It’s been quite a streak of religious holidays! Rosh Hashanah and Eid were both celebrated over the weekend and now… It’s the Feast of St. Matthew!

Okay, many of you may not be familiar with the significance of the Feast of St. Matthew (I’ll admit that I was not) so here’s the scoop:

Matthew is one of the Twelve Apostles named in the New Testament of the Christian Bible and is the author of the Book of Matthew. He was a tax collector – sometimes referred to as a “publican” – among the Jews, which was a pretty unpopular job back then, even worse than it is now. In the time of the Romans, tax collectors didn’t receive a salary; they were expected to earn a commission, of sorts, by collecting whatever extra they could in the guise of taxes. Most were cheats and widely despised. In fact, even Jesus lumped them together with the worst of the worst, having dinner with a group of people so terrible that the Pharisees were prompted to ask, “Why does your teacher eat with tax-collectors and sinners?”

Today, Matthew is recognized as a Saint in the Roman Catholic, Eastern Orthodox, Lutheran and Anglican churches. He is the patron saint of:

• Accountants
• Bankers
• Bookkeepers
• Tax collectors

So there you have it, a patron saint for tax geeks. Who knew?

(Hat Tip: @taxplaya)
Similar Posts:

None Found

Taxpayer asks:

While putting together a new group of guest posters for my site, a tax question hit me! Is the time I spend guest posting on other blogs for promotional purposes tax deductible? i.e. I don’t get paid for the post – my only compensation is the link back. But I could be getting paid for the post… so is the amount I charge for that service a marketing business expense?

If it is – I’m sure you have many readers that would be interested!

Thanks so much!

Taxgirl says:

Gosh, I sure wish it was – since I spend so much time writing for other publications and blogs – but it’s not. The IRS likes to match items of deduction with items of income. If they allowed a deduction for the cost of your time, then they’d require you to value the same for purposes of attributing income (the “value” of the article). But they don’t. Since there’s no income component, there’s no deduction.

Even though it feels odd, this is consistent with the IRS’ position on the treatment of services when there’s no compensation throughout the Tax Code. You can’t deduct your time for volunteering, even though it’s valuable, or time spent on services for which you didn’t get paid because you were “stiffed” by a client (hey tax geeks, most of my readers are cash based so no need to write in to tell me how this isn’t *quite* true for accrual based taxpayers).

I do have one piece of good news, though. Any out of pocket expenses related to the piece (i.e. money spent on paid art, research and the like) can be deducted as promotional expenses. So all is not lost!

Thanks for writing in – and good luck with the blog! Guest posting is a great way to promote your blog or services. I’m always happy to accept ideas for guest posts at taxgirl – just drop me a note!

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – Now on Facebook!

Similar Posts:

• Ask the taxgirl: Blogging reviews
• Ask the taxgirl: Sleep and More
• Ask the taxgirl: Freelance Deductions
• Ask the taxgirl: Responsibility to Ensure Independent Contractor Files?

I was thinking this morning about what to write today about the 4th of July. I was sure that I could come up with something brilliant and pithy about how important the day is to all Americans. And then I realized that it had all been said, much better than I could ever say, almost three hundred years ago. So follows is the text of the Declaration of Independence.

When, in the course of human events, it becomes necessary for one people to dissolve the political bonds which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We, therefore, the representatives of the United States of America, in General Congress, assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the name, and by the authority of the good people of these colonies, solemnly publish and declare, that these united colonies are, and of right ought to be free and independent states; that they are absolved from all allegiance to the British Crown, and that all political connection between them and the state of Great Britain, is and ought to be totally dissolved; and that as free and independent states, they have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do. And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.

Enjoy your day and God Bless America.Similar Posts:

None Found

Editor’s Note: I’ve given a lot of thought to whether I believe this post is appropriate. I’ve decided that it is. History is important. Context is important. If we don’t expose lies and hatred for what they are, they grow, kind of like a fungus. Ignorance leads to more intolerance.

But for today, I think it needed to be said.

