Accounting for a Detoured Economist

Wise Bread has recently posted 20 amazing, outrageous and just plain weird tax deductions that people have attempted to write-off on their taxes (sometimes successfully too). Number 10 reminded me of my recent post on tax-free-interest in which strange places are considered as tax free municipalities. Apparently there are equally confusing laws when it comes to writing off convention visits…England…NO…Honduras…YES!

10 - A Trip to Bermuda

I love this one. I have to find a way to do it. ANY business convention held in Bermuda can be written off without even showing there was a special reason to hold your business meeting in paradise. And it’s not the only place. Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, Trinidad and Tobago, Canada, Mexico and all U.S. possessions also fall into this special tax treatment. But outside the U.S. is a different story. I guess I can’t hold a board meeting in England so I can go see my folks then

Canada made the list…hmmm…hey Krupo and Neil this is just further proof of Canada’s status as a US enclave possession. The only question now is whether the whole territory should be the 51st state, or if we should admit the 10 provinces and 3 territories separately. We’ll leave the trouble-makers in Quebec for the French to conquer.

hehehe…I said the French would conquer another government….funny! You all have heard of the Google-bomb of ‘french military victories’ haven’t you? Unfortunately Google finally eliminated the result…you can find a copy of it here.

Does Raising The Marginal Tax Rate on the Rich Change the Behavior of the Rich? The answer isn’t as obvious as you may think…especially in economic circles. There is an interesting debate going on in the economics blogosphere in regards to the optimal taxation rate.

Robert Frank, from the New York Times recently wrote…

Trickle-down theorists are quick to object that higher taxes would cause top earners to work less and take fewer risks, thereby stifling economic growth. In their familiar rhetorical flourish, they insist that a more progressive tax system would kill the geese that lay the golden eggs. On close examination, however, this claim is supported neither by economic theory nor by empirical evidence.

Dr. Mankiw, who wrote two of my textbooks while in college and still looks younger then I do, responded…

[Robert] is perfectly free to believe whatever he likes and to advocate increasing the top marginal tax rate. But to suggest that there is neither theory nor evidence to support the beneficial effects of lower marginal tax rates on high-income taxpayers indicates a lack of appreciation of the academic literature in public finance.

If you are interested in this type of theory you should read the entire post here and the follow-up found here. Definately a good read.

[Disclaimer - This post should not, in any way, be confused with tax advice…I am an idiot and studied economics and statistics in college. My next tax law class will be my first tax law class, so be warned]

In California the interest from tax free municipal bonds is tax free if the municipality is from California. So if I buy a San Francisco Municipal Bond the interest earned from that bond will not be taxed on my California income tax return. If I buy a tax free municipal bond from another state (lets say North Carolina) the interest I earn from the bond would be taxable by California.

So tax free doesn’t always equal tax free…but it gets even better. If I buy a bond from Puerto Rico, The US Virgin Islands, or another Territory of the US…the municipal bond interest is considered tax free in California. OK?!? So investing in infrastructure bonds for a state other then California…no tax advantage…invest in a non-state such a Puerto Rico…tax-free money is yours to keep. Guess what happens if you buy a tax free municipal bond from Washington D.C.? You got it…the interest is taxed. Now someone tell me the logic that created these rules? Try explaining to a client why interest on Municipals bonds purchased in the early 1900’s is tax-free while a bond to redevelop New York City or New Orleans after their recent tragedies isn’t tax free and I will bow to the alter dedicated to your greatness.

I know this isn’t the MOST idiotic tax law on the books…but it is the most idiotic tax law I dealt with today. Well…that and the alternative minimum tax…but don’t get me started on that.

Regular blogging will begin soon. Tax season is ending in a little over a week and I will only have a 9 month old toddler, a wife, one accounting class, a full-time auditing job, sleep, the gym, and the TV show Lost to take up my time. Should be plenty of time for blogging. Talk to ya on the 18th.

My firm sends a tax guide to all of our tax clients and requests that they fill out all the particulars we will need to complete their tax returns. If the man of the house is filling out the guide the handwriting tends to change (I assume to his wife’s handwriting) when we get to things such as children’s birthday, while when the ladies fill the form out the handwriting tends to be that of another person’s when questions of auto mileage and square footage of additions.

The Telephone Excise Tax Refund has taught me something else. The idea of a cost benefit analysis is not well understood by all small business owners. If it takes me two hours to get you a $150 tax refund…you have just lost money. People can sometimes get too emotional about taxes.

