Financial Advisor

June 2021

Federal good news for parents with Child Care Credit [CTC]: The child tax credit advance payments are scheduled to begin on July 15th and will continue through the end of the year. Payments will be paid through direct deposit, paper check or debit cards. Since the monthly payments will provide only half the year’s credit, taxpayers can claim the remaining amount on their 2021 tax return when they file in 2022. Please keep records of all credits received as they will need to be reported on your 2021 tax return. No action is required if you want to receive the advance credits, they will be sent automatically. However, if you prefer to receive the entire tax credit on your 2021 tax return, you must OPT OUT using the portal on the IRS website. For additional information, or to OPT OUT of advance payments, please visit the IRS website: https://www.irs.gov/.../advance-child-tax-credit-payments...

Investment news: A recent WSJ article noted that non-taxable municipal bond yields have fallen from 4% this year to 1% as many investors have left the securities markets for safety, at the cost of below inflation yield. In other words, it is better to lose money on earnings than lose more money on principal. Since advisory fees are always over 1%, these investments will lose money both ways.

Washington issues: The gigantic American Family Plan will be on hold as Congress fights over the rubbish connected to increasing the national debt by another two or three trillion. It is currently connected to the trillion-dollar Infrastructure Plan which is in limbo because of the problems with the initial Plan. The Infrastructure Plan would be financed by increased funding to the IRS for massive increases in audits. The audits are expected to fund the entire Plan without further tax increases.

IRS audits: We had two IRS audits this past year. One was to justify the homeowner exemption from taxation of real estate property sales. The client had been renting out most of her home to roomers but fortunately also lived there the whole time. If she had rented the whole house out, she would have had a taxable gain on the property as a commercial capital gain. As it was, because she had lived there while renting most of it, she was able to qualify the property as her residence. That voided the tax bill of over $100,000 for a no change audit.

The other audit was for a person who drove a delivery car night and day for over 50,000 business miles during the year audited. It was a mail audit, like all of them these days, and we responded to the audit letter with a USPO Priority Mail package of documents weighing over 1 ½ pounds. A week later, our client looked up the delivery on his computer and printed out the confirmation that it was delivered and signed by an IRS employee. Three months passed without a response from the auditors and the client was shocked to find a notice in the mail one day that the IRS “decided against him because he had not responded to their documentation request”. In other words, they never received his mail. Our response was to re-mail copies of our audit response documents with a letter and USPO confirmed delivery receipt copyback to the auditor. That was a month ago, so I expect we will be off to Tax Court because of the internal IRS delivery problem.

Future IRS Activities: It should be noted that the IRS is being instructed (with billions of additional appropriations) to increase audits to offset the trillions of increased Federal debts shoveled out by Congress these past and future years. The politicians do not consider this a tax increase to recover “Trillions of dollars in tax fraud.” Their idea of tax fraud, as presented publicly, is millionaire citizens hiding wealth from taxes which affects all of us. Yet it is the ordinary people, as in the examples above, who are being audited. The IRS will also be given better control over ghost preparers who do not sign returns and unregulated preparers who are not Enrolled Agents, Attorneys, or CPAs. That is really good news, but it means that the regulated preparers, like me, will be inundated with audits and tax work from the interaction of more audits and less people preparing returns.

Recent IRS interactions: This past month I spent three days calling the IRS to settle an installment agreement and when I finally got through, they trashed my power of attorney form and hung up on me. I cannot imagine over 100,000 new auditors on those phone lines, if you can get through. It appears that their job only covers answering the phone, not resolving tax issues.

California Secretary of State vs Franchise Tax Board: We had a client who organized a church of his strong religious belief. We handled the documentation, and he was to find a storefront or other suitable location, then people would come to his meeting place. After two years of paperwork and lost Sundays the client decided this was not his calling and it closed. Now, after two years we have finalized the closing of the tax exempt 501-C3. It appears that there is an estranged relationship between the tax collector (Franchise Tax Board) and the formal organization agency the (Secretary of State). We had been sending letters to one or another and they, four to six months later, would refer us to the other agency. At last, we have settlement papers from the SOS and can close the case for the client.

Our insurance annuities: Many clients have happily found security and reasonable earnings with some of our insurance products. If you believe the bank interest rates are too low and that the stock market will not peak out forever, then please call us for more information or a proposal.

California in the news: A recent article from Epoch Times reported that the current administration has restored the Bullet Train $1 Billion grant that was revoked by the prior administration. Maybe some long day in the future you will be able to zip from Bakersfield to the IRS Regional office in Fresno at Bullet speed.

Good news! After a very long tax season we have adjusted our hours to fit the needs of the business from July through year-end. We will maintain business hours on Tuesday, Wednesday, and Thursday for the regular staff. They will have many long weekends while Nett and I plan a few for us, as well. Meanwhile, I will be here as usual to answer phones and mail and schedule an appointment or two. My lawn needs mowing in the back too!

We are here for you all year: Be sure to call for advice or drop us an email. We have sent dozens of digital tax returns to mortgage brokers and do not charge for this extra service.

Best wishes for a happy and safe Independence Day!

Phil, Nett, Leslie, Erin, Sarah

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