The James Dicks Blog

Almost immediately following our New Year’s celebrations, we begin to see the advertising of various tax preparers hit the media on TV, radio, newspapers, magazines; even that guy standing on the corner dressed as the Statue of Liberty and waving you in to complete your taxes. This year is no exception; tax preparation is big business in the United States. Having someone else complete your taxes may cost you a few dollars but it does eliminate almost all of the stress and aggravation that goes along with the annual filing process. You’ll probably rest a bit easier too knowing that a tax “expert” will more than likely be able to do a better job and probably save you considerably more money than if you did it yourself.

I think you’ll agree that filing your taxes is probably the most important personal and/or professional administrative function that you are tasked to complete each year. It’s very important that the finished product is as accurate and as honest as possible, so keep this in mind when selecting the person you’ll be trusting with your annual tax return. There is absolutely no guarantee that the tax professional you ultimately select will do everything he/she can to save you as much money as possible. So you need to follow a definite process when considering the choice of a preparer.

First, your tax expert will be handling your most personal financial information. You should be able to develop an open relationship relatively quickly where you feel comfortable asking and answering important financial questions. You should feel secure enough to ask the preparer how much he/she personally paid in taxes last year. If the answer is anything but virtually nothing, you will want to be cautious of this particular person. If this kind of candid discussion bothers you, at least ask for some solid references of satisfied clients. Another way to locate a skilled tax preparer is to just ask your friends and family; especially those you know make a considerable income. I’m certain they will be more than happy to recommend someone who has served them well in the past. Never lose sight of the actual reason you decided to use a professional tax preparer in the first place; to legally obtain a greater tax savings than you could on your own. The keyword there is legally.

When I talk to others around the country about their personal financial issues, I seem to end up disappointing them because I consistently come down against the use of any and all illegal tactics that might be used to reduce someone’s tax burden. In fact, I surprise most people because I normally take it one step further by avoiding even the use of what are commonly referred to as tax “loopholes,” the use of which are not, technically, illegal. The only type of tax reduction plans I support are those that use completely legal tax strategies. These strategies are primarily focused on maximizing the use of all available deductions which a U.S. taxpayer can use. Flat-out tax cheating, which normally comes in the form of absolute tax evasion or the claiming of false deductions, in addition to being wrong, is illegal, and will probably send you to jail, give you the opportunity to pay huge fines – or both.

So, I believe the use of permissible tax reduction strategies is the only way to go. There are many of them to take advantage of and they range from standard deductions for which nearly all taxpayers can qualify, to deductions for which small business owners can qualify. Discuss these deductable areas with your tax preparer and develop a solid tax plan that will legally qualify you to use these deductions. You must take the time to learn which deductions are potentially available to you and maintain the required records for every deduction so you can support their use should you be challenged by the IRS. If you do it correctly, you will soon see just how valuable the use of these eligible deductions can be. When it relates to your taxes, always take the “high road” and always be completely honest. Believe me, the effort is worth it.

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AIG may need more government support to meet upcoming obligations. Are you kidding me?! I say see ya!! They should have thought about that after they borrowed money from the Fed the first time around and then paid huge bonuses to their top leadership.

When AIG first went to the “well” for money from the federal goverment, the Associated Press reported that the Obama administration’s pay czar, Kenneth Fienberg, said bonus payments totaling $100 million to AIG employees from the same unit that prompted a massive taxpayer bailout are “outrageous” but they were allowed under the law. He said the retention bonuses were contractual obligations agreed upon years ago, before American International Group Inc. received a $180 billion federal rescue at the height of the financial crisis in late 2008. In an interview on ABC, Feinberg said, “These are the old grandfathered payments. I do not for a minute ignore the outrage out there, which I share. But the fact of the matter is we’ve got to abide by the law.” Feinberg said he’s working to get back as much of the bonus money as possible. He said AIG employees have agreed to repay $39 million out of $45 million in previous bonuses to the U.S. Treasury.

