Tuesday, January 7, 2014

TAX SEASON HIATUS


THE LAKE REGION SOMETHING did not catch on as quickly as I had hoped – so I am taking my “tax season hiatus” a month earlier than planned.

I may return in May.

Sunday, December 1, 2013

DECEMBER 2013




DID YOU KNOW

The Alfred Hitchcock classic “The Birds” ends with Rod Taylor and Tippi Hendren driving out of Bodega Bay toward San Francisco.  But it is not how Hitch originally wanted it to end.

The original script ended with the car arriving in San Francisco to find the Golden Gate Bridge covered with birds.  The attacks were not over.

How do I know this?  The writer of the screenplay told me.

“The Birds” screenplay was written by novelist Evan Hunter, author of “the Blackboard Jungle”, “Strangers When We Meet”, and “Last Summer”.  Hitchcock wanted a “serious” novelist to pen the screenplay for “The Birds”.  Hunter had also written several episodes of “Alfred Hitchcock Presents” in the late 1950s.

I met Evan Hunter twice – at one of Donald Westlake’s murder mystery week-ends at the Mohonk Mountain House in upstate New York, and on a murder mystery cruise on the QE2.

Evan Hunter was also famous writing as Ed McBain, author of the long-running 87th Precinct series of police procedurals and the Matthew Hope series.

When Earle Stanlay Gardner decided to stop writing Perry Mason books the publisher wanted a new series to take its place.  They approached Hunter, who proposed the 87th Precinct.  However, back in the mid-50s detective fiction was not considered “legitimate” literature.  Hunter took the pen name of Ed McBain so as not to “tarnish” his reputation as a mainstream novelist.

Even Hunter was itself a pen name.  The author’s real name was Salvatore A Lombino.  He went to his final audit in July of 2005 at age 78.

 
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TAX PLANNING 101
 
You are paying too much income tax – and it’s nobody’s fault but your own!  You do not have to wait for Congress to pass a tax cut – you can enact your own personal tax cut with careful tax planning.

Tax planning is not just for the very rich.  It pays off whether you are in the 35% bracket or the 15% bracket.

Let’s review some of the basic concepts of tax planning, beginning with the most important.

  The first criteria for evaluating any transaction, strategy or technique should always be financial.  Taxes are second. Don’t let the tax tail wag the financial dog.

  Taxes are only pennies on the dollar.  There is no benefit in spending $1.00 needlessly to save 30 cents in taxes. You have not saved 30 cents – you have lost 70 cents!

  “The difference between tax avoidance and tax evasion is the thickness of a prison wall”.  Tax avoidance is the lawful and ethical use of accepted procedures to reduce your tax liability.  Tax evasion is a willful misrepresentation or concealment of information.  There are many legal ways to reduce your tax liability – too many to risk your future with tax fraud.

  Tax planning is a year-round process, and must take into consideration both short and long term consequences.  Handling a transaction in one way may result in a greater short-term tax saving, but may prove more costly in the long run.

  The application of any tax planning technique or strategy is dependent on the special “facts and circumstances” of each particular situation.  There are no “written in stone” strategies that apply to all taxpayers in all situations.  One man’s tax savings may result in another man’s overpayment. 

  To be a successful “tax-planner” you must first become more informed on federal and state taxes.  Learn what items you can, and cannot, deduct on your tax return, including the special items that are unique to your trade or profession and the rules governing any special situations that apply to you. Keep up-to-date on federal and state tax law changes.  Become a regular visitor to my blog “The Wandering Tax Pro”.  

  Tax planning is not something you should attempt on your own – you need a “partner”.  Just as you would consult a financial or investment professional for financial planning, you should consult a competent tax professional for tax planning. 


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FREE!   FREE!   FREE!   FREE!

The following reports are available free of charge from the publisher of THE LAKE REGION SOMETHING.  They will be sent as a “pdf” email attachment.

·      THE BOOK OF TAX LISTS

·      WHAT’S NEW FOR FEDERAL INCOME TAXES FOR 2013

·      WHAT’S NEW FOR FEDERAL INCOME TAXES FOR 2014

To request your free reports email taxprordf@mail.com with “Free Report Request” in the subject line and tell me which reports you want.

 
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SURFING USA  


AccuBroadway.com is the world's first and only personalizable, multichannel, all-Broadway radio station, with over two dozen channels of great musicals!

You'll find everything from classic shows like "South Pacific," "My Fair Lady" and "The Sound of Music" to modern shows like "Avenue Q" and "Jersey Boys." Plus the channels are customizable to your exact tastes! And they're free!

Unlike broadcast radio, you can customize AccuBroadway channels to your exact tastes!  Because it delivers a separate, unique music stream to each listener, you can pause songs, skip songs if you don't like them, and even, via the "Artists list" tab, "deselect" shows you don't want to hear!

You can choose Broadway shows by decade, composer, specialty (i.e. London casts, revivals, Overtures, and pop and jazz versions), school age (kids, middle school, high school, college), and various years of Tony winners.


This site shows what’s happening in Santa’s Secret Village. Kids can create their own story book, play games, read Christmas stories, write a letter to Santa and send Christmas Postcards to their friends.


Here you will find holiday treasures such as printable cards, lyrics to your favorite Christmas carols, songs, unique craft ideas, decorating and tips for Christmas shopping and hostess gifts. It has a lot of holiday stories, delicious recipes, links to other holiday web sites, and more, including fun, games, stories riddles, and other goodies for kids.

 
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YOU CAN NEVER GO BACK
 
The movies are famous for sequels.  Most are, as I have said here before, at best unnecessary and at worst an insult to the original.  But, while there are often revivals, Broadway musicals are not known for spawning sequels.

There has been no “West Side Story – The Next Generation”, “Return of the Music Man”, “Cabaret II – Back to Berlin”, or “Guys and Dolls and a Baby”.

There were two actual Broadway musical “sequels” in the early days of the genre. 

The 1906 George M. Cohan musical “Forty-Five Minutes from Broadway” had a successful 1907 sequel titled “The Talk of New York”.

And the first musical to win a Pulitzer Prize was 1931’s “Of Thee I Sing” with book by George S. Kaufman and Morrie Ryskind and music and lyrics by George and Ira Gershwin. The same team came up with the 1933 sequel “Let 'Em Eat Cake”, which was not as successful as its predecessor.

During my lifetime, which began in the 1950s, there have been, to my knowledge, three musical sequels that have had the same characters and similar situations as the “inspiration” and take place after the story of the original production.

The first is “Bring Back Birdie”, obviously a sequel to the classic “Bye Bye Birdie”, which had 31 previews and only 4 performances (the original had 607) back in early 1981 at the Martin Beck Theatre.  It reunited the creative team of Charles Strouse and Lee Adams and librettist Michael Stewart.  Chita Rivera reprised her role as Rosie, but Albert and Mae Peterson, Dick Van Dyke and Kay Medford in the predecessor, were played by Donald O’Connor and Maria Karnilova.  There was no sign of the McAfee family from the original, the patriarch of which was played by Paul Lynde.

In the sequel, 20 years after the end of the original, Albert, now an English teacher, os offered $20,000 if he can find Conrad, who has disappeared into obscurity, and persuade him to perform on a television show.  Albert takes a leave of absence and locates Conrad, now overweight and the mayor of Bent River Junction, AZ.

I was in the audience for one of the 35 performances.  There was an unsuccessful try at updating the innovative “Telephone Hour” production number idea using videos.  And Donald O’Connor considered attempting to reprise his “Singing in the Rain” off the wall back flip during one of his solo numbers, but thought better of it considering his age.

Despite its short run, Chita Rivera was nominated for a Tony and a Drama Desk Award as Best Actress in a Musical for BBB2.  The original “Bye Bye Birdie” was nominated for, and won, many Tonys 20 years earlier, including Best Musical, Best Actor in a Musical, Best Direction, and Best Choreography.

Ken Mandelbaum writes in his book “Not Since Carrie, 40 Years of Broadway Flops” –

’Bring Back Birdie’ may rank as the worst Broadway musical ever to be created by top-level professionals.  The book was tasteless and ridiculous.”

I met BBB librettist Michael Steward, who also wrote the books for “Hello Dolly” and “42nd Street”, when he was a guest lecturer on one of my post-tax season transatlantic crossing on the QE2 back in the 1980s.  I saw the original “Bye Bye Birdi”" during its Broadway run, but with “Match Game” host Gene Rayburn and not Dick Van Dyke.  I also saw the recent inferior Broadway revival.

“Annie”, which first promised Broadway audiences in early 1977 that “The Sun Will Come Out Tomorrow”, had not one but two attempts at a sequel.

The first was “Annie 2: Miss Hannigan’s Revenge”, which opened at the John F Kennedy Center for the Performing Arts in Washington DC in December 1989 to “universally disastrous reviews”. 

Wikepedia reports that “extensive reworking of the script and score proved futile, and the project was aborted before reaching Broadway.”

The second attempt was made in 1993, with a completely different plot and score.  “Annie Warbucks” opened off-Broadway at the Variety Arts Theatre, where it ran for 200 performances.  It never made the transition fo Broadway.  I have not seen either sequel.

The third Broadway musical sequel, which did briefly make it to Broadway, was “The Best Little Whorehouse Goes Public”, which had 28 previews and 16 performances in the spring of 19194.  The same creative team returned for the sequel, including Tommy Tune as co-director and co-choreographer.  It told the tale of the best little whorehouse in Las Vegas.

Miss Mona, madam of the original Chicken Ranch, is coaxed out of retirement to take over the Las Vegas brother “Stallion Fields”, which has been seized by the government and is being run by the IRS in hopes of recovering $26 Million in back taxes.  Mona is once again at odds with a zealous right-wing politician trying to close the “house” down.

The New York Times review indicated that, while it had all the glitz one expects from Las Vegas, and even had Siegfried and Roy (portrayed by one actor – half Siegfried and half Roy), “What is ain’t got is fun”.

Dee Hoty, who played Miss Mona, was nominated for a 1994 Tony as Best Actress in a Musical.  I also did not see this fiasco.

While “Lorelei”, which I did see, opens and ends years after the original “Gentlemen Prefer Blondes” story takes place, it is not so much a sequel as a revival of GPB, created to capitalize o the popularity of Carol Channing after “Hello Dolly”.  So it doesn’t count.  In the show Lorelei remembers her earlier Atlantic crossing while embarking on another after many years of marriage.