Much will be written over the next few days about James von Brunn. Von Brunn, an elderly white supremacist, barged into the US Holocaust Memorial Museum earlier today and started shooting. One guard, hit during the attack, has died.

And I don’t want to perpetuate his message of hate or give him a platform but I was struck by a lot of what he had to say – and worse, how eager others are to repeat it. Central to his message are repeated assertions that the US personal income tax system is part of a Jewish plot to more or less control the world. He stresses this in his “book”, Kill the Best Gentiles: The Racialist Guide for the Preservation and Nurture of the White Gene Pool. The fourth of six strategies on the Jewish agenda, he claims, is: “Enact a personal income tax”, which falls just before “Destroy White nationhood.”

Von Brunn further claims that the 16th Amendment to the Constitution, giving Congress the power to levy a federal income tax, was done at the behest of the Jewish people. He believes that the Amendment was enacted to assure bankers (which von Brunn purports are mostly usurious Jews) that they would be reimbursed “plus interest” for expenses incurred during World War I.

In fact, tax and finance seem to be at the heart of much of what bothers von Brunn. He writes obsessively about Jewish-controlled banks and attempts to undervalue US currency as part of a grand scheme. He drifts into tangents about US tax dollars spent in other nations as a way of keeping foreign banks wealthy and questions the tax-exempt status of Jewish organizations. It is, it seems, all about money.

And maybe that’s it. Perhaps it’s the current state of the economy that fueled von Brunn’s hatred enough to send him into the US Holocaust Memorial Museum today. Who knows for certain, other than von Brunn?

But it is important that we not allow rhetoric like von Brunn’s to spread without stepping in and setting the record straight. I said before that history is important, and that context is important. Taking a quote here and an event there and mashing them together doesn’t make your statement true.

The facts are that personal income tax existed in the US far before World War I, contrary to von Brunn’s assertions. It was introduced during the Civil War and ebbed and flowed until it was declared unconstitutional in 1895. The Supreme Court ruled that the income tax, as it then existed, was not constitutional because of the way that it was being imposed (under the Constitution, it would have to have been proportionate taxation). So Congress introduced the 16th Amendment to address this issue. By 1913, 36 states had ratified the 16th Amendment which allowed the federal government to impose an income tax without regard to the population of each state (it was again amended in 1916). The US entered World War I on 1917, four years after the initial amendment was ratified. No conspiracy. No takedown attempt. Just some poorly drafted legislation that had to be fixed. If you follow politics, this should come as no surprise.

Von Brunn’s skewed facts aside, his fiery opposition to our tax system remains most striking because of his underlying message. Most people don’t love paying their taxes but few of us choose to believe that the tax system is a conspiracy foisted upon us by a group of people in a subversive effort to take over the world. And today, only one such person chose to pick up a gun and kill someone because they hated that group of people.

It’s a big world out there. And we may not agree with every person, every agenda, every politician. And we may hate taxes and we may disagree with each other and with the administration about how our tax dollars are spent. But in our society, we have a process for dealing with those disagreements. And it doesn’t involve a crazy person with a gun.

My thoughts and prayers go out to the family of museum guard Stephen Tyrone Johns.Similar Posts:

• Remember the Alamo: Convicted Tax Evader Lands In Hot Water Again
• Lawyer Fakes Will (Allegedly), Now Faces Tax Charges
• Martin Luther King, Jr.: Why Justice Matters
• FF To Go To Jail?
• Anybody Have White-Out?

A couple of years ago, I was speaking about fiduciary taxes at a CLE when I was passed a note. It said, “Trust investment advisory fees subject to the 2% floor. Knight vs. Commissioner.” Whoa. This, you see, was a fairly significant development in the world of fiduciary income tax. It later went on to be only one of a handful of tax-related cases heard at the US Supreme Court last year.

Here are the facts in the case: Trustee (Michael J. Knight, and no, not of Knightrider fame which is I’m sure what popped into your head) hired an investment advisor to manage a trust portfolio worth about $3 million. In 2000, the advisor charged the trust about $20,000 in fees, which the trust deducted in full on its tax return.

On audit, the IRS said that the fees were not completely deductible. Instead, the IRS said that the fees were considered a “miscellaneous itemized deduction” and subject to the 2% floor. You might remember seeing that line on your personal income tax on Schedule A. If so, you know that miscellaneous itemized deductions are deductible only to the extent they exceed 2% of your AGI (adjusted gross income). The law says that “investment advisory fees” are subject to the 2% floor unless, in the case of a trust, the expenses “would not have been incurred if the property were not held in such trust.” The trustee in Knight argued that the fees were directly attributable to the fact that the money was in the trust and therefore met the exception (which would have made the fees fully deductible).

The trustee lost at the lower level and appealed on behalf of the trust – and lost again. And who wrote the opinion for the Second Circuit? Supreme Court Justice nominee Sonia Sotomayor.

There was a split among the lower courts with respect to the decision, with one court ruling in favor of the trustee. The case was further appealed to the US Supreme Court, which agreed to hear the case. The Supreme Court upheld Sotomayor’s decision in 2008 but Chief Justice Roberts wrote (downloadable as a pdf) that her decision “flies in the face of the statutory language.”

Same bottom line, different way of getting there. Expect to hear more about this case as Sotomayor goes to confirmation hearings – the “Knight case” is often referred to as the “Rudkin case” because the decedent in the matter was named Rudkin. Don’t be confused, same case.Similar Posts:

None Found

Without revenues, a government can have no power.
Alexander Hamilton, First Secretary of the US Treasury

You will find no federal holiday dedicated to our love of taxes. There will be no parades in honor of taxes. No ceremonies, concerts or TV specials. This is because many in the US think of taxes as a burden, this heavy weight on our collective shoulders that “isn’t fair.” Some folks even dare to say that they have never benefitted from our system of taxation. Those folks are wrong. In fact, it is completely fair to say that our country is the country that it is today because of taxation. Our history as a country is deeply affected by our system of taxation: the wars that we fought and won have all been financed by a system of taxation. All that has changed, really, from war to war is the kinds and levels of taxation.

In the late 18th century, in order to pay off debts from the Revolutionary War, Congress imposed a number of taxes on such luxury items as alcohol, tobacco, sugar and some real property. A few short years later, Congress imposed additional excise taxes to pay for the War of 1812. Those excise taxes were later repealed.

In the relative peace that followed, the US government didn’t collect revenue directly from its citizens. Instead, the government depended heavily upon the sale of public land and customs duties. That all changed in 1861, when the financial pressures of the Civil War forced Congress restored excise taxes and instituted the tax many Americans grew to hate: the personal income tax. The income tax was levied at 3% on all incomes higher than $800 a year.

Nearly half a century later, the financial burdens associated with World War I made income taxes a centerpiece of our modern economy. By the mid-20th century, income taxes were firmly linked to maintaining our position as one of the most influential countries in the world, linked closely to the continuous presence of a powerful military.

This is not to say that all of our military decisions have been good ones or that our tax system is perfect. But before you decry taxes as completely wasteful and useless, take a moment to think about what it has bought us: freedom and democracy.

I say this on a day when we honor those who have fallen protecting our country, those that have offered up sacrifices far greater than a few dollars out of your pocket. The men and women who have served our country have spent endless days away from their families and have been thrust into dangerous and unfamiliar situations. Some of them never made it home. And many of those that did, came back with injuries and memories that are far more painful than we can imagine.

And maybe you don’t like paying taxes. But there are those who have gone to their deaths to defend your right to say that out loud, for me to scribble away on my blog, for you to attend tax protests and cast a vote about how you feel.

Think about that. And on this day of remembrance, take a moment to thank our soldiers for their contributions to our country. They’ve given us so much.

Finally, indulge me for a moment. I wanted to a give a mention to my brother, Rob; my brother, Timothy; my father-in-law; my grandfather; my great-grandfather; my uncles; my cousins; and all of those that I know who have ever donned a uniform for our country. On this day – and every day – I thank you.

Image courtesy of the US Army through WikimediaSimilar Posts:

None Found

Taxpayer asks:

Does the President have to pay income tax?

–

I get that question a lot. And this week, I also received this question:

–

Taxpayer asks:

Does the President pay income taxes to every state he visits on official business? This question occurred to me because of the pending Mobile Workforce legislation. Also, is withholding taken out of his paycheck for all of those states?

Taxgirl says:

Absolutely! Presidents report and pay taxes just like you and I do. In fact, you can view a number of presidential federal income tax returns (including the last round of candidates for office) at the Tax Analysts Tax History Project.

The President is paid an annual salary of $400,000. He’s also entitled to live at the White House, complete with staff and facilities. Transportation perks include two airplanes (referred to as “Airforce One”); a Marine Corps helicopter (”Marine One”); and an armored presidential limousine.

The first presidential salary was $25,000 per year, but George Washington refused to accept it. John F. Kennedy is said to have donated his salary to charities.

The presidential salary was $200,000 until 1999 when Congress doubled it – the actual change didn’t go into effect until 2001. The salary had not been changed since 1969, when it increased to $200,000 from $100,000.

As to the second question, the answer is no. Most politicians who work in Washington, DC actually pay tax in their home state; as members of Congress their primary residence remains in their home state, not in DC. This has caused quite a hullaballoo in years past with many politicians claiming residency in their home state but also “enjoying” (illegally, as it turns out) a homestead exemption for residences in DC. Rep Charles Rangel (D-NY) and Karl Rove have both been investigated for claiming the exemption in recent years; in 2005, 22 senators were have said to receive the exemption.

That said, the rule in most states is that you must report and pay taxes associated with either residency or sourced income. Clearly, if the President (or any other politician) is just visiting a state, he (or she) would not meet the residency requirements. And while the President is arguably working when he visits other states, he’s not receiving income sourced from those states – he’s paid by the federal government. If, however, the President stopped in and did a shift at a local McDonald’s for pay, then he would be subject to tax in the state where the McDonald’s is located.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – Now on Facebook!

Similar Posts:

• How much money do you need to make to be President?
• Ask the taxgirl: State and Local Taxes Paid in Other Years
• Ask the taxgirl: Foreign Homes
• Ask the taxgirl: Income Tax on Gifts
• Ask the taxgirl: Reporting Misc Income Under $600

My four year old is obsessed with tea parties right now. If she were aware that tomorrow was National Tea Party Day, she’d be absolutely delighted. Once she realized that meant little in the way of fancy dresses, she’d be pretty disappointed. Thousands of taxpayers across America, however, are energized about the National Tea Party Day.

National Tea Party Day will take place on Tax Day, April 15. Organizers hope to see high numbers at the Taxed Enough Already (TEA) party rallies across the country. There are, as of this writing, 2,027 cities hosting tea parties – you can find one near you on their web site.

While I’ll admit to being intrigued at the idea of a tax protest, I was quickly disappointed when I visited the site. I agree that our deficit it out of control. I am concerned about selling our debt to countries like China. I am not a fan of special interest groups. And those of you who follow the site know that.

It was, then, dispiriting to see an opportunity to have a conversation about real tax policy (something I’d love to see in this country) devolve into a political diatribe. On the front page, mixed in with concerns about tax, there are such tidbits as criticizing the Congress and the President who would “appoint a defender of child pornography to the Number 2 position in the Justice Department” and “want to force doctors and other medical workers to perform abortions against their will.” Abortion and judicial appointments? Really? There are also concerns rallying against immigration, universal health care and more – though at least those parts could arguably be linked to tax.

Please don’t misinterpret what I’m saying. I’m not criticizing the politics (though I clearly don’t agree with all of them). I’m just surprised that the organizers of the event have passed on the occasion to make a unified statement about our tax system that would have appealed to the general population – and instead let it become a shockingly disjointed display of “values” (however you define those).

Why can’t we just talk about tax? Wouldn’t that be a great thing to do at a Tax Day Tea Party? All that stuff that organizers buried on the News Page? Tax effects on the middle class? Charitable contribution limits? Skyrocketing deficits? That’s the stuff that will get people talking. That would have made for an awesome Tea Party on Tax Day.

I tried to reach out to some tea partygoers on twitter – but no takers for an interview. (Quick update: I’ve been promised some feedback from one of the parties – come back for the scoop!)Similar Posts:

• More About Tea Parties: Crashing the Tea Party
• Obama’s Treasury Pick Under Fire for Tax Liability
• Being Middle Class in America Sucks.
• Tax Talk 2007: Tommy Thompson

I know what you’re thinking – McVeigh was executed, right? What’s this about a tax deduction?

You’re right. Timothy McVeigh was a US Army vet who was eventually found guilty of bombing the Alfred P. Murrah Building in Oklahoma City on the second anniversary of the Waco Siege, April 19, 1995. He was labeled a “domestic terrorist” after the event. The bombing claimed the highest death toll (168 people) of any single act of terrorism on US soil prior to September 11.

McVeigh was convicted of 11 federal offenses and sentenced to death. He was executed on June 11, 2001, exactly three months before the September 11 attacks.

After McVeigh’s conviction, his lead defense attorney, L. Stephen Jones withdrew as lead defense counsel. That same year, 1997, Jones donated discovery material from the case to the Center for American History at the University of Texas (Jones’ alma mater). The materials included information prepared by the FBI; the materials were given to Jones by the prosecutors in preparation for McVeigh’s trial.

The discovery materials, which included FBI photos and statements, were appraised by Jones’ appraiser at nearly $300,000. Jones took the donation as a deduction on his personal income tax return. Due to the sizable amount of the donation, Jones carried the deduction forward.

The IRS issued a notice of deficiency related to the donation in 2004. Due to the statute of limitations, the IRS could not challenge the donation for the years 1997-1999 but did issue the notice for the years 2000 and 2001. The deficiency at that point was a mere $15,000, much less than the tax initially attributable to the donation.

Jones challenged the deficiency in Tax Court and lost. The Tax Court found that Jones did not own the property to begin with and therefore couldn’t take the deduction; the materials belonged to the (now deceased) client. I kind of thought that was something that we learned in law school. Apparently, they don’t teach that at the University of Oklahoma Law School (though, in his defense, he might have missed it when he temporarily dropped out of law school to work as a research assistant for Richard Nixon).

The 10th U.S. Circuit Court of Appeals agreed with the decision to reject the donation but on slightly different grounds. The appeals court found that the deduction Jones could claim was limited to the amount he had paid or invested, which was nothing. The appeals court noted: “We note that the discovery material was provided to [Jones] only because of his position as lead counsel for McVeigh, and it was the type of material typically produced for defense counsel in the course of a criminal trial.”

Jones is likely to appeal, despite his own comments that he has spent more money fighting the deficiency than he owed to the IRS. He believes that the opposition to the deduction was based on his choice of client (McVeigh) and emotional Oklahoma City federal workers. As a result, Jones had asked that the agency’s Oklahoma City office be disqualified from the case. The appellate court, which also ruled against Jones, was based in Denver.Similar Posts:

• The Most Wonderful Time of the Year
• Fix the Tax Code Friday: Charitable Deductions
• Ask the Taxgirl: Donating My Art
• Ask the taxgirl: Cash and Charitable Donations
• Fix the Tax Code Friday: Charitable Deductions

We have a winner! See comments!

Our next tax trivia question is:

In the midst of all of the current “politicians not paying their taxes” scandals, we forget that other high profile politicians have also been accused of tax evasion. So, a two parter (if you know the answer to both, please guess only once so that other folks have a chance to win, too!):

Don’t forget: the first correct answer wins free CCH tax prep software.

What’s your guess?Similar Posts:

• Fore! Golfer Hit With Tax Evasion Charges
• What Not to File: Top 5 Ways to Get Caught Cheating on Your Taxes
• Wesley Snipes Asks to Leave Country
• Not a Crack Answer: Barry Pleads Kidneys Kept Him From Filing Taxes
• Ernst & Young Partners Found Guilty on All Counts