Posts Tagged ‘taxes’

Tax Returns for an Old Lady Living Modestly (my Mom) – it is Ludicrous

July 21, 2012

I’m angry – I’m going to rant – oh – I seem to do that now and then, don’t I?

So, my mother’s taxes – I do her taxes every year – I get a timely automatic extension every year, and sometime in the summer, I spend part of a week of vacation to do her taxes. This gives me an annual glimpse into her finances, and reassures me that her financial future is sound enough. And, it saves her a few hundred dollars!

A profile of my mother:

Age – 80+ years;
Net Worth – about $350K
Annual Income – less than $30K
Health is frail with parkinson’s and just now a broken hip.

Tax tools:

TurboTax and Excel

Taxes make me angry!  I don’t object to paying taxes. Heck, roadways and airways and radioways and police and NASA and defense and justice and everything else in government costs money! It does… And, it has value that I appreciate. Much of government serves me in some way. It has to be paid for somehow, and I am OK with paying my fair share (and my mother, too). But the time…  It takes a LOT of time, and as a matter of principle, I object to spending significant time and/or money (or my mother’s) to satisfy the burden of law. Taxes should be simple enough that you can do them in an hour with a pen!

My Mother’s backup files to me – more than 2 inches of paper:

I am missing 4 bank statements (out of 24), missing 2 charge card statements (out of 12), missing most of the medical bills; missing 2 1099-INT’s, missing an amended corrected 1099-B; missing a K1, and missing a few other documents – it takes me weeks to gather what she misses in the mail, but I manage to get most of what I need by July with a Power of Attorney and some charm over the phone…

My Mother’s completed returns:

This year, Federal is 9 multipage forms (20 pages); State is the Federal return plus 4 multipage state forms (30 pages).

I do my taxes and my mother’s manually first, and compare the manual return with TurboTax’s output. TurboTax isn’t quite accurate, but it is close, it minimizes typos, and it compiles a nice back-up document set. It easily imports 1099’s from brokerages, and it is nicely organized to identify tax considerations for me. I report several errors to Intuit every year, and they fix them by the next year. TurboTax currently makes an error on the State return associated with partnerships that repost a capital gain on the sale of assets…

Says Intuit, “yup – we know about that one. It is too complicated to make the interview address all circumstances correctly. Those publicly traded partnerships are a nightmare! Just send in what we generate… It will be OK… Or you can override the interview entry if you know how to…”

Says the State Tax Commission, “We know about that (the TurboTax error). It is complicated. It is OK to send us the errored return – H&R Block has the same error. Don’t correct the error, or you will screw us all up…”

Says my mother’s financial advisor, “Sorry it is so complicated – I can’t understand all the tax treatment, and I spend a few hundred dollars of CPA time to get the IRS happy with the forms and answers to any of their questions about my own return.. But, we got good distributions with favorable loss tax treatment. It was worth the trouble.

These Publicly Traded Partnerships or PTP’s are horrible for taxes. They all have multiple “activities” that the K1 treats as a portfolio, but the lawful tax payer must treat each activity as if it were a separate stand-alone K1 so that passive losses of one activity do not offset my passive gains of another. TurboTax says, “just buy our audit protection service, and we’ll explain it away to the satisfaction of the State Tax Commission – don’t worry – just enter the K1 as you see it, and the nuances will probably not matter. – probably not…”.

So, like last year and the year before (and the year before that), I am thinking that this is just plain nuts – NUTS.  Taxes are too complicated for an ordinary person to do them, too complicated for software to address the nuances, and the recipients accept errors in the returns because they realize that at least, they received a return that is mostly correct with the tool at hand (and they might not get as many returns otherwise) – they are further ahead. And my mother would face this nonsense and simply not know how to even get started…  Well, this is just nuts, if you ask me – NUTS.

A few “bones to pick” – these are essential changes to the current tax code:

– Insurance companies don’t send a 1099 to document deductible medical insurance premium payments – they should be required to…
– Passive losses in an activity in a partnership portfolio of activities should be able to offset any activity’s gains. A loss is a loss… (and a gain is a gain) – just add it all up in the partnership portfolio of activity. You should be able to just add it all up!
– A tax form should be able to get all the information required from one 1099 form per investment company. The classic frustration is 1040 Schedule D that requires a 1099B, a K1 and a supplemental report from the enterprise to complete the form. And the supplemental report is not required by law to provide all the necessary information to complete the Schedule  D (so you have to phone) – says the clearing house, “Yes, we know what you are asking for – it didn’t find its way onto the K1 or the 1099 in time, so we are glad to tell what you need to know by phone…”
– A redesign of capital gain/loss reporting is essential.
– And finally, if your income is less than a threshold, or your net worth is less than a threshold, or your gains/losses are less than a threshold, then don’t require a form to report those elements in your tax return. If you are small enough, simplify the process!

So, this is just plain NUTS, I’m telling you… And I recall Senator Gramm one day long ago discussing taxes with me. Said Phil, “Brian, just hire a CPA and pay them a few thousand a year, and everything will be fine. That’s what I do – I have never done my own taxes…” Well, THAT’S just plain NUTS! And that in part is why we have this tax mess in the first place.

I think it is criminal – an 80 year old woman who technically  lives near the “poverty line” (though I know that she eats well, has adequate medical care and is happy as can be), who doesn’t understand the documents her taxes demand, who doesn’t even recognize those documents in her mail, who can’t understand the tax form instructions (not one word) has to mail in 50 pages of forms to file her taxes properly, but not necessarily correctly (and that’s apparently OK). That’s just plain NUTS!

Rant Over – Something to add to my meeting with my Congressman’s staff on the 30th.

Rescuing the Economy – Proposal #5

April 29, 2011

The US needs a “turn-around artist” to focus on the mission of the country and to reconcile the costs of laws with the benefits those laws provide. Abolish existing laws that fail the hurdles of mission and cost-benefit, and establish those quality hurdles for new laws going forward. Start with an overhaul of our tax code.

Flashback 25 Years

When Rockwell International was selling the Network Transmissions Systems Division in the 1980’s, the Board of Directors dispatched their “turn-around artist” to “polish their apple.” This fellow immediately refocused us all on the “mission” of the company as his first lever to control costs and improve performance – he eliminated products and activities that were not close enough to the mission. Next, he looked at policies and procedures and challenged unnecessary requirements to conduct business by demanding to know the “fully accounted cost” of the policy or procedure he didn’t like so that he could justify changes and improve performance across the board. I am confident that this fellow added more than 10% to the bottom line of the company and enhanced the value of the company and  its image in the industry substantially. This fellow was pretty clever…

It was his mantra: Mission and Cost-Benefit!   Mission and Cost-Benefit!

Back to the “Here and Now”

In the April 11 Newsweek magazine, Mark Cuban is quoted:

Streamline entrepreneurial paperwork

… Today, it’s impossible to start a business without professional help. Between local, county, state, and federal filings, it can easily cost as much time and capital to deal with administrivia as the business itself. Paperwork strangles small businesses before they start—this country’s greatest inhibitor to job growth. That could be fixed with a simplified startup legal structure (understandable in a pamphlet) that would reduce the friction involved in starting a business.

I recently spent thousands of dollars on attorneys and more than one hundred hours of my time to insure that my company organization and standing documents and agreements were sound and satisfied all the legal requirements that I was exposed to. Next stop is my CPA… While I don’t hold Mr. Cuban in especially high regard, he is certainly nobody’s fool. I think he sees this all pretty clearly – his terms “administrivia” and “frictionless” surely resonate with me!

Recently, I phoned the Texas Workforce Commission to be sure I was prepared to display all the legally required signs and notices in office space I was considering.  The TWC responded, “We aren’t sure we know what all the required signs and notices are anymore. We lost track of all that a few years ago. Here is a list of websites where you can find out most of what is required. It is reasonably complete. Good luck!” Administrivia and friction galore.

What is the Mission of the United States Government?

I am no historian; nor am I an activist or subversive. Here is what I believe the core mission of the government is:

To assure our unalienable rights to life, liberty and the pursuit of happiness promoted in the Declaration of Independence and provided for in the Constitution explicitly by the Bill of Rights and the other articles and amendments.

Every law passed by Congress should affirm this mission and satisfy some mission-centric need. If a law fails this test to support the mission, it should be challenged!

What is the Cost of our Laws?

Every law has a cost. It costs time and money to write a law, publish a law, communicate a law to the people, enforce a law, and punish a law breaker. Many laws demand the performance of a function or a require a deliverable, and these laws have a measurable direct cost. Many laws require that compliance is documented in some way – another direct cost. Further, every law has an opportunity cost associated with it – law beakers become less valuable in society and contribute less to further society over their lifetimes through hard work and paid taxes. Every proposed legislation has a cost that should be computed in some way and compared to the benefits that it seeks to provide for before the legislation can be passed by Congress, signed into law by the President, and considered by the Supreme Court.

The Economy is the “Game”

I generally hold the “body of law” in high regard – by that, I mean that I have respect for the law. The more laws there are, though, the less regard each law can muster in the population one-by-one. “Too many rules, and you can’t play the game. When you can no longer play the game, it’s time to tip the board off the table and start over (press the reset button),” and that generally creates an ugly confrontation… Recall my elementary school experience from an earlier post?

