In article <bjgLj.7913$V14.382[at]nlpi070.nbdc.sbc.com> ,
Mark Bole <makbo[at]pacbell.net> wrote:

- quote -

Such as deductible IRA contributions.

- quote -

But making up a deduction can still help; the limitation on Itemized
Deductions, for instance, depends only on income, so an additional
$1,000 deduction still reduces taxable income by $1,000 (providing AMT
doesn't apply, or the deduction is still available under AMT).

Seth

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A wonderful example occurred today that illustrates that so called tax
loopholes aren't just for the wealthy.

A client today wound up owing federal 658$. Wow, what a shock (caused
by inadvertant erroneous witholding,but that's another story and problem).

So I suggested possibility of contributing to an IRA before April 15th
and illustrated just how much was the optimum amount in their (joint)
particular case. With an IRA contribution of exactly 2700$, their
balance due of 758$ turned into a refund of 670$, what with the
combination of
tax deductibility of the 2700, the lessening of social security subject
to tax and the maximum possible retirement income credit. The latter
was 963$ and this was FREE money! And since she is
58 years old now, she can withdraw the 2700 two years from now and not
pay any penalty! Tax yes; penalty no.

And of course their was a Georgia income tax savings of another $ 162
for a total take of 1,590$ based on 2,700$ into an IRA.

This just sort of made my day.

ChEAr$$$$,
Harlan Lunsford, EA n LA

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

anne watson wrote:
- quote -

Not if there is an itemized deduction limitation or high-balance limitation.

(Don't forget to add "houseboat" to your list of possible second homes...)

- quote -

Tax free federal, or state? What is the reduction in interest rate due
to no taxation?

- quote -

Subject to high-balance limitations.

- quote -

For an employee? Limitations. For a self-employed person? Expect some
scrutiny. Scratch that, expect some scrutiny in either case.

-Mark Bole

--
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Barry Margolin wrote:
- quote -

Maybe someone else will.

ChEAR$$$,
Harlan Lunsford, EA n LA

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <w_uLj.34792$vr3.16982[at]bignews2.bellsouth.net> ,
Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

- quote -

I've been saving thousands of dollars in taxes every year for nearly 2
decade by investing in low-income housing, for which there's a tax
credit. I invested $20K in an LP in 1991, and at its peak it was
generating $3K/year in credits.

Rich people also tend to have lots of investments, some of which are
likely to have losses, which they can sell to offset gains. Not
technically a "loophole", but it's a way to reduce taxes that's more
available to rich people than poor people.

Admittedly, the AMT has mitigated many of the loopholes that rich people
traditionally took advantage of.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

... Rich people
- quote -

bathroom and kitchen, all the mortgage interest is deductable.

Tax free bonds- with a minimum purchase amount of 1000.00 dollars

A home equity loan spend it as you wish, interest deductable.

Another possibility. Trqvel expenses. You make a trip fly or drive,
take 14 days, spend one day on business the rest on vacation. Sure you
deduct the daily expenses for food and lodging for the vacation days but
take the full air/drive costs.

--
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Barry Margolin wrote:
- quote -

You've piqued my interest here. Could you perhaps elaborate on these
legitimate tax loopholes for us?

I'm probably not the only one who would like to know .

ChEAR$$$,
Harlan Lunsford, EA n LA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Barry Margolin wrote:

- quote -

As I learned once in this group, a certain number of audits must always
be conducted at random, else how to establish a baseline?


- quote -

The funny thing is, ordinary deductions are limited or disappear
altogether for so-called "rich people".

(I'm using the term "rich" to describe people under $1.5M AGI and over
$150K -- your definition may vary depending on local conditions).

Making up deductions really doesn't help the rich that much. Limitations
and phase-outs and progressive brackets eliminate many tax benefits. My
experience is that our current federal income tax system is progressive
by design (and not flat), within this income range.

-Mark Bole

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <4AfLj.2419$GE1.954[at]nlpi061.nbdc.sbc.com> ,
Mark Bole <makbo[at]pacbell.net> wrote:

- quote -

But audits aren't done at random, they supposedly look for triggers.

Poor people may be more inclined to cheat on their taxes simply because
they NEED whatever they can save more than rich people. Rich people
don't need to cheat as much, they have lots of legitimate tax loopholes
available to them.

On the other hand, when rich people DO cheat, they get much more out of
it.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

kastnna wrote:
- quote -

With most tax tussles, it is your own money that is potentially being
refunded to you... you can't get back more than you put in (once your
tax is down to zero, additional deductions will gain you nothing).

With credits such as EIC, we're talking welfare -- it is someone else's
tax money that you are going to get back. The incentive to game the
system is much higher.

-Mark Bole

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kastnna wrote:

- quote -

No, it's just basic statistics. If you randomly audit returns, and 80%
of the returns are from "poor" (in this context, equals "not rich")
people, then 80% of the audits will be of same poor people.

