Jeffrey B. Kahn, Esq. Discusses Taxes And The IRS On ESPN Radio – October 17, 2014 Show

Topics Covered:
1. Tax Time – Why we pay.
2. Top Tax Write-Offs That Could Get You In Trouble With The IRS – Part 1: Travel Expenses, Cell Phones, Home Office Deduction and Home Computers.
3. Top Tax Write-Offs That Could Get You In Trouble With The IRS – Part 2: Personal Expenses, Guard Dogs, Uniforms and Wages Paid To Family.
4. Answering Your Questions:
a. When Should You Lawyer Up When Dealing With the IRS?
b. Is It True That Taxpayers With Legal Counsel are Treated Better?
c. Why Should I Only Use A Tax Attorney For Representation In A Criminal Tax Investigation?

Listen to the podcast:

Read the show’s transcript:
Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show
This is your host 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.

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

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!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

I have a lot to cover today in the world of taxes and helping me out today will be my associate attorney Amy Spivey who will be calling in later in today’s show.
So It’s Tax Time – Why do we pay?

Well I must tell you how it began with an earthquake. What hit San Francisco in 1906 was one of the worst natural disasters in American history. Once the water mains broke, there was no way to fight the dozens of fires caused by ruptured gas mains, except by dynamiting buildings in the fire’s path, which made things worse. The fires lasted for days. More than 3,000 people died, including the city’s fire chief, who fell two stories after the dome of the California Hotel crashed into the fire station. Most of the city was destroyed. Economic aftershocks were felt as far away as London. Twelve insurance companies went bankrupt, and, after a gold shortage and a doomed scheme to corner the copper market, the Knickerbocker, the second-largest trust in New York, failed, setting off the Panic of 1907. The New York Stock Exchange nearly collapsed. So did the United States Treasury.

The Panic of 1907 contributed to the passage of the Sixteenth Amendment, in 1913, which granted Congress the right to levy an income tax, and to the establishment of a central banking system, the Federal Reserve. Both the Sixteenth Amendment and the Federal Reserve turned a hundred years old in 2013.

Taxes dominate domestic politics. They didn’t always. Since the 1970’s, almost all of that talk has been about cuts, which ought to be surprising, because more than 90% of Americans receive social or economic security benefits from the federal government. Americans, though, find it easier to see what they pay, than what they get — not because they aren’t paying attention but because the case for taxation is so seldom made.

Damning taxes is a piece of cake. It’s defending them that’s hard. “Taxes are what we pay for civilized society,” Oliver Wendell Holmes, Jr., said, nearly a century ago. (His words are engraved on the front of the I.R.S. Building in Washington.) No one’s said it better since. And that, right there, is the problem.
Taxes, which date to the beginning of recorded history, are payments made to a ruler in exchange for military protection, public services, and civil order. In the ancient world, taxes were paid in kind: landowners paid in crops or livestock; the landless paid with their labor. Taxing trade made medieval monarchs rich and funded the early-modern state. Then a series of political revolutions began that led to monarchs ceding the power to tax to legislatures. One of those revolutions lies behind American independence.

But let’s go back to the earthquake. In 1906, the day the earthquake hit and the fires began, people raced to the San Francisco Bay and boarded ferries to escape the flames. A handful of men rushed to the banks, but before long all that was left of the city’s deposit and lending institutions, aside from rubble and ashes, were their fireproof steel vaults: red hot, smoking, and locked.

During the recession that followed the panic that followed the earthquake, the number of people applying for poor relief in New York tripled; in Philadelphia, it increased nearly fivefold. A purpose of a federal reserve was to allow the government to halt a panic by shoring up faltering banks. A purpose of a federal income tax was to undergird the Treasury with a stable source of revenue. But it had another purpose, too. The richest one per cent of households, which had held about a quarter of the nation’s wealth in 1890, now held more than a third. The tax was intended to answer populist rage at the growing divide between the rich and the poor. In the election of 1908, both parties favored an income tax—Democrats hoping to close that gap, Republicans hoping to quiet that rage.

Republicans won. The new President, William Howard Taft, who had been a federal judge (and who went on to serve as Chief Justice), wanted to avoid signing a law that would end up going back to the Supreme Court. He decided to support a constitutional amendment. It went to the states for ratification in 1909.

Constitutional amendments are notoriously difficult to ratify. The Sixteenth Amendment was not. Once it got out of Congress, it passed, handily, in 42 of 48 states, six more than required, and took effect on February 25, 1913. The House voted on an income-tax bill in May; Woodrow Wilson signed it in October. Its highest rate was 7%. The next year, the Bureau of Internal Revenue printed its first 1040. The form was three pages, the instructions just one.

Taxes have got a lot hairier since. The Revenue Act of 1916, anticipating the United States’ entry into the war in Europe, raised taxes on incomes, doubled a tax on corporate earnings, eliminated an exemption for dividend income, and introduced an estate tax and a tax on excess profits. Rates on the wealthiest Americans began to skyrocket, from 7% to 77%, but most people paid no tax at all. By 1918 only about 15% of American families had to pay personal income taxes, and the tax payments of the wealthiest 1% of American families accounted for about 80% of the revenues.

Taxes are what we pay for civilized society, for modernity, and for prosperity. The wealthy pay more because they have benefitted more. Taxes, well laid and well spent, insure domestic tranquility, provide for the common defense, and promote the general welfare. Taxes protect property and the environment; taxes make business possible. Taxes pay for roads and schools and bridges and police and teachers. Taxes pay for doctors and nursing homes and medicine. During an emergency, like an earthquake or a hurricane, taxes pay for rescue workers, shelters, and services. For people whose lives are devastated by other kinds of disaster, like the disaster of poverty, taxes pay, even, for food.

What’s surprising, given how much money and passion have been spent to defeat a broad-based, progressive income tax over the past century, and how poorly it has been defended, is that it has endured. In addition, the IRS which is government agency charged with administering the tax laws and enforcing compliance has become one of the largest and most powerful government agencies. 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! And it all started with an earthquake in San Francisco.

By the way exactly 25 years to the day – that’s October 17, 1989 – a 6.9 magnitude earthquake, the Loma Prieta earthquake, rocked the San Francisco Bay Area. Remember history does have a way of repeating itself.

Well it’s time for a break but stay tuned because we are going to tell you the top tax write-offs that could get you in trouble with the IRS.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states: Top Tax Write-Offs That Could Get You In Trouble With The IRS – Part 1 of 2

From travel expenses to paying wages to family members, there’s no limit to what people will try to write off at tax time for the sake of their business. But where do you draw the line? Which write-offs you’re trying to write off go too far?

Amy opens up with Tax Write-Off: Travel Expenses

Here’s a write-off that sometimes is difficult deciding just where to draw the line. Can you deduct the cost of going to see a Cirque du Soleil show in Las Vegas if you’re treating your client? The answer is yes, as long as you can justify it as a business expense. And what if your spouse goes along on the trip? As long as they’re a partner or employee of your business and attended conventions or meetings on the trip you took together, then his or her travel and 50% of his or her meals are also deductible.

Jeff states:

• Key Issue: You can deduct travel expenses, and 50% of related meals and entertainment, if the travel is reasonably related to your business.
• How to Do It Right: The more accurate your records are, the more likely they’ll be accepted and validated by the IRS if you become involved in an audit situation. On your next business trip grab an envelope from the stationary drawer of your hotel room and put all your receipts from that trip in it. Label the envelope with a name and date to help you remember that trip and document it should it be questioned later.

Amy opens up with Tax Write-Off: Cell Phone Bill

If you use a cell phone as part of your business, this could be a big deduction for you. So don’t make the mistake of mixing business with pleasure by sneaking too many personal calls onto your cell phone bill.

Jeff states:

• Key Issue: Because of the way a cell phone can be used and many phones and features are bundled into single plans, this expense has come under much scrutiny, so people need to keep good records and keep their actual cell phone bill so they can demonstrate what portion relates to cell phone use and that a majority of the calls were business calls.
• How to Do It Right: Take a look at your cell phone bill to make sure you receive an itemized report. Because cell phones are considered listed property, you need to keep detailed records of their use. In the case of a land line, it’s a good idea to have a separate phone number for your business since the IRS won’t let you allocate the cost of a single phone in your home to your home office.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw 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.

Amy opens up with Tax Write-Off: Home Office

Home office deductions used to be a big red flag for an audit back in the 1990’s. These days, you just need to use the deduction with caution. A good rule of thumb to follow is that anything that’s unusual and disproportionate to your level of income is something the IRS will check out.

Jeff states:

• Key Issue: Home office space is the exact square footage area in your home dedicated exclusively to the running of your business.
• How to Do It Right: Get an accurate floor plan of your residence and the exact square footage of the space exclusively used for business. Once you figure out the percentage of your home office compared to your overall home, then you can go back to your heating bills, electric bills and all other bills that go to supporting your home, and figure out the amount you can deduct for running your business.

Jeff states – the rules and recordkeeping for the home office deduction apply the same whether you are a home-owner or you are a home-renter.

Amy opens up with Tax Write-Off: Home Office Computer

It’s not a good idea to mix your business world with your personal life so you should not use your home office computer for personal tasks if you can help it.

