April 5, 2015

The Brits declare their independence ... from tax returns

Great Britain will likely be eliminating tax returns within the next five years.i By using the Pay As You Earn (PAYE) system for about two-thirds of the population, employers deduct tax and national insurance contributions from wages or pensions before paying taxpayers, so the UK is already halfway there. Their system is simple anyway because there are no major deductions, such as mortgage interest. The idea is to make compliance easier and the end-of-year process less stressful, especially for entrepreneurs and the self-employed, without giving the impression that Big Brother is watching and needs taxpayers to report in.

Of course there are conflicting opinions on whether this would fly in the U.S. The libertarian view is that "citizens in the U.S. probably would instinctively resist such a plan ... because people don't trust the government."ii And from the government's point of view, there is a potential conflict of interest in simplifying a system that the government benefits from. Either way, bureaucratic change in the U.S. is a slow slog, so most likely, nothing will happen. Check out "They can't even do nothing on time" in the March 15 issue of the Tribune.

i Marketwatch.com
ii Id.

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We, the Peep-le

Brussels sprouts. Tapioca. Abstract art. Yoko Ono. There is no middle ground when it comes to these things; you either love them or hate them. One more season-specific item to add to that list: Peeps. Wait! Before you Peep-haters move on, here's some Peep trivia that might endear you to those colorful little blobs of sugar:

  1. Peeps used to be made by hand, and a batch took almost 30 hours to make. Now, the Just Born Co. cranks out 5.5 million a day.
  2. Peeps originally had wings. The wings were removed in 1955 to streamline the production process.
  3. There are Facebook groups for people who dislike Peeps.

Even if you don't like to eat Peeps, you can still appreciate them. For example, did you know that each year, the Washington Post holds a Peep diorama contest? The winning diorama re-enacts a historical or current event or pop culture reference using Peeps. You can see this year's winning entry and finalists here. Or, you can just pop a Peep in the microwave next time you take a break. Set the timer to one minute and let the fun begin.

For Peep lovers, if you are tired of the typical Peep format, here are some reci-Peeps to try:

My favorite? A Peep garnish on a glass of pink champagne. And remember that one "serving" equals five Peeps, so drink (I mean eat) up!

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Sex reassignment IS tax deductible!

A recent survey by NerdWallet proves that most taxpayers need a good tax preparer to help them navigate through the complicated rules and regulations of the U.S. tax code. On a 10-question multiple choice quiz, the average score among participants was just 51%, representing a solid "F" by any academic standard.i

The questions ranged from easy to more complex. "Can married couples file taxes separately?" was answered correctly by 90% of the respondents, whereas "If you lend money to a friend and she doesn't pay you back, can you write it off?" came in at only 42% with correct responses.

Only 39% recognized that gambling losses, babysitting if you're a parent doing charity work, and sex-reassignment surgery are tax deductible (go Bruce Jenner!), perhaps because these deductions fly in the face of the perception that the IRS can be draconian in determining what is allowable. (On the contrary, read about the broad-minded opinions of the Tax Court, which supported Chesty Love's robust defense of her depreciable assets.)

To take the test, go to www.nerdwallet.com.

Depreciable stage props

Exotic dancer Chesty Love underwent multiple medical procedures to enlarge her breasts, which ultimately expanded her breast size to 56N. Subsequently, her fees doubled.

Representing herself in Tax Court, she was able to prove that her implants (described as "a horrendous size" and "freakishly large" by the court) were part of the costume worn in her line of business. Her main arguments were that the implants were "stage props" necessary to her act, and that she derived no personal benefit from them. In fact, she and her husband were constantly ridiculed in public, and she was ostracized by her own family. She convinced the court that the only reason why she underwent these extreme alterations was to increase her success as a dancer.

Because the petitioner's implants were so extraordinarily large, the court found that they were useful only in her business. Accordingly, the court held that the cost of Chesty's implant surgery was depreciable. The case is Hess v. Comm., TCS 1994-79.

i Marketwatch.com

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A few fun facts about this week's writers:

Diane FullerDiane Fuller is a gourmet cook with a refined taste in all things sweet. From traditional Japanese desserts to the best bacon donut that's ever appeared in our break room, Diane knows how to satisfy her sweet tooth. She also writes children's poetry!

Kathryn Zdan, EAKathryn Zdan, EA, is not only director of the editorial department, she also "rocks the house" as a regular in curling bonspiels around the country.

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