“Lorelei” opened January 27, 1974, at the Palace Theatre and ran 320 performances.  It had updated lyrics by Comden and Green and a new book by Kenny Solms and Gail Parent with a few scenes and songs thrown in to book-end the original show and score.  In addition to Carol Channing, the show also featured Peter Palmer (Broadway’s “Little Abner”), Dody Goodman, and Lee Roy Reams, who would many years later appear again with Carol in one of the revivals of Dolly.

So there you have it – the extent of Broadway’s experimentation with sequels.  Did I miss any?


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FINE WHINE

This piece is brought to you by the letters B and M.

I love PBS.  I love that it brings us Britcoms and British mysteries, and that it is the only source of true “variety” left on television via “Great Performances”, concerts, and re-broadcasts of classic variety shows and specials. 

But one of the things that really burns my toast, probably more than anything else, is the PBS custom of “pledge breaks”.

A good example of this, to me despicable, practice was the recent “Great Performances” presentation of Barbra Streisand’s Brooklyn concert.  Every 20 minutes the concert was interrupted for 10 minutes of begging.

And, as is also the custom in these cases, I expect that we did not see the entire concert.  There is always some songs or performances “held back” as a teaser to get you to contribute enough to receive, as your gift, the DVD of the entire concert or show you are watching.

I want to see a show in its entirety, as it was originally performed, without constant begging breaks!

I have said for years that I refuse to donate to PBS until they do away with these “begging breaks”. 

Earlier this year I was pleased to see on, I believe, the local Pennsylvania PBS station a new pledge concept.  A popular show had only 2 pledge solicitations - before and after the show.  The show itself was not constantly interrupted by begging breaks.  This was great – and a solution I would gladly support.  But I guess this was not successful, as I only remember it on one occasion.

Thanks for letting me vent.

 
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AN INTERESTING QUESTION

Readers of THE WANDERING TAX PRO often submit tax questions for my consideration.  Here is an interesting one I received a few years ago -

Q. Can you cash a check from the collection plate in church?

A. That is not a tax question. But I know what you are getting at, you sly dog - and that is cheating!

I remember reading many years ago of a church member who approached the pastor with a concern. It seems that the cash from the Sunday collection plate was placed in a safe in the church office overnight and not deposited until Monday. The member was concerned about leaving large sums of money in what was not a very sturdy safe overnight, as the church was not in the best of neighborhoods.

The church member had a retail business and needed cash in all denominations for the register. He came up with an idea that would benefit both the church and himself (you bet it would benefit himself). Each Sunday after the service he would give the pastor a check for the bulk of the cash in the collection plate and take the cash for use in his retail store. The pastor thought this was a wonderful idea and took him up on it.

Each week the member would write a check, payable to the church and not to “cash” (he told the pastor a check payable to the church could not be cashed by a thief, while one made out to “cash” could) for a nice round figure ($200.00 and not $203.75 - this was easier for his bookkeeping he said) to cover the bulk of the cash in the plate.

When it came time to prepare his taxes he claimed as a charitable contribution the sum of all the checks he had written to the church during the year, which included his normal pledge and holiday donations as well as the weekly checks he wrote to the church for the cash in the plate!

I don’t remember how this person had been caught – only that his “scam” had indeed been uncovered by the IRS in audit.

Needless to say this is pre-meditated tax fraud, and anyone who does this is subject to all the various and sundry criminal penalties and fines that go with tax fraud.
 

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ALWAYS LEAVE ‘EM LAUGHING

I found this here
 
An Internet Christmas:

'Twas the night before Christmas, when all through the Net,
There were hacker's a surfing. Nerds? Yeah, you bet.
The e-mails were stacked by the modem with care,
In hopes that St. Nicholas soon would be there.

The newbies were nestled all snug by their screens,
While visions of Java danced in their dreams.
My wife on the sofa and me with a snack,
We just settled down at my rig (it's a Mac).

When out in the Web there arose such a clatter,
I jumped to the site to see what was the matter.
To a new page my Mac flew like a flash,
Then made a slight gurgle. It started to crash!!

I gasped at the thought and started to grouse,
Then turned my head sideways and clicked on my mouse.
When what to my wondering eyes should appear,
My Mac jumped to a page that wasn't quite clear.

When the image resolved, so bright and so quick,
I knew in a moment it must be St. Nick!
More rapid than mainframes, more graphics they came,
Then Nick glanced toward my screen, my Mac called them by name;

"Now Compaq! Now Acer!", my speaker did reel;
"On Apple! On Gateway!" Santa started to squeal!
"Jump onto the circuits! And into the chip
Now speed it up! Speed it up! Make this thing hip!"

The screen gave a flicker, he was into my "Ram",
Then into my room rose a full hologram!
He was dressed in all red, from his head to his shoes,
Which were black (the white socks he really should lose).

He pulled out some discs he had stored in his backpack.
Santa looked like a dude who was rarin' to hack!
His eyes, how they twinkled! His glasses, how techno!
This ain't the same Santa that I used to know!

With a wink of his eye and a nod of his head,
Santa soon let me know I had nothing to dread.
He spoke not a word, gave my Mac a quick poke,
And accessed my C drive with only a stroke.

He defragged my hard drive, and added a "Dimm",
Then threw in some cool games, just on a whim!
He worked without noise, his fingers they flew!
He distorted some pictures with Kai's Power Goo!

He updated Office, Excel and Quicken
Then added a screensaver with a red clucking chicken!
My eyes widened a bit, my mouth stood agape,
As he added the latest version of Netscape.

