Tax-loss harvesting can be used as an opportunistic value-add within a well-diversified portfolio.

Over the years, I’ve represented a lot of clients before the IRS. I’ve listened to hours and hours of IRS hold music. And I’ve had a lot of conversations with IRS reps and agents. But last week something happened that truly shocked me: the IRS hung up on me. On purpose.

The details aren’t all that important. Basically, I called the IRS to discuss a client’s tax matter. While it’s my job to zealously protect the rights of my clients, I am very aware that the person on the end of the line is also doing their job, and as such, I am professional when I speak to the IRS. On this day, I did exactly that. I didn’t raise my voice. I wasn’t nasty. I merely tried to explain that there appeared to have been a cross in communications when the agent cut in abruptly with a brusque “This is how we do it” and then, Click.

I was actually rendered speechless. If you’ve met me, you’ll understand that’s quite the feat.

I called back, only to find that there is no way to speak to a supervisor without putting in a special request. I did exactly that – and I’m still waiting.

It was the first of a number of incidents that I would have previously considered to be out of character for IRS. Shocked by what appeared to be a change of direction from the “kinder, gentler IRS” in the 90s, I asked my colleagues on twitter whether they had noticed a difference in the IRS treatment of taxpayers:

The answer was…to continue reading click on IRS Gone Bad

While Hurricane Irene turned out to be milder than expected, it still caused deaths, injuries and an estimated $5 billion to $7 billion in property damage. And Irene was not the only big problem this year. In the spring we had devastating tornadoes in Missouri and widespread flooding in the Midwest. The sad truth: natural disasters occur every year in the U.S. because this is a big country. If you’re unlucky enough to suffer a disaster-related casualty, here’s what you need to know about the federal income tax implications.

Theoretically, our beloved Internal Revenue Code allows you to claim an itemized deduction on your Form 1040 — for personal casualty losses that are not covered by insurance. Exactly what is a casualty loss? It’s when the fair market value of your property or asset is reduced or wiped out by a hurricane, flood, storm, fire, earthquake or volcanic eruption (not to mention sonic boom, theft, or vandalism).

In reality, however, many disaster victims won’t qualify for any personal casualty loss write-offs because of the following two rules.

To continue reading, go to Natural Disasters and Your Taxes.

Blame Congress. TIGTA gives the IRS credit for having to operate in an environment of everchanging tax laws. The American Recovery and Reinvestment Act of 2009, for example, included 56 tax provisions (20 related to individual taxpayers), and The Worker, Homeownership, and Business Assistance Act of 2009 revised the First-Time Homebuyer Credit, causing untold confusion. More tax laws mean more to enforce; more changes mean it’s more likely taxpayers will mess up.

As a follow-up to our earlier article about how tax law affects behavior, we offer this story.

Amazon.com Inc., the world’s largest online retailer, hasn’t charged sales tax in most states since its founding in 1994. And it has taken some extreme measures to keep it that way.

Among them: Staff traveling around the U.S. have been required to first consult a company map that shades each state red, yellow or green, said three people who have worked for the retailer. These people said they needed permission from managers or company lawyers before entering “red” states because a worker’s actions might trigger laws that force Amazon to collect taxes in those states.

Such steps to avoid local levies allow Amazon to undercut in-state retailers by the amount they must add in sales tax, which can exceed 8%.

A close examination of Amazon’s corporate practices, based on interviews with more than a dozen former employees and people who have done business with the Seattle company, as well as a review of corporate documents, indicates that the company believes its sales-tax policy is critical to its performance.

Credit Suisse recently estimated that if Amazon were forced to collect sales taxes in all states, it would lose as much as…

To continue reading about how Amazon battles States over sales tax, go to TaxProf Blog

For example, Amazon.com has thousands of affiliate marketers who sell product through Amazon by placing links from their web sites to the promotional item at Amazon.com. When a consumer makes the purchase, a percentage of the purchase is paid to the web site as a commission for marketing that item. Governor Brown just signed into law a requirement that on-line retailers like Amazon begin collecting sales tax on transaction where a California based affiliate will receive payment. This law will force retailers to set up new systems to collect, track and forward tax revenue to California.

Tax Changes Behavior

Will this change Amazon’s behavior? It already has. All California based affiliate contracts with Amazon were canceled as of today because of this law.

What will that mean to California?
1. Website owners who rely on affiliate revenue will no longer promote Amazon.com since they no longer have an affiliate contract.
2. This will result in less sales and less revenue to California residents who are also affiliates. California will have less income to tax as income tax.
3. While it may be relatively small, it will have a negative impact on business activity and hurt our struggling economy.

I am sure about the facts since Capitalmarketsu.com Magazine is, or rather was, an Amazon affiliate. It won’t mean a great deal to this site since we didn’t sell many books anyway. But, there are many Internet businesses that are the sole business of the owner and they cannot stay in business if they have no affiliate contracts. For  Capitalmarketsu.com Magazine this has been more of an accommodation to our readers and an attempt to monetize to some degree the site and offset the expenses of operating. At the end of this column are the pertinent parts of two letters I received from Amazon detailing this termination and its cause.

Increasing or decreasing taxes does change behavior of both consumers and businesses. Tax policy is, therefore, very important in the process of bringing the United States out of the current extreme slowdown. Our politicians should be looking at the way to use tax policy to increase economic activity, not slow it down. Increased economic activity will result in additional revenue to government through increased sales and income.

For some politicians, the word “revenue” is a euphemism for “higher taxes.” They equate higher taxes with increased revenue, but that isn’t necessarily true. On the other hand, increased economic activity does always result in increased revenue – to the individual family/tax payer and to the government. I wish politicians would quit using deceptive language and speak plainly. When they mean higher taxes, they should say higher taxes. When they say increased revenue they should mean increased revenue.

So much for my soap box.

PC Magazine ran this story today, California Passes Law Forcing Web Retailers to Charge Sales Tax and CNN Money ran this story, Amazon drops California associates to avoid sales tax.

Hello,
For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by on-line retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.
We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.
As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule…

Regards,
The Amazon Associates Team

Hello,
Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule…
To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect your ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.
We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. As mentioned before, we are continuing to work on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.
Regards,
The Amazon Associates Team

To change behavior, add or delete a tax.

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

To continue reading go to Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

The IRS is stepping up property scrutiny as a result of a 2008 Government Accountability Office finding: “At least 53% of individual taxpayers with rental real estate activity for Tax Year 2001 misreported their rental real estate activity, resulting in an estimated $12.4 billion of net misreported income.”

That spurred the Treasury Inspector General for Tax Administration, an independent overseer, to evaluate how the IRS covers individual tax returns with rental real estate activity and to propose changes. These changes amount to a call to war on real estate tax cheats. The IRS is also going to require substantial additional accounting records and costs for all real estate investors.

Gaining From Real Estate Losses

The Dec. 20 TIGTA report specifically recommended that the IRS boost the number of audits of tax returns showing real estate losses. Based on a study of fiscal 2008-09 data, it projected that increased tax examinations could add up to $27.3 million in tax assessments over five years.

“Taxpayers are likely to see rental-property-related audits rise starting almost immediately on all open tax years,” said Audubon, N.J., CPA Joel Petchon. “As of April 15, 2011, returns filed for 2007 in April 2008 will be insulated by the three-year statute of limitations. All others will be subject to potential audit.”

To continue reading go to Real Estate Losses Become An IRA Tax Audit Target

BOSTON — When it comes to retirement, the average American age 65 and older generates nearly two-thirds of their total income from a combination of earned income and Social Security, with the rest coming from pensions and personal assets.

But despite the fact that millions are earning income and collecting at the same time, there’s still plenty of confusion over how Uncle Sam goes about taxing and reducing Social Security benefits for workers. Consider, for instance, some of the reasons why it can be confusing:

First, if you retire before the normal retirement age and start collecting Social Security benefits early, your benefits are reduced not only for starting early, but also as your earnings rise. In fact, if you work and collect before the so-called full retirement age, you’ll lose $1 of Social Security benefit for every $2 earned over $14,160 in 2011.

Second, in the year that you reach full retirement age, your benefits are reduced $1 for every $3 earned over $37,680 in 2011, or least that’s the case until the month you reach full retirement age.

Finally, once you’re at full retirement age, your benefits are not reduced, but as much as 85% of the benefits could be taxed if your income is above a certain amount.

According to the Social Security website, if you file a federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. And if your combined income is more than $34,000, up to 85% of your benefits may be taxable. If you file a joint return, and you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. And if your combined income is more than $44,000, up to 85% of your benefits may be taxable. If you are married and file a separate tax return, you probably will pay taxes on your benefits.

Even though all this might be confusing, there are some ways to increase your after-tax income from all your sources of income — be it earned income, Social Security, dividends, interest income, capital gains, pension income and the like. What’s more, there are some ways to think differently about the interaction between earned income and Social Security benefits.

At a recent MarketWatch roundtable discussion, two of the nations’ top retirement-planning experts offered tactics to consider to when deciding whether and how much to work in retirement, as well as whether and when to start taking Social Security benefits.

Read more: How to Collect Social Security and Keep Working