Well now it’s too late to ask. If AIG employees got a bonus and the company still can’t get on their feet it’s time to eliminate the problem, just like everyone else and every other business in the world.

How about all the small businesses out there that are also having tough times. For the last year these small businesses have been eliminating overhead and cutting costs across the board, most small business owners tht are struggling have stopped paying their own paychecks in order to keep as many of their most loyal employees still on the books. No government support is in sight for them. Worse yet, it takes months and sometimes years to eliminate some of the most weighing liabilities only to wait even longer before the cash flow catches up.

As far as I am concerned, AIG had their chance. Yes, we will suffer for the downfall of AIG but it will get better and in the end we will be better. But we will have make some difficult decisions first. AIG is not the only insurance company out there. AIG has enough subsidiaries, and they can do what we all do, focus on the ones that are profitable and cut the ones that aren’t and that means if you can’t sell it — close it.

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Well, here we go again. April 15 is right around the corner which means it’s time to get your 2009 income tax done. Hopefully you’ve been working on your documentation throughout the past year but if you’re like most people, you only begin when you have to begin – which means you’re probably scrambling today. So, between now and April 15, I want to present you with some information that just may help your planning as you prepare to accurately fill in the blanks on your 2009 tax forms.

First, I urge everyone to use the long form when filing your return. One of the key errors made by people who pay too much in their annual tax bill is that they ultimately decide that the amount of time spent each year preparing their tax returns is more important than saving money for themselves and their families. They may not be consciously doing so but that is exactly what is happening. Our American society always seems to believe that faster is always better and for many events, that’s true. But, that may not be true when it comes to your tax strategy. The IRS gives precise guidance to those who are considering using the “EZ” form and the IRS website gives strict guidance to those who are considering using this form (www.irs.gov/taxtopics/tc352.html).

It’s very common for those using the “EZ” form to leave money “on the table,” whether directly or indirectly. When the IRS developed the short forms (1040A and 1040EZ), they did so as a method of making it easier for you to easily complete what most people consider a complicated task. Now I’m not a conspiracy theorist but I’m also not totally convinced that this was the real reason for creating these short forms. Rather I believe it was a masterful method of cutting back on the number of deductions that could be claimed each year against the government’s balance sheet.

I can’t deny that these forms are much easier to complete for those who fit the profile; but by doing so they end up paying the maximum amount of tax possible at particular income level. When an individual fills out the 1040 long form, they also open up all possible deductions that are available. The first time an individual fills out a long form, they usually quickly see the various deductions that they can’t take and this lesson will give them an opportunity to see where their tax planning might be lacking. One thing is for sure, you never pay more in taxes by using the long form. Once you become familiar with deductions that might be available to you, you will always pay less.

I would always recommend you take advantage of the knowledge of a tax professional, whenever possible. I’ll discuss that in my next article. But a professional will probably not miss the possible deductions that fit your personal situation. The IRS keeps track of the deductions that are most frequently overlooked by taxpayers and if you are a novice in developing an effective tax reduction strategy, then you’re probably completely unfamiliar with the numerous deductable opportunities that actually exist. A tax professional is constantly learning about the most current changes to the tax code and is, no doubt, up-to-date when it comes to the ever-changing tax laws.

By the way, the tax laws are still being developed for the 2009 reporting year because so many things have changed along with the new government in power in Washington DC. The stimulus package, the housing market, the Haitian disaster, and the rules of what is taxable and nontaxable as it pertains to unemployment benefits, have all contributed to creating questions in this year’s tax law. The estate-tax law is still out, and there have been reports that things have changed so much, so fast, that some of the forms needed aren’t even ready yet. This is going to be a very interesting tax season. Just make sure you’re prepared, learn all you can and make sure you are within the standards set forth by the tax code. Do it right the first time and meet all the deadlines on time but also make sure that you take advantage of every deduction you are qualified to take.

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