In this case, the “game” is participating in the US economy. Mr. Cuban is right on the money. I agree – 100%. Too many laws translate into unproductive administrivia and friction. Perhaps Mr. Cuban deserves more credit from me than he has gotten in the past…

My Proposal #5 to Rescue the Economy

  1. Our Congressional representatives should become activists and challenge established  law and abolish it if there is a misalignment with the country’s mission to assure our rights to life, liberty and the pursuit of happiness and all that entails. Congress should challenge laws with costs that obviously exeed benefits.
  2. Congress should become focused on legislative quality to insure that new law is mission-centric, and that each new law’s benefits exceed its costs by a wide margin.

Where to start?  Well, most of my friction and administrivia is associated with taxes – start right there! This is “Eco-Pillar” #6 from this previous post:

Further Thoughts on the Economy – the China Playbook

I don’t object to paying my fair share of taxes. The less time I spend doing tax admisnistrivia, and the less money I spend on services to do that correctly and cover my _ss properly, the more time and money I have for the mission of my business.  Overhaul the tax code for personal and business taxes to reestablish fairness and dramatically reduce the complexity and the administrative burden – the administrivia and friction – of compliance with the law, and let me get on with the business of my small business.

And after taxes? Intellectual property law – patents, trademarks and copyrights (“Eco-Pillar” #5)…

Pdrrrrp Pdrrrrp… (drumming fingers)

September 23, 2009

Whew – taxes are done – oh, I had extensions for corporate taxes for my consulting company and personal taxes for myself and for my parents, too – everything done, and done on time! I have even completed all the quarterly filings a week early. My parents deducted more than $30K in out of pocket medical expenses in 2008 – the healthcare system is surely broken, and I’ll be the first to stand up and say so. With all the hubbub and shouting, I’ll have to admit that I don’t know where it makes the best sense to begin the repairs, but we have to start somewhere and fast. In the case of healthcare, reform anywhere will be better than reform nowhere – my opinion. I don’t want to give the healthcare industry every penny in my piggy bank before I die.

The HOA is happy – new landscaping at the entrances, and the community property is spruced up with some fall color. My HOA budgets are in good shape and my BOD is feeling good about things. My testimony in front of the City Council regarding train noise in the neighborhood is done, and the “realistic demonstrations” are done, too.  So, on to politicking for a guarded crossing so that the trains can pass without blowing their horns (at 98 dBA in the back yard, and that’s really quite loud)! Crime the past six months in the neighborhood was almost zero, and a lot of homeowners are happy for that. Several families are being greeted by fathers and husbands coming home from Iraq this week – each in one piece, what a blessing that is, and we have their yards looking nice for their returns.

Speaking of trains, the economy has certainly taken a turn to the recovery side. “What?” you say? Train traffic before the economic collapse was several to four a night every night passing by our neighborhood. In April this year, the train traffic past our neighborhood dropped precipitously to several a week every other week. Beginning about October 8, we suddenly have nightly train traffic – one or two most nights, and that is surely a positive economic sign. Somebody is buying stuff!

My insurance bills have most all been cut in half this week – IN HALF. Thanks to AARP. The quotes are in, the new forms signed, and the old companies advised to “take a hike”.

There are about 150 Kg of periodicals waiting for the recycler, so I have regained some valuable floor space in my office!

My website has received a face lift – looking good except for the front page, dagnabit. I’m no artist – I need something simple and just a little bit dynamic with very few words to read and just three choices to dive into the website. Thinkin’, thinkin’, thinkin… I have an idea for a simple Flash animation!

I am beginning my review of a number of proposals this week for several billion dollars from the TARP funds as a “citizen-expert reviewer” after being tapped personally by someone in the White House. This will be interesting. I’ll donate a workweek to insure that some of the TARP funds are wisely spent.

So why am I drumming my fingers? Well, it was watching the UN speeches today that brought movement to the fingers. Gaddaffi rambled on for quite a while in the old style of Castro. Ahmadinejad, greeted by Canadian protesters (I was unaware that Canadians ever protested in the streets), pronounced flowery rhetoric and disruptive talk for a while but said nothing at all really to the UN Assembly (to those few who stayed to listen). These fellows seem to have nothing productive to do. So, as I look around at what I have accomplished in my own small world lately, and look at how little these two are accomplishing in their own small worlds, I am mindful that I could have done much more. And should.

I am drumming my fingers contemplating my “next great thing”. Stay tuned…