Jeffrey B. Kahn, Esq. and Windus A. Fernandez Brinkkord Discusses New Budget Deal, Federal Reserve and IRS Tax Saving Tips On ESPN Radio – October 30, 2015 Show
Topics Covered:
- House Passes Two-Year Budget Deal
- Fed Stays Rates But Keeps December Rate Hike in Play
- How to make Halloween candy and costumes deductible.
- Questions from our listeners:
- What are the most important indicators of a stock’s health?
- The IRS corrected my return and sent me an additional refund. Does this mean I am also entitled to an additional refund on my state tax return?
- The IRS audited my return and charged me with additional tax, interest and penalties. Does this mean I will also owe additional monies on my state tax return?
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Jeff states: Yes sometimes we just have to take the money and run!
Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.
This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.
Windus states:
And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.
You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.
Jeff states:
When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!
Windus states:
And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.
Jeff states:
Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.
Jeff states:
For today’s show we have coming up:
Segment 2 material: Fed Stays Rates But Keeps December Rate Hike in Play
Windus states:
Also coming up is:
Segment 3 material: How to make Halloween candy and costumes deductible.
And of course towards the end of our show, we will be answering some of your questions.
Jeff starts chit chat with Windus.
So for the top story:
House Passes Two-Year Budget Deal
An article announcing this from the Wall Street Journal brought up some interesting points. http://on.wsj.com/1GxPTuY
Jeff continues: While the legislation must still be approved by Senate which by all accounts it likely should, Congress has once again succeeded in avoiding a government shut-down that could of happened as early as next week.
Windus states: The agreement has drawn GOP opposition in both chambers and on the presidential campaign trail from conservatives upset that it raises spending by $80 billion through September 2017 and extends the government’s borrowing authority through mid-March 2017.
Windus continues: The Article included a quote the House Freedom Caucus, a group of conservatives who opposed the bill, calling it a “fiscal monstrosity” and objecting to secret talks between top lawmakers and President Barack Obama that produced it.
Jeff states: But senior Republicans said the agreement was preferable to the alternative: raising the debt ceiling with no policy strings attached, known as a “clean” increase. Our new speaker of the house, Rep. Paul Ryan (R., Wis.), said he would support it despite his objections over the last-minute deal-making with the administration. The bill passed with the support of 79 Republicans and 187 Democrats.
Jeff continues: The agreement lifts federal spending above limits established in a 2011 law that have been in effect since 2013, known as the sequester. It would increase spending by $50 billion in fiscal-year 2016 and $30 billion in fiscal 2017, evenly split between military and domestic spending. The big take-away here is that the stick of “sequester” is gone for two years.
Windus states: The legislation also incorporates fixes to two federal safety-net programs lawmakers wanted to address well before next year’s elections. The agreement would extend the solvency of the Social Security program used to help support disabled people. The deal also would prevent an expected 52% increase in premiums for roughly 30% of the people enrolled in Medicare Part B, which covers outpatient care such as doctor visits.
Here’s What’s In the New Budget and Debt Ceiling Deal
Jeff states: So Windus let’s do a rundown of the key provisions of the agreement.
[Jeff to read off an item followed by Windus discussing the details.]
Debt Limit Increase
The agreement effectively raises the debt limit, which had been suspended until last March. The Treasury Department has been using emergency cash-management measures to remain below the $18.1 trillion borrowing ceiling since then. It says those steps will be exhausted by Tuesday November 3rd, leaving the U.S. very close to running out of cash and being unable to pay its bills.
The agreement would again suspend the debt limit until March 15, 2017. After that, the debt limit would be reset to include any borrowing done before then. Remember this legislation suspended the “sequester” for two years so Congress now can merely press the reset button and there now is that much more debt accumulated by the U.S. Raising the debt limit doesn’t approve new spending programs, but instead allows the government to pay for things that Congress has already agreed to spend money on.
Budget Agreement
The deal sets out the top-line numbers that lawmakers will use later this year to round out spending bills before government funding expires on December 11th. It also establishes overall funding levels through Sept. 30, 2017. It adheres to two principles that President Barack Obama laid out earlier this year: it boosts spending above sequester caps previously set by Congress, and it ensures that spending rises equally for defense and domestic budgets. Discretionary spending will increase $50 billion in the budget year that began October 1st and $30 billion in the following fiscal year.
It also boosts military funding, a top priority of Republicans. There’s an additional $16 billion in each of the next two years for the Pentagon and State Department for war funds that aren’t subject to the sequester.
Settling the Tab
Jeff asks: How will the government pay for this extra spending?
Windus replies: Most of the $80 billion in higher discretionary spending for the next two years is covered by various revenue increases and spending cuts that don’t materialize for several more years. For example, discretionary spending in 2025 will be cut $14 billion from current levels, and certain cost cuts for Medicare are extended two years from current law, through 2024.
Jeff states: Since budgets are formulated by looking forward ten years, Congress justifies an increase in spending now because in the 9th and 10th years of this forecast, Congress is cutting spending.
Jeff continues: Although we know that just as easy as it was for Congress to suspend sequester for two years, it is also could be just as easy for Congress to delay or avoid spending cuts in 2024 and 2025.
Windus states: The budget reduces subsidies on crop insurance purchased by farmers, which could save $3 billion – but with the unusual weather patterns we have been facing it seems that crop insurance will be more important.
Windus continues: The budget also authorizes the sale of oil from the Strategic Petroleum Reserve, which could raise $5 billion over the next 10 years – but with oil prices at an all-time low and supply plentiful that oil would likely be sold at a loss.
Jeff states: The budget also makes it easier for the Internal Revenue Service to audit large partnerships, including private-equity firms and hedge funds, by updating a 33-year-old law that sets the rules for partnership audits and requires the IRS to pass additional taxes to each of the partners.
What Isn’t Included
Jeff states: The budget doesn’t address a few other outstanding pieces of business facing Congress, including refilling the highway trust fund, which could exhaust its latest short-term extension this winter, and reauthorizing the Export-Import Bank, a priority of most Democrats and dozens of Republicans. It also doesn’t resolve a series of temporary tax provisions that businesses and households have come to rely on and which have regularly been extended.
Well it’s time for a break but stay tuned because when we come back we will talk about the Fed’s Decision To Stay Interest Rates.
You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.
BREAK
Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.
Federal Reserve Stays Rates And Keeps December Rate Hike in Play
Jeff states: And before we hear Windus’ comments on this, Windus has a special offer to tell our listeners:
Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.
Windus continues: In an article published by the Wall Street Journal Federal Reserve officials explicitly said they might raise short-term interest rates in December but omitted any mention of concern over the direction of overseas markets. http://on.wsj.com/1GxNVe0
Windus continues: Top Fed officials have been saying for months they believed the economy was nearly strong enough to tolerate an increase in the benchmark short-term rate from near zero, where it has been since December 2008. But they have hesitated to move.
Jeff asks: I know that over the last few months that you have been covering the Federal Reserve, you and many others figured that by now there would have been some movement up in interest rates. What happened?
Windus replies: Well you should recall that last September the Fed pointed to worries about turbulence in financial markets and uncertainties about growth overseas—particularly in China—as reasons to stay put.
Windus continues: Since then market and international developments have turned in the Fed’s favor in recent weeks. The People’s Bank of China last week cut short-term lending rates in an effort to boost growth in the world’s second-largest economy. European Central Bank President Mario Draghi suggested he might extend a bond-purchase program in an effort to stimulate his region’s economic growth rate.
Windus continues: These moves sparked a global stock-market rally and could support world-wide growth. The Dow is up 6% since the Fed met last month; a sign financial-market stress has dissipated.
Jeff asks: So with this recent perception that global things could be getting better, where does that put the Fed?
Windus replies: The Fed responded Wednesday by playing down its earlier-stated concerns. Officials struck from their policy statement a sentence introduced in September that pointed to market turbulence and global developments as potential restraints on U.S. economic activity. As those concerns recede, the Fed has fewer impediments standing in the way of a rate increase.
Windus continues: Officials pointed specifically in the policy statement to their Dec. 15-16 meeting as a moment when they might act on rates. Individual officials have signaled before that they expected to move before year-end, but the Fed’s policy-making committee hadn’t previously pointed so explicitly in an official statement to the potential timing of a rate increase.
Windus continues: You see that inflation has been persistently low; in part because the Fed has already delayed several times; and in part because economic data appeared to take a turn for the worse since September. Most notably, the Labor Department reported early this month that hiring slowed in September and was less than previously reported in August and July.
Jeff asks: Now Windus I know that you cannot predict the future on when rates will raise and by how much, but is there anything coming up that the Fed may be looking at that could impact their decision making?
Windus replies: Officials repeat regularly that their decision is “data-dependent.” The Fed will see two more monthly jobs reports—including one next week—before officials need to decide whether rates should be increased in December.
In so with the certainty that at some point interest rates will increase, you need to be prepared …
Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.
Jeff states: So I trust that our listeners are getting ready for Halloween. Well, stay tuned because after the break we are going to talk about how to make Halloween candy and costumes tax deductible.
You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.
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Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.
Calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.
Chit chat with Amy
How to make Halloween candy and costumes deductible
So Amy, with Halloween coming up, I understand that you have some ideas on how to make Halloween candy tax deductible.
Amy replies: It is true. You can in fact deduct Halloween candy if you figure out a way to make it business related. The IRS doesn’t say a lot about this topic because they don’t want to give you “permission” to deduct these items, but they also have not specifically stated that you cannot deduct Halloween candy.
Windus asks, so how can you deduct those over-priced bags of snack size chocolates?
Amy replies – will I have five different ways!
1. Make a promotion out of it. Attach your business card or a promotional flyer to packets of M&M’s and voila! Deductible.
2. There are many companies who will print candy wrappers with your logo on it. An even better and more advanced way to promote your business and still have something for trick-or-treaters.
3. Send a box of candy to potential or existing clients during October. This promotes your business and would likely not be questioned as a business deduction.
4. Donate any leftover candy to the US troops. “Charitable organizations with 501(3)(c) status like Operation Gratitude (EIN 20-0103575) and Soldiers’ Angels (EIN 20-0583415) collect leftover Halloween candy to include in care packages for soldiers. They are two of many 501(c)(3) organizations on the IRS-approved list to donate tax deductible charitable goods. Always be sure to check the IRS list before claiming your donations are tax deductible, as status can change.”
5. Make it a party. You can deduct a portion of a Halloween party if the party is to conduct or promote business. Typically this looks like an open house of some sort where you mingle with current and potential clients, play a few Halloween games, give out candy and treats, and discuss business. The IRS does not specify how much time you must spend discussing the business to claim a deduction but you must invite people that you do business with or are looking to do business with.
Jeff says: Amy those are some great ideas.
PLUG: You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. We will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.
Jeff says: Now when I think of Halloween, I look forward to seeing all of the different costumes that people wear. Some are very extravagant and I am sure pricey. And for some they would like to know how that can be deductible. Since costumes fall under the category of clothing or uniforms, Amy please explain what the tax law requires.
Amy says: The tax law requires three elements for clothing useful only in the business environment to be deductible. They are:
- The clothing is required or essential in the taxpayer’s employment;
- The clothing is not suitable for general or personal wear; and
- The clothing is not so worn for general or personal wear.
If these three requirements are satisfied, not only is the cost of the closing deductible but also its upkeep.
Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.). Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.
Windus asks: How about a white cap, white shirt or white jacket, white bib overalls, and standard work shoes a painter is required by his union to wear on the job and there is nothing on any of the clothes that indicate the company this person works for?
Amy replies: No that would not be deductible because it is not distinctive. Similarly, blue work clothes worn by a welder are not deductible even if the foreman requires them. However, required protective clothing like safety boots, safety glasses, hard hats, and work gloves are deductible.
Amy continues: But consider this – by adding the company’s logo on the clothing will make it deductible even if it can be worn outside the scope of employment because you are advertising your company. In that case you are a walking billboard.
Jeff asks: We have a large military presence here in San Diego County. How about Military Uniforms?
Amy replies: You generally cannot deduct uniforms if you are on full-time active duty in the armed forces. However, reservists can deduct the unreimbursed cost of uniforms if military regulations restrict wearing it except on duty. Still, you must reduce your deduction by any nontaxable allowance you receive. If local military rules don’t allow wearing fatigues off duty, you can deduct the amount by which your uniform cost exceeds your uniform allowance.
Windus asks: Given today’s dot.com and casual era environment, people are not coming to work as dressed up as they used to. So could lawyers and others argue their suits are just like uniforms and therefore ought to be tax deductible?
Amy replies: No. Where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment.
Jeff asks: Being on the radio, our listeners cannot see what we are wearing but would being on TV be any different?
Amy replies: While these tax rules are pretty circumscribed, they are also intensively factual. Someone is always pushing the tax envelope. Such was the case with an Ohio TV news anchor, Anietra Y. Hamper. She was claiming approximately $20,000 a year in 2005, 2006, 2007 and 2008 in clothing expense that included not only what she wore for each broadcast but also lounge wear, a robe, sportswear, lingerie, thong underwear, an Ohio State jersey, jewelry, running shoes, dry cleaning, business gifts, cable TV, contact lenses, cosmetics, gym memberships, haircuts, Internet access, self-defense classes, and her subscriptions to Cosmo, Glamour, Newsweek, and Nickelodeon. Her argument was that as a TV anchor she was required to maintain a specified appearance described in the Women’s Wardrobe Guidelines. These guidelines say the “ideal in selecting an outfit for on-air use should be the selection of ‘standard business wear’, typical of that which one might wear on any business day in a normal office setting anywhere in the USA.”
Windus asks: Was that enough?
Amy replies: No. Where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment. For this TV anchor, that was no help. She claimed the requirement to dress conservatively made the clothing unsuitable for everyday use, and that’s how she treated it. She wore the business clothing only at work and even kept it separate from her personal clothing. But the IRS and Tax Court denied her wardrobe deductions. And they added penalties.
Jeff asks: Well in the history of tax law is there anyone who prevailed in getting their costumes deducted?
Amy replies: Well Jeff you remember the Swedish disco group ABBA?
Jeff replies, I sure do – I know there songs well. Maybe we can get our engineer to play one for our break.
Amy continues: Well according to ABBA: The Official Photo Book, released to commemorate the 40th anniversary of the group career-making Eurovision victory for Waterloo, the Swedish foursome adopted their outlandish dressing style in order to ensure they could deduct the cost of their costumes under Swedish tax code. Like U.S. tax law, Swedish laws allowed work wear to be tax deductible so long as it was demonstrably apparel that couldn’t be worn on the street – which, with its garish coloring and liberal use of sparkle, ABBA’s certainly was.
PLUG: Now while you will find no one on the kahntaxlaw team wearing outrageous costumes you should know that the Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.
Thanks Amy for calling into the show. Amy says Thanks for having me.
Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.
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Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.
Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.
You should also know that the securities and advisory services are offered through National Planning Corporation.(NPC) Member FINRA, SIPC, and a Registered Investment Advisor. Trilogy Financial Services and NPC are separate and unrelated Entities.
Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.
OK Windus, what questions have you pulled for us to answer?
Question from Stephanie of Carlsbad: What are the most important indicators of a stock’s health?
Answer: Whether a stock is “healthy” often relies on your objective. If you seek high returns and high risk, you’ll want stocks with a relatively large price range over a short time period. If you are looking for less risk and moderate growth, stick to stocks whose price ranges over the past 52 weeks are narrow. All publicly traded companies issue quarterly earnings reports to the Securities and Exchange Commission (SEC). You can find a few key pieces of data in the reports to evaluate a stock’s health:
- Earnings per share (or EPS): Ratio of total earnings divided by the total investor shares. You can compare stocks with this number.
- Price/Earnings ratio (P/E): What customers are paying for a dollar of the company’s earnings. There is no magic number to look for, though according to the Financial Industry Regulatory Authority, the long-term average number has been about 15. A stock with a high P/E might mean that the future looks bright — but it has to work harder to keep the performance. A low P/E might mean that a price increase is on the way — or that a company is in trouble.
You also need to ask some commonsense questions, like whether the company’s products and industry are in demand, what its past performance is like, and how much debt it carries. All of these issues are addressed in a company’s annual financial report, which is usually available via its website in a section labelled for investors.
Question from Sergio of San Diego: The IRS corrected my return and sent me an additional refund. Does this mean I am also entitled to an additional refund on my state tax return?
Answer: Whether you are entitled to an additional state tax refund depends on the change that was made to your federal return. For example, if you used the wrong line on the tax tables to figure your tax on your federal tax return, this may not affect your state tax return. However, if the change was made to the amount of your taxable income, it may affect your State tax return.
Question from Steven in Los Angeles: The IRS audited my return and charged me with additional tax, interest and penalties. Does this mean I will also owe additional monies on my state tax return?
Answer: Like the previous question, whether you need to amend your State income tax return depends on the change that was made to your federal return. Keep in mind that the results of the audit do get reported to your State. If the change does require a State amended income tax return, you have up to six months after the close of the IRS audit to file the State amended income tax return. If you do not file the State amended income tax return, the State will use the information it received from the IRS audit to generate a tax bill that could include penalties and a greater amount of tax due than if you filed a State amended income tax return. So that is why we recommend that you should prepare and file a State amended income tax return promptly after the close of the IRS audit.
Jeff PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.
Jeff states: Well we are reaching the end of our show.
Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.
Windus states: Have a great day everyone and Happy Halloween!
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