Schedule FYI

Fall, 1998 Issue

Do you still want your retirement money linked to the stock market? When the stock market went from 4000 to 9400, a lot of people got interested in the idea of putting all of their retirement eggs in one basket - the stock market. This was a far better return that social security could ever give. However, when the stock market went from 9400 to 7500, the idea of a guaranteed check, on a given day, regardless of what the economy does, didn't sound quite so bad anymore.

Flat Tax: Deputy Treasury Secretary Lawrence H Summers related that the 9,451 page tax code should be streamlined. He stressed that this is not to "argue for extreme measures such as a flat tax." He said that "such proposals would not only unfairly increase the tax burden on the middle class and hamper economic growth, there would not simplify the administration of the tax code."

Need help with college loan and/or grant applications? I recently learned how to assist parents and students with both. If you have a student who will be entering college, and would like to consult with me regarding his/her loan or grant applications, please call me. I've decided that my first half hour will be free, after that, who knows. Also, if you know of someone that is, or has, a student who is ready to enter college, same deal. Finally, if you would like to periodically receive a newsletter from me related to financial aid, let me know; I'll be happy to put you on my mailing list.

Moving Notice!!!

I moved!!! One whole block north! From 3202 E Georgia to 3202 E Vermont. When I told the phone company I was moving from Georgia to Vermont, the operator said they didn't service that area and I was transferred to another department. Maybe he thought the skiing was better on Vermont. For the record, Vermont is one block north of Georgia.

I also now have a dedicate fax line, 957-5363. I believe that I should be firmly into the 20th Century before entering the 21st Century.

Other information is unchanged, my phone number is still 956-1774; mailing address is still P O Box 32815, Phoenix, AZ 85064.

Attention Employers! Beginning October 1, 1998, all newly hired employees must be reported to the State of Arizona within 20 days. The minimum information is the employee name, address and social security number and the employer's name address and employer id number. The purpose is to help the State collect child support payments, although the brochure states that it will reduce fraudulent unemployment and workers' compensation payments. If you have any questions, such as where to mail the information, call (602) 252-4045.

"Everyone has a plan until they get hit." Mike Tyson

Hobby Losses: The IRS has been tightening the burden of proof requirements surrounding profit motive in recent years. To deduct losses arising from business activities, those activities must be engaged in for profit. Taxpayers have always carried the burden of demonstrating a profit motive.

A taxpayer who worked principally as an electrician and a real estate agent, owned and operated a family pet store that he began in 1963. His mother, wife, and children worked in the store and he helped out in the evenings and on weekends after finishing his regular jobs. While the store had earned a profit in the early years, it consistently lost money during the 1980s.

When he claimed $75,000 in losses over a 3 year period, the IRS denied the claim. The Tax Court upheld the IRS position, ruling that the store was no operated in a businesslike manner, and cited sloppy bookkeeping and disorganized records as evidence. However, on appeal, the Court of Appeals reversed that ruling and stated that other factors should have been considered, such as the fact that the losses were actual losses, not paper losses, he was a man of moderate financial status and not inclined to engage in hobby activities, and that the store was profitable for many years prior to its decline. In conclusion, the Court stated that the intent of the hobby loss rules was not to imply that incompetent businessmen were less entitled to tax deductions that competent businessmen.

Optimism: An optimist is someone who tells you to cheer up when things are going his way. Unknown

Did I mention that I moved?

"To err is human, but when the eraser wears out ahead of the pencil, you're overdoing it." J Jenkins.

Apparently not truly my competitor, John Hewitt, the founder of Jackson Hewitt and current CEO of Liberty Tax is appealing a Tax Court decision that disallowed much of his deduction stemming from a $250,000 charitable donation of appreciated company stock. He had donated the stock to a church and a world hunger foundation in 1990. In order to claim a charitable deduction for non-publically traded stock valued over $10,000, you must get an appraisal. He didn't. He tried to use the sales price of the stock the next day to document the value. My information did not include whether it was Hewitt, or someone else, who purchased the stock, and thus set the value.

I did mention that I moved, didn't I?

If you can't beat them, join them. H&R Block has announced its strategy to expand its national accounting business to a $300 million business within in 5 years by buying one CPA firm a month

"I am convinced that if most members of Congress did their own taxes, we would have had tax reform long ago." Bill Archer, Chairman of House Ways & Means Committee.

Remember when Congress wanted to turn us into a nation of savers and thought eliminating tax deductions for interest would accomplish that. Government data shows that Americans only saved a fifth of one cent of every dollar they took home after taxes in June. This is a record low. The savings rate is important because it determines how much someone will have when they retire. It also determines how much is available now for US firms to tap to build and grow.

"Recognition doesn't mean so much. You never get it when you need it." Edward Hopper

I know, it's only rock n roll, but I like it. The Rolling Stones had to cancel the British leg of their world tour. Tax reforms that went into effect in March would have cost them $20 million in taxes if they were to play in the United Kingdom this year. The new law requires any resident who works in Britain at all, must pay tax on their entire year's earnings.

"The federal government cannot stop illegal immigrants, it cannot stop drug dealers, but it can audit every small business in America." Newt Gingrich, Speaker of the House.

Page Created September 12, 1998

Gary J Wood, P C, CPA has been solving tax and accounting problems for individuals and owners of closely-held businesses in the Valley area for more than a decade. Information contained in this article is general by its nature and should not be construed to be tax or legal advice.

If you would like specific advice for your situation,
please call (602) 956-1774 and arrange an appointment.

A copy of his newsletter, Schedule FYI, is available on the Internet at or by sending a SASE to
P O Box 32815, Phoenix, AZ 85064.

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