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PILLA TALKS TAXES - Featured Article
_________________________________________ 

FRAUD ALERT

Beware of Payroll Direct Deposit and W-2 Email Scams

by Daniel J Pilla  

 

The IRS has identified an uptick in two email phishing scams. One scam targets companies that use direct deposit strategies for their company payroll. The other is pointed at the Form W-2 information gathered by companies on their employees. So you won’t get rolled by these scams, I address each of them in turn.

The Payroll Scam

Under the payroll scam, the emailer impersonates a company employee. An email is sent to a company executive or to the company’s payroll or human resources department. The email purports to be from a legitimate employee. The email asks company authorities to change the bank account to which the “employee’s” pay check is deposited. The fake “employee” provides a new bank name, account number and routing number. However, the account is actually owned by the thief, not a legitimate company employee. If the scam works, an employee can lose one or two pay checks before the fraud is discovered.

The W-2 Scam

The W-2 scam has been in operation for years. This scam involves an emailer impersonating a company executive or other person in authority within the company. The email is directed at the payroll or human resources department. The emailer requests a list of the organization’s most recent Forms W-2 covering all of its employees. W-2 information contains a person’s name, address and social security number, along with the gross wages and tax withholdings for a given year. With this information, the thief files fraudulent tax returns seeking refunds based on the W-2 data. The refunds are directed to a bank account or PO Box that the thief controls. If the fraudulent return is filed before the citizen files a legitimate return, it will take months to sort out the fraud and to recover one’s legitimate tax refund.

What the Emails Look Like

The following is an example of an email working the W-2 scam. This is an email that was reported to the IRS. The brackets indicate where actual sensitive information was removed. Note that the grammar and syntax errors are as shown in the original emails.

From: [REMOVED] Sent: Monday, February 10, 2019 [REMOVED] To: [REMOVED] Subject: (no subject) Hello [REMOVED], I changed my bank and I will like my paycheck DD details changed. Do you think this change be effective for the next pay date? [REMOVED] Sent from my iPhone

Note that a very common “tell” in all scam emails is that they are generally rife with grammatical and spelling mistakes, as well as poor syntax and punctuation. They usually reek of having been written by someone with only a basic command of English.

How to Report Scam Emails

While most of these scam operations are centered offshore, that’s not always true. In recent years, the IRS and FBI have broken up a number of domestic fraud operations. For that reason, you should report any scam emails that you run across.

Forward suspected scam emails to the FBI’s Internal Crime Complaint Center (IC3) here: www.ic3.gov. Tax professionals and others should also report tax-related phishing emails directly to the IRS at This email address is being protected from spambots. You need JavaScript enabled to view it.. This account is monitored regularly by IRS cyber security professionals.

The IRS has a separate email set up for employers to report scam emails involving Form W-2 specifically. Employers concerned about potential W-2 email scams, or who may have actually been scammed by one, should report the event to the IRS at This email address is being protected from spambots. You need JavaScript enabled to view it..

Employers can also get more information on the reporting process and what do to if they were scammed by going to Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers.

Practice Vigilance 

I encourage all businesses to carefully review their cyber security procedures. Make sure you have systems in place to protect your data as much as possible from these kinds of attacks. It seems every day that goes by there is some kind of new scam that cyber thieves are using to target your data.

 

This is an article from the March-April 2019 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html 

      

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

  

ARTICLES FOUND IN THIS 

PILLA TALKS TAXES ISSUE:

 

IS THE IRS MELTING DOWN?
     The Agency in Crisis 

SENATE DEMOCRATS INTRODUCE BILL
TO REGULATE TAXPAYERS

     Measure Would Require
Competency Test and Background Checks

CALIFORNIA FRANCHISE TAX BOARD UPDATE
     Power of Attorney Procedures Cause Delays  
     By Dana M. Ronald, Enrolled Agent

ANTI-ABORTION ADVOCATE WINS COURT BATTLE
     But What Does that Really Mean? 

DO YOU FEEL FREE?
     Tax Freedom Days was April 16 

 FRAUD ALERT
     Beware of Payroll Direct Deposit and W-2 Email Scams

 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

 

AVOIDING PENALTIES UNDER OBAMACARE

 



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

WHY TAX REFUNDS ARE DOWN

No, It's Not Because of Tax Cuts for the Rich 

by Daniel J Pilla  

 

Democrats are up in arms over a recent Treasury Department report showing that tax refunds are down thus far in 2019 compared to last year. The report indicates that of the 27 million tax returns filed through February 8, the average refund is down about 9%.

Quite predictably, Dems—with the reliable help of the media—blame President Trump’s Tax Cuts and Jobs Act, which took effect on January 1, 2018. The Dems claim that the report is proof that the Jobs Act was nothing but tax cuts for the rich. The fact that lower refunds has been twisted into a claim that the middle class pays higher taxes because of the Jobs Act is proof that the Left has no regard for truth when it comes to tax policy.

It is also proof that the typical person has no idea what they actually pay in taxes.

First of all, a tax refund, by itself, is no measure whatsoever of whether your tax liability went up or down. The refund is simply a measure of what you overpaid. In my work as a tax litigator, I regularly ask people what they paid in taxes the previous year. The answer I typically hear is, “I didn’t pay anything. I got a refund.”

But when I examine that person’s Form W-2, Wage and Tax Statement or the tax return itself, I find that they paid thousands in taxes through wage withholding and received only a fraction of that back in a refund. Thus, they did in fact pay taxes but had no idea how much. That’s one of the key problems with our current tax system. Taxes, especially social security taxes, are hidden, and people just don’t know what their tax burden actually is.

The fact that refunds are lower this year is not necessarily a bad thing. You do not get a refund because government got religion and decided to do you a favor and send you free money. You get a refund only because you paid in too much to begin with. If your refund is down, that likely means you didn’t overpay as much as last year. And that’s a good thing.

The big reason the typical person probably paid in less in 2018 than in prior years is the fact that on January 1, 2018, the IRS adjusted the withholding tables in light of the changes made by the Jobs Act. Given that about 80% of Americans will see a tax cut (not an increase) for 2018, the IRS adjusted the tables so that employers would take less money out of the paychecks of their workers. But even at that, the data that is causing the alarm bells shows that the typical refund is down by just 9%, to about $2,730. The average refund was about $3,000. Due to the adjustment in the withholding tables, people got the remaining $270 in their paychecks every month. Your refund is smaller because the government didn’t have as much of your money to begin with.

About 75% of all tax filers get a refund every year. It happens for two reasons. First, people have no idea how to properly adjust their withholding so they don’t overpay in the first place—which means they overpay. Second, they treat the withholding system as some kind of savings account. Either way, it’s the world’s worst way to manage your money.

For one thing, the IRS doesn’t pay you a nickel’s worth of interest on your money when you overpay. For another thing, you can’t get your own money back until you file your tax return, and by the time you do that, you are three or four months into another pattern of over-withholding for the next year. As such, the IRS always has more of your money than you really owe.

When you manage your tax payments properly, you have the money in your hands, where it belongs. That money is available for you to use and enjoy in a manner that best suits you and your family. That way, you can save or invest in real wealth-building vehicles, or pay down debt, or fund business needs, or just pay for fun and recreation. In any event, you—not the government—is in charge of your own money. 

 

This is an article from the February 2019 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html 

      

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

  

ARTICLES FOUND IN THIS 

PILLA TALKS TAXES ISSUE: 

WHY TAX REFUNDS ARE DOWN
No, It’s Not Because of Tax Cuts for the Rich 

THE UP-FRONT TAX SYSTEM  IN MOTION  
IRS Making Progress on Getting Out of the Business
of Talking to Taxpayers

WHAT’S HAPPENING WITH WAYFAIR
Will Congress Act on State Sales Tax Laws?

THE GREEN NEW DEAL AND A 70% TAX RATE
Who is She Kidding?

NINTH CIRCUIT DOUBLES DOWN ON BANKRUPTCY LIMITATION
Another Decision Against Discharge 
by Scott MacPherson

IRS ANNOUNCES NEW VOLUNTARY DISCLOSURE PROGRAM
Participants Face Higher Penalties

IRS WARNS OF NEW SCAM This One Uses Emails

FORMER U.S. TAX COURT JUDGE CONVICTED OF FRAUD
Sentenced to Nearly 3 Years in Prison
 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

 

AVOIDING PENALTIES UNDER OBAMACARE

 



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

DEDUCTIBLE MEAL EXPENSES

What's Left After the Jobs Act?

 

In last month’s issue of PTT, I discussed the changes to §274(a) brought on by the Tax Cuts and Jobs Act. The law eliminated entertainment” expenses, regardless of whether they were either directly related to” or otherwise associated with, the active conduct” of a business. Code §274(a) (prior to the Jobs Act amendment.) As stated in the article, no entertainment” expenses are allowed under §274(a), period. 

The key question I addressed is what is allowed as meal expenses. I answered that question and further distinguished between entertainment expenses and business meals. My conclusion is that meal expenses incurred in a clear business setting, not incidental to or associated with an entertainment activity, are still deductible. I draw my conclusion from the cases and regulations that distinguish between meals and entertainment. 

But it is also important to understand that while the Jobs Act eviscerated §274(a) as to entertainment expenses, §274(e) continues to allow deductions for meals and limited entertainment expenses within the narrow scope discussed below. Thus, what was disallowed under §274(a) may be allowable under §274(e), depending on the facts.  

The following is a breakdown of the provisions of §274(e). 

1. §274(e)(1). 50% deduction allowed for food and beverages provided to employees by employers on employer premises.

2. §274(e)(2). 100% deduction for meals and entertainment expenses treated as employee compensation and reported on Form W-2, such as employer paid vacations. The excess expenses for the company aircraft over the amount of the compensation included in income for specified” employees remain completely disallowed.

3. §274(e)(3). 100% deduction for reimbursed meals and entertainment expenses under an accountable plan.

4. §274(e)(4). 100% deduction for non-discriminatory social and recreational expenses for employees, such as holiday parties and company picnics.

5. §274(e)(5). 50% deduction for meals and 100% deduction for entertainment other than meals in connection with business meetings of employees, stockholders, directors, etc. 

6. §274(e)(6). 100% deduction for entertainment other than meals and 50% for meals in connection with §501(c)(6) Business League meetings, such as chamber of commerce, real estate board and certain professional organizations.

7. §274(e)(7). 100% deduction for meals and entertainment for items made available to the public, such as the distribution of samples, complimentary goods, etc.

8. §274(e)(8). 100% deduction for costs of meals and entertainment sold to customers in the ordinary course of business.

9. §274(e)(9). 100% deduction for meals and entertainment included in income of non-employees, with the same limitation as for employees in item 2 above, that being expenses for the company aircraft in excess of the amount included in certain non-employees’ income, remains completely non-deductible.

Section 274(n) provides a 50% limitation for all food and beverages with the exception of those in §274(e)(2),(3),(4),(7),(8), or (9) (see list above) and for certain crew members, drivers, and other special workers. Thus, allowable meals are subject to the 50% haircut unless they fall under one of the exceptions of §274(e)(2),(3),(4),(7),(8), or (9). 

And here’s yet another twist on this morass. The percentage allowed as a deduction for entertainment expenses under §274(e)(5) went from 50% to 100%. Thus, entertainment continues to be allowed, and at even a higher percentage, when incurred in the narrow fact scenario presented there.

The documentation required to support a deduction for meals and entertainment is strict. Section 274(d) requires detailed substantiation to support any meal or entertainment expense deduction. Per §274(d)(4), the substantiation consists of the following: 

1. The amount of the expense, 

2. The time and place of the travel, meal, entertainment, amusement, recreation, 

3. The business purpose of the expense, and 

4. The business relationship to the taxpayer of persons fed or entertained. 

A detailed log or contemporaneous notes written directly on receipts are essential to carrying this burden of proof. See my book, How to Win Your Tax Audit for more on this issue.

With more review and changes to come, make sure you keep up with the latest changes by having a subscription to this newsletter, Pilla Talks Taxes.

    

This is a portion of an article taken from July 2018  issue of "Pilla Talks Taxes."  
Newsletter subscribers can read and download the entire article by logging in at  https://www.taxhelponline.com/subscriber-login.html

      

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

AVOIDING PENALTIES UNDER OBAMACARE

 



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

HOW THE IRS WILL LEVERAGE ITS
MASSIVE INFORMATION

Big Data Meets Big Government 

by Daniel J Pilla  

 

One of the reasons that identify theft is considered by the Treasury Inspector General for Tax Administration to be the crime of the century—and why I maintain that it cannot be stopped—is because of the IRS. The IRS makes more and more demands for more and more information about more and more aspects of people’s businesses and private lives every day. There is no such thing as personal privacy these days. That the IRS sends citizens a so-called Privacy Act Notice” in every one of its mailings is a farce. The IRS lays more of a claim to more of your data without court authority than any other government agency. And to make matters worse, they share the data with any other federal, state or local government agency claiming an interest, including foreign governments.

 
A River of Data

This year alone, there will be about 152 million individual tax returns filed with the IRS. There will be roughly another 100 million business tax returns filed. There will be millions more miscellaneous tax returns, including trust, estate and gift tax returns. And on top of that, over 3.6 BILLION information returns (Forms W-2, 1099, etc.) will be filed with the IRS over the next couple of weeks. There is quite literally a river of data flowing into the agency every year. The flow cannot be stopped, and what’s worse, as far as the IRS is concerned, they need even more data.

For example, one of the six Strategic Goals” presented in the IRS’s 2018-2022 Strategic Plan is to increase its access to data, and use that data more effectively to drive its agency-wide decision making, as well as case evaluations and selections for enforcement purposes. See: IRS Publication 3744 (4-2018). This is consistent with the previous five-year plan, which presented the overarching goal of becoming a data driven agency.”

Indeed, the IRS is awash in data. The 2018-2022 Strategic Plan boasts that the IRS’s volume of data was 100 times larger in 2017 than it was ten years prior. In 2018, the IRS Criminal Investigation unit alone collected 1.67 petabytes of data from various sources. A petabyte is 1,099,511,627,776 bytes, or 1,024 gigabytes of data. I’m told that approximately 900,000 plain text files can fit into a single gigabyte. The number of users in the IRS with access to that data has increased 23 times (Strategic Plan, pg 19) in the past ten years.

Managing Massive Data

How do you manage, process and assimilate such a massive amount of data to the point where it becomes usable? The 2018-2022 Strategic Plan expresses the goal to invest in analytics and visualization software and tools, and develop processes to support analytics in IRS operations” (Strategic Plan, pg 20). The end game is presented in these words:

Advancements in how data is collected, stored, accessed and analyzed will allow us to deploy data better. We’ll standardize our data processes and protocols and encourage collaboration among all IRS business units. Increased interoperability of data systems and sources will enhance the secure and seamless flow of data to enable greater authorized access to information. We’ll invest in training to develop more advanced analytics skill sets across the IRS, and use data to improve our business processes. Strategic Plan, pg 19.

The investment in analytics was recently undertaken—in a big way.


Big Government, Meet Big Data

On September 27, 2018, the IRS entered into a contract with Palantir Technologies of Palo Alto, CA, to handle the task of data assimilation. The contract calls for Palantir to provide hardware, software and training to IRS employees to capture, curate, store, search, share, transfer, perform deconfliction, analyze and visualize large amounts of disparate structured and unstructured data.” IRS Contract Proposal, Performance Work Statement, January 11, 2017, pg 1.

Palantir is to build and train the IRS to use a unified supercomputer to:

search, analyze, visualize, and interact with a wide variety of disparate data sets so users will be able to leverage the platform to perform advanced analytics, such as link, pattern, statistical, behavioral, and geospatial analysis on an investigative platform that is scalable and interoperable with existing IRS equipment and systems. Ibid, pg 2.

What kind of data are we talking about? The contract proposal specifies the following data formats:

·         Oracle, MySQL, and PostgreSQL databases;

·         Delimited files (.csv, .dsv, .log, or .txt);

·         Excel files (.xls, .xlsx);

·         GraphML files (.graphml, .xml);

·         IVML files;

·         Email files (.eml, .pst, .mbox, .msg, .ost, .txt); and

·         PCAP files (.pca, .pcap, .pcp). Ibid, pg 20.

Ingesting Massive Amounts of Data

The contract proposal goes on to state exactly what the IRS is looking for. The need is for an analytical platform with a strong storage and indexing power allowing for rapid integration and analysis of ultra-large scale data sources.” Ibid, pg 2. Specifically, the system must meet the following criteria:

·         Allow for the rapid ingestion of massive amounts of data.

·         Users should be able to immediately use the imported data in the imported format to perform queries, analysis and identify links.

·         Allow users to drill down on massive amounts of disparate data to find connections.

·         Provide algorithms and capabilities that identify the key players and their roles for the user.

·         Allow users to visualize connections from millions of records with thousands of links by grouping data visualization by the commonalities and roles. Ibid, pg 20.

This system is intended to allow the IRS to meaningfully link tens of millions of tax returns, billions of information returns, and trillions of bank and credit card transactions, phone records, and even social media posts. For example, if a U.S. citizen moves money from a Swiss bank to some other offshore bank, then uses credit or debit cards to spend the money in the U.S., Palantir’s software can link those transactions. It could also flag a person whose tax return shows relatively low annual income but whose social medial posts indicate something entirely different. A 2015 IRS privacy report reveals that since 2013, Palantir has had access to personal information including passport numbers, text messages, criminal histories, and mothers’ maiden names. Case Lead Analysis, PIA ID No. 1120, July 28, 2015.

This is exactly the kind of data analysis it will take to establish the IRS’s so-called up-front tax system,” which I describe at length in chapter 2 of How to Win Your Tax Audit. Under that system, the taxpayer is essentially removed from the tax preparation process because the IRS knows everything there is to know about your personal, business and financial affairs to the point where they prepare the return for you. How’s that for tax simplification?

The Cost of Spying

Since 2004, Palantir provided the federal government with various software platforms for the CIA, the Department of Justice, and the Department of Defense. All of it is related directly to enhancing the government’s data analysis capabilities.

The IRS began working with Palantir in 2013. The agency spent $30.8 million on a five-year contract, and at that time granted Palantir access to files for more than 1 million people, according to a July 28, 2015 audit report. That contract provides the IRS with access to spy software for use by Special Agents (criminal investigators) to generate leads, identify schemes, uncover tax fraud, and conduct money laundering and forfeiture investigative activities.” Case Lead Analysis, PIA ID No. 1120, July 28, 2015, pg 4. 

As far as the IRS’s September 2018 deal is concerned, the federal government will pay Palantir $98,750,546.94 over seven years to fulfill the contract. My question is, why the extra 94 cents? 

 

This is a portion of an article from the January 2019 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read the full article and rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html 

      

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

  

ARTICLES FOUND IN January 2019

PILLA TALKS TAXES ISSUE:

 

HOW THE IRS WILL LEVERAGE ITS MASSIVE INFORMATION
    Big Data Meets Big Government

WHAT YOU NEED TO KNOW ABOUT
DEDUCTIONS FOR 2018
The Tax Cuts and Jobs Act Affects Itemized Deductions

IRS ISSUES GUIDANCE ON BUSINESS MEALS
Meal Expenses for Businesses Remain Deductible

JOBS ACT GIVES SMALL BUSINESSES
MORE WRITE-OFFS
Section 179 Deduction Was Expanded
 

THE FRENCH GAS TAX MAY BLOW UP - IN OTHER COUNTRIES

                                       by Merrill Mathews, Ph. D.

 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

 

AVOIDING PENALTIES UNDER OBAMACARE

 



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

MORE ANALYSIS OF THE TAX CUTS AND JOBS ACT

Impact of the Law in 8 Family Scenarios 

 

A number of public policy research institutes have opined on how the Tax Cuts and Jobs Act will impact Americans. One side continues to insist that the law is nothing more than “tax cuts for the rich.” This is non-sense considering that the law creates cuts that cover just about the entire gamut of income brackets.  

The law rewrites dozens of code sections, eliminates certain deductions, and changes the rates. There is a new deduction for small business owners and the corporate tax rate was slashed from 35% to 21%. According to the Tax Policy Center, the majority of Americans will get a tax cut in 2018 and beyond. See: http://www.taxpolicycenter.org/publications/distributional-analysis-conference-agreement-tax-cuts-and-jobs-act.

In fact, at least four out of five taxpayers will see their taxes cut under the Jobs Act. As I have reported in the past based on analysis by the Tax Foundation, the average taxpayer will likely see their after-tax income rise by about 2.2%. Already the IRS adjusted the W-4 withholding charts for employers to account for the law changes. Because of that, people are now getting more in their paychecks every month due to the reduced tax burden. 

According to the Tax Policy Center’s numbers, citizens earning between $48,600 to $86,100 annually will see their net income grow by about 1.6%. Those earning from $307,900 to $732,800 will see an increase of about 4.1%. Does that constitute “tax cuts for the rich?” The fact is higher income taxpayers pay the overwhelming bulk of taxes to begin with. They are naturally going to see a greater percentage reduction in their liabilities when there’s a cut.  

Exactly how all the changes will affect you depends on where you live, your family size and what you do for a living. According to analyses done by BNA, those in high tax states with substantial itemized deductions may see a tax increase because of the reduction or elimination of certain deductions. But if you earn income from self-employment, you can expect a substantial cut because of the 20% deduction that applies to self-employed people.

For more on this, see my April - May 2018 Issue of Pilla Talks Taxes The 20% Deduction for Small Businesses.

 

BNA produced eight different scenarios to illustrate how the Jobs Act might affect certain people. The scenarios examine 2018 wage and self-employment business income. The examples do not address less common scenarios or the extent to which corporate shareholders will be affected because of the reduced taxes on corporate earnings.   

 

 

Eight Hypothetical Scenarios*  

 

1. Multimillionaires in New York 

 Manhattan residents, a married couple, have adjusted gross income of $2 million. They have a jumbo mortgage (at 4% interest) and take a $40,000 deduction on mortgage interest. They pay property taxes of $96,250 and state income taxes of $135,360. They make annual charitable contributions totaling $100,000. 

They will pay a bit more because they lose itemized deductions, most notably due to the cap of $10,000 in state and local taxes, plus the reduction of available interest for loans capped at $750,000. (The cap under prior law was $1 million.) Some of the loss is offset by the drop in the top marginal tax rate from 39.6% to 37%.   

The effective tax rate for these people goes up slightly, from about 30.51% to 31.19%.

  

2. A Second Home in California  

A married couple has AGI of $1 million. They have a primary residence in Malibu and a second home in Lake Tahoe. The property taxes on the Malibu home are $15,860, and $4,896 on the Lake Tahoe home. They deduct a total of $40,000 in mortgage interest for the two homes and they give $50,000 to charity.  

While they lose almost $86,000 in deductions, the drop in the top tax rate means their effective tax rate goes up from 26.77% to 27.24%, only a slight increase. 

 

3. The Small Business Owners in Pittsburgh  

This married couple has a small manufacturing business in Pittsburgh. Their AGI is $300,000, all from their business. They have two children under age 17. Their deductible mortgage interest is $6,000; their property taxes are $8,600; and they give 5% of their income to charity.  

They will get a big benefit from the 20% deduction for business owners who pay business income taxes on their individual tax returns. That deduction will be worth $60,000. It will cut their AGI considerably, reducing their effective tax rate from 18.69% to 11.58%.  

 

4. The Family in Suburban New York  

A married couple in a New York suburb has two children under age 17. They earn $275,000 and pay state income taxes of $17,290. Their mortgage interest deduction is $14,000, and they pay property taxes of $13,750. They give about the same amount to charity.  

While they will lose some of their deductions and exemptions, they will benefit from the increased child tax credits. Moreover, because the law increased the income point at which the alternative minimum tax kicks in, they will avoid AMT of $5,000. Their effective tax rate goes from 17.45% to 15%. 

 

5. Single in Manhattan  

This single New York resident has no children and rents an apartment. He pays state income taxes of $8,148 and gives about $6,500 to charity.  

This citizen comes out ahead because the deduction for state and local income taxes, up to $10,000, means he doesn’t lose any of it. Plus, he gets his deduction for charitable contributions. His effective tax rate drops from 18.57% to 16.90%.  

 

6. Married in Austin  

This couple rents their home and has no children. Their AGI is $100,000. They give $5,000 a year to charity.   

The law eliminates the personal exemptions, which are $4,050 for each of the two taxpayers. However, that loss is offset by rate cuts and a near-doubling of the standard deduction, from $12,700 to $24,000 for married couples. Their effective tax rate goes from 11.28% to 8.74%.  

 

7. Median Income in Oregon  

This Portland couple has $58,000 of AGI, which is about the median household income for the U.S. They own their home, pay property taxes of $1,688 and mortgage interest of $3,000. Their state income taxes are about $4,744.  

Like the couple in Austin, they lose their itemized deductions but benefit from both the higher standard deduction and the reduced tax brackets. They will see a reduction in their effective tax rate, going from 8.01% to 6.38%. 

 

8. Renting in Milwaukee  

This married couple has $40,000 of AGI with one child under age 17. They rent and have state income taxes of $2,104.  

This family ends up with a negative income tax rate. They benefit from the doubling of the standard deduction and enhanced child tax credits, which are refundable. That means that, subject to limits, low-income taxpayers are able to get more back in refunds than they paid in the first place. Their effective tax rate goes from 1.29% to -1.00%, thus leading to the refund.  

 

  * The above hypothetical scenarios were provided by BNA is its Tax Management Weekly Tax Report, December 25, 2017.  

 

All That is Wrong with the Tax Code   

These scenarios clearly point out all that is wrong with the tax code. The rate of tax that a person or family ultimately pays is not solely dependent on their income. Rather, a vast array of social issues come into play, including whether a person is married or not, whether they have children, the age of the children, whether they own a home, and where in the U.S. they live, if they make charitable contributions or not—just name a few.   

These are all factors that work to make the outcome of the tax laws, and the bottom line tax burden for a given taxpayer, a matter that is completely arbitrary. These various factors are not driven by economic considerations and they certainly are not based on Constitutional provisions or theories. Instead, they are driven by the always-moving target of the nebulous concept of “social justice.” And that itself flows from the unsound notion that it’s the government’s responsibility to achieve income equality in the U.S.   

Apart from the fact that just about all of the Jobs Act tax cuts expire after 2025, this is another reason the Jobs Act is not “tax reform.” The law hasn’t reformed anything in the truest sense of the word. It just stirred the pot on what is deductible, and in what amounts, based on arbitrary ceilings (or floors), and for how long.   

Until individual members of Congress wrap their heads around the idea that the legitimate taxing power of the U.S. Government does not involve the use of force to achieve equality of outcome on the income racetrack, we will never have true tax reform. In a free society, there will always be those who achieve at a higher level than others for a host of reasons the government cannot scrub out of existence.   

Thus, so-called equality is achieved only through overwhelming force, and even at that, such equality is measured by the lowest common denominator, not the highest. Such is the model of socialist and totalitarian governments around the world. It has no place in a constitutional republic. 

 
This is  an article taken from March 2018  issue of "Pilla Talks Taxes."'
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