July 2021 Newsletter
Good news from the Social Security Administration: The Govt, unofficially announced that based on recent July economic data showing 5.4% inflation in consumer prices over the past year, that the year-end benefit payments will probably reflect that huge increase. They have also stated publicly that the current inflation is temporary. Just remember that the next time you gas up your car or truck.
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Bad news about Social Security Taxation: The proposed American Family's Plan will increase taxable Social Security benefits from the current 85% taxable to 100% taxable. That means double taxation because the involuntary contributions to the plan were already taxed in payroll or self-employment. Other normal pensions are taxed only on earnings as distributed with the employee contributions exempt from taxes.
The Family Plan would also double the Federal capital gains rates to 39.6% plus the current California rate to 37.1% would equal 56.7%. Doesn't leave much for sales tax on the new electric car.
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At least we are still higher than the New York state tax by 2.4%.
Proposed increases in Social Security/Medicare taxes will subject Subchapter 1120-S passive earnings to active income and cancel the exemption, Two other related deductions for an offset
deduction for self-Employed Social Security contributions and the Medical Insurance deduction for Self-Employed people are also endangered.
Good education news from California: The California Board of Education voted to postpone a new mathematics framework that incorporates ethnic and social justice. This would replace current match curriculum which replaced failed New Math blend of algebra and arithmetic that was impractical to use.
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Bad news on the Gross National Product: The June financial data on the sum of economic activity for the Nation was $22.3 trillion. The National Debt at that time was $27.5 trillion. That is now more than a year's total economic activity which still would not pay the debt which will hit over $32 trillion by year-end with proposed spending. And the axiom is that increased taxes slow investment and the economy.
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Bad tax increase from California: This year we saw a new tax locally which is not fair at all. A $1,500 levy was added to the tax returns for people who didn't have Obamacare or other medical insurance. A penalty which has replaced the federal penalty which was dropped last year. A disgrace from a state which is boasting about great budget surpluses.
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IRS Audits: The Administration is proposing an $80,000,000,000 [billions] to increase the IRS audit budget over the next ten years. The story goes that a lack of audits allows businesses to leave a trillion dollars annually on the table each year. This is told as an investment, not a tax increase.
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Another issue is the proposed link between your business bank account and the IRS. Yes, they want your bank statements online so they can pick out the data for your next audit. That act will also present a financial challenge to the banks and savings institutions for programming and people expenses.
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Bad news from Chicago: lt is hard to resist an inclusion from our favorite City where cosmetic surgery is a fringe benefit for most Govt. workers. To aid their underfunded pensions the city planners proposed a megaresort with all kinds of amenities to include hotels, casinos, and whatever Las Vegas had or still has going for it. The multi-billion-dollar expansion would have an effective tax rate of 70% if funded. That includes state fees of $30,000 for each and every slot machine and seat at a table game. An additional revenue fee would yield M80,000,000 over the first three years as well. lt appears that nobody in the gambling industry was interested in the deal, and it folded.
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California and other major cities shoplifting problems: ln 2014 a ballot was passed here to make stealing items valued at less than $950 a misdemeanor instead of a felony. This was to keep petty thieves out of jail. lt worked so well that convenience and drug stores have been invaded by people taking advantage of it by raiding stores with duffel bags and all kinds of containers to exit without incident. An example of the results is that Walgreens Drugs in San Francisco have closed 17 stores since the Act passed.
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Debt economics at the Federal level: There are new economic theories abounding that the economy thrives on debt. The more debt you have, the better the economy works. lt is a simplistic justification of buying votes by handing out more money to everybody and throwing it around like a drunken sailor. Complete unaccountability. I disagree and believe that nobody is too big to stay out of Bankruptcy Court, sooner or later the debt and accompanying interest must be paid. Remember Russia, Argentina, Venezuela, and Bernie Madoff.
Files, paper, and otherwise: Much has been said about, "how long do I need to keep records? The truth is that the longer the better. But we must all be practical so start with the longest such as birth certificates, real estate purchases, all legal documents such as wills, trusts. Others include tax returns, especially if there is a capital loss or net operating loss which can carry forward many years. save the
first year the loss was incurred and all the intervening years until used up. Rental income tax returns must all be saved because the depreciation values, improvements, and unused losses carry forward.
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ln our little practice my garage was filling with filing cabinets. This year we decided to put the practice on the "cloud." For a whole month, we have been ripping tax return hard copies apart, scanning and shredding them. of course, they are on the computer the whole time and we keep ten years there. But the workpapers, notes, copies of client documents needed to be saved with the extra copy. Audits are only three years, and we were saving four years in files, so we cut it back to four years on the cloud, oldest 2017 tax year no-shows shredded, and our whole filing system revised and shrunken, Another reason for the Cloud is the liability of keeping all those records available where they could be burned, stolen or damaged. Besides, I didn't want to be the only guy in the business who hasn't done the cloud yet.
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Last but not least: Your business returns are due in a month, the middle of September presuming you or we filed an extension. The individual return extensions are good to October 15tn. Time is running out and please don't rush us with these complicate returns in the last month due.
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lnsurance annuities: Are a very conservative investment with cash sign-up bonuses, guaranteed principal, and many other great features. Hard for us to sell lately with the runaway stock market. One day everything will change, and we will still be here to help you.
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Paralegal China long: is available for most simple legal matters at reasonable fees with serious long-time experience working for the lawyers. Give her a call at 951-694-0608.
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IRS or FTB correspondence: requires immediate attention. Please send us a copy asap and we will review it for you.
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Best wishes
Phil Chute, EA & staff