Jeff states:

• Key Issue: If there is the only computer in your house, you will have to calculate the percentage of total time you use it for business purposes.
• How to Do It Right: Ideally, your best option is to purchase a laptop or tablet and dedicate it to being your personal computer. You then use your desktop computer solely for business. This way you can avoid any messy situations come audit time.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw 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.

Stay tuned because after the break we are going to tell you more of the top tax write-offs that could get you in trouble with the IRS.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

And on the phone from our San Francisco office I have my associate attorney, Amy Spivey.

Jeff states: From travel expenses to paying wages to family members, there’s no limit to what people will try to write off at tax time for the sake of their business. But where do you draw the line? Which write-offs you’re trying to write off go too far?

Amy opens up with Tax Write-Off: Personal Expenses

This is a category business owners can easily get into trouble with if they’re not careful.

Jeff states:

• Key Issue: You simply can’t deduct services of a purely personal nature that aren’t related to your business.
• How to Do It Right: Getting an opinion from a tax professional as to whether an expense is deductible for your business makes most sense. The cost of high-speed internet service should be deductible but you can’t deduct such homecare services as gardening, landscaping and tree removal simply because you work out of a home office.

Amy opens up with Tax Write-Off: Guard Dog

Believe it or not, this is a legit write-off if taken correctly. In order for a dog to qualify as your company’s guard dog, it helps if you’re a little afraid of the animal yourself (picture a Rottweiler, Pit Bull or German Shepherd).

Jeff states:

• Key Issue: You will only be able to deduct that portion of the dog’s total time devoted to “guard-dog” duty.
• How to Do It Right: Though it may seem rather obvious, your dog most also be guarding your inventory. Knowing the percentage of time devoted to guard-dog duty, applying this business use percentage you can deduct expenses relating to the dog but you can’t deduct the dog itself. You can however depreciate the dog over its expected lifespan as determined by a local breeder.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw 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.

Amy opens up with Tax Write-Off: Work-Related Uniforms or Costumes

The dos and don’ts of this tax write-off are fairly simple.

Jeff states:

• Key Issue: If the costume or uniform is something you could wear outside your job, you shouldn’t write it off. If, however, it’s obvious you can only wear it for the duties of your specific job, then it qualifies as a write-off.
• How to Do It Right: A new suit wouldn’t qualify since you can wear it other places outside of your work environment. A perfect example of some rather unusual clothing you can write-off would be a clown suit. Even a Las Vegas showgirl with tight, sequined costumes she purchased for her performances should qualify. In this case a picture is worth a thousand words.

Amy opens up with Tax Write-Off: Paying Wages To Family.

When employing a spouse, child or close relative, be careful not to give them any extra-special treatment.

Jeff states:

• Key Issue: Make sure the responsibilities of their job description are commensurate with their age and experience. Pay them the same salary you’d pay anyone else doing the same job.
• How to Do It Right: Just like any other employee, maintain a personnel file and include them on your worker’s compensation coverage. Report them on the business’ employment tax returns and issue W-2’s at the end of each year.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw 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.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my associate attorney, Amy Spivey.

If you would like to post a question for us to answer, you can go to our 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 Amy, what questions have you pulled from the kahntaxlaw inbox for me to answer?

Question: When Should You Lawyer Up When Dealing With the IRS?

Answer: If you receive a notice from the IRS regarding small mistakes and omissions with your income tax return, you can probably deal with the IRS directly or by giving your tax preparer a quick call. However, if there is any chance your case could go sour, you need to call a qualified and experienced tax attorney, and pronto. A good rule of thumb is that if you’re asking yourself whether it’s serious enough to merit calling a tax attorney, it probably is.

Question: Is It True That Taxpayers With Legal Counsel are Treated Better?

Answer: It’s unfair, even illegal, but it’s also human nature. IRS agents are flesh and blood and if they can get away with bullying someone into their interpretation of the law, they probably will. A tax attorney can ensure the IRS is playing by the rules and treating you fairly. IRS investigators are much more careful about asking inappropriate questions or wasting your time with unnecessary requirements, if they know they are dealing with a tax attorney.

Question: Why Should I Only Use A Tax Attorney For Representation In A Criminal Tax Investigation?

Answer: When it comes to tax planning, business budgeting and asset management, a CPA is – all things being equal – more useful than a tax attorney is. But when you have a dispute with the IRS, especially if you’re accused of tax fraud or tax evasion, a tax attorney is the only intelligent choice. Tax attorneys are the only ones who can represent you in a court of law and provide you the legal advice and analysis you need. Anything discussed with your tax attorney is protected under the attorney-client privilege. Unlike CPA’s and accountants, attorneys cannot be subpoenaed to testify against a client in a criminal procedure.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw 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.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Well we are reaching the end of our show.

You can reach out to me on Twitter at hash tag kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone!