So You Say You’re Depressed

No, not speaking of the economy just yet, but your overall mood.  And as a result, you filed your tax return late, and are trying to wiggle out of the late filing penalty, for which there are any number of “reasonable cause” excuses.

            But “depression” apparently isn’t one of them, according to a recent decision in California by the state’s Board of Equalization.

            Seems our poor taxpayer suffered from a big dose of depression due to violent domestic abuse foisted upon her from her tennybopper son.  The whole mess resulted in her filing late, so she claimed depression as a “reasonable cause” excuse.  She claimed that she was unable to function and manage her business affairs for a whopping two years after the abuse.

            The Franchise Tax Board wasn’t buying it – auditors determined that the incident which triggered the depression occurred more than one year before the due date for the return in question.  And FTB convinced the BOE to sanction the imposition of the penalty.

            So much for sympathy.

            And if you’re a business out there, and you think the impending expiration of the “Bush Tax Cuts” will only affect individual taxpayers, check out the latest study by the Tax Foundation, which notes that more than one third of the revenue from an increase in the top two tax rate brackets will come from business income.

            How so?  Well, it seems that about 39 percent of the $630 billion tax increases on high-income taxpayers (those earning more than $250,000 per year, according to Obama) would come from business income – remember that many smaller businesses are conducted in partnership or “S” corporation form, which means that the tax burden associated with whatever profits there may be are reflected not on the entity’s books, but on the tax returns of the owners.

            “The fact that ‘only’ 2 or 3 percent of taxpayers with business income would face higher taxes is meaningless to the debate,” quoth Tax Foundation President Scott Hodge.  “What matters most is not the number of taxpayers impacted, but the amount of business income – and, therefore, business activity – impacted.”

            The Foundation notes that more than 74 percent of tax filers in the highest tax bracket report some business income, compared to 20 percent of those in the lowest bracket.

            And finally, this week, comes word from the Wall Street Journal that lack of Congressional action any time soon to clarify just what the income tax rules will be in 2011 might just force the Treasury Department to take unprecedented action to prevent U.S. worker bees from seeing large tax increases in their paychecks come January.

            The problem is with the withholding tables – typically those tables for the new year are released in November.  If/when the “Bush Tax Cuts” expire, taxes will go up, so withholdings should keep pace.  But as Congress dawdles around, waiting for the election to come and go, and who knows what else, printers and payroll departments are having to make plans in the dark.

            There has been some suggestion that if Congress doesn’t act in time, Treasury officials might consider a one or two month grace period in which it maintains current tables until Congress makes up its mind.

            The WSJ notes that smaller paychecks, even for a temporary period, means bad vibes from taxpayers.  “The amount withheld from employee paychecks is one of the most politically sensitive issues faced by Treasury, Congress and the Internal Revenue Service” quoth former IRS Commish Lawrence Gibbs.

            Yet another example of Nero fiddling while Rome burns…..

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

            Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He is also a contributor to the recently published 13th edition of Tax Savvy for Small Business, published by Nolo.  He can be reached at 831-7288, and welcomes comments

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