-Mark Bole

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On Apr 9, 1:22*pm, "Elle" <honda.lion...[at]spamnocox.net> wrote:
- quote -

Thanks for the info. I learned something new today!

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"kastnna" <kastnna[at]auburnalum.org> wrote > On Apr 8, 8:48
pm, "Elle" <honda.lion...[at]spamnocox.net> wrote:
- quote -

Statistics like the following might be said to be behind the
higher rate of audit for those claiming the EITC: "The IRS
estimates that somewhere between 27 and 31 percent of earned
income tax credits were issued erroneously in 1999, either
because of taxpayer confusion or fraud."

See for example:
http://www.taxpolicycenter.org/publi...nt.cfm?ID=8471
http://slate.msn.com/id/1005162/

I think these realities still seem to beg an explanation of
how the IRS first discovered the high mistake (or fraud)
rate with EITC returns. I suppose random audits sampling all
returns may have showed a higher than usual mistake rate for
EITC. Then this may have led to flagging EITC returns at a
greater rate than non-EITC returns. Just a hypothesis. I
personally cannot condemn or condone the higher audit rate
of EITC returns without studying the subject more.

But certainly nor do I mean to accuse the poor of
(intentional implied) fraud. The first web site citation
above indicates there is a lot of confusion about simply
taking dependents (never mind the EITC). Messing up
dependents can mess up the EITC calculation, among others.
Poor families sort of trade off (legitimately) family
members so as, ya know, to keep them off the streets and
fed. Tests like a person living six months in one's home try
to make it clear who gets to claim whom as a dependent.
Throw in that some parts of the country have a high fraction
of low income folks who do not have Social Security Cards
but instead have ITIN cards, and exactly how these people
are counted for various purposes on the tax return is
further confusing to the unversed.

Wikipedia has a decent history of the Earned Income Tax
Credit.

Either way, didn't mean to start a (very!) big discussion of
poor folks and taxes. My eyebrows did go up when I read a
recent H&R Block contract, so I read more on Refund
Anticipation Loans (RALs) etc., and I queried here to make
sure I had a better grip on what Block et al. get to do.

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On Apr 9, 11:22*am, dpb <n...[at]non.net> wrote:
- quote -

Or maybe because the rich have considerable more resources to fight an
audit. Or maybe because they don't want to piss off the people that
provide most of their revenue AND have the means to lobby for tax law
changes???

Just possibilities.

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Stuart Bronstein wrote:
....
- quote -

That there are far more poor than rich have anything to do with that?

--

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kastnna wrote:
- quote -

Probably the history of EITC fraud schemes.

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kastnna <kastnna[at]auburnalum.org> wrote:
- quote -

I wonder if this has anythinig to do with the statistic I heard that
the IRS is more likely to audit the poor than the rich. After all, the
rich would never cheat on their taxes, right?

Stu

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Apr 8, 8:48*pm, "Elle" <honda.lion...[at]spamnocox.net> wrote:

- quote -

I'm not disputing this, but could someone please enlighten me. What's
the logic in this?

P.S. - I don't know much about the EIC other than the very basics, so
please "talk slowly".

TIA

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Elle wrote:
[..] Plus she technically should not
- quote -

Does VITA *anywhere* routinely do Schedule C, which would apply to a
small business even without depreciation? A person who taught me much
about taxes once opined that if you claim EIC based primarily or solely
on self-employment income, you are almost guaranteed to be audited.

Don't forget bartering (non-cash) income as a basis for claiming EIC,
folks in Humboldt County used to be fond of that... ;-)

-Mark Bole

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Barry Margolin" <barmar[at]alum.mit.edu> wrote
- quote -

In hindsight, I think what may have happened with the woman
I know who used H&R Block is that it was January 11 and she
needed her roughly $3000 refund (largely EITC money)
a.s.a.p. She would have had to wait until at least February
1 to use VITA in my city. Plus she technically should not
have been able to use my city's VITA because she has a small
business with depreciation (so Schedule C, which where I am
VITA does not do routinely).

As probably nearly every regular who posts here knows, folks
like this are typically scared of the complexity of taxes.
At best, they may know something about audits: Those who
take the EITC are more likely than those who do not (all
other things equal) to be audited. I would think these folks
feel using a professional tax preparer gives them some
protection.

The occasional fraudulent taxpayer aside, I think these
people are not "saps." They are in a desperate situation
without the education to cope. I think the IRS does "get
it," hence all the discussion at the IRS site and others
about RALs. Those more in-the-know should get it, too,
because H&R Block et al. are pocketing a sizable chunk of
EITC money (= public welfare money) every year that is
supposed to be going to the more immediate needs of the
families receiving it.

- quote -

I found it interesting that Block presents the interest rate
and other fees very clearly. They are in large type, put on
a page with just these items, and followed by a signature
page. I think this method of presentation is likely a result
of the IRS and various state attorneys coming down on Block.

Blah blah I know: Life is lousy for lots of folks.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >