Patrick: Wow. Well, that’s another reason that I think people need to be talking to you guys about how to save money on their taxes. It’s 214-787-1570. We’re going to be taking calls quickly here and then also, I just want to remind everybody about the FACTA Training that’s coming up this week.

Thursday is the FACTA Training at Preston Wood Country Club. It’s only $17.50 You’re going to get a wonderful lunch and then you’re going to get some great information that’s mandatory for business owners and it can save thousands and thousands of dollars in penalties and pain if you just begin the process of getting educated. You’ve got to understand what the FACTA Training is all about.

Then, the last thing is if you want to register you can either email Rex and rex@bigtexlaw.com or 972-309-0104. Leave your name and your phone number and maybe your email. Repeat it a couple of times so they get it. They’ll contact you and give you all the details. We are going to be taking questions shortly and we’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Patrick Dougher. We have a great show going today. We’ve been talking about everything from Ecape from New Jersey, which is really people fleeing to avoid the higher taxes there, Obama’s healthcare tax increases, the IRS is asking for more mone, and now, we just finished a talk about the death of two heiresses; how one of them had saved a ton of money and the other one is in a really scary position as far as where the law ends up landing on their side or the other.

So, one of the things that I want to make sure is that folks have a chance to get on the air and get their questions asked. It’s 214-787-1570. The phone lines are beginning to fill up, so get your call in. 214-787-1570. Jeff Pickering, Master’s in CPA

Jeff: Taxation

Patrick: Taxation. That’s right.

Jeff: And I’m a CPA.

Patrick: Okay. And then Rex, estate Attorney. Why don’t we go straight to our call? We’ve got Calvin. And Calvin, help me with your question here. What’s your question?

Calvin: Hey guys. How are you doing?

Patrick: Good.

Jeff: Good, Calvin. How are you?

Calvin: Good. Well, I think I made a rookie mistake this year. I incorporated four years ago and sent in my quarterly 941’s. As it got late in the year, I would just kind of copy and do my third and fourth quarter. As you guys know, there’s an extra pay period in the third and fourth quarter. So, I shorted some payment on the 941 statements. I’m doing my tax return now, so should I go ahead and fill that out and send it in, or just wait for the IRS to contact me, or just go ahead?

Jeff: I would go ahead. Usually, for 941’s, at least get the taxes in. You can wait for them to do the penalty and you might be able to get out of the penalty by doing an abatement letter, but definitely 941 taxes, get them in as soon as you can because you know how they are. They go fast and furious from zero to sixty on 941 taxes.

Calvin: Okay. So, just figure out the shortage and just make a payment; send it in?

Jeff: Right.

Calvin: Now, obviously, the last two 941 statements are going to be short. Do I need to just make a correction form or?

Jeff: Yeah, you can do a 941-X, which is sort of new, which is a nicer form than the 941-C. It’s a lot easier to follow.

Calvin: Okay. So, they’ll let me make those corrections and just add the additions and then I’m sure they’ll send me a nice little penalty fee.

Jeff: Well, if you have a good reason, if you have reasonable cause, you might be able to get out of the penalty.

Calvin: Okay, and one other quick question. In my business, I use a trailer. Obviously, we have a mileage deduction. Is there any mileage compensation for a trailer vehicle or does that just go under repairs and maintenance type stuff?

Jeff: You mean a trailer as one of those things you drag behind your car, right?

Calvin: Right, yeah.

Jeff: Yeah. No, there’s not a mileage thing for trailers. You just basically depreciate it.

Calvin: Okay. Alright, guys. Well, great show. Thanks a lot.

Patrick: Thanks so much, Calvin. Well, why don’t we move right along? Homer, you’ve got a question that is on buying rental property with an IRA? Is that right?

Homer: Yes, Sir.

Patrick: Go ahead. You’re on the air.

Homer: Thank you for taking my call. Good afternoon.

Jeff: Good afternoon.

Homer: I have a pretty good amount in my IRA. It’s all invested in stocks in an account with the bank. I’m thinking about buying some rental property and wondered if that was acceptable to do with IRA monies.

Jeff: It is. It can happen, but what you probably want to do is get in some buddies because many of the companies that do third party IRAs like this, they don’t want you to be the primary, the majority owner, of the rental property. So, it works out better if you get some other guys in on it and you all go in together on something.

Homer: Hmm. Okay.

Jeff: The other people not having IRA money.

Homer: So, I couldn’t be the 100% owner.

Jeff: You know, I’ve not seen – I think there’s actually a prohibition against it and I’m pretty sure that even if there weren’t, then these trust companies are very conservative because they don’t want to get in trouble, they don’t want to be sued, they don’t want to have their livelihood taken away by going against the IRS rules.

Homer: Yeah, I don’t either. Okay. Thank you very much.

Patrick: Thank you, Homer. Again, it’s 214-787-1570. If you’re outside the area, 800-583-1570 or if you have a Sprint phone, it’s #KLIF. With that, why don’t we go to Robert? Robert, 706 return. Go ahead.

Robert: Yes. My father’s multimillion dollar estates 706 return was filed almost 18 months ago. The preparer is concerned that he might be rocking the boat if he checks on the status and I was just wondering how accurate that would be.

Jeff: That’s a good question. Go ahead, Rex.

Rex: I don’t really know the answer to that, Robert. Sometimes, we do some 706s in our office. We have gotten closing letters back as early as two months, and it’s taken as long as two years and a month to hear anything back.

If you file the return, they’re going to get in touch at some point. I don’t know that I see an advantage to doing that sooner. I don’t know that it really hurts anything either, but honestly, I’d be inclined to just kind of sit and wait.

Patrick: Kind of let the statute run, Rex?

Rex: Well, the IRS isn’t going to let the statute run because they have three years to audit that return if they’re going to, so really the time pressure’s on them; not on you. I’d just sit tight and wait.

Robert: Alright. Thank you very much.

Patrick: Thank you so much, Robert. I want to give a couple of numbers out too. One, Jeff Pickering, PickeringCPA.com 972-378-5200 and you can get your tax organizer. Is there any other information they can get from you?

Jeff: If there’s something that if you’re shy, and you want an answer to a question, you can basically call us. Some people don’t want to discuss their stuff over the airwaves, so you can call our office and we’ll be happy to help you out with whatever we can.

Patrick: Very good. And they can set an appointment as well, to come in and just see what you guys can do, right?

Jeff: Right.

Patrick: Now Rex, I know yours is 972-309-0104. What are some of the other services that people get from you?

Rex: Well, we do estate planning, tax planning, business planning, asset protection planning. We handle probate cases, we do some guardianships, we do 706 estate tax returns, we even do some tax litigation against the IRS in gift and estate tax cases.

One thing that we are offering today, because we are focusing on business owners and the FACT Act, is a little handout from the Texas Workforce Commission that we’ll be glad to send anybody. It’s in a PDF format. We would have to send it by email, but we would be glad to send that out if they’ll call us or email us. The email is rex@bigtexlaw.com or call our office at 972-309-0104. Be sure you leave us a phone number where we can call you back and get your email address information.

Patrick: Sure. Well, or just email you. That’s the easiest way because then you know you’ve got your return, but it’s rex@bigtexlaw.com. Jeff, your email again is?

Jeff: jeff@pickeringcpa.com.

Patrick: jeff@pickeringcpa.com. So, you can get some questions offline there, so to speak. Now, I’m going to give the numbers again. You really don’t want to miss the opportunity to talk to these two. 214-787-1570. I know there are deadlines coming up. I know that the closer we get to that almighty March 15^th.

Jeff: March 15^th is for calendar year and then, April 15^th for individuals, trusts, partnerships, property tax renditions for business owners, first payment for estimated payments if you’re an estimated payer. And April 30^th for first time homebuyer – or not first time, just a tax credit – home buyer tax credits.

Patrick: Very good. I know that we’re going to talk about the tax credits here in just a second. One of the things I want to remind people is to go to the FACTA Training. If you’ve got a business, then you want to be at this FACTA Training this Thursday. FACT Act is actually the information. The training is called the Fair and…

Rex: Fair and Accurate Credit Transactions Act of 2003 which very few people know about.

Patrick: Very few. Well, the thing is, is that it actually, for business owners, is mandatory. So, this Thursday, Prestonwood Country Club. Call 972-309-0104 or email Rex at rex@bigtexlaw.com.

You need to be here at this event. You won’t want to miss it. It’s only $17.50. It’s a country club. They’ll feed you great, but the real food, the real information that you want to get is how to protect yourself from thousands and thousands of dollars in penalties and what I’d call pain.

[commercial]

Patrick: Welcome back to Tax Talk. This is Patrick Dougher, Jeff Pickering CPA, Rex Hogue Attorney in the North Texas area. We’ve got the answers to your tax questions. You need to call in. 214-787-1570 or 800-583-1570 if you’re outside of the DFW area or #KILF.

We’ve got a great show. We’ve covered a ton of information this time. You’ll want to actually get maybe even a download of this week’s show or a transcript which will be on PatrickDougher.com later this week on Thursday and you can get – actually, the transcript of all the shows that we’ve done up till now. So, with that, we’ve got a first time home buyer question from Henry. Henry, you are on the air.

Henry: Yes. I need to find out on the first time home buyer’s thing with the IRS. My son, he’s 19, has no credit. So, my question is, what I’m planning on doing is borrow money using some of my property as collateral and paying for his, letting him have the money. He’s making the loan back payments at the bank, although his name is not going to be on it because they’re using my collateral.

So, his house will be paid by cash. He will be on the tax and show that the house is his, insurance and everything and he will be paying the note back at the bank, but when it comes at the end of this next year, what is it? A 1098 the IRS will send back to me for interest received at the bank. It’s going to show that I’m buying it even though he’s buying it.

Jeff: Yeah. Henry, I’m going to let you know that interest is deductible by whom paid.

Henry: Right, but I know he has to own the house for three years and I think the number t10 rule on the IRS says you can’t a relative can’t give it to like a son. I’m not giving it to him, but it’s liable to show that I’m – you see what I’m saying? I’m actually paying for him.

Jeff: Is the title going to be in his name?

Henry: Correct. The title will be in his name.

Jeff: Okay. I don’t think you have a problem. Even if you were to buy it jointly, the IRS has come out and said that two people who are buying the property together can allocate the credit in any way they see fit, so you should be okay on that area. And the mortgage interest is deductible by whom paid, so you should be okay in that area.

Henry: Okay. That’s my question. I just wanted to make sure the end of the year when they show and they say, “Well, you gave it to him so he’s going to have to pay that back.”

Jeff: You kind of like have a wrap situation. You kind of like have a wrap note it sounds like, where you have the note and he’s paying you. That happens all the time in real estate.

Henry: Right. That’s how I do all my other properties, but I just want to make sure he was going to – since he couldn’t do it from a father, I wanted to make sure that I was clear on that with IRS so he doesn’t get stuck for the money back.

Jeff: No, you’re okay. No direct lineal descendants, but it doesn’t sound like that’s what’s happening here. I want to make one point on the home buyer tax credit and that’s something that’s seldom known; that a home can be a, which doesn’t apply to you Henry, but a home can be a trailer home, it can be a boat. Those fall under the definition of a home. So, I know somewhere somebody out there is going to buy a boat and get a home buyer tax credit for it.

Henry: Right. Okay. Well, thank you very much. I appreciate it.

Jeff: You’re welcome.

Patrick: A boat?

Jeff: A boat, yeah.

Patrick: I’m stunned. So, I can move out to the lake and buy a boathouse.

Jeff: It has to have a bathroom and an eating area.

Patrick: Well, most of them do.

Jeff: Some of them do, yeah.

Patrick: There’s a back deck for the speedster.

Jeff: And it’s also got to be used as a principle residence, so there’s the kicker.

Patrick: Well, that takes a whole other meaning to waterbed. Okay, we’ve got Catherine. Catherine, you have a question on capital gains. Go ahead.

Catherine: Yes. I have a mutual fund that’s held at Fidelity. It’s not a Fidelity fund. I had transferred it there when I bought some other Fidelity funds. I’m getting ready to sell that. I’ve had it since 1996, so there’s going to be a lot of capital gains as far as initial purchase and then all the reinvestment of dividends.

Jeff: Right, Cathy. That’s right.

Catherine: Am I just going to have to go back through each year and figure out how much my capital gains, or should that mutual fund company be able to tell me?

Jeff: The good mutual fund companies keep track of your basis, but it may be if it’s really old, they didn’t. There was a time that you had to manually go ahead and add in your dividends and that was a big pain for us in the tax business.

Catherine: Right, right. Okay.

Jeff: It really depends on the fund and how far you go back. You want to make sure, though –you might want to ask them or ask somebody at the fund how far they go back in tracking your cost basis.

Catherine: Okay. Alright. Thank you very much.

Jeff: You’re welcome, Catherine.

Patrick: Thank you, Catherine. One of the things I’m really surprised at is that I’ve heard, guys, that there’s a new baseball team that just showed up out there; something about the Tax Dodgers or something?

Rex: It’s the Tax Dodgers – the LA Tax Dodgers; very interesting story here. It appears that the owners are going through a divorce and in her divorce petition, Mrs. McCord explains that they have made – how much is this? It’s $108 million from 2004 to 2009 and paid not one dime in taxes.

Jeff: To California or the Federal Government.

Rex: California or the Federal Government. And interesting, something about this is they’ve avoided taxes on millions and avoiding taxes is legal. Tax evasion is illegal.

Patrick: How does the IRS tell the difference, by the way?

Rex: Well, the way you can tell the difference is five to ten years.

[laughter]

Patrick: Right. I get that. That’s very good. Well, it’s 214-787-1570, but I really want to cover a couple of things before we get off the air and that is, again, the FACTA Training. I don’t want you guys to miss this. This is something that when I first saw all this information, I was stunned that this law is mandatory for businesses which are incorporated, S Corp on up, right? Is that right, Rex?

Rex: Any business.

Patrick: Any business needs to understand that they are liable for any kind of loss due to identity theft, things of that nature. Is that correct?

Rex: Yeah. And one of the requirements of the law, for example, is when you get rid of information on clients or employees that you actually destroy it. You can’t just throw it away.

Patrick: Oh really?

Rex: It has to be destroyed in such a way that it can’t be put back together.

Patrick: So, you’ve got to burn it or something. The thing that I’m saying is you need to attend this. It’s this Thursday lunchtime. You can get all the details from rex@bigtexlaw.com. Just, literally, email Rex and he will give you the information or you can call and leave your name at 972-309-0104. Make sure your number is stated clearly so that they can get back to you and give you all of the rest of the information – Prestonwood Country Club.

One of the other things we want to make sure is you know that next week we are going to be covering some great topics and I know, Rex, you had a couple of things you wanted to cover next week and I want to prime the pump for that. You don’t want to miss this.

Rex: Next week, we’re going to talk about what your bank doesn’t want you to know about checks; even common mistakes people make writing checks and how those mistakes cost them money. You know, most people do not know how to write a check? We’re going to teach you about that next week.

Patrick: That’s awesome. I know one of the common questions that we get on the show has to do with Roth IRA’s and their conversion, how to set up your company or whether to set up a company in an incorporated position. That happens all the time. So, Jeff, how can people get a hold of you this week?

Jeff: 972-378-5200.

Patrick: Say that again.

Jeff: 972-378-5200.

Patrick: Very good. And Rex, one more time.

Rex: 972-309-0104 or rex@bigtexlaw.com

Patrick: Or jeff@pickeringcpa.com, correct?

Jeff: There you go.

Patrick: Well, one of the things we want to do is thank you guys for listening. Next week the show is going to be really awesome and I want to thank you guys for coming by PatrickDougher.com to see the transcript and catch the last few shows. We look forward to next week. We’ll talk to you then.

Patrick: And welcome to Tax Talk. We’re actually looking for ways to help you save taxes on your money. I’ve got Jeff Pickering CPA, Master’s in Taxation, on the air today as well as Rex Hogue, an Attorney in the North Texas area.

Today, we’re going to be talking about and giving you answers on this attack of the IRS this last week. Audits are going up. Some people will be paying more taxes while the government has no estate tax. Now, that’s a twister. And then, we’ll also be reporting on the escape from New Jersey. You won’t want to miss that. Jeff, I know we’ve got some deadlines coming up this month?

Jeff: Definitely. The tax world is definitely deadline driven. So, we have our deadlines at the end of this month. We got W2s, W3s, 1099s, 98s and 96s due to the IRS on February 28^th.

March 15^th, calendar year corporations have to file an extension March 31^st. If you’re interested in buying the hybrid, the Ford Hybrid or the Mercury Hybrid, March 31^st is your last day to buy it and get that $750 credit.

You know, I just found out that they’re coming out with an electric vehicle also. Who’s putting that out? GM, I think. It has a plug-in and that’s going to have a $7,500 credit on it. So, that’s coming out later this year.

But, April 15^th, individuals, partnerships, trusts, property tax renditions. If you are in business at all, you’ve got your personal property tax renditions due on April 15^th as well as everything else. And the first payment, if you’re making quarterlies, your first quarterly payment is due April 15^th.

Patrick: Outstanding. I know that a lot of people want to call in, so let me give you the numbers. It’s 214-78-1570. We will be taking your calls. 214-787-1570. If you’re outside the DFW area, 800-583-1570 or if you’re on a Sprint phone, it’s #KLIF.

Well, I know that it’s been in the news all week, but maybe we can just add some finishing understandings of this attack of the IRS. In Austin, we had a guy fly into a building. At first we were thinking, “Oh, my God. More terrorism.” But now, it wasn’t just that. It wasn’t terrorism, but it was a real attack and he could’ve alleviated some of his frustrations by just talking to you, Jeff. Wouldn’t that be correct?

Jeff: You know, I would’ve loved to have talked to this person before he did this thing. So, he ran into the IRS building as we know and he made a huge tirade on his website, and he talked about his tax issues with the IRS.

His main issue was really about the independent contractor status. He failed to report income and they caught him through the document matching process because the IRS has computers and they expect income to be reported.

His wife, apparently, made some income as well and it wasn’t reported. He believed that since he didn’t have any income, that he wouldn’t have to file his return.

Patrick: Oops.

Jeff: So, that was not a good thing and a lot of his issue had to deal with the independent contractor status; the treatment of independent contractor and he could’ve avoided the whole issue very, very easily; very simply. All he had to do was incorporate. It doesn’t cost that much to incorporate in Texas.

Patrick: Nope.

Jeff: It’s cheap. We can do it. The returns aren’t really that much more. You would think that you would have to pay a lot of money for a corporate return. No, it’s not really that much money. So, if he had only done that, he could’ve taken the independent contractor status issue off the table.

Patrick: I know that it isn’t that hard to do it. When I set up my S Corp, it wasn’t very hard at all. So yeah, you’re exactly right. Well, I know that he could’ve solved that problem, but some people are going to be looking at taxes, more taxes, in the next few years.

Jeff: Right.

Patrick: But, it has to do with actually passing money on to their heirs, so how is that going to take place? What’s going on there?

Jeff: Okay. So, this is a strange – whenever tax laws come out, people come, and the run scenarios and they test stuff. So, these people came out and tested and they found out that some people are actually going to be paying more taxes with no estate tax law.

The reason is because of a rule that goes along with the estate taxes which is called a step-up in basis. It means that if you inherit some property under the old rules, if you inherit something, you get to claim the cost as the fair market value on the date of death or the alternate valuation date if that’s what happened.

So, it allows people to take stuff that has a very low tax cost and bump it up to fair market value. That’s why, for the most part, you’re not going to pay any income taxes on your inherited money.

Rex: Yeah. And one of the problems that created – Jeff, I had an example. In 1999, a guy called me. He owned a farm in North Carolina and he wanted to know if he sold the farm, how much in capital gains tax would he pay.

Well, the typical formula, as you know, is you simply take the sale price and you subtract from that the amount you paid for it, plus improvements. So, I asked him, “How much did you pay for it?” And he said, “I didn’t.” I said, “How’d you get it?” He said, “Well, dad gave it to me.” And I said, “Well, was dad alive or dead at the time?” And he said, “Dad was alive.”

So, I said, “That means you took dad’s basis. How much did dad pay for it?” He said, “Dad didn’t pay for it. Dad got it the same way from granddad.”

Granddad had given it to his dad while he was alive and that went back to about 1960. Granddad got it somewhere around 1930 in the same exact way. His great granddad had given it to him while he was alive.

So, I told this guy, “Well, your basis is the same as great granddad’s. When did he get it?” And he says, “Well, he bought it 1898.” I said, “Oh, that’s great. Now, we have a basis to go back to.”

And I told him, “I’m sure your great grandfather was a brilliant man and when they came up with the income tax in 1913, he went out and established what the basis was so they would be able to calculate that on down the road.” Right?

Of course not. That means the whole thing was subject to capital gains tax. And that’s an example of how difficult it’s going to be to track basis from one generation to the next.

And if you think about other issues that come up; house fire, tornado, flood like we had in Katrina – all kinds of things can go wrong with having those records available when your heirs when they go to sell it.

Patrick: How much did that person end up paying in taxes?

Rex: I don’t know what the sale price was. It was several hundred thousand dollars. The number 800,000 kind of sticks in my mind.

Patrick: So, how much did he pay in taxes?

Rex: That would’ve been, I believe – I don’t remember whether it was 15 or 20% of that, but it was a chunk of change.

Patrick: A couple hundred grand.

Rex: Yeah.

Patrick: And if they had just done a couple of easy steps. In fact, that kind of leads me to a thing. We’re about to go on the break and I’ve got some callers on the line. I encourage you to call in while we’re there. It’s 214-787-1570 to call in and get your answers to your questions. Jeff Pickering CPA, Master’s in Taxation. Rex Hogue, Attorney in the North Texas area. I know you deal a lot with estate planning and helping people save money just like we were talking about.

The last thing that I want to do is just say get these guy’s special reports. I know that Jeff has a tax planner, a tax organizer and Rex has Six Bullets Your Simple Will Can’t Dodge. So, with that, we’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Pat Dougher. I am really excited about this show because when I first heard about it, I thought, “Man, our government has gone to a point of writing what I call almost kite checks or hot checks,” where you’ve got this huge credit that we just signed up for and we’ve expanded all this income or spending that they’re doing, but at some point, you have to pay for that credit card bill.

And I know where that’s going to come in. that’s going to come in the form of taxation whether it’s estate or it’s just income, it’s all taxes. So, really, the more you know, the more you get to keep.

In fact, one of the things that I heard recently is there are two tax structures in America; the informed and the uninformed. And the uninformed have a much higher tax rate than the informed.

So, with that, I’m brining you Jeff Pickering CPA, Master’s in Taxation, Rex Hogue, Attorney in the North Texas area, estate tax planning help for your company, for passing your wealth down to your heirs. These guys are specialists at this.

Let me put it this way. They’re excellent at it. With that, one of the things that really hits home with me is the whole fact that if the bill has to be paid, how’s the government going to do it?

Well, they’re going to have to increase and maybe even build an Army of auditors. And you know what? They did. The number of auditors have doubled and so, audits are going up. Jeff?

Jeff: Yeah. There’s money in the new budget. There’s money in President Obama’s budget to increase the number of auditors. Specifically, even the issue that the airplane guy, when he crashed into the IRS building, they’re going to focus on that as well. That’s one of their hot buttons is the independent contractor issue.

So, incorporating is one way to get rid of it. There’s something called Section 530 Relief which is available. You wouldn’t want to try it on your own, but if you want to call your tax advisor and ask him about Section 530, then it’s not based on the IRS code – I won’t go into it.

But, Section 530 is another way to get rid of the independent contractor issue. It’s something that employers should look into.

Patrick: Well, that really raises a big point to me. I’m thinking there are lots of people out there that do their own taxes. It’s a little bit like doing mind surgery to me. But, you actually run into some folks that if they had just let you help them, things would’ve changed.

Jeff: Right. So, there’s something called the substantial understatement penalty. If you use a tax professional, you can get out of the substantial understatement penalty if you took the tax professional advice.

So, I had this guy. He did his own taxes. He spent endless hours with multiple choice questions. He did it with some software and he did it wrong just like Timothy Giethner did. He got the penalty and we were looking at it and I would have – if he had used a tax professional, even if he had got it wrong, he would’ve gotten out of that penalty and it doesn’t apply to software.

You can’t get out of the penalty with the software. You’ve got to use a professional. So, I could’ve saved him a couple thousand dollars. For anybody else, that’s one reason – a good reason – to use a professional.

Patrick: And I know that you have a tax organizer.

Jeff: Yes. We have a tax organizer. If anybody would like to call our office at 972-378-5200, we can get you a tax organizer to help you get prepared for your tax professional. It’ll get you in the mind. Things will click and you’ll be ready for your appointment.

Patrick: I will tell you. I got mine today, folks. I was blown away at the volume of material that was available to me just by asking Jeff, “Hey, can I have one of those organizers?” And he printed it off and handed me this, almost, booklet.

But, the point is, it was the right information. You need the right information in dealing with the IRS. I kind of say IRS, KGB – aren’t those the same letters in some other language?

With that, I want to make sure we get some calls. It’s 214-787-1570 in the DFW area. Outside of the area, it’s 800-583-1570 or if you have a Sprint phone, it’s #KLIF. You’re listening to Talk Radio. This is Pat Dougher on Tax Talk.

I know that one of the things I want to get right into as we’re having people call in is, Rex, you have Six Bullets that Your Simple Will Can’t Dodge. What are some of the six bullets?

Rex: We have this report, Six Bullets Your Simple Will Can’t Dodge, why even a simple situation needs more complex planning and there’s actually seven. It’s kind of a seven shot, six-shooter.

The first one is incapacity. Most people don’t realize that your will does not work until you die and until it’s been probated. A lot of people are surprised by that.

Another problem with a simple will is that it can actually leave your spouse high and dry which surprises people because they think, “Hey, if I give it all to my spouse, that’s taken care of them, isn’t it?” Well, it may not be.

First of all, they might not know what to do. But, you may also be creating problems for your spouse if you’re in a second marriage and if they get remarried, that will create problems for your kids.

The third bullet is getting even with minor children. Minor children can’t own property. If you use a simple will to pass it to them, other people can go find out when they’re going to be getting the money. Some people ask me about, “What about a minor’s trust?” I tell them it’s a great idea, but it’s no longer a simple will once you put a trust in it.

The fourth bullet is what we call the law of title; how you lose control of property. Most people don’t realize, you go prepare a will, you say I want everything to go to my spouse, but the life insurance beneficiary is your previous spouse and you’ve never changed it or you own it with right of survivorship with your children and one child, the one child whose name’s on it gets it instead of all the kids regardless of what your will says.

The fifth bullet is the dangers of probate. Now, probate isn’t always bad, but probate can cost a lot of money. It can take a lot of time. The big thing is families lose control. It puts the family last. It’s very public. If you own property in more than one state, you’re going to have probate in all of those states. It creates a place where creditors and other people can bring disputes.

The sixth bullet is that estate tax planning is really for everyone. That surprises people because they think, “Well, we don’t have that much.” Well, some good reasons to do estate tax planning is it gives the first decedent control over where some of the property passes. It can preserve family relationships, particularly in second marriage. It can help the surviving spouse qualify for Medicaid without completely going broke. It’s a great way to protect the surviving spouse against creditor lawsuits and it allows you to pass twice as much estate tax free.

And our last bullet, number seven, is it creates a false sense of security. A lot of people get their will done and they think, “We’re finished. We don’t have to do anything else.” Folks, there’s always more you have to do. I would love to send you this report. We talk in here. Not only do we explain all the problems, we talk about solutions that we don’t have time to go into here on the air.

Patrick: That is awesome. Rex, thank you so much. Yes, one of the things you want to do, you can email Rex at Rex@bigtexlaw.com or you can call their office at 972-309-0104. Leave your name, and address and phone number in the general mailbox and they will get back with you in the next, essentially, 24 hours and get some information out to you.

Well, we’ve got some callers on the line. I want to go to Janet; Janet, in Southlake. Go ahead, Janet. You’re on the air.

Janet: Hi. About 15 years ago, my father-in-law

Tax Talk Feb 14, 2010

Patrick: And welcome to Tax Talk. The more you know, the more you get to keep. Welcome to our Valentine’s Day edition. We are so thankful that you’re here and one of the things that we want to get right into is community property.

So, I know that’s going to be a big topic today. I also know there are several upcoming deadlines that you need to be mindful of.

Jeff: Definitely.

Patrick: And our hosts, or guests, today, hosts for the show, of course, Jeff Pickering; obviously, CPA, Master’s in Taxation and then, Rex Hogue of Bolinger and Hogue, an attorney in the North Texas area; so thankful that you’re here.

And one of the things we want to give out right away also is the phone numbers to call in to ask these two guys questions about anything taxes. It’s 214-787-1570, or 800-583-1570 or #KLIF on your Sprint phone. With that, Jeff, why don’t we talk a little bit about the deadlines?

Jeff: Right. We have some deadlines coming up. Our deadlines are the 28^th of February. That’s the deadline to get your W2s, copy A, 1098, 1096, W3s. All that stuff goes to either the IRS or the Social Security Administration. So, the IRS copy of that stuff is on the end of this month.

And March 15^th is the deadline for your tax return if you’re a corporation or if you file as a corporation. So, if you have Inc, Corp, Incorporated, Corporation in your name, if you’re a calendar year, then March 15^th is your date to file an extension or to file your tax return.

Patrick: Very good.

Jeff: Then, we have another deadline which is March 31^st. That’s the deadline to buy a Ford Hybrid. If you want to take advantage of the Hybrid Credit, you’ve got to buy your Ford Hybrid by March 31^st.

Patrick: Now, that’s a new thing, though. That’s just been in the last year. Is that right?

Jeff: Well, the Hybrid Credit has been with us for a couple of years. But, the Fords haven’t been selling as much as like the Prius when they came out. So, now that Ford has come out with the Fusion, and it’s a big seller and they’re running out of the credit that has been allocated to them.

So, March 31^st is your last chance to get the credit on the Ford Hybrid. And they have another one. I think it’s a Mercury something or other.

Patrick: That’s great. Well, we’ve got callers already coming in. That’s great; 214-7871570, 800-583-1570 or #KLIF. We want to talk about community property and everything Valentine’s. So, Jeff, go ahead.

Jeff: Sure. First of all, if you’re new to Texas, then you may be aware that we have something called a common law marriage. Not all states have them. Common law marriage basically means you live together as husband and wife and you represent yourself to the public as husband and wife. You can be husband and wife. You can be married without going through the ceremony.

Rex: And Jeff, one person can hold that hold that out in front of the other, and the other not corrected and that qualifies as a common law marriage in Texas.

Jeff: Right. So, that’s happened to me in my office. For instance, I had explained to some people that their tax return, for the next year, look better because they were planning to get married. I’d say, “Okay. You’re going to save $7,000 next year because next year, you’re going to be filing as married filing joint.”

I’ve had a couple of clients look at each other and talk quietly in a corner. Then, the husband comes up and says, “That’s my wife, Jane so and so.” And right in my office, can you believe it? In a CPA office, I’ve had the hallowed ceremony take place and those two [4:44 inaudible] entered themselves as husband and wife and we filed the joint return.

Patrick: I would’ve never thought that a CPA gave that kind of power and authority vested in them. I would never have expected that.

Jeff: My dad is a religious man and he says it’s one of the perks of the job of being a religious man. So, I have something over him.

Patrick: Very good – or something in common with him.

Jeff: In common with him, yeah. That’s exactly right.

Patrick: Very good, very good. Rex, you had some other stuff you wanted to add to that.

Rex: Well, yeah. Community property in Texas – Texas has a very complex statute regarding that because income from separate property in Texas is community property. A lot of people don’t realize that.

They think the rental house they had before they got married, that income is separate because that house is separate and that’s just not true. The income is community property. And that, by the way, causes people a lot of problems not only if they later go through a divorce, but it also causes problems on death if either spouse has children from prior marriages. It just creates a mess trying to sort out what exactly is separate and what exactly is community.

Jeff: Definitely. And one of the things we should mention also is that in Texas, because community property basically means one half of your income is your spouse’s and one half is yours. Married filing separate in Texas is you add them up and you divide by two and then, you report on your married filing separate tax return.

So, if you’re listening to tax shows or something on TV and they talk about this, “Well, maybe you should try marriage separate.”

Well, in Texas, those people don’t know about Texas law. They don’t address Texas Law. As a matter of fact, a lot of the IRS people – there are only ten community property states, so most of the other states don’t even deal with this. A lot of the IRS people are not aware of Texas community property. I’ve seen a lot of tax returns that are prepared by other people, even regular tax preparers, that don’t properly reflect a community split.

Patrick: Interesting. Let’s go to a caller. We’ve got a caller; Scott from Dallas. Scott, you’re on the air. Scott, do you have a question?

Scott: Yes, I do. I’d like to speak with the CPA for his thoughts about ways to possibly bring me out of AMT. I’m married, one child. My base salary is about $130,000 and I get company stock options which I exercise periodically. When I do that, it pushes my income to about 275 - 500 depending upon the year.

This year, or 2009 rather, I sold some options. So, my total income is about 250 this year and I’m getting just killed by AMT. Is there anything I can do to avoid that? I am buying and holding for at least a year, so there are long term capital gains. That’s what’s crushing me.

Jeff: Alright. Scott, that’s a very good question and what I’d like to do is I’d like to tell you exactly how to handle this just right after our break. So, coming right up.

Patrick: Very good. Scott, thank you so much.

Scott: Thank you.

Patrick: And we’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Patrick Dougher, Jeff Pickering CPA and Rex Hogue Attorney in the North Texas area. We’re talking about taxes. But, it’s a Valentine’s Day show and so we’re doing a lot with community property.

We found out that Jeff has the authority and the power vested in him to create marriage in his office, or something like that. At least, that’s the way it worked.

Jeff: I guess encourage marriage.

Patrick: Encouraged marriage.

Jeff: Right.

Patrick: And then, I know that Rex is trying to keep this whole community property thing straight. So, why don’t we talk about that a little bit more? I know we’ve got a question to answer don’t we, first? So, let’s do the question and then we’ll talk about the community property.

Jeff: Okay. Scott called in and he’s got – it sounds like what he has are called incentive stock options because he’s talking about a holding period and he’s talking about the AMT problem.

So, that AMT was originally designed to catch people from taking too many deductions. The ISO Incentive Stock Option adjustment is a typical one. It’s probably the most common one that we run into and it can really cause problems.

What you want to try to do when you’re subject to AMT is try to do things that minimize your gross income. So, that’s one of the coping strategies – anything you can do to minimize your gross income.

So, if you have investments, you would want tax free investments, especially the ones that are not subject to AMT. You want to hold rather than sell. Anything along that line will help mitigate the problem.

You have to be careful of listening to other advice because people will say, “You can double up on your property taxes and other expenses and get a double hit.” Well, if you’re subject to AMT, you don’t want to do that. That’s exactly the wrong advice.

So, you minimize your income, you plan probably around October. Scott, what you should’ve done is sat around with your tax guy or girl and said, “Okay. I’m going to exercise some options and this is how it’s going to happen.”

Most people have the ISOs. They try to exercise a little bit at a time to try to keep them from being subject to the AMT. So, that’s the most effective coping strategy is to exercise a little. If you can’t do that, then – of course, you’ve got to make money. You can’t sit there and wait for your stock to go down and then sell some. You’ve got to make money first, usually, and then worry about the tax consequences.

Patrick: You could help them, though, at your office too.

Jeff: Absolutely. If you need some help, we do planning for this kind of thing. So, we’re at 972-378-5200. That’s our office in Plano.

Patrick: What was that again?

Jeff: 972-378-5200.

Patrick: Very good. And you’ve got a tax offer – a free guide?

Jeff: Yeah. If you would like to have a freebie, what we have is we have an organizer. It’s valued at $40 and you can just call our office or email us and we’ll give you a free tax organizer.

Patrick: So, they call 972-387-5200 to get their free tax organizer and that’s for folks that are hearing this show, Tax Talk. And also, one of the things that I want to mention is that this show is actually set on my website, patrickdougher.com, by Thursday of each week. Not only is it the recording, you can download it. But, I also give the transcript.

So, if you want to look at anything that these guys say, you can actually use that information to help you in any way that you want. With that, also, let’s go on with how do you keep this information straight?

Rex: We’ve found it’s very difficult because most people don’t get any real education on how they should handle property when they get married. They don’t know how to distinguish between separate property and community property. And Texas has something called special community property that involves community property that has only one spouse’s name on it and has control by only one spouse.

So, what we’ve got today is a handout that we call Texas Community Property and it’s really two handouts. The second one is called Determining the Nature and Character of property. We normally sell that for $77. We are giving it to anyone who calls in. Call our office 972-309-0104. Leave a message or email at Rex@bigtexlaw.com.

And what we do in this handout is we explain how you can distinguish between whether it’s separate property, community property or special community property and how you have income from separate property swept into a community account, which any brokerage house can do, so that you don’t wind up comingling property which is a huge problem both in cases of divorce and in cases when one spouse dies.

A lot of people think it’s all about the divorce planning, but it’s not. It’s about what happens when one spouse dies because that is eventually going to happen.

Patrick: Wow. And I know that also there are certain situations where someone moves to the state from a non-community property state to this one. It kind of really gets messy.

Rex: It can get fuzzy and in Texas, Texas has something called quasi-community property where if you had acquired that property in Texas, it would’ve been community property. It can be deemed community property through the quasi-community property rules.

But, we also have something called the exception of title rule which says that once property is acquired, however it was acquired originally, unless you take some steps to change it, it retains its initial character.

So, it’s also possible to come back here and it might’ve been treated as community property had you owned it one way. But, because of the way you own it, it never falls under those rules.

Patrick: Very good. 214-787-1570. If you want to ask Jeff Pickering CPA, Rex Hogue Attorney about anything taxes, it’s 214-787-1570 or 800-583-1570. Call in. Ask you tax questions. We’ve got lots of information we want to give. But, we really want to answer your questions. When you think about it, Jeff, why is it that you’re doing this show?

Jeff: Well, as our little slogan says, “The more you know, the more you get to keep.” And I find that my best clients are the ones that are aware of things. They come to me and they’re already clued in on most of the things and they just want to know how to make the rubber meet the road.

Patrick: Rex, what about you? Why do you do the show?

Rex: Well, for most of our clients, they want property ultimately to be passed the way they want it passed, they want to maintain control of assets during their lifetime and they want to avoid family disputes. Those are really the three biggest things.

Of course, everybody wants to avoid taxes too. But, the other three are actually, for most people, more important and we want to help people make sure that happens and, of course, that happens by taking steps to properly plan.

Patrick: 214-787-1570, 800-583-1570 or #KLIF on your Sprint phone. We really want to make sure that you have the information that can change your tax situation as in lower it. I know death and taxes are pretty inevitable, but neither one of them are very fun and we’d rather that you minimize your taxes as much as possible. Again, the more you know, the more you get to keep.

Jeff: The more you get to keep. So, sticking to our little Valentine’s Day topic, we’re going to talk a little bit about also what are some of the strange things that interact with your tax return when you have the community property.

So, moving away from Texas four, five years doesn’t cause somebody to lose their community property status. If your home is in Texas, you can go out, you can come back in and you’ve still got community property.

As Rex said, you have something called quasi-community property and a husband who can deduct one half of his mortgage if it was paid out of a checking account that the wife had that contained rental income from a separate property because separate property income when you’re married is community.

Also, this is something that’s really strange. Alimony paid to the first wife is deductable half by the husband and half by the wife since it was community property.

Patrick: Ouch!

Jeff: Ouch, yeah!

Patrick: She’s probably real thankful that – your current wife. Ow! Well, we’ve got a caller here. We’ve got Paul. Paul, why don’t we go to you. What’s your question?

Paul: Well, I am currently separated in the process of a divorce and this is the first tax season that we will be apart from each other during taxes. I know from my attorney that the person with the primary residence of the children gets to claim them when the divorce is final. However, right now, we’re still technically married. So, we’ll be filing married separate.

Jeff: Yeah. Married filing separate; one of the worst tax brackets you can be in. Actually, whoever gets to claim the kids, you do have that business about where they’re domiciled. But, there can be separate agreements that override where the kids are.

So, it is possible for you to have agreements to share the custody of the kids – not share the custody – share the tax exemption.

Paul: Well, here’s my question. Does that also apply when you’re separated and the divorce is not final? What my situation real quick is that she went to a tax seminar and I asked her about separating the kids – I claim two, she claims two.

She said, “Well, I’m going to a tax seminar.” She then called me later and they helped her do her taxes and she claimed all four kids.

Jeff: Whoa! Ouch.

Paul: And so, here’s my question. Again, my attorney isn’t sure about before the divorce is final. Yes, after the divorce is final, if they’re residing with her, she can claim all four. However, what is my recourse at this point?

Again, I asked her to separate them, and she said she would consider it and then went and did the taxes and claimed all four. Can I claim them and then have the IRS work that out at the backend? What’s my recourse here?

Jeff: Paul, we’re going to tell you exactly what that is coming right up.

Patrick: Hey, hold on a second, Paul. The number is 214-787-1570. We’ll be right back.

[commercial]

Patrick: And welcome to Tax Talk. This is Pat Dougher. Today, we are talking about Valentine’s, ways for you to save money on your taxes in lots of different situations like that. The one thing I want to also start with is the calls. A lot of people want to know, “How do I talk to these two brilliant guys?”

You’ve got Jeff Pickering CPA, Masters in Taxation. Rex Hogue Attorney, works with estate law in the North Texas area. They really are here to give you answers while we’re on the air.

So, if you call in, 214-787-1570, 800-583-1570 if you’re out of the area and want to use that 800 number or #KLIF on your Sprint wireless phone. And if you’ve got a Blackberry, that’s #5543. Most people are moving away from the old dialing system. With that, Jeff, I know we wanted to continue with answering that guys question real quick.

Jeff: Paul’s situation is he’s separated from his wife and his wife went to a tax seminar. Shortly thereafter, filed her tax return and claimed all the kids. What probably happened is she probably filed her tax return incorrectly. I bet that Paul didn’t give his information to her so that she could file her one half of the community split.

So, what recourse he has, she is supposed to – if she’s a listener, she’ll figure this out. She is supposed to notify her husband that she’s filing without the community split before the due date of the tax return which is April 15^th. That’s something that she’s supposed to do on her side.

And then, for him, if she does that, he may be kind of stuck. He can try to get the kids. But, without any agreement, if there’s no other agreement, then she’s going to be by default able to claim the kids.

Patrick: Very good. I know that one of the other big things we want to talk about in just a little bit is if you had a business involved either before you got married or while you’re married what happens, how to make sure you take care of that properly. I want to go next to Ed. Ed, you’re on the air. What’s your question?

Ed: Yes, I was calling because my wife passed away last month and I’m trying to prepare I guess for next year’s tax documents wanting to know what I need special to do.

Jeff: Well, one of the things you have to do is get an extra death certificate because you’ll file a certified copy of the death certificate with the final return for your wife. This year, you may want to note that on your tax return that you are filing and signing for your deceased wife. And then, Rex, this sounds like a total opening for you to tell this guy what to do.

Rex: Yeah. First of all, I’m sorry for the loss of your wife.

Ed: Thank you.

Rex: It’s also important that you do whatever administrative steps it takes to get property properly where it’s supposed to go according to her will or trust document. That may mean that you need to go through probate.

But, you need to get started and go ahead and take those steps. I don’t know where we are as far as estate tax depending on the size of the estate whether an estate tax return might be required. And it might not be today, but Congress could change that and make it retroactive to the first of the year. But, you absolutely need to be thinking about that too.

Ed: Okay. What determines a good probate lawyer?

Rex: We do a lot of probate in your office. I don’t know what county you’re in. But really, an attorney who has done some probate work. You really don’t want somebody who’s doing it for the first time because there’s quite a lot to doing a probate. There’s also a lot to doing an estate administration.

And those are not the same thing. A lot of people get the two confused. Probate is a process that you go through because somebody’s got their name on property, and they can no longer sign and we have to have basically a court sign their name to transfer those assets.

But, there’s other administrative things that go along with taking care of a death that don’t really have to do with changing property, but it has to do with getting things set up in the right way and moving forward with property authority.

Patrick: Great. Ed, thank you so much. I know that you should talk to Rex at his office. You can actually just call and leave your name if you want to visit with him next week or when he has a chance. The number there is 972-309-0104. Just leave your name in the general mailbox and we’ll be able to get with you. Thanks so much, Ed.

Ed: Thank you.

Patrick: You bet. I want to go right on. We’ve got a couple minutes before our next break is Charles. Charles, you are on the air. What’s your question?

Charles: Well, you had just spoke about estate taxes and that’s really what I was going to ask about. I understand we’re kind of up in the air right now with where the estate tax is going to end up. I hadn’t been extended or it’s kind of in limbo. But, let’s say it does go back or revert to a million dollars. I think that’s correct. Am I right so far?

Rex: Yes.

Charles: Okay. Is that the entire estate or is that one portion of the estate to an individual?

Rex: Well, under the law, each person can have an exemption. In the case of the 2011 law that’s on the books right now, that would mean that the husband can get a one million dollar exemption and the wife can get a one million dollar exemption.

And a lot of people think that automatically means two million. But, not only is that not automatic, but it may not even necessarily work out that way because if the husband gives all the property to the wife, he destroys his exemption. Or if the wife gives all her property to the husband, it destroys her exemption. And so, they wind up with only one one million dollar exemption.

The way that you take advantage of both of them is you create a trust where the first decedent’s assets go into that trust and they can be used to take care of the surviving spouse. But, that trust holds the exemption equivalent for the first decedent and then, the second decedent gets their exemption upon their death.

Patrick: Very good.

Charles: Do you guys set up trusts?

Rex: We set up a lot of them. We’d love to help you with that. Just give our office a call at 972-309-0104. Leave it in the general mailbox and we’ll get back to you as quickly as we can.

Charles: Okay.

Patrick: Very good. Jeff?

Jeff: That number?

Rex: 972-309-0104.

Patrick: Very good. Thank you. Go ahead, Jeff. Did you have anything you wanted to add?

Jeff: That’s it; wonderful, wonderful answers.

Patrick: It’s been a good show. I know we’ve got Rick here. Why don’t we go ahead and take this call. Rick, you’re on the air. What’s your question?

Rick: I’ve got a question regarding oil and gas right of ways where an oil company comes in and gets a right of way across your property for a pipeline or something like that. I understand, or someone told me, that it ends up being a wash on the tax return and you do an adjustment to the basis of a property.

Jeff: That’s one way to handle it. So, that’s definitely one way to handle it is to reduce the cost basis of your property for the easement. Right.

Rick: And then, would it be reported on a Schedule D as just a wash where if they give you a 1099?

Jeff: That’s the way I report them.

Rick: That’s the way you would do it. And then, do an adjustment to the cost basis of the property?

Jeff: Yes.

Rick: Okay. Very good.

Patrick: Thank you, Rick. Very good talking to you. So, if you want to contact Jeff, just call him at his office. It’s 972-378-5200.

Jeff: I should’ve asked Rick where they’re buying the easements. I want to know what’s going on.

Patrick: Really?

Jeff: Maybe I can get some land with some oil on it.

Patrick: Yeah, no kidding. I know that used to be just everything was – and everybody was chasing those things down.

Jeff: Right.

Patrick: One thing I do want to mention. We’re almost ready to take a break here. But, there’s a couple of free offers on the table. Yours, Jeff, is?

Jeff: Right, a tax organizer. You can use it and take it to your tax preparer. Just call our office at 972-378-5200.

Patrick: And Rex?

Rex: We have the Texas Community Property Handout. We normally sell it for $77. It’s free to those who call in this week on the show out from the Texas Workforce Commission that we’ll also be glad to send for all business owners.

Patrick: Very good. Well, we’ll be right back. This is Tax Talk on KLIF.

[commercial]

Patrick: And welcome to Tax Talk. This is your host Patrick Dougher, Jeff Pickering and Rex Hogue in the office here in the studio. We’ve got a caller on the line and what we’re going to do is let me give out the numbers here. It’s 214-787-1570, or 800-583-1570 or #KLIF on your Sprint phone.

But, if you want to ask these guys about your tax situation, Jeff Pickering CPA, Masters in Taxation and Rex Hogue, Estate Attorney in the North Texas region. You need to ask these guys your question.

This season, obviously, everybody’s thinking taxes and nobody really likes paying them. With that, why don’t we go right to Ron. Ron, what’s your question?

Ron: Yeah, I had a question regarding community property. You indicated earlier in the show that just by two couples sitting in your office they could actually tell you that they were married and, therefore, be married. So, my question to follow up on that is what would constitute a divorce if they could simply…

Jeff: That’s good. That’s a good question. In Texas, we have common law marriages, but we do not have common law divorces. So, anybody who’s contemplating on being married in their tax preparer’s office better think it through very carefully because if you want to undo that situation, you’re talking about a real divorce.

Ron: I had a second question if I can and that was with regards to rental property owned prior to the marriage. You indicated that the income from rental property was considered community property.

Jeff: In Texas.

Ron: In Texas. My follow up question on that is if that’s true, then it must also be true that the losses from the rental property is also a part of community property.

Jeff: That’s right. So, community income and losses are split with the community split.

Rex: One thing I’ll tack onto what you said, Jeff. I had somebody approach me one time and tell me he was about to get married. And after he explained his previous situation, I realized, “You’re already married.” And if he goes out and gets married again, he’s going to be married to two people at the same time. That is illegal in our country and you don’t want to do that.

Jeff: Right.

Ron: So, I had to tell him there’s no common law divorce. You’ve got to go through the process.

Jeff: That’s right.

Patrick: That’s good. Thanks so much, Ron.

Ron: Thanks. Thanks for your help.

Jeff: Just a little bit more on the deductions. So, deductions for expenses incurred to earn or produce community business or investment income is divided equally by the husband and wife. Deductions for expenses for separate business or investment income – other states normally by the separate husband and wife who earns them.

But, in Texas, we share stuff from community property. If you want to do the itemized deductions, the itemized deductions, medical expenses; they’re considered paid from community funds and they’re deductible by husband and wife half/half unless you can specifically show that it was paid from separate property funds. Like I said, when most people try to do married filing separate in Texas, they do it wrong.

Patrick: I get it; 214-787-1570 or 800-583-1570 if you want to ask Jeff Pickering CPA or Rex Hogue Attorney in the North Texas a question. Also, one of the things I want to make is that you have the numbers to get a hold of these guys. Jeff, your phone number again is?

Jeff: 972-378-5200.

Patrick: Somebody’s there, right?

Jeff: Somebody is there right now. If you’re shy and you don’t want to talk to us on the air, there’s somebody that will answer your question or make an appointment for me to answer your question.

Patrick: Very good. Rex

Rex: My number is 972-309-0104.

Patrick: And remember, this show will be on patrickdougher.com later this week and you can also read the transcripts from the last few weeks on patrickdougher.com. If there’s anything I can do for you, you can check me out there. We’ve got a caller. It’s Israel next. Israel, you’re on the air. You had a question?

Israel: Thanks for taking my call. I would like to hear if you could address – there’s a form I’ve been researching, 982 attached the bankruptcy code. Basically, I’m a contractor and I had a huge debt forgiveness last year from BOA in the amount of close to $60,000. That’s the 1099 C that I got.

Jeff: That’s right, Israel.

Israel: I’m pretty obviously broke and in solvent at the time, I have an 11 year old truck. I have a condo that’s in my wife’s name that we owe more than it’s worth and not a whole lot of assets. I’m trying to see if that’s commonly used or if you’ve got to jump through a lot of hoops because, obviously, I can’t pay taxes on another 60K on top of my regular 1099.

Jeff: Definitely. So, the general rule is that if you have debt forgiveness, then it’s income to you and that’s why they issue those 1099 Cs. But, for certain people, and your situation sounds like one of them, you don’t have to include that income because you are insolvent and insolvent means, for this purpose, insolvent means that your liabilities exceed your assets. So, it’s kind of like you’re upside down in your life financially.

Israel: Unfortunately, that’s the case. Okay. So, is that something that if I call your office – obviously, with the economic situation the way it is, I assume that a lot of people are going to be using this last year and the next couple of years if that’s available to them.

Jeff: We’ve done a few of them already. We’d be happy to help you out. Just call our office at 972-378-5200, and we’ll make sure that you’re filed properly and nobody’s going to come after you for the income.

Israel: 378-5200?

Jeff: That’s right.

Israel: Thank you very much.

Jeff: Glad to, thanks.

Patrick: Thanks, Israel. Why don’t we go on. Do you have anything to add to that, Jeff, Rex?

Jeff: Well, in Israel’s case, he’s got a condo. Other people may have a foreclosure on their home. That’s also eligible for some income exclusions on debt forgiveness.

Patrick: Awesome. Why don’t we go to Robert. Robert, you’re on the air. What’s your question?

Robert: I have two questions if I make it quickly. The tax situation for 2010 on the estate planning is supposedly zero taxes this year.

Jeff: Yes.

Robert: This is still my first question. What is on the horizon for next year? Is anything being planned in Congress? Do you have any idea what the rates will go to for 2011?

Jeff: Go ahead, Rex.

Rex: I’m skeptical of anybody who says they know what’s going to happen. Right now, the law says that we’re going to have a one million dollar exemption next year. There are all kinds of proposals out there to make it a 3.5 million exemption permanently and make it retroactive to the first of the year, but I don’t know if that’s going to happen.

The further we go into the year, the more difficult it’s going to be for them to make that retroactive to the first of the year I think because, at some point, people are going to be beyond the filing date.

Jeff: Yes.

Rex: I don’t know. What’s your next question?

Robert: My next question. You were talking about a book on community property and specialty community property. Did I hear that correctly? A book that you have?

Rex: Yes; Texas Community Property and Distinguishing the Nature of Community Property, Separate Property and Special Community Property.

Robert: How can I get a hold of a copy of that?

Rex: You can call our office at 972-309-0104 or email me at Rex@bigtexlaw.com

Robert: You said Rex at what?

Rex: Big Tex Law dot com.

Robert: Okay. How much are they?

Rex: It’s free if you simply tell us that you were listening to the show to day. It’s ordinarily $77, but it’s free if you just mention the show.

Robert: How wonderful. That’s a blessing. I really appreciate that. 972-309-0104.

Rex: Yes.

Robert: Great. You guys have got a great program. It’s so informative. [51:50 inaudible]. I’ll be calling you for a consultation and so forth.

Jeff: Great. We hope you tell others. We appreciate all the listeners we get.

Rex: Yes.

Patrick: Thank you very much, Robert. We appreciate that.

Robert: You’re welcome. What days will you be on so I can listen next week and so forth?

Patrick: Every week, Sunday at noon.

Robert: Sunday at noon. Okay. 570.

Patrick: Yep, 570. They call that Radioactive Talk Radio, 570 KLIF. Thanks so much, Robert.

Robert: You’re very welcome. I appreciate you guys very much.

Jeff: I’m glad.

Robert: Bye.

Patrick: Okay. Well, that was a great call. I appreciate the extra. I’m sure Rex appreciates the plug and I encourage you guys to call his office. Jeff, call his office. Set an appointment. And we’re very thankful for the 570 audience. They really are responsive. They are Radioactive.

So, with that, I know it’s going to be next week before we talk to you again. Thank you for listening and if you want, listen to the show and read the transcript on patrickdougher.com. Thanks again. We’ll talk to you next week.

Jeff Pickering CPA, Patrick Dougher and Rex Hogue give you great information on how to lower your Taxes.  In fact it was funny to learn how to write off your Super Bowl Party.

Here is the Transcript:

Tax Talk Feb 7 2010

Patrick: The more you know, the more you keep. Welcome to Tax Talk. This is Pat Dougher, Jeff Pickering CPA and Rex Hogue of Bolinger and Hogue, Attorneys in the North Texas area.

We’ve got a great show for you today. We’re going to talk a lot about the taxes that are affecting you that you need to know about and how you can reduce them. Let’s face it. Death and taxes – neither one are fun. But, you’d love to find all the ways you can minimize it and we’re going to talk a lot about that today.

One of the things we want to start with is Jeff, you’ve got some deadlines coming up for our audience.

Jeff: Right. So, taxes are definitely deadline driven. For those of you out there, you should’ve gotten most of your 1099s, and W2s and other tax documents. Those were due to recipients on January 31^st – at least mailed by.

So, if you’ve sent somebody a 1099 or if you sent somebody a W2, then the IRS copies of those, including the W2, W3, 1099, 1096 are due on February 28^th. So, that’s your next deadline. Hopefully, you won’t have to redo very many of those.

And then we have March 15^th. There’s our next big deadline. That’s the deadline for calendar year corporations if the name of your company ends in Inc, Corp, Incorporated or Corporation. And also, some of you may have LLCs that are taxed like corporations, so that would be your deadline. March 15^th is fast approaching.

Patrick: And then the last one that we’ve got coming for the individual would be, of course, the…

Jeff: The big April 15^th and April 15^th is for individuals, for partnerships, for trusts. Yeah, it’s the big one.

Patrick: Get ready for it. Well, I know that you have some questions that we can answer. The number is 214-787-1570, 800-583-1570 or #KLIF on your Sprint wireless phone. Why don’t you call in, get your questions answered. I mean, let’s face it. Most attorneys and CPAs are not the least expensive advisors on the block and right now, you get to talk to both of them. So, with that, it’s 214-787-1570 or 800-583-1570 here on Radioactive Talk Radio 570 KLIF.

Jeff, I know that we’ve got some more things that we want to talk about that have to do with a new birthday this last week.

Jeff: That’s right. Happy birthday! Happy birthday, income tax system. So, on February 3^rd, the income tax was how many years old? 97 was it?

Patrick: 97.

Jeff: 97 years old. The 16^th Amendment was passed. So, for those of you who don’t believe in the income tax, it’s real and the IRS posts an annual list of unsustainable tax arguments, they call it. It’s basically a list of stuff that if you believe in them, you’re not going to win. It’s on the IRS website.

Patrick: Well, I know that I have some friends that believe in the four G’s. That’s God, god, guns and groceries. The 16^th Amendment still stands, doesn’t it?

Jeff: It’s there. It’s been here for 97 years. We’re still doing it.

Patrick: Very good. 214-787-1570. Call in and get your tax questions or estate tax questions answered. Jeff, next thing up is?

Jeff: We have Geithner, Obama and Baucus support the retroactive reinstatement of the estate tax. They want to put it back to the first of this year, 2010. Rex, I know that you can tell us more about what’s going on there. What’s happening in the estate tax area?

Rex: Well really, Congress doesn’t have anything at the moment. They’ve talked about will they have the estate tax go retroactive. I think the further in the year it goes before they do something, the less likely it is to be retroactive to the first of the year.

But, both Geithner and Obama are on the record of saying they would like for it to be retroactive, go back to a $3.5 million exemption which sounds like a lot, but by the time you get insurance, and retirement plans, and your house and other things, it’s surprising how many people might still qualify for it.

And then of course, if they don’t do anything this year, it goes back to a million next year which, in this day in age, most families that have much of anything are going to be worth at least that much.

So, the estate tax is problematic for other reasons as well. For example, there’s an article from The National Law Journal that talks about some of the problems created this year.

One is a lot of lawyers have been drafting documents for the last ten years with the idea that we’re never going to get to 2010 and still have no estate tax, but that’s where we are.

So, let me give you an example of two things that people have done over the last few years. One is that they’ve said – let’s say the husband sets up a plan that says, “Hey, when I die, transfer the maximum amount to my kids that won’t incur a state tax and the remainder to my wife.” Well right now, the maximum amount is 100%. So, his wife would get nothing.

Another problem is the opposite kind of plan – also very common. This says, “Transfer to my spouse under the unlimited marital deduction, the maximum amount that can go and still take advantage of the estate tax exemption.” Right now, no state tax; therefore, everything goes to the spouse and his kids if, from a prior marriage, are left out entirely.

Both of those situations are highly likely to result in what we call World War III or the Post Mortem Divorce where the second marriage kids and the surviving spouse go to war with each other.

Patrick: Wow. Now, the one thing I was curious about, the percentage is much larger than even the ordinary income, isn’t it? If they retroactive the $3.5 million for last year.

Rex: Yes. The tax rate is 45%. But really, you can’t compare it to the income tax. The income tax is on income. The estate tax is on everything. For example, if you had a million dollars and let’s say that is was returning 10% and you’re subject to a 35% tax bracket, that’s $35,000. A million dollars subject to estate tax is $450,000. So, there’s a big difference between those taxes.

Patrick: Wow. That’s awesome. Coming up, we’re going to be talking more about some of the ways that the IRS wants to enforce the new taxes that they want to get on us. The other thing is I want to get out right now how you can get a hold of Rex and Jeff.

Jeff Pickering’s number is 972-378-5200. If you want to talk to Rex after the show and set up an appointment to visit with him or with Rex, it’s 972-309-0104. What we really want to do is go right to our callers, especially right after the break here and we’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Pat Dougher and you are listening to Tax Talk on Radioactive Talk Radio, 570 KLIF. If you’ve a question, call in and talk to Jeff Pickering CPA. He has a Masters in Taxation, so more than enough information to help you. It’s 214-787-1570, or 800-583-1570 or if you’re on a Sprint phone #KLIF.

With that, I want to go right to Jeff Pickering. Tell us about this new method of – gosh, what do you call it? Enforcement, the IRS wants to go to?

Jeff: Actually Pat, it’s not new. There are special things that the IRS gets to do and some agents actually carry a badge and a gun. They are special and called Special Agents. So, the IRS is soliciting quotes for purchase of 60 shotguns right now for these people.

These are Remington model 70, police RAMACs, 12-guage pump action shotguns. They’re parkerized shotguns with a 14-inch barrel, modified choke, Wilson Combat Ghost Ring – and what is that? Rear sight? And XS4 Contour Bead.

Now, I don’t know much about shotguns. But Rex, you know. Can you tell me what kind of shotguns are these?

Rex: That’s a combat shotgun, basically. The 14-inch barrel is kind of interesting because the minimum legal length is 18 inches. I would like to think this is a misprint. But, if it isn’t, it’s another way that the IRS doesn’t play by the same rules as the rest of us.

Jeff: Yeah. When you make the rules, you can pretty much make the rules.

Patrick: Well, there is the old adage IRS, KGB – what’s the difference?

Jeff: Right.

Rex: You know, when you have THE and IRS, it equals THEIRS, don’t you?

Jeff: Yeah, that’s right. But, in all serious, if anybody ever gets contacted by one of these guys and their card says “Special Agent,” you need to seek an attorney.

Rex: Do not talk to them at all. Close the door. Tell them that they will have to talk to your lawyer. Do not ever talk to somebody with CID or the Criminal Investigations Division of the IRS.

Jeff: That’s right.

Rex: Unless you look really good in grey and like federal prisons.

Jeff: There you go.

Patrick: Well, I know that Obama also would like to increase our taxes $1.9 trillion.

Jeff: Trillion. That’s right. So, trillion – and we have to put that in perspective – trillion is 1,000 billions; 1,000 billions. If you can put your mind around 1,000 billions, that’s a trillion – 1.9 trillion. That’s how much our deficit is going to increase by.

And he’s got lots of things he’s going to do. One of them is enforcement. So, I believe it was about $280 million to increase enforcement activities. He’s going to make it harder for people to come to the US and invest here by closing up some things for companies that want to invest here.

We talked about the estate tax. He’s going to tax the banks – back tax the banks – kind of claw back for the TARP money. So, the US government has already made money on the TARP and now they’re going to tax them. I don’t know how that logic is.

But, there are so many things in this budget, it would take a long time to go through. The highlights are definitely more money for the IRS. So, something to watch for.

Patrick: Well, it looks like they’re going to repeal some Bush income tax rates for singles and couples.

Jeff: That’s right. So, under the Clinton era tax system, the top tax rate was 39.6%. But, you have to remember with phase-outs – phase-outs are those things that the more money you make, the less deduction you get. With phase-outs, the actual rate was around 41, 42, sometimes, 43%.

And for those people who live in highest taxed states like California, that’s an effective rate of over 50% of income tax.

Patrick: Wow. So, for all of my marketing clients, making more money is not an attractive issue.

Jeff: Well, for some families, they’re going to have sit there and rethink what they’re doing if they’re a two earner couple. Some of them will, for sure, wonder if it’s going to be worth it.

Patrick: Wow. Well, let’s go to some calls. We’ve got Anne in Frisco. Anne, welcome to the show.

Anne: Yes.

Patrick: Go ahead. You’ve got your question?

Anne: Yes. I had a Roth that I contributed to and I originally put in $12,000. And I retired and went ahead and pulled it out, but I lost $4,200 on it. Would I be able to claim that loss of $4,200?

Jeff: Yeah. But Anne, I have to tell you it’s in a bad place on your tax return. It’s not a good place to claim it. It’s on the Schedule A, itemized deductions. You can put it there. Depending on everything else in your tax return, that’ll determine whether or not you can actually use it.

So, there is a place. It probably won’t – for sure, it won’t compensate you for the $4,200 and it might not compensate you at all depending on everything else that’s going on in your return.

Anne: Okay. And the fact that it was a Roth and it was paid for after taxes, I shouldn’t have to pay tax on that, should I?

Jeff: No, no. You won’t pay taxes on it. Hopefully, if everything works out, you’ll get to actually deduct the loss.

Anne: Oh, okay. Alright. Well, thank you.

Jeff: You’re welcome, Anne.

Patrick: Very good. Thanks again, Anne. We appreciate that. Why don’t we go onto our next caller. It’s Patty in Richardson. Patty, you’re on the air. Patty, are you there? Not hearing anything.

Jeff: That’s okay. Patty, call back if you can.

Patrick: Yeah. That’s 214-787-1570. Then, it’s 800-583-1570 or #KLIF if you’re on a Sprint phone. Call in to get your tax questions. This is Tax Talk with Pat Dougher, Jeff Pickering and Rex Hogue. With that, we’ve got Frank on the line. Frank, go ahead. What’s your question?

Frank: Yes, Sir. Thank you for your time. I have a question. My mother is in her 80s now and she and my dad back 15-16 years ago started an annuity with, I believe about $50,000 out of some CDs. They started the annuity and then they since transferred that annuity to another management company about ten years ago.

My concern is that she withdrew about $30,000 out of that annuity a few months ago back in 2009. The 1099 that she just got on it shows not only the $30,000 being withdrawn, but it also shows the taxable amount down below being $30,000 as well when I was thinking that the basis of the original amount should be $50,000 because that’s the money they put into it.

Jeff: Right. Yeah Frank, you’re right. If you have a basis in anything, you shouldn’t be taxed on it. This was ten years ago and you’re pretty sure that the amount of the basis is $50,000?

Frank: Yes, Sir. They originally took some money out of some CDs back in the bank and they started this annuity with, originally, $50,000. The annuity today is worth about $150,000-$160,000 because it’s grown quite a bit. They had a good guaranteed rate of like 7 or 8% for many years.

My concern is that because she transferred this annuity from one company to another about ten years ago, apparently the basis amount, the correct basis amount wasn’t transferred from the old insurance company to the new one.

Jeff: Right. Frank, that actually happens a lot. People, when they transfer their accounts, the basis doesn’t go over. So hopefully, you have some documents that you can prove the basis and then, you’ll take a pro rata share of basis on her distribution.

Frank: Yes, Sir. Is that something we need to go through and get a correction on through the insurance company where they have to send us a corrected form?

Jeff: You can do that or if you’re able to prove that you have a basis, then you can attach that to the return.

Frank: I see. So, we need to go back to the original annuity document that she started from the original company.

Jeff: Right.

Frank: Gotcha. Alright.

Jeff: I mean, it all comes down to that anyway.

Frank: Yes. Thank you so much.

Jeff: Glad to, Frank.

Patrick: Thanks again, Frank. Jeff, I know that you could actually help these folks at your office and you have someone standing by, so if someone did want to set up an appointment.

Jeff: Right. I know some of these things are actually too long and complicated to talk about over the air. So, if anybody would car to make an appointment, we have somebody right there. You just have to call 972-378-5200.

Patrick: That’s 972-378-5200.

Jeff: And for Rex, we’ve got a number there for him. I thought it was going to be turning into an estate tax question – that last caller, Frank. But, Rex’s number.

Patrick: It’s 972-309-0104. I know that if they call during today or tomorrow, actually, there’s a special report that you were going to give.

Rex: Yes. We are actually giving away a report that we call Estate Planning Secrets of the Rich that everyone can benefit from. That is normally a $99 report. We will give it to you free if you will call in or email us at Rex@bigtexlaw and just say ‘free report radio’ or something so that we know what it’s about.

We only have 27 of the second report that’s the bonus report and that’s Six Bullets Your Simple Will Can’t Dodge. The first 27 callers are going to get a copy of that report. We’ll be out of them and we’re going to redo them before we send them out again.

Patrick: Very good, very good. Again, that’s Jeff Pickering CPA, 972-378-5200 or Rex Hogue of Bolinger and Hogue. It’s 972-309-0104. We encourage you to call in. We’ve got several people that are coming in. It’s 214-787-1570 to call in and ask Jeff Pickering CPA, Master’s in Taxation or Rex Hogue Attorney with Bolinger and Hogue really specializing in estate taxes, 214-787-1570 or 800-583-1570.

Coming up, we’re going to be talking a little bit more about some of the issues that the IRS is – well, let’s just say there’s a form that retirees need to be very mindful of because if they fill it out wrong, they could be popped into a – let’s just say the wrong department in the IRS. With that, we’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA and Rex Hogue of Bolinger and Hogue Attorneys in the North Texas area. We’ve got a great show going for you. We’ve got several people on line. Call in if you want to, 214-787-1570. 214-787-1570 or 800-583-1570 or #KLIF on your Sprint phone.

One of the things we wanted to cover before we go to the calls real quick is retirees have got some worries this year.

Jeff: Well yeah, there’s a new schedule. It’s Schedule M. It’s not only retirees, but pretty many people. But, the retirees are the ones that are having the most problem with it. Schedule M is the Making Work Pay Credit and that’s the one that the IRS is getting a lot of rejects on.

So, just a reminder for those of you who are filling out your Schedule M: if you’re doing it yourself, watch out because there’s a lot of problems. Follow the instructions very carefully.

Patrick: They could end up in the wrong department, I guess.

Jeff: Right.

Patrick: Well, we want to go right to our calls. We’ve got Ron. And Ron, are you ready, Ron?

Ron: Yes.

Patrick: Go ahead.

Ron: My question is I’m in my second marriage and I had some property. I wanted to, in case the second marriage didn’t make it or anything, I had something I wanted to leave for my kids. It’s an apartment house. What I wanted to know was if – because I had it before I ever went into this marriage. I had it for quite a few years.

But, if I sell that apartment house, will it automatically comingle with my second marriage or can I put that into a savings account for them? That’s my question.

Patrick: Rex, go ahead.

Rex: Ron, Rex Hogue here. It really depends on how you’ve been handling it. Comingling is real tricky because while you can have separate property that remains separate property – for example, when you go sell separate property, the proceeds remain separate property.

But in Texas, unless you have an agreement to the contrary, all income is community property. And one of the problems you have, especially with something like an apartment building, is that when you have the rental income come in, does it go into a community account or back into the separate account? If it goes back into the separate account, you may have comingled it.

That’s actually a complicated question. We actually have a report that we could send you on that. We’re going to be talking about that very subject next week on our Valentine’s show. It’s hard to answer your question without knowing more, but it is definitely something that you should sit down and do some planning for. We’d love to have the opportunity to help you on that.

Frank: Well, I went with a tax attorney, and he did some research and he told me about the apartments. I owned them before we got married, so they’re still mine.

Rex: Right.

Frank: But, I thought, well is there a day that I don’t want to fool with them and I want to just take that money; sell it and put it in a separate account from anything else that I have. I think you pretty well said it there. I never asked him that question. I got to thinking about that because I had no intentions of selling them. But, as time goes on, things change and I thought I need to know what the answer is to that.

Rex: Yeah. Ron, it’s complicated because there are really several areas of law affected by that. One is just the classification of property under Texas law and the classification of income under Texas law as well. But, family law issues come into play, debtor/creditor law comes into play.

One thing I always tell people is when you have a situation like that, there can be a lot of areas of law and you need to talk to somebody who can address all of them. And not just ask one guy a specific question. He may give you a technically correct answer, but it would be misleading because he hasn’t covered the other things that might be important to you. Perhaps your lawyer just needs to be asked a broader range of questions.

But, if you would like to call our office, we’ll be glad to talk to you. 972-309-0104.

Patrick: Very good.

Frank: 0104. Thank you very much.

Patrick: Thanks again, Ron. We want to go right on to Ken. Ken, you are on the air. You got your question?

Ken: Yes. In 2007, I took out a nonqualified annuity in the amount of $95,000. They immediately gave a $7,000 bonus for doing that and then the money was put in a fixed account basically, or part of the money was put in a fixed account drawing 3% interest.

Last year, I made two withdrawals of approximately $5,000 each. On Monday of this month, I received a 1099-R saying that I owed taxes on the whole amount that I took out.

Jeff: Yeah. It sounds right. You mean because just like the other caller that you have a cost basis in your annuity?

Ken: Yeah. I have a $95,000 cost basis.

Jeff: Right. So, you adjust for that on your tax return.

Ken: How do you adjust for that?

Jeff: Well, you include a computation showing what portion is your cost basis.

Ken: Alright. And what form do you use?

Jeff: We do it with a supporting schedule. That’s the way we handle it. Maybe you’d like to do that.

Ken: Well, let me ask you this. I called the annuity, the life insurance company, and they said that it was standard procedure to be taxed on everything you withdraw even if it’s nonqualified.

Jeff: It is. So, it’s not something that they did wrong. It’s something that you have to do yourself.

Ken: Oh, really?

Jeff: Yeah. It’s something you have to prove up. Any time you have a cost basis in anything, you’ve got to prove it up yourself.

Ken: Oh, okay. I didn’t know that.

Jeff: Some of these annuities, it’s possible that you may not have an after tax basis in them. That’s why they do that.

Ken: Oh, okay. Well, thank you for your information.

Jeff: You’re welcome.

Patrick: Thanks, Ken. We appreciate it. Again, it’s 214-787-1570. This is Tax Talk with Jeff Pickering CPA and Rex Hogue of Bolinger and Hogue Attorneys in the North Texas area. And we’re giving you answers for the tax questions you have. Again, 214-787-1570 if you want to talk to one of these two really bright guys. I have to admit. I love hanging out with them. I learn more every time I am.

And the other thing just real quick, Jeff has someone standing by at his office today, 972-378-5200 if you need help with your return this year or if you’ve got some tax questions and you need to sit down with a professional. I couldn’t recommend a higher one.

And then, Rex Hogue. 972-309-0104. If you want to make sure that your company is set up correctly or that your heirs get everything they’re supposed to get. I am surprised at how many times that one really gets stepped on.

With that, we’ve got some more callers on the air. Jeff, did you have any other things you wanted to bring out today?

Jeff: Well, I wanted to mention that for tax preparers – I’m just going to plug our CPA profession for a second here. CPAs are held to a higher standard than most other folks out here doing this. We take 40 hours of CPE continuing education.

We have to pass a test that almost everybody fails who tries and we also have to pay somebody to come and peer review our stuff. I have to pay another CPA to come and look at my stuff and make sure I’m okay. So, we have high standards and you should know that when you engage a CPA to do your stuff.

Patrick: Very good. I know that you’re not like Timothy Geithner.

Jeff: Right.

Patrick: You’re not using TurboTax.

Jeff: No.

Patrick: Sorry. We just had to give the jab in there. Let’s go to Jan. Jan, you are on the air. Go ahead. Your question?

Jan: Yeah. I’m glad to talk to you. This is a question on an annuity. I’ve got a [35:48 inaudible] that I transferred into an IRA and I already had an annuity in a smaller amount, about $25,000. It’s 6% guaranteed or market and it’s a lifetime annuity.

The question was a financial guru is telling me to bump that up to $200,000 of 6%. The total account is about $800,000. So, 200 in annuity and the other 600 in various other [36:36 inaudible]. Does this make sense?

Jeff: Jan, that’s an excellent question and I’ve got to tell you that sounds like something to do with the portfolio mix and stuff like that. I don’t sell investments and I’m not an advisor. So, I can’t tell. I can give you just a guess.

But, I would really have to understand everything about your situation even to guess and my guess wouldn’t be a professional one. So, I’m sorry. I’m going to have to pass on that one.

Patrick: Very good. Thank you, Jan. You’re off the air, okay. Well, one of the things I want to do is go to Al. Al, you’re next. So Al, you’re on the air.

Al: Hey, thank you very much. First time caller. I’m one of the thousands of people on the First Time Home Buyer’s Credit. My question is I went with an independent tax person who prepared my 09 taxes. I tried to do it rapid.

But obviously, I was informed by both places that I have to wait – I don’t know if this is true or not – to the middle of February before I can submit my papers in and I’ve got to do that through the mail versus rapid. I guess I’m a little confused and I want somebody with your expertise to help me understand that.

Jeff: Yeah. I thought you were going to say that you bought it in the first time they offered it. But no, you bought in 2009 and you’re taking advantage of the $8,000 of money. You’re having a party on behalf of the rest of us. So, congratulations to you.

Al: Well, here’s the deal. Let me tell you something about that also. My wife and I are filing separately. We were not together and I just brought her into my home. I bought the home. I’m trying to do the right thing; that kind of deal. I’m manning up and I brought her in.

So, we’re filing separate and they’re telling me I only get a $4,000 credit, which I’m okay with that. It’s not a big deal. But yeah, they’re still telling me that I have to wait until the middle of February.

Jeff: Yeah. There was a lot of fraud on these First Time Home Buyer Credits last year and they’re making everybody do a paper return. You have to send in your settlement statement. To be honest, I have one guy – we filed his home buyer credit in March and he didn’t get it until November.

Al: Wow.

Jeff: Because they can choose anything they want to have under audit. So, don’t count on the money any time soon and it will be a paper return.

Al: Well, okay. Yeah, I guess one of the few things I guess when the legislation when they’re going through all that, they don’t tell you about that. But, the problem may exist that you may get up to in a year before you may get a return back on that.

I guess if I filed separately, I could probably get three-quarters of it back if I needed it that bad and just forget about the rest. Now, I want everything that belongs to me at this point.

Jeff: Yeah. I’d say just be prepared to wait and make sure you file the documents with it.

Al: But, it is the middle of February, the 15^th?

Jeff: Well, you can send in a paper one right now. If it goes through smoothly, you would expect to get it in six to eight weeks.

Al: Okay. But, there’s no waiting period? Two places told me that they were informed they have to wait in February before people can actually submit those in. So, you haven’t heard about that?

Jeff: No, we’re submitting them right now.

Al: Okay. Well, good. I’m going to go with you guys and I’m going to do it first thing tomorrow morning then.

Jeff: Okay, great.

Patrick: Thanks so much, Al.

Al: Thank you both.

Patrick: One of the things we want to do – coming back from the break, we’re going to actually be addressing how to write off today’s Super Bowl party. I’m sure some of you would like to know if that’s possible and these two guys came up with something that I think you’ll find most educations.

So, if you have a question for us today, it’s 214-787-1570. Also, if you want to meet with Jeff Pickering CPA, it’s 972-378-5200 or Rex Hogue. It’s 972-309-0104. We’ll be right back.

[commercial]

Patrick: And welcome to Tax Talk. This is Pat Dougher with Jeff Pickering CPA, Rex Hogue Attorney in the North Texas area with Bolinger and Hogue. And we’re giving you your tax answers today and we really want to get to the callers as well as give you a couple of ideas on how you can, well, maybe even write off today’s Super Bowl party. I’m sure some of you would like to know that.

With that, if you have a question today, it’s 214-787-1570, or 800-583-1570 or #KLIF on your Sprint wireless phone. Jeff, how are we going to write off today’s Super Bowl party?

Jeff: Yeah. Well, this is really for people who are thinking ahead. In tax planning, you always want to make history. You don’t want report history. What people have done if they were thinking ahead, they would’ve invited their clients over and possibly discussed some business before their big Super Bowl blowout. That’s the way we would do it from a regular tax perspective. And Rex has an idea, too, from the estate tax side.

Rex: Yeah. We have clients who set up things like family limited partnerships or LLCS and what you can do is have a required members or partners meeting before the Super Bowl and that’s actually a deductable business expense provided that you talk about business and covering agenda. And then, you could watch the Super Bowl and write off a lot of the cost.

Jeff: I’m getting hungry for nachos already.

Patrick: I heard that. I heard that. So, why don’t we go to our caller. We have Michael. Michael, you are on the air. What’s your question? I guess Michael is going to be on the air here in a second. Michael, are you there?

Michael: Hello?

Patrick: Yes, go ahead. You’re on the air.

Michael: You’ve got a good program. I just got out of church and I caught y’all. Back in 2009, I had an IRA for $10,000. I’ve been disabled since I was 43. I’m 53 now. And I withdrew $5,000. Am I going to still get penalized for that since I’m on social security?

Jeff: No. You’re allowed to withdraw tax free from IRAs and other qualified plans for disability. So, you won’t pay the penalty.

Michael: So, if I’m on social security and I’ve been disabled since I was 43, then I won’t pay a penalty.

Jeff: That’s right.

Michael: Okay. Well, that’s what I needed to know. I think a lot of people need to know that.

Jeff: Well, hopefully they’re listening too.

Michael: It’s kind of hard to get by sometimes when you have to borrow from yourself.

Jeff: Yeah.

Michael: But anyways, y’all have a good weekend I guess.

Patrick: Thank so much, Michael. Thanks for hanging in there.

Michael: Alright, bye.

Patrick: I know that we also want to reiterate there are some deadlines coming up. You need to be mindful of those. Jeff, what are some of the deadlines?

Jeff: Okay. February 28^th for W2s, W3s, 1099s, 1096s. March 15^th, if you’re a calendar year corporation, then you have a return due or an extension due and that’s if your name has an Inc, Corp, Incorporated, or Corporation or taxed like one of them.

Patrick: Very good. Now, next week, it’s Valentine’s Day. We’re still going to be here.

Jeff: You bet.

Patrick: But, we’ve got some special points of interest.

Jeff: Valentine’s Day Special coming up. You’ll love it. We’ll talk about Texas community property. Texas is one of the 13 community property states and it really plays havoc on your taxes, in our lives if you don’t know about it, if you’re not aware of it.

Patrick: Very good. Rex, you had some interesting things to talk about with Valentine’s Day as well.

Rex: Yeah. We’re going to be talking about community property income; a whole lot about Ron’s question earlier and how tricky that can be in second marriages. Also, I want to point out that Jeff, when they’re talking about their corporate tax returns.

One of the things that they should be doing this time of year is learning about the Fair and Accurate Credit Reporting Act which is now a required law for all businesses as you’ve guys heard at a presentation this week.

And we’ve actually got, to help you avoid a $2,500 fine for violation, we’ve got something we can email from the Texas Workforce Commission, a report on what the FACT Act is, how it works and how you can protect your business from the danger it represents.

Patrick: I was really surprised that it was mandatory, that if your corporation has not educated your people and set some things in place, that your liability is really massive especially when it comes to all of your employees and there’s no – what do they call it? Statute of limitations?

Rex: No statute of limitations. And it’s not just employees private information, but customer’s private information as well. And the Irving Schools recently got hit with this. 6,000 of their employees had their information stolen and they could be subject up to a $2,500 fine per incident. And you can have more than one incident per person.

Patrick: They can email you as well on that, right?

Rex: They can email me, Rex@bigtexlaw.com and we’ll be glad to send you that report at no cost.

Patrick: Very good. Well, let’s catch our callers here. Sandy in Frisco, go ahead.

Sandy: Yes. I was calling because in 08 I re-characterized some funds from my IRA into my Roth account. And then, for 2008, I filed an extension so I didn’t file my taxes until October.

Well, before I filed my extension, I re-characterized half of the money back into my IRA and I put all of that in my 08 taxes. But now, where I have my IRA, they sent me a form for 2009. So, I don’t understand how I’m going to handle that for 2009 if I already did it in 2008.

Jeff: Yeah. What you would have to do is you’d have to put in extra documentation showing that it was actually a re-characterization of 2008 income. So, you just have a little extra backup work to do with your tax return. You’ll do a paper return and you just want to show clearly that you re-characterized.

That’s a great point, Sandy. If you make a mistake, you have until October 15^th to fix it on these IRAS.

Sandy: Okay. Very good. I was just a little concerned when I got the new form. I’m like, “Okay, that was last year.” So, I just need to let them know when I do my 2008. Is there a form that I have to file with that again?

Jeff: You’re going to have to just provide backup documentation and how things lay on your return.

Sandy: Okay. Thank you very much.

Jeff: You’re welcome, Sandy.

Patrick: Thanks, Sandy. And she can call you at the 972-378-5200, right?

Jeff: Yes, that’s fine. If you’re having a problem, we’ll be glad to help you out.

Patrick: Very good. And also, Rex, I know you’ve got some special reports. It’s 972-309-0104. And they can also contact you at Rex@…

Rex: Bigtexlaw.com

Patrick: Bigtexlaw.com and get the information about FACTA. That’s mandatory. As we’re coming down the stretch here, I just want to say it’s been a great show. I’ve got one last caller. You’ve got just a little time, Gloria. Let’s go ahead and take you real quick. You got a quick question?

Gloria: Yes. Earlier, you had mentioned the completion of Schedule M and retirees and some caveats.

Jeff: Right.

Gloria: Can you elaborate on that, please?

Jeff: Yeah. So, Schedule M is to calculate the Making Work Pay Credit. If you were retired and got your $250 in the summer, then you have to subtract that from the amount of credit you’re going to get.

Gloria: Okay, thanks.

Patrick: Thank you so much, Gloria. We are out of time. This has been Tax Talk with Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bolinger and Hogue. And we will talk to you next week.

Tax Talk is about getting your answers to Tax Questions.  Your Tax questions.  In fact here is the audio and the transcript of our first show Jan 31 2010.  Visit Jeff site at http://www.PickeringCPA.com or Rex Hogue at http://www.BigTexLaw.com.    Enjoy the show.

Tax Talk Jan 31

Patrick: And welcome to Tax Talk. This is Pat Dougher with Jeff Pickering CPA. Today we’re going to be talking about taxes; taxes that you guys pay every day. In fact, one of the things that we want to do is really look for ways to reduce those taxes. I think most of us know that when it comes to taxes, honestly, I don’t think any of us really like to pay them.

One of the things we want to start with right off this hour is Jeff Pickering. Jeff, you have some interesting concepts that have come up this week, some things that have happened – current events.

Jeff: Sure, Pat. Taxes are such a serious topic that we kind of have to lighten it up to get into it, so we’ll talk about some of these things that are happening out there right now. First thing I’d like to talk about is the Haiti situation.

Patrick: Very good.

Jeff: Congress is going to let us do a time warp and time warp our charitable contributions back to 2009.

Patrick: Hooah!

Jeff: So, all of you who have given to Haiti, you can actually deduct it on your 2009 tax return courtesy of Congress.

And this year, the texting to give the contribution has become very popular. So, as proof of your charitable contribution, you’re going to have to save your phone receipts or wherever you’re being billed for the texting.

Patrick: That’s good. I know that technology is creeping up on us all. I know that there are several new things in some of the celebrities that have been in the news this week.

Jeff: Right. So, we look at things that are about taxes and we look at the taxes that you pay, that we all pay. This next one is actually something I didn’t realize until I looked at this article. You know the Leno, and Conan and Oprah thing that’s going on? It’s kind of a popular topic right now. I didn’t know that NBC was owned by GE.

Patrick: Right.

Jeff: And GE actually got our TARP money.

Patrick: Which would mean what?

Jeff: Well, Conan got a nice, big payout. He got $32 million for himself and he got $12 million.

Patrick: And that’s for being fired, isn’t it?

Jeff: For being fired which I would like to be able to be fired like that. So, he got that $32 million and the $12 million for his employees. It turns out that since GE got the TARP money, our TARP money actually went to pay for his bonus [03:11 inaudible] termination.

Patrick: So, the government paid Conan, essentially, his leaving bonus.

Jeff: Right. Actually, we paid it. It’s our money and we’re going to be on the line to pay Conan’s big leaving bonus.

Patrick: Very good. I also noticed – the one that really caught my eye was ‘I see dead people’s tax refunds.’ You want to tell us what that’s all about?

Jeff: Right, right. Okay. So, this is under the category of if they can vote, they can also receive tax refunds. A couple of guys out in California were filing tax returns for deceased individuals and getting the money.

One of the things they were claiming is the first time home buyer credit for them and stuff like that. Eventually, people like this will get caught. But, they had scammed millions of dollars by filing dead people’s tax returns.

Patrick: Ow! I know that one of the things that you really want to listen in this show for is the opportunity to call in. I hope that you’ll call in and get your tax questions answered. A lot of people don’t realize that – we all know that taxes are just – death and taxes, they just happen, right?

Well, this show is really dedicated to bringing you answers. See, Jeff Pickering CPA isn’t just the average guy. He actually has a Master’s in Taxation and can really give you the answers.

We’ve also brought on a guest today, is one of the sponsors of the show – Rex Hogue of Bolinger and Hogue. And one of the things that we brought him on for is he’s an attorney – an estate attorney that can help you with estate taxes, business formation as far as the way to set it up right so that you have the least amount of taxation. And so, we’ll be going to Rex here a little bit later in the show.

So with that, I want to really get into what are some of the other hot topics when it comes to taxes this year, Jeff?

Jeff: Well, one of the things I always try to mention to people is that we have people out there who will do it themselves and some of those people should be doing their own taxes themselves, but some of them really should not.

Patrick: Would that be an illustration of Mr. Geithner’s experience with TurboTax?

Jeff: Right. We’ll wind back to the beginning of last year. Treasury Secretary Geithner was being confirmed by Congress and it turned out that during the confirmation process, he omitted about $40,000 of taxes by doing his own taxes; tax return.

Patrick: So, he omitted the annual income of most Americans.

Jeff: He omitted $40,000. And just for those of you who don’t remember who this guy is, he’s the head over the IRS. He’s over the IRS entirely, as well as some other agencies. So, this guy, he tried to do his own taxes and in congressional testimony, it came out that – one of the Congressmen asked him, “Okay, what software did you use if you are actually doing it yourself?”

And it turned out he was using TurboTax. TurboTax is a very popular software edition. But, I think what he was using was the TurboTax Timothy Geithner Edition.

Patrick: Now, TurboTax wasn’t real pleased with this concept, were they?

Jeff: No, they weren’t. They actually illustrated where somebody could’ve gone wrong and misinterpreted their software. And they actually made changes to their 2009 version.

But really, the main point is I get people in that do their own. They do their own taxes and they bring them in on a TurboTax thing. I look at it and I say, “Okay, you did this wrong, you did that wrong, this is really going over here. We’d be better if you moved that over there.” So, being a monkey and keying in responses is no substitute for actual judgment.

I recommend that for people that are do-it-yourselfers that they should try to get their taxes done by a professional at least one, say, every three years just to make sure they’re doing it right.

Patrick: That’s really good. Now, I know you actually have people standing by today waiting for if someone does need tax information or tax help, they can actually schedule an appointment with you.

Jeff: Yes, they can do that. Our number is 972-378-5200 and our offices are on Preston Road at 6533 Preston Road in Plano, Texas.

Patrick: Very good, very good. Well, I know that we want to cover some of the new taxes that are coming out this year. A lot of people, I think most of us are really concerned with the expansion in the bailouts that have happened in the last few years. We have really had a lot of money thrown into the economy. But, there is no free lunch.

Jeff: Absolutely.

Patrick: That eventually has to be paid for, doesn’t it?

Jeff: Somebody’s got to pay for all this stuff.

Patrick: And that somebody is usually…

Jeff: It’s us.

Patrick: It’s us. So with that, I know that a lot of you are going to have questions. Coming right up, we’re going to be actually going to the new changes in this year’s tax return. With that, thanks so much.

[commercial]

Jeff: That was Barack Obama.

Patrick: Giving us the Tax Man. The Tax Man commeth. Welcome to Tax Talk.

Jeff: I didn’t know he could sing. I guess he does sing.

Patrick: One of the things we want to make sure is that you guys have the number for today to call in for your questions, 214-787-1570. That’s 214-787-1570 or 800-583-1570. So, if you call in with your tax questions, Jeff Pickering CPA can help you out.

Jeff: Right. We’re going to go over some changes here that happened in the 1040 form. But before we do that, let’s talk to Rex. There was a recent article put out by the Congressional Budget Office about estate taxes. So, taxes are in all forms. Rex, what’s happening on that report there?

Rex: Well, first of all, we know that you can’t take it with you. So, the estate tax is what the IRS charges you for leaving it behind. More and more Americans from the chart we’re looking at from 1943, the number of estates that have been subject to tax has risen.

Now currently, if you’re fortunate enough to die in 2010, at least right now, there is no estate tax. But, we’re not having any luck getting people to do that. Most people just don’t want to do that.

Jeff: Right.

Rex: But, they need to have – everyone needs to do some estate tax planning.

Patrick: There’s a technical difficulty; just a second. Your mic isn’t working. I want to make sure that we get that done.

Jeff: Sure.

Patrick: What was Rex basically saying there for a second?

Jeff: Well, he was basically saying that for 2010, the estate taxes are repealed. So, for those people passing away in 2010, there is no tax due on their estate and he made the comment that although we’d like for people to pass away in 2010, they don’t seem to be voluntarily doing that.

So, the estate tax will come back in 2011. It’ll probably come back in full force as far as we know. We’ll be watching it. Just because they eliminated the estate tax for 2010, doesn’t mean you should avoid seeing your estate planning attorney. It actually means you should go see them and get some changes.

Patrick: Make sure that everything is in order.

Jeff: Make sure that your estate – there could be an advantage here for changing things for a year. So, Rex Bolinger – he’s with Bolinger and Hogue. For those of you who have estate tax concerns, his number is 972-309-0104.

Patrick: Very good. Well, I know that we want to get right into some of the tax changes that have happened this year. So Jeff, talk to us about some of the things we’ll experience this year in filling out our taxes.

Jeff: Okay, a lot of changes. Our Congressmen are busy, as they always are. They make tax law changes without considering us, the taxpayers. A lot of the tax changes are so complicated that it would be very difficult to do them by hand.

The first topping our list: the definition of a qualifying child for a dependency exemption. This always changes. It’s changed a couple of times the last three years. So this one, they changed the definition of a qualifying child for your dependency exemption.

To be a qualifying child, your child has to be younger than the person who’s claiming them. Now, that sounds really weird. But, you have to remember that you can claim a child who’s up to age 24.

With today, you have divorces, you have remarries and the fact that your child can be a child up to age 24 if they’re full time in college, it can make for some very strange…

Patrick: Tax returns.

Jeff: Very strange tax returns, exactly.

Patrick: Very good. So, what are some of the other things that people should be looking for this year?

Jeff: Okay. There has always been the joint return test. Let’s say if you have a daughter and you’re supporting her, she’s in college and then she gets married. Well, you cannot claim that child anymore if she’s married and files a joint return unless they are just filing it to get a refund as a claim for refund.

Otherwise, once your daughter’s gone, or son; whatever it is. Once they’re off and married, you’ve got to stop that gravy train of exemptions.

Patrick: Go ahead.

Jeff: So, in 2009, for those of you – look at your paystubs, you’ll notice that your 401k has gone up to 16.5; very nice. If you have a simple plan, that’s also gone up to 11.5. Basically, we have all of our retirement deferrals have gone up in 2009. There’s a new one which is an exclusion for unemployment benefits.

So, for those of you who got laid off, usually to add insult to injury, what happened is you got laid off, you got your unemployment benefits, you bring them into your tax guy and all of a sudden to add insult to injury, rub salt in the wound, you’re barely making it and now, you’re paying taxes on these unemployment compensation.

So, Congress did something nice for us. They excluded the first $2400 of unemployment compensation. So, I know that I’ve prepared a few returns right now that we got to take advantage of that. Most people who are getting money back are trying to get that done.

Patrick: That’s excellent. One of the things I’d love to do is go to a caller. We’ve got a caller on the line here. It’s Donna in Plano. And Donna, you’re on the air. Donna, are you there?

Donna: Give us your contact information.

Jeff: Donna, did you say something about contact information?

Donna: Yes. Do you do individual tax returns?

Jeff: Definitely. Our practice is devoted to individual tax returns and small to medium sized businesses. We do that. Our contact information, Pat?

Patrick: Yeah, go ahead.

Jeff: Our phone number is 972-378-5200. That’s our office and our people are working right now if anybody wants to make an appointment, for instance. And on the web www.pickeringcpa.com. Pickering is a very long word. It’s spelled P-I-C-K-E-R-I-N-G CPA.com.

Our offices are in Plano. It’s at 6533 Preston Road, Suite 300 in Plano. There’s two 6533’s on Preston Road. Ours is the one in Plano.

Donna: Great, thank you.

Patrick: Donna, did you have a question other than that?

Donna: That’s it. Thank you very much.

Patrick: Thank you.

Jeff: Thanks. And while we’re at it, if somebody has an estate tax issue, then Rex Hogue’s number.

Patrick: Sure. Rex’s number 972-309-0104. It’s Rex Hogue, Bolinger and Hogue. You want to call Rex literally tomorrow. I know that they can take a message now. You’ll leave a message now. But, the biggest thing is if you’ve got estate questions, estate tax questions, you need to connect with them. Now, I’ve got another caller on the line. It’s Carol in Carrollton, Carol?

Jeff: Neat. Hello, Carol.

Carol: Hi. I was wondering if there are any tax incentives for hiring employees in 2010, new employees.

Jeff: Well, yeah. According to President Barack Obama’s State of the Union Address, he actually is giving some very nice – he’s promising some nice incentives, but it’s really not up to him completely.

The last I looked, the Senate, as of Friday, is looking into making some of the incentives that he’s proposed come true. They include a credit for small businesses hiring employees and also, an additional credit for people who are on the payrolls and giving them extra hours or an increase in pay.

So, we’ll be watching those very carefully. Everybody will be, especially small business because that’s the thing that’s going to get us out of this recession, we’ll be watching that very carefully, Carol.

Carol: Okay. Will that be retroactive if you’ve already hired new employees?

Jeff: There was talk about that being retroactive.

Carol: Okay.

Jeff: But, for those of us who follow tax law, there’s the talk and then there’s what it comes out to be. So, we have to watch and see what actually happens.

Carol: Alright. I appreciate it very much.

Jeff: Thanks, Carol.

Carol: Okay, bye-bye.

Patrick: Coming up next, one of the things we’re going to do is talk a little bit more about some of the taxes that are going to be affecting you and I know that many of you have questions. So, make sure you call in at 214-787-1570 or 800-583-1570. You’re on 570 KLIF.

[commercial]

Patrick: And welcome back to Tax Talk with Jeff Pickering and Pat Dougher. Jeff, I want to go right into some of these calls here in a second. But before we do, is there anything else that you wanted to talk about that changes?

Jeff: There are so many changes. There are so many changes that it would take a long time to get them out. Let’s just go ahead and take some calls and see what pops up.

Patrick: Very good. We’ve got Andy. Go ahead, Andy. You’re on the air.

Andy: Hi. I was calling in. My company this year went over to kind of privatizing cell phones, if you will; putting it on the employee. Is that something that if we also use our cell phones for – no one wants to carry two or three cell phones. But, if you carry one then for work, can you write off what you spend on the monthly bill? What’s a good rule of thumb to, say, 60/40, 80/20 on a $150 a month type plan?

Jeff: Right. Andy, you actually hit on a very hot topic that was actually very hot last summer. There was a lot of talk about the IRS just letting people, letting employers give free cell phone use to the employees.

It didn’t happen as so many initiatives – it didn’t have enough wheels to go forward. But, if you’re using your phone for business purposes and any asset that you have that’s both business and personal, you have to come up with some way to allocate the business and personal use.

So, for phones, it’s mostly the talk time. Our phone companies have come up with a very clever free weekends and free evenings plans, so that helps out a lot of people who are trying to write off their phones. But, for the most part, you’ve got to allocate your time.

Patrick: So, does he just pick a number? Is that the idea?

Jeff: Well, there are some practical – you’re not going to go through your whole phone bill for the whole year. You’re going to take a couple of sample months. If they’re representative in sample, then you’ll go through those and come up with a good percentage of personal use – personal and business use – and then, you’ll itemize those as a 2% itemized deduction on your schedule A which is a very bad place to put it.

If there’s any other way to do it, you should have your employer reimburse you instead of trying to deduct it on yourself because, for most people, those deductions get wasted at the 2%.

Patrick: I understand. Well, if you want to call in, it’s 214-787-1570, 214-787-1580, 800-583-1570 or #KLIF on your Sprint phone. Call in with your tax questions here on Tax Talk. This is Pat Dougher and Jeff Pickering. Jeff, let’s go to our next caller. It’s Christy. Christy, go ahead. You’re on the air.

Christy: Hi. I was looking at my schedule A with the sales tax worksheet and how it will give you just a set amount that you’re able to deduct.

Jeff: Right.

Christy: And then also, if you had another major purchase, you can also itemize that as well. For example, a car, or a boat or parts of your home.

Jeff: Actually, it’s almost like that. So, it’s a car, a boat or a plane.

Christy: Okay. I’m looking at the information. I guess the publication 600 is talking about a substantial addition to your house. It doesn’t really specify what that is.

Jeff: How that actually works. So, what happens is you get kind of a standard sales tax deduction or you can itemize. For most of my clients who try to itemize, they usually come out better taking the standard sales tax deduction. Itemizing takes a lot of work and a lot of things that you think are sales taxes are not.

For instance, your gas tax, it’s an excise tax, but it’s not a sales tax and then, your groceries. There are certain things that are taxable, some that are not. So, it’s a huge effort to try to itemize all this stuff.

I would say unless you had a major addition on your home, then take the standard. But, if you did a lot of renovation, then all those purchases would be taxable, and you can try to do the actual and you may come out better.

Christy: So, I put a new roof on my house this year. Would I be able to use that?

Jeff: That’s likely. Now, you’ve got to make sure your roofer charged you sales tax.

Christy: Okay.

Jeff: I know in the roofing business, there’s a lot of fly by night operations and stuff like that. So, you’ve got to make sure you were actually charged sales tax and paid it before you can deduct any sales tax.

Christy: Alright. Thank you so much.

Jeff: Sure.

Patrick: Very good, very good. I know that’s a big deal as far as when it comes to taxes how you set yourself up whether all your income is off your job or even setting up a self-employment – your own sole proprietor or something like that.

Jeff: Right, right. So yeah, it depends on where your income is and what kind of relationship you can make between your income and the deduction.

Patrick: Very good. Thank you, Christy. We’re going to onto Andrea. Is that right?

Andrea: Andrea, yes.

Patrick: Very good. Andrea, what’s your question?

Andrea: For somebody that had adjusted gross income of around $40,000, is the Making Work Pay credit possible to use?

Jeff: Yeah, the Making Work Pay credit is basically on earned income. And yes, $40,000 would do it. Yeah, you’ll get that.

Andrea: Is that new?

Jeff: Yes, it is. It’s one of the new ones. It’s $400 for single, $800 for married filing joints. It’s a refundable credit, so it works like cash back in your pocket. It’s a great credit. It’s like a little present. It’s not a lot of money, but if somebody offered me $400, I would definitely take it.

Andrea: Right. But in addition, whatever the number is, you have to bump up against that, that little $250 thing that they did last spring. Is that right?

Jeff: Okay. You’re talking about the regular credit that they offered for last year’s – they actually offered it as an advanced payment. Then, on 2008 tax return, they offered you the credit for it. That credit and this credit actually have no relationship to each other, Andrea.

Andrea: In the book that comes with your 1040, it had a comment that said, “This credit is reduced if you received a $250 economic recovery payment in 2009, blah, blah, blah.”

Jeff: There is one that was issued to…

Andrea: Retirees?

Jeff: Exactly, retirees. That does affect it, yeah.

Andrea: Okay, but if they’re not a retiree, then that’s not in play.

Jeff: Right, exactly. So, these people, the retirees got their checks around August I think is when they started giving them. So, if you want to check your checkbook. You don’t sound like you could be retired. You sound actually pretty young, Andrea.

Andrea: I’m not retired. I’m probably not that young and I’m also not retired.

Jeff: Good, plenty of work left in you.

Andrea: Okay. So, I can sit down and figure that one out, huh?

Jeff: Yes. It’s not too difficult. The Making Work Pay credit, it’s pretty automatic as long as you have earned income.

Andrea: Right. Is this going to be a one year thing, or is this going to be ongoing or what?

Jeff: As far as we know, it’s going to be gone.

Andrea: Be gone?

Jeff: Yeah, it’s going to be gone after this year. There’s been no promise of extending it. I should also make one comment about the Making Work Pay credit. For those of our combat troops that have worked, some of them will have tax free income. Even though they have tax free income, they can still get the Making Work Pay credit. That’s something nice our Congressmen did for our uniformed people.

Patrick: Very good. Thank you, Andrea.

Andrea: Thank you.

Patrick: Okay, we’re going to go onto Skip here on the car write off. So, Skip, you’re on the air.

Skip: Thanks. I just bought a slightly owned SUV to use in my business in November. Under the section 179, can I write the entire amount off or do I need to prorate it for the year? How does that work?

Jeff: Skip, that’s a good question and writing off a car is actually more complicated than you would think. When somebody tries to write off a car, I first of all ask them how much did they drive. So Skip, how much do you drive?

Skip: 5,000 a year on average.

Jeff: Very light, very light. So, most people drive about 12,000 – 15,000 a year.

Skip: I’m sorry. Okay, you’re talking about total mileage, not just business.

Jeff: Right.

Skip: Okay. Yeah, about 25,000 miles.

Jeff: Oh, that’s a lot. So, 25,000 is the cost of keeping your car. You have a choice of going actual – you probably know this – you have the choice of going actual or mileage. You’re saying 5,000 of it is actual business use, right?

Skip: No, 25,000.

Jeff: Oh, 25,000 is the business use. I’m glad I got that. So, 25,000 is business use and how much is your personal use?

Skip: About another 5,000 miles.

Jeff: Heavy, heavy, heavy. Okay. Usually, what I tell people who drive that much is they come out better getting a car that’s economical and has better than average costs to operate. You might want to consider that. I know you just bought the SUV. Section 179, your vehicle – there’s an additional 50% bonus depreciation.

So, you’ll section 179, you’ll get also a 50% bonus on any that’s leftover and then, the rest will be regular depreciation of which the second year will be the biggest.

Patrick: Very good. Thank you, Skip.

Skip: Even though I bought in November, I don’t have to prorate it for any – I can do it for the entire year, depreciate the entire year?

Jeff: Yes.

Skip: Okay, thanks.

Patrick: Thanks, Skip. I know a lot of you are going to have questions that are going to go way beyond this show today. So, to get a hold of Jeff Pickering CPA, it’s 972-378-5200. That’s 9720-378-5200 and also Rex Hogue of Bolinger and Hogue. They’re estate tax attorneys in the North Texas region. It’s 972-309-0104. That’s 972-309-0104 for Rex.

What we have coming up is more calls. If you want to call in with your question for Jeff or Rex, it’s 214-787-1570, 214-787-1570 or 800-583-1570 here on 570 KLIF.

[commercial]

Patrick: And we’re back with Tax Talk; Jeff Pickering, Rex Hogue and we want to get into a little bit about some taxes that have to do with business entities and FACTA. Something that a lot of people are not familiar with is little known FACTA that we want to cover today. Rex, tell us a little bit about the business entities that you wanted to cover and then go right into FACTA.

Rex: Well, business owners frequently don’t have business entities. They’re not incorporated. There are three reasons that everyone in business should have a business entity.

One is it reduces the tax that they actually pay to the IRS. Another thing that it does is it reduces your audit profile because your tax return goes to a different division of the IRS, one that is used to seeing businesses so that it doesn’t show up on your schedule C.

The third thing that it does is a properly structured business entity can actually protect you personally. If something goes wrong in your business, it can protect you from losing personal assets and it can also protect your business if you’re involved in a car accident and are sued.

Now, FACTA is the Fair and Accurate Credit Reporting Act that all businesses are subject to and it requires that business owners protect the information both of employees and of the people they do business with.

So, if you’re a business and you get any personal information, FACTA says that you’re subject to a $2,500 fine per incident if, by chance, someone takes private information from you company. Perhaps they breach your computer system or they get into files and they use that information to, let’s say, steal the identity, or credit card theft or something like that. In addition, you’re liable for actual damages.

And there is something that you can do about that. There’s a program that you can put your company to to avoid that $2,500 fine per incident.

Patrick: Who’s going to be enforcing the $2,500+?

Rex: That’s what’s interesting. It’s not going to be the government. It’s going to be trial lawyers because of the damages. Damages for identity theft, on average range from – they’re around $16,000 of out of pocket expenses, but it can be a lot worse. Some people spend hundreds of thousands of dollars because of ID theft.

So, you can imagine an employer who has, let’s say, 100 employees. If 10% of those people were hit with $16,000, the actual damages of $16,000, but there’s an additional $25,000 – no, it’s $250,000 in fines potentially.

But, if they have a program in place to protect that, they can avoid the fines. There’s also things you can do to remediate the damages that people are incurring.

Patrick: So, the fine is $250,000?

Rex: Yeah, I believe that would be $2,500 times 100.

Patrick: Oh, for all the employees in your company.

Rex: Right, $2,500 per incident. And very few people know about this law. We’ve been talking about it for a while, but we’re finding that our clients don’t know about it, other people’s clients don’t know about it.

The Workforce Commission, the Texas Workforce Commission, actually put out in 2007 a brochure on this and we would gladly email this to anyone who wants to email me at Rex@bigtexlaw.com or go to our website, www.bigtexlaw.com. If you’ll give us some information, we can email you a copy of that report.

Patrick: Awesome. Well, we’ve got another call here. It’s Bill in Fort Worth. Bill, you’re on the air. Go ahead.

Bill: Yes, I had a question concerning self-employment tax. I’m a police officer and I work off duty. The last several years, I’ve gotten hit pretty heavy with self-employment tax.

Jeff: Yes, the self-employment tax is a tough one. When you file that schedule C, it’s 15.3% in addition to your regular income tax. So, your strategy is to do whatever you can to wipe it out, to wipe it down.

I tell people when they’re looking for tax deductions, imagine every time they’re doing something, and money is flowing out of their pocket and it has a business connection, then you want to consider it. So, do you use a tax preparer or do you do it yourself?

Bill: Oh yeah, I’ve used a tax preparer. The deal is when we work off duty, it has to be approved by our department. They say how many hours per week we’re allowed to work, what we make, and all that kind of stuff and where we can work.

And of course, you’re working in uniform under the color of your department and you’re subject to all the rules, and regulations and policies as if you were working for your department.

For the last several years, when I filed my taxes, the IRS has hit me pretty heavy with the self-employment tax.

Jeff: Right. So, what you’ve got to do is you’ve got to go through a thorough examination of every time you spend money that has to do with your off duty work. It could be the dry cleaning of the uniform. It could be your mileage, of course. It could be your mobile phone if you have mobile phone use, and you have to answer it and you have to be available.

There could be some other things. Maybe you have to schedule some things at home. It takes a long analysis, but I think for every dollar you save, if you’re in the 15% bracket, for instance, every dollar you save is going to save you $0.30 because you’re talking about the income tax plus 15.3% of self-employment tax. So, you just need to thoroughly examine what you’re doing.

Bill: Okay. I try to keep all my receipts and everything so I can turn all that stuff in.

Jeff: You know what? No matter how crazy it sounds, you should come up with the idea and then put it past your tax advisor and see if it flies.

Patrick: Very good. Rex, you had something you wanted to add on that.

Rex: Yeah. Depending on how much income you make, you may want to consider doing something like incorporating where you can avoid some of the self-employment tax.

Believe it or not, that actually helps. You probably need to be making $15,000 - $20,000 a year before it’s even worth considering.

Patrick: That’s where I put it too, yeah.

Rex: But, if you’re making that much off duty, you might want to look into that. There can be some real tax savings there.

Jeff: Right. Yeah, that’s what I tell people; around $20,000. If you’re making $20,000, paying taxes on $20,000 self-employment, then you might want to consider another entity. There are some ways that you can reduce the amount of self-employment taxes that you pay.

Patrick: Very good. Jeff, how do you want people to get a hold of you after this?

Jeff: Okay. Our numbers are 972-378-5200. Our website, www.pickeringcpa.com. Jeff@ pickeringcpa.com will do it.

Patrick: Very good. And with Rex Hogue, that’s Bolinger and Hogue, 972-309-0104. We will see you guys next week. We’ll hear you guys next week. Thanks so much. This is Tax Talk with Pat Dougher and Jeff Pickering.

David Schirmer from The Secret, you remember the guy that got “Checks in the Mail”.  We find out the truth about the beginings of The Secret and the ways that it grew to be the Phenomenon that sold some 30 million copies.  David and I speak about how he has used mindset to change everything in his life.  David is such a great guy and it is an honor to know him.  You will learn much from this recording.

Listen to this show about Randy Gonzales, Jr’s Life.  Here is a guy that started with nothing and is now having his life story being told in a motion picture coming out in a year or so.  This is a great show and you will want to visit www.48hourlaunch.com/doer.htm to hear what Randy would do if he had to start over.  This is what he would do in the first 48 hours.

Dr. Stan Harris has more black belt degrees than anyone I have ever known.  His story is all about overcoming and breaking through to success in any area.  You will enjoy this interview of a world class speaker on success.

Robert Butwin is in the top 1/10 of 1% of 6 different MLM’s but he has never canabalized any of his downlines to build one of the legs.  He has found that there are some tools for building any successful team for any type of company.  I encourage you to listen and learn.