The drive gave a whirl, as if it were pleased,
St. Nick coyly smiled, the computer appeased.
Then placing his finger on the bridge of his nose,
Santa turned into nothing but ones and zeros!
 
He flew back into my screen and through my uplink,
Back into the net with barely a blink.
But I heard his sweet voice as he flew from my sight,
"Happy surfing to all, and to all a good byte!"

 

MERRY CHRISTMAS AND HAPPY NEW YEAR!
 
 
IF YOU LIKED THIS "ISSUE" OF THE LAKE REGION SOMETHING TELL YOUR FRIENDS, FAMILY, AND CO-WORKERS.

SEE YOU NEXT MONTH!

Friday, November 1, 2013

NOVEMBER 2013


DID YOU KNOW?
 
Spiderman is not the first comic book super-hero to appear on the Great White Way.
 
In March through July of 1966 IT’S A BIRD, IT’S A PLANE, IT’S SUPERMAN ran for 19 previews and 129 performances at the Alvin Theatre.  I was in the audience for one of these performances.
 
This musical had a more traditional Broadway pedigree than today’s Spiderman adaptation.  Music and lyrics were by Charles Strouse and Lee Adams (ANNIE, APPLAUSE, BYE BYE BIRDIE, etc), and it was produced and directed by Hal Prince.   
 
While it had Lois Lane, there was no Lex Luthor.  The villains of the piece were a mad scientist and the Daily Planet’s Winchell-esque gossip columnist Max Mencken, played by Broadway veteran Jack Cassidy (father of “Tiger Beat” favs David and Shaun and husband of Partridge Family mom Shirley Jones).  
 
Also in the cast, as Cassidy’s assistant, was Linda Lavin, who would go on to fame on the small screen as Alice, a waitress at Mel’s Diner. Appropriately initialed for the “silver age” Superman, LL sang the show’s one contribution to the Great American Songbook – “You’ve Got Possibilities” – which was featured a few years back in a Pillsbury Doughboy commercial.
 
According to the Superman Supersite  –
 
The plot revolves around Superman's efforts to defeat Dr. Abner Sedgwick, a ten-time Nobel Prize-losing scientist who seeks to avenge the scientific world's dismissal of his brilliance by attempting to destroy the world's symbol of good. Additionally, Superman comes into romantic conflict with Max Mencken, a columnist for the Daily Planet newspaper, who resents Lois Lane's attraction to Superman.”
 
FYI, to find out everything you always wanted to know about Broadway go to www.ibdb.com.   The Internet Broadway Database archive is the official database for Broadway theatre information. IBDB provides records of productions from the beginnings of New York theatre until today. Details include pertinent people involved as well as interesting facts and production statistics.
 
Get a list of every production of Hamlet on Broadway or a list of your favorite actor's credits. Find out what shows opened in a specific Broadway season.  I use IBDB often to verify my memory and to fill in missing or forgotten information for my writings on Broadway.
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It is that time of the year again – time for year-end tax planning.

I shared my year-end strategies and advice at the MainStreet.com Tax Center”.  Here is what I wrote there -
· Year-End Tax Planning 2013covers the basics of year-end tax planning and how to apply them to 2013.
· Year-End Tax Essentials: News You Need to Usediscusses a special year-end tip you can use to make up under-withholding and avoid a penalty for underpayment of estimated tax.
· Year-End Tax Advice: Essential 2013 Knowledgetalks about two year-end charitable contribution strategies.
· What's New for Federal Income Taxes for 2013?provides tax facts and figures for 2013 that you will need to know when doing year-end tax planning.
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This November marks the 60th anniversary of my birth.

I am thrilled to have made it this long, and want to share my joy with the readers of THE LAKE REGION SOMETHING.

I will combine my special reports MY BEST TAX ADVICE and ITEMIZED DEDUCTIONS: A COMPLETE GUIDE TO SCHEDULE A (2013 Edition) and provide a 60% discount (click on the title for information on the report).

MY BEST TAX ADVICE sells for $4.95 and ITEMIZED DEDUCTIONS: A COMPLETE GUIDE TO SCHEDULE A sells for $6.95.  Normally the cost of both would be $11.90.  The special price for the two will be $4.76 for all orders that are postmarked in November!

Send your check or money order for $4.76 payable to Taxes and Accounting, Inc to –

SPECIAL LRS NOVEMBER OFFER
TAXES AND ACCOUNTING INC
POST OFFICE BOX A
HAWLEY PA 18428

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IS AN MBA DEDUCTIBLE?

You can deduct as an “employee business expense” the cost of education that is (1) expressly required by an employer, by law, or by government regulation, or (2) maintains or improves skills required in your current trade or business.
 
Education is NOT deductible if it (1) is the minimum requirement for a trade or business, or (2) prepares one for a new trade or business, even if the taxpayer does not intend to enter the new trade or business.
 
Are the costs of obtaining a Masters in Business Administration (MBA) or equivalent degree deductible as a business expense?  As with just about every other tax question the answer is “it depends”. 
 
According to the Tax Court – Yes, an MBA is deductible and No, it is not.
 
First the YES.
 
A taxpayer was employed to sell sports-related products because of his prior experience in sports medicine.  In the course of his job he performed management, marketing, and financial tasks.  Encouraged by his employer, he enrolled in an MBA program in the hopes of “moving up the ladder”.  As a result of his studies he was promoted.
 
The Tax Court, in D.R. Allenmeier Jr, T.C. Memo 2005-207, found that –
 
Encouraging the taxpayer to obtain an MBA degree as a means of advancing through the company did not amount to a “minimum requirement” for promotion, and neither did the fact that the taxpayer actually advanced as a result of the MBA program,
 
The MBA degree did not prepare the taxpayer for a new trade or business, as he was already performing managerial and financial tasks before enrolling in the program, and, while he was promoted as a result of the MBA, he did not change the basic nature of his duties, and
 
While a degree that qualifies a taxpayer for a professional certification or license, such as a law degree, may prepare him for a new trade or business even though he had previously been performing essentially the same tasks, an MBA does not qualify one for a professional certification or license.
 
The cost of the MBA degree was deductible.
 
Now the NO.
 
A taxpayer had been employed by several financial firms as a “financial analyst”.  In the investment banking industry a financial analyst is a temporary position which usually does not last more than 2 or 3 years.  An MBA degree is a requirement for an “associate”, which is a permanent position.  The taxpayer received a Master of Management degree, the equivalent of an MBA, and obtained a position in the general management program of a management firm.
 
The Tax Court, in Will M McEuen III et. ux v. Commissioner, T.C. Summary Opinion 2004-107, found that –
 
The taxpayer enrolled in the degree program to meet the minimum education requirement for an associate in the investment banking industry, and
 
The degree qualified the taxpayer for a new trade or business because the education allowed him to perform significantly different tasks than those performed prior to enrollment in the program.
 
The cost of the degree was not deductible.
 
As is often the case in tax law, the deductibility of an MBA or equivalent degree depends on the “facts and circumstances”.
 
If you can’t deduct your MBA as a business expense you may be able to claim some of the costs as a deduction or credit elsewhere on the return.

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SURFING USAwww.BringFido.com   
 
Whenever my uncle would visit my mother, his sister, at the Methodist Home he would bring his kirn terrior Fergus.  I was able to find a nearby motel that allowed pets on this site.
 
BringFido.com is a dog travel directory that provides unbiased reviews, detailed pet policy information, and online reservations at more than 30,000 pet friendly hotels and motels worldwide. Information is also available on thousands of bed & breakfasts, vacation rentals, and campgrounds that welcome pets in 150 countries worldwide.  Bring Fido has confirmed the pet policy at every hotel listed on the website, so there won't be any surprise pet fees, weight limits, or other restrictions when you check-in at the hotel.
 
It also lists dog-friendly attractions and restaurants, dog events, and free “stuff” for pets.
 
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EVALUATING
TAX-FREE INVESTMENTS
 
With the yield on tax-free municipal bonds today relatively high when compared to the current yield on most taxable investments, it pays to take a serious look at tax-free bonds and bond funds as an investment alternative.

When evaluating tax-free municipal bond investments you must first determine the “equivalent taxable yield” of the investment.  This is done by subtracting your effective tax rate from 100% and dividing the tax-free yield by the result.

Let us say you are a New Jersey resident in the 25% federal and 5.525% state tax brackets.  You will be able to itemize, and you are not subject to the Alternative Minimum Tax (AMT), so you save 25% of the 5.525% state tax.  Your effective tax rate is 29.144% (5.525% x 75% = 4.144% + 25%).  100% - 29.144% = 70.856%.

A 3% yield on a NJ-issued municipal bond is equal to earning 4.23% on a taxable investment (3% divided by 70.856% = 4.23%).  You would have to earn at least 4.25% on a taxable investment to come out with more money in your pocket.

If you are not able to itemize in the above example your effective tax rate would be 30.525% (25% + 5.525%).

If you are looking at a bond from another state – you live in New Jersey but the bond is issued by Dade County, Florida – you would use only your federal tax bracket in the calculation.  Interest from non-NJ municipal bonds is taxable on the NJ state resident income tax return.  This is true for most states.  If you are in the 25% bracket a municipal bond yielding 3% would be the equivalent of a 4% taxable investment (3% divided by 75%).

Many municipal bond funds invest in bonds from more than one state, so the calculation becomes more complicated.  In such a case you should use only the federal tax bracket. 

While it is true that interest on the obligations of a state or local government is exempt from federal income tax under IRC Section 103(a), tax-free bond income is not always tax-free.  You should take the following facts into consideration when looking at tax-free municipal investments –

Tax-free bond income reported on Line 8b of your Form 1040, or 1040A, is included in the calculation of the taxable portion of Social Security and Railroad Retirement benefits.  It is possible that each $1.00 in tax-free bond interest will result in an additional 85 cents of taxable Social Security or Railroad Retirement benefits.   

Tax-free income from “private activity bonds”, which is separately reported on Form 1099-INT, is considered a “tax preference” for purposes of calculating Alternative Minimum Tax.  If you are a victim of the AMT the interest from these bonds are taxed at a rate of 26% or 28%.

If you sell a tax-free bond or shares in a tax-free bond fund for more than your cost you must pay federal income tax on the capital gain.  If you buy a bond for $10,000 and sell if for $10,500 you have a $500 taxable capital gain.  However, if you sell the bond for $9,500 you have a $500 deductible capital loss.  Any “accrued interest” that is included in the purchase or sale price of the bond is not included in determining taxable capital gain. 

If you borrow money to buy a tax-free investment the interest paid on the loan is not deductible as “investment interest” on Schedule A. 

If you are age 65 or older, tax-free bond income reported on Line 8b of your Form 1040, or 1040A, is included in determining if you must pay higher future Medicare Part B and Part D premiums.   

As with any investment, changes in interest rates could affect the value of a municipal bond of shares in a muni bond fund. 

When considering investing in tax-free bonds you should consult your tax professional as well as your broker.

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ONCE, YES, ONCE IS DELICIOUS – BUT TWICE WOULD BE VICIOUS, OR JUST REPETICIOUS
 
Most remakes are at best unnecessary and at worst an insult to the originals. Yet Hollywood continues to crank out mediocre remakes featuring actors who are inferior to the stars of the originals (I am waiting for an announcement that THE WIZARD OF OZ will be remade with Selena Gomez).

The remake of THUNDERBALL also starred Sean Connery as James Bond.  While not a bad movie, NEVER SAY NEVER AGAIN was totally unnecessary. The sole motivation for making the movie was money – to cash in on Sean Connery returning to the role of James Bond for one last time.

Adam Sandler is no Burt Reynolds, let alone a Gary Cooper (one critic wrote, “Adam Sandler is to Gary Cooper what a gnat is to a racehorse.”). His remake of THE LONGEST YARD was totally unnecessary and his remake of MR DEEDS GOES TO TOWN was a true insult to the classic original.  Sandler makes movies aimed at 5th grade boys (or at least those with the sense of humor and maturity of 5th grade boys) – and both originals were made for adults.

As an aside – a good rule of thumb is to ignore any film starring, or produced by, Adam Sandler.

A literal shot-by-shot remake of Alfred Hitchcock’s PSYCHO added absolutely nothing to the original.

There was even a remake of the classic Cary Grant-Audrey Hepburn romantic thriller CHARADE, perhaps "the" classic film of its genre, titled THE TRUTH ABOUT CHARLIE.  Perhaps the worst decision made by Hollywood in decades, it, rightfully so, lasted about a day and a half in the theatres.

Some remakes are not really remakes - they simply steal the title and a basic plot idea. The producers hope to boost the box office of their movie by evoking memories of a far superior film. The Steve Martin CHEAPER BY THE DOZEN films had absolutely nothing to do with the Clifton Webb original (or its sequel) other than the fact that the films are about a family with 12 children.  There Martin films were certainly inferior.

Don’t get me wrong. There have been remakes that have improved and expanded on the original film – though this is the exception and not the rule. In two of the best examples of this exception the remake was done by the same director. Alfred Hitchcock remade his THE MAN WHO KNEW TOO MUCH some 22 years after the original. And Frank Capra remade his 1933 film LADY FOR A DAY as POCKETFUL OF MIRALCES in 1961. Although I have not seen the original films, the remakes are certainly top notch classic films.

KING KONG was remade twice. The 1933 original was a breakthrough masterpiece. The first remake, made in 1976, was totally unnecessary, and inferior in every way, even though I was in the film (my friend Howard Bernstein and I were among the crowd that ran across the top of the World Trade Center tower to avoid a falling Kong). The “threemake” was better, and relatively respectful to the original.  However the casting of Jack Black was, in my opinion, a big mistake.

So, does anyone out there want to suggest a movie sequel that you think was better than the original?

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MY FIRST 1040

In last month’s THE LAKE REGION SOMETHING I talked about the first 1040.  Now let me reminisce about my first 1040.  Ah, yes.  I remember it well.

My first encounter with income taxes came when I was in my second semester as a freshman at local Jesuit institution St Peter’s College (I am not Catholic – it had a good rep for business). I had taken the first half of Accounting 101, but had not taken any tax classes.  And I had never prepared a tax return, not even my own. 

My uncle’s tax preparer, James P Gill, would hire students from St Peter’s College during the tax season as apprentice tax preparers. During his annual visit, always on Lincoln’s Birthday (then an actual legal federal holiday), my uncle happened to mention to Jim that I had taken my first accounting course and that I was helping him with the books for the non-profit organization he worked for. Jim told my uncle to send me in to see him – and the rest is history!

On my first visit to Jim’s office he took me to a desk in the outer office, gave me a copy of a client’s previous year’s tax return and a briefcase full of papers that constituted the current year’s tax “stuff”, and told me to “jump in and swim”.

The first Form 1040 that I did as a paid preparer was the 1971 model (I can actually tell you the name of the taxpayer on the very first 1040 I worked on). There have been tons of changes to the 1040 over the years.

On Page 1 of the 1971 Form 1040 one would indicate name, address and Social Security numbers of the filer(s). In the case of a return for a married couple the names were listed as “Richard and Mary Taxpayer” on one line instead of a separate line for the name of each spouse. The filing status was checked and exemptions were claimed. The taxpayer and spouse could each claim an additional exemption for being 65 or over and blind. The names, but not Social Security numbers, of dependent children were listed, with no indication of whether they “lived with you” or “did not live with you”. The names, but again not Social Security numbers, of “other” dependents were listed on Page 2 of the 1040.

Income was reported on Lines 12 through 18 of Page 1, with lines for wages, dividends (no designation of “qualified”), interest (taxable only – no reporting of tax-exempt interest), and “income other than wages, dividends and interest”, the sub-total, total “adjustments to income” and Adjusted Gross Income. The Line for dividends include (a) for gross dividends and (b) for an exclusion amount. If gross dividends and/or total interest exceeded $100 one would have to complete and attach Schedule B.

The net tax liability was reported on Lines 19 through 23. Federal Income Tax withheld, Estimated Tax Payments, and “Other payments” were deducted and a balance due or refund was indicated.

Line 31 of the Form 1040, and not Schedule B, was where the taxpayer was asked about foreign accounts.

Page 2 of the Form 1040 consisted of Part I where other dependents were listed, along with relationship, months live in taxpayer’s home, did dependent have income of $675 or more, amount taxpayer furnished toward support, and amount furnished by all others, including the dependent, but not the dependent(s)’ Social Security number(s).

Specific items of income, adjustments to income, credits, other taxes, other payments, and the actual Tax Computation were reported on Lines 34 through 64 in Parts II through VII.

Social Security, Railroad Retirement, and Unemployment benefits were totally exempt from federal income tax. One could use the “3-year” rule for recovering employee contributions to determine the taxable portion of pensions and annuities. This was calculated on Part I of Schedule E.

Adjustments to income included –
 
* “sick pay”,
* Moving expense,
* Employee business expense, and
* Payments as a self-employed person to a retirement plan, etc.

The only credits indicated on the 1040 were –
 
* Retirement income credit,
* Investment credit, and
* Foreign tax credit.

The personal exemption amount was $675. Tax could be calculated by “using Tax Rate Schedule X, Y or Z, or if applicable, the alternative tax from Schedule D, income averaging from Schedule G, or maximum tax from Form 4726”. Other taxes included a line for “Minimum tax”, not yet alternative.

On Schedule A –

* medical and dental expenses were reduced by 3% of Adjusted Gross Income (this was the only item on the Form 1040 that was reduced based on AGI),

* taxes included state and local gasoline tax (from gas tax tables), general sales tax (from sales tax tables) and (not or) state and local income tax, with an additional deduction allowed for sales tax paid on “major purchases”,

* contributions were deductible pretty much as they are now, except there was no strict requirement for documentation,

* interest expense included not only home mortgage interest (fully deductible – no principle restrictions) but also interest on installment purchases and credit cards, and

* miscellaneous deductions were not reduced by a % of AGI; certain employee business expense, as mentioned earlier, were deductible as an “above-the-line” adjustment to income.

Schedule D allowed for a 50% deduction for net long-term capital gain – only half of such gains were included in AGI. So if net long-term capital gain (or net combined long-term and short-term gain if smaller) was $10,000, only $5,000 was reported as income on Page 2 of Form 1040. The maximum net capital loss deduction was $1,000.

The starting tax rate was 14% and the top was 70%, although the rate for “earned income” such as wages was capped at 50% - hence the “Maximum Tax” calculated on a Form 4726.

The 1971 standard deduction was $1,050 for both a single person and a married couple. The standard deduction was originally 10% of AGI up to a maximum of $1,000. It wasn’t until 1975 that the standard deduction for married was more than that for single. 

Obviously the 1971 tax returns were prepared by hand. We didn’t even have photocopies back then (at least where I worked). The returns were written, or sometimes typed, on 3-copy carbonized forms purchased from Accountants Supply House in Valley Stream, New York State.

So tax rates were higher back then – but there were a lot more deductions allowed. And one could also use either Income Averaging or 10-Year Averaging to cut thousands off a large tax bill.

How do I remember all this? My memory is good – but not that good. I have a client, originally a client of my mentor Jim Gill, for whom I have a copy of every single Form 1040 filed since 1970 in the file.

So do you think the Tax Code is better now, or was it “more better” back then?

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A QUESTION ANSWERED

Also in last month’s issue of THE LAKE REGION SOMETHING I told you that “I also want to know what Billy Joe MacAllister and his friend were throwing off the Tallahatchie Bridge when they were sighted by Brother Taylor.”

Well a long-time 1040 client provided me with the answer.

Here is what Bobbie Gentry told an interviewer -

"It's in there for two reasons.  First, it locks up a definite relationship between Billie Joe and the girl telling the story, the girl at the table. Second, the fact that Billie Joe was seen throwing something off the bridge -- no matter what it was -- provides a possible motivation as to why he jumped off the bridge the next day."

I suppose that, like “what the mama saw” in the Paul Simon song, there was no specific item in mind when the song was written.

The song was so popular that nine years after its release, in 1976, Warner Bros adapted it into a movie, directed and produced by Max Baer, Jr (aka Jethro Bodine) and starring Glynnis O’Connor and Robby Benson. In the screenplay, and its novelization, Billy Joe kills himself after a drunken homosexual experience, and the object thrown from the bridge is the narrator's ragdoll.

FYI, according to Wikepedia -

The song "Ode to Billie Joe" was originally intended as the B-side of Gentry's first single recording, a blues number called "Mississippi Delta", on Capitol Records. The original recording, with no other musicians backing Gentry's guitar, had eleven verses lasting seven minutes, telling more of Billie Joe's story. The executives realized that this song was a better option for a single, so they cut the length by almost half and re-recorded it with a string orchestra. The shorter version left more of the story to the listener's imagination, and made the single more suitable for radio airplay.”

Now I still want to know why Mr. Baker’s secretary had to leave Harper Valley.

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EDITORIAL: WE NEED TO VOID

As we all know, thanks to the continued irresponsibility of the idiots in Congress the United States government was shut down for over two weeks last month.

The immediate cause of the shutdown was the Republican Party’s pandering to the fanatical Tea Party and religious right.   It seems mainstream Republicans are more afraid of Tea Party challenges in primary elections than they are of challenges from Democrats in the general election.

But the Democrats are certainly not without blame.

The theme of American politics today is truly “clowns to the left of me, jokers to the right”.  The current members of Congress, Republican and Democrat, Conservative and Liberal, are self-absorbed idiots incapable of independent thought and incapable of working together to accomplish anything.  Waiting until the very last minute to act, and then not acting but merely postponing the need for action, has become the rule and not the exception.  As a tax professional I have certainly seen this in my world.

If there is anyone out there who believes that politicians make decisions based upon what was good for the country rather than what would help them perpetuate their positions of power please let me know because I have a bridge for sale.

It is obvious that the primary motivation and goal of the members of Congress is to maintain their individual power and influence and increase the power and influence of their respective parties.  They do not give an airborne sex act about what is best for the country or the American public.  There are as many “statesmen” in Washington as there are mimeograph machines!

Much of the recent nonsense has involved what is known as “Obamacare”, a piece of legislation that was legally passed by both houses of Congress and was upheld as Constitutional by the Supreme Court.

“Obamacare” is not the spawn of the devil, nor is it the answer to all our problems.  It is a flawed piece of legislation that was passed by flawed idiots who did not actually read in full the bill they were voting on.  It appears that this is also a common practice in Washington.  “Obamacare” has both good and bad components.

Universal health insurance coverage is a concept that is good for the individual American and good for the country as a whole.  The more people who are covered by health insurance, the less government money that has to go to Medicaid.  And the more people who are covered by health insurance, the lesser the expenses that hospitals have to recover through inflated fees and charges.  It is good public economic and health policy to encourage and assist individuals to acquire health insurance coverage.

But individuals should not be forced to sign up for health insurance, and businesses should not be forced to provide coverage for employees, by being assessed a penalty for not doing so.

It is more productive in life, commerce, and government to provide incentives to encourage positive or desired action than to “punish” individuals for not doing what is desired.  Years ago when I was the accountant for an art school we decided it was “more better” to provide a discount for those who registered early than to charge those who registered late an additional fee.

If members of Congress have legitimate issues with provisions of “Obamacare” they should introduce legislation to fix what is wrong.

The Tea Party is dangerous, especially because its basis in fundamentalist religion.  America was created on religious freedom.  The separation of Church and State is one of the most important tenets of American democracy.

Religious belief is personal and individual.  It should not be legislated, or used as the basis for legislature.  Throughout history, today included, whenever specific individual religious beliefs have been enacted as law the result has been harmful for the individual citizen, the government, and the world community.  

If your religious beliefs instruct you that abortion is bad – then do not have an abortion.  You can certainly bring to the attention of those who might consider such an act the various other options available.  But you cannot force your religious belief on an inconveniently pregnant neighbor, regardless of any sincere desire to save her from the “fires of hell”.

If you believe “Thou shalt not lie with mankind, as with womankind: it is abomination” then do not lie with mankind.

A good example of “best practice” is the Amish.  They have very distinct and unique religious beliefs that govern every aspect of their daily life – but they do not require that all others accept their beliefs, nor do they condemn those who do not believe as they do.  It is a personal choice.  I do believe (and correct me if I am wrong) that they allow their children, upon reaching maturity, the opportunity to choose for themselves.

Murder is not illegal because God says “Thou shalt not kill”.  It is illegal because it denies one of the right to life, liberty and the pursuit of happiness.  Is not the charge of murder on a federal level considered “violating civil rights”?

I was brought up a “northern” Methodist.  My parents' entire social life, and much of mine in my early years, revolved around our church and congregation.  But my parents did not attempt to impose their individual religious beliefs on others.  They practiced their religion by the way they conducted their lives and the way they treated others.

One’s religious beliefs may cause a person to become involved in political activity as a way of helping society and one’s “fellow man”, but one’s religious beliefs should not be legislated.

The bottom line to all this is that at election time we should VOID - Vote Out Incumbent Dysfunction.  Or, to put it another way, we need to get a GRIP - Get Rid of Incumbent Politicians. 

Vote against every current member of Congress that is running for re-election.  But whatever you do, DO NOT vote for any candidate that is a member or supporter of the Tea Party!

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ALWAYS LEAVE ‘EM LAUGHING!

Three contractors are bidding to fix a broken fence at the White House in D.C. -- one from New Jersey, another from Maryland and the third from Florida. They go with a White House official to examine the fence.

The Florida contractor, Jonathan, takes out a tape measure and does some measuring, then works some figures with a pencil. "Well", he says, "I figure the job will run about $900: $400 for materials, $400 for my crew and $100 profit for me."

Cletus, the Maryland contractor also does some measuring and figuring, then says, "I can do the job for $700: $300 for materials, $300 for my crew and $100 profit for me."

Vito from Jersey doesn't measure or figure, but leans over to the White House official and whispers, "$2,700". The official, incredulously, says, "You didn't even measure like the other guys! How did you come up with such a high figure?" The New Jersey contractor whispers back, "$1000 for me, $1000 for you, and we hire the guy from Maryland to fix the fence."

"Done!" replied the government official.
 
 
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SEE YOU NEXT MONTH!