Accountant at Work

April-May 2021 Newsletter

First, the good California news: Governor Newsome has declared that by the middle of next month we will be mostly free from Covid-19 mask and spacing requirements. This follows the recent federal government declaration that people who have had their Covid vaccinations no longer need to wear masks in public places. Since most people have been vaccinated by now, it is safe to say that the Covid Coronavirus has moved on to manageable levels. Surviving restaurants and other businesses will rejoin the land of the living to the joy of all of us remaining.

Other California news: Governor Newsome announced that the state of California is expected to go from a ($50,000,000,000) [billions] deficit this year-end to a massive surplus of $75.7 Billion. That is a huge shift of $125 Billion in income. This was partly due to the great increase in property taxes from hot real estate sales. The other part was from the Biden American Rescue Plan which allocated $500+ Billion of the $1.9 Trillion additional debt to the states for educational and other purposes. The other purposes are a California stimulus check for $600 to $1,200 for low-income individuals including illegal immigrants, homeless living quarters (at over a million each for two-car garage-sized spaces), electric busses and other electric state vehicles, and especially the wonderful Bullet Train from Fresno to Bakersfield. The train from nowhere to nowhere has failed to generate any construction bond sales from public or bankers due to phony ridership and income data provided by the state agencies.

IRS news: The IRS is a great user of office supplies due to their massive size and function. The Covid virus, this past year, caused the IRS great delays and closed offices which resulted in a very backlogged tax season for all. They also had budgetary and severe personnel shortages in most categories or departments. The IRS has an increased workload, handling Stimulus checks and retroactive software changes to exclude $10,000 of unemployment benefits from 2020 taxation.

An example of their plight is a recent report released this month which stated, “The contract for supplies and service of our printers ended in September 2020. 69% of our 164 devices used by the submission processing functions were not usable as of March 30, 2021.” They were out of printer ink.

Stimulus payment reporting: This year we were required to report all stimulus checks received for both the past Winter and this Spring. Upon receiving your tax return, the IRS matches the amounts reported with their disbursements data and will change the 2020 net tax to issue a refund or to note a liability if overpaid. Some clients have already received letters notifying them of these adjustments.

California EDD Unemployment: Recent headlines stated $31 BILLION dollars wasted on frivolous and felonious UI claims. This was easy to do by allowing 1,700 claims paid to one address, $45,000 payments paid to prison inmates, and a Northern California woman who collected over $200,000 in unemployment benefits, $21,000 of it was from using Senator Diane Feinstein’s name and social security number. There are thousands of claims filed and paid without examination adding to the huge tally. This is borrowed federal money, although California has a huge surplus this year. The remaining employers in this Golden State will pay it all back from increased payroll tax levies. This info was from the Epoch Times News.

Meanwhile, we have the privilege of being audited by the famous EDD this month. Our huge firm of 2 ½ employees is being audited. They would rather harass a small seasonal firm than go after the big bucks. This is their comfort zone. Several years ago, they audited our business with two employees, wasting our time perusing the past three years, to arrive with a $10,000 bill. Three months later the bill was beaten down to $1,000 because of one person who worked out of her house for a big fraud audit on her own time and direction. The billing went through my firm, so they reclassified her as an employee, instead as a 1099 person even though she had a professional bachelor's degree in accounting. I figured that with their audit time and re-audit time lost on our two appeals the EDD lost $5,000 to $10,000 for wasted effort.

Insurance Annuities vary in complexity but the annuities we handle guarantee the investment principal and interest earnings or an alternate investment index tied to Standard & Poor. They also allow all funds to be withdrawn as needed and are backed by considerable reserves required by California’s strict standards. A 6% bonus is credited with the initial application. Annuities are the preferred safe conservative pension investment available in these turbulent times. A free investment review is offered to all our clients. I am a retired Stockbroker-Registered Principal-Investment Advisor.

Paralegal China Long has returned from an extended vacation and is available to provide legal assistance with many legal necessities from trusts to adoption. She will meet with you in the privacy of my office. Her fees are reasonable and her phone number is 951-694-0608 for appointments. She has many years of experience working with attorneys, on the same matters, and if a simple matter becomes complicated, she can arrange a meeting with a proper attorney.

Illegal immigrant children, at the rate of thousands weekly, are being delivered to cities and towns all over the country for resettlement by Foster Care Agencies. Only the Feds and immigrants benefit from this action which shifts total financial liability to local taxpayers. According to the article in the Epoch Times, there is a backlog of 30,000 American Children already in the LA County foster system waiting and hoping for placement. This makes no sense at all.

More California legislation: The California Unsafe Handgun Act enacted in 1999, and updated in 2007, has been refined again. This law requires a firing pin on automatic weapons to micro-stamp a mark on the cartridge primer by July 1, 2022. This is intended to leave an audit trail at crime scenes. Since no device has been invented to implement the Act, no compliant handguns have been sold in California to date. And certainly, none will ever be sold after that deadline.

Child Care Credits were increased from $2,000 per child under 17 to $3,000 per child ages 6-17 and $3,600 for children under the age of six. There are income phaseouts similar to the Stimulus payment restriction. There was a big change on the payment of the credit whereas instead of waiting to file a tax return to get the credit, a periodic monthly payment equal to 1/12 of the total per family will be mailed on the 15th of every month thru December with the other half to be refunded with the 2021 tax return afterward. Please keep track of all monthly payments you receive, as the advance credit will need to be reported on your 2021 taxes.

IRS Audits in the future: Due to declining appropriations amid increasing workload, the IRS literally quit auditing in recent years. I remember one year when we had ten corporate audits. It was a corporate audit training year, and they got every corporate client we had. Then, there was the year we had three gambling winning-loss audits and it was another example of IRS training and gathering statistics on these clients who had big winnings (one client won an auto) which we successfully offset with losses. This resulted in three no-change audits that year.

Now, we have a government hurling towards bankruptcy. One of the questions emerging is how to handle the increasing debt interest as well as increasing debt? Will the investors back off buying Treasuries and force the interest rates even higher to unsustainable levels? How much debt is saleable? Only a few months ago the interest rates on Treasuries doubled when the new issue stumbled at auction.

New tax increases are in the works, all over the place. But that will not be enough to keep up or reduce (you’re kidding) the debt. Accordingly, along with a huge increase in funding for the IRS is a plan to avoid some tax increases. The Government simply will fund the IRS to get caught up and be the tax collector it used to be. They calculated that an auditor costs only 25% of the increased taxes he generates from his work, with an auxiliary benefit of people becoming more careful about what they put in their returns after the word is out.

This will, in addition to the planned tax increases, have a crushing impact on the economy. The proposed legislation also includes regulations of tax preparers and penalties for ghost preparers who do not sign returns for pay. That will be good news from unfortunate but necessary legislation.

Memorial Day is the day I finished this newsletter, and I am greeted with three new events which will shape our future:

The first is that the Federal mortgage agencies, which buy most of the real estate mortgages, have notified all the mortgage brokers and originators that they have severely tightened income proofing and disclosures to restrict self-employed applications. Almost all mortgage applications are based on their ultimate acceptance, so this is a far-reaching negative change on the people who survived the Covid. This is also the first indicator of a recession and will help it happen.

The second item is data of 4.2% inflation over the prior year. That is twice the prior April figure, and the year is still young. I predict a minimum of 5% to 10% inflation before this calendar year is over. This is the most mismanaged economy I have ever experienced, and it is still developing.

The third is the article I discovered in the Epoch Times about Second World War Navajo Indians. There was a picture of President Trump with three elderly Navajo Code Talkers. Thomas H. Begay, who was wearing a special Congressional Silver Medal awarded to the man, among others, uniquely contributed to successfully apply their native language skills to the Marine Corps. This beautiful medal outshines all the challenge coins I have. One of my clients was a Code Talker. He was Harry Gus, my only client with two first names. A peaceful gentle man, he would visit my office in the slow times and play his guitar to sing a song to me. At his military funeral many years later, I learned that he practiced his language skill during combat in the Aleutian combat as a Marine, a cold, fearful God forsaken place. He had never mentioned his military duty although he attended college through the GI Bill afterward to become a teacher at the Riverside Indian School. His son, Larry, another person with two first names, is a professional photographer, a very free-spirited man.

God bless all my clients this Memorial Day!

Phil, Nett, Leslie, Sarah, Erin

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