In 1898, a 3 percent federal telephone excise tax on long-distance calls was imposed to fund the Spanish-American War. This is one of the famous ‘lets impose a tax on the rich’ taxes that governments seem so fond of in democratic countries. At that time only the affluent could afford a phone so the tax went through with little notice and a high level of support. After the conflict ended, the tax was still collected and the money went into the U.S. Treasury’s general fund. Like most of these types of taxes, it never went away and eventually expanded to cover nearly all taxpayers. So a 100 year old tax on the rich for one of the shortest US wars in history was being assessed on every phone user in the information age until very recently when the IRS determined that this tax was not proper (note that the tax was repealed for technical reasons…not for the reasons previously stated). The Telephone Excise Tax Refund (TETR) is a result of the IRS decision and is a one-time payment available on the 2006 federal income tax return as a result of the repeal of this tax.

It has become very apparent that to actually go through years of phone bills to come up with the genuine amount owed by the IRS is a cumbersome and mostly useless exercise. Do nothing but check a box and get $30…do two hours of work to figure out how you were actually screwed by the tax system and get $45 bucks. I can think of a plethora of things I would rather do then earn $7.50 an hour looking at old phone bills. When a client is paying me the cost-benefit analysis is even worse. It’s almost a waste of time to ask the client whether they want me to research the actual amount of refund or just take the standard refund.

According to the IRS early tax returns, including those filed by tax professionals for their clients, show that about 30 percent of taxpayers are not requesting the telephone excise tax refund for which they may qualify. There is no excuse for a tax preparer to check a box to get $30 or $60 dollars. That should never be missed. If your tax preparer misses this they had better have a damn good reason, other than their clear incompetence.

In my research of this issue I found that even if you don’t need to file a tax return or owe no money, you may still be eligible to collect the refund. Use the new Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, to choose the standard amount. Attach Form 8913 to Form 1040EZ-T if you use the actual amount. Also, some companies offer free e-filing of Form 1040EZ-T.

Update: Bean Counter Blog has noted the same problem here.

Bean Counter Blog notes…

So please take the extra 10 seconds to check your return and be sure you filled out the one required line. You don’t need to present proof to the IRS, so this could possibly be the easiest way to earn $30 to $60.

I am begining to think that this tax credit is a form of financial darwinism. If you are too stupid to check a box and receive $60 then maybe the government can better decide how to spend your money than you can. Bill Gates is exempted from the above comment…it cost him more money to take the time to check the box and can not be blamed for ignoring what must seem like a penny on the ground to him.

Next time you need to do a quick and dirty CUSIP lookup, and don’t want to take the time and effort to find your company password to lookup the information for the ratings on an investment, just remember this website.

Fidelity Investments Symbol Lookup

The site requires no password…and the best part is the price…free! If the site is down, you can still use the Standard & Poors website, but it will cost you. FYI, from experience I can tell you that searching for CUSIP’s on yahoo or Google finance is an exercise in futility.

For those of you that don’t know what a CUSIP is…

CUSIP stands for Committee on Uniform Securities Identification Procedures. Formed in 1962, this committee developed a system (implemented in 1967) that identifies most securities, including: stocks of all registered U.S. and Canadian companies, and U.S. government and municipal bonds. The CUSIP system—owned by the American Bankers Association and operated by Standard & Poor’s—facilitates the clearing and settlement process of securities.

The number consists of nine characters (including letters and numbers) that uniquely identify a company or issuer and the type of security. The first six characters identify the issuer and are assigned in an alphabetical fashion; the seventh and eighth characters (which can be alphabetical or numerical) identify the type of issue; and the last digit is used as a check digit. A similar system is used to identify foreign securities (CUSIP International Numbering System).

As some of my regular cross-over readers know, I am a PhD drop-out from Cornell University. I was studying economics and had a full fellowship with tuition, healthcare, and a basic living stipend paid by the university while I studied. I had similar offers to study at UCSD, U. Maryland, U Virginia, Ohio State, and a number of other well known universities. I began to blog as an undergraduate studying for my economics and statistics degree. Upon dropping out of my math economics PhD program I sort of fell into the accounting field.

The economics blog universe was small when I began to blog…but it continually grew with more and more blogs each month. I developed a blog style that was highly dependent on interaction with other blogs through commenting on others posts, reading a post written by another blogger that would spark a new idea in me, and the free exchange of opinion on whatever the controversial subject of the day happened to be. I loved it, and the process never seemed to be burdensome. Blogging about accounting/auditing is nothing like my experience blogging about economics. Why?

Both subjects are considered dry by most of the population. Notwithstanding the occasional pop-culture breakthrough of people like Steven Levitt , Milton Friedman, or Robert Kiyosaki for the most part explaining your job to a person at a cocktail party will more likely then not be met with glazed over eyes and the summoning of additional cocktails to get through the boredom of the field of economics or accounting.

For the last few months I have thought that my newness to the field made writing about accounting difficult. All SAS statements are new to me so SAS 99 is as new to me as the newest statement coming down the pipeline. Backdating seems criminal to me…but my newness in the field leaves me second-guessing my knee-jerk reaction on the subject…”maybe there is something I am missing”, I think to myself. This stops me from posting for fear of looking like an uneducated loaf on the subject.

Another contributing factor to my lack of productivity is the audit/tax busy season (I have learned that the busy season is much longer then the non-busy season in an audit company). My audit busy season is from August to December. I also do tax work so I have to withstand another busy season from February to April. In economics when I was extremely busy my blog production went up. I was exploring new ideas, learning tons, and wanted to blog about it all. I have a similar desire to blog during the busy season now. The problem is how to blog about interesting subject that come up over the course of the day without disclosing information about the entity I am auditing. Generalization about the field work…but they are less interesting then the nuts and bolts of actual occurrences. Furthermore, although I have never disclosed the company I work for or the clients I am working on, it would not be hard to figure these things out…and if a client ever gets litigious I don’t want to be a target in any way. So during the busy season, the things I most want to blog about become off limits and since I am soo busy I have little time to pursue other areas of interest that would be pertinent to this blog.

The lack of other active bloggers interested in the subjects I am interested in is also hindering my blog productivity. There are many blogs that deal with new tax laws, or big-four happenings, or discuss industry problems from a firm’s perspective. But these things don’t interest me as much as the anecdotes about the field and how they relate to the experience of being an accountant/auditor. The lack of staff and senior level day-to-day blogging leaves the accounting/audit blogosphere without much of a dialogue. The back and forth dialogue of an active blog community is sorely missing in the accounting/audit blog community. My eyes are rarely opened to a new idea, or a fresh prospective on old topics. Where is the innovation in the field? Who is criticizing the status-quo? Where is the debate? People like Dennis Howlett, Krupo, and the Anonymous Accountant (when s/he was blogging) do a fantastic job, but I need far more people to read on my RSS feed. A community of four or five is not enough to obtain a critical mass that perpetuates itself for more then a few months.

There is an old saying that if you are bored you are probably boring, inferring that dynamic people find ways to occupy their life and avoid boredom. Boring people don’t do this and by default become bored. I am open to the prospect that I may be boring (for gods sake I enjoy economics, math/statistics, and accounting…the possibility is real). But it is possible for dynamic people to be bored in a boring environment. The accounting/audit blogosphere community is boring at the moment. I hope I am contributing to changing this….I pray others will step-up to the plate and grow the community and rock the boat a bit.

Update: I want to read posts like this in the accounting field (Thanks for the link Krupo)…

…The real cause of September 11th was lazy associates, public interest attorneys, and law students from second-tier schools. I haven’t yet figured out the details of my argument, but give me the weekend and I’ll come up with something. Obviously they’re the cause of every other problem in society, so why should 9/11 be any different? They’re the cause of global warming (hardworking associates don’t have any time to pollute), rampant disease (hardworking associates don’t interact with anyone, so they can’t spread illnesses), poverty (hardworking associates have all the money they need, building up lots of interest since they have no time to spend it), divorce (hardworking associates don’t have time to date and get married in the first place), overpopulation (hardworking associates die young), the social security crisis (hardworking associates die young), the Medicare shortfall (hardworking associates have private insurance, and die young), food shortages (hardworking associates don’t have time to eat, and die young), and more. So why shouldn’t they be the cause of terrorism as well. I’ll figure out the link. It’ll just take a few days.

Update II: Welcome Neil McIntyre On Accounting readers, I hope you enjoy and stick around a bit. Feel free to add me to your RSS feed….

Thanks for the link.

I work for a unique accounting/audit firm we In the last two months I have been on audits for School District, Occupational Training Center, a Bank, a Ocean Ship Transport Company, A Nuclear Non Proliferation Charity, and a number of small businesses. I have done compilations, audit reports, tax returns. The variety of my jobs has kept me interested in each client and stopped me from getting into the rut that many auditor’s fall into during their busy season. By the time I acquire my CPA I should have a good understanding of what type of accounting most interests me. What a great opportunity.

This variety does have its drawbacks. Remembering when revenue is recognized in a governmental entity (partial accrual), non-profit (where revenue is recognized when promised…not when received, regardless of the period it is pledged to be used), and private businesses operating their business on full-accrual and a cash basis can be very daunting. It is easy to confuse the rules and references for all of these entities. FASB, GASB, PCOAB, etc. When you don’t specialize it becomes exponentially harder to locate specific rules and dictums. And don’t even get me started on the mass amount of tax rules I will have to cram into my head in the next few months.

I guess this goes to prove that there is no perfect situation…every wonderful job has its dark-side. Luckily I enjoy the challenge of the dark-side of my job.

Have you ever needed to figure out how many weeks away July 17th 2009 is away from August 31, 2006? Or need to know how many months or days a lease has for a footnote and you just don’t feel like doing the math. Then I have the website for you. Time and date dot com calculates the duration between any two dates for quick calculations of days, weeks, months, and years (they will even give you hours, minutes, and seconds). Check out the site here and be sure to bookmark it for your next report writing marathon.