October 2022
OCTOBER 2022 CLIENT NEWSLETTER PART ONE
GOOD NEWS: When the Russians invaded Ukraine President V. Zelensky called Elon Musk and asked for help. Two hours later, a deal was struck between the two resulting in over 20,000 Starlink terminals connected to low-level satellites over Ukraine, thus, providing communications for the beleaguered nation. Elon hurriedly dispatched the internet terminals and satellite dishes, at no charge. Such marked a pronounced military communication previously blocked by the Soviets when the war started. Reinforced authority on the Ukrainian military delegates to act and change course resulted in quick decisions and mobility at combat level instead of the, yes sir, no sir, military communications which I experienced in the past while in the Army. The Russians are also hidebound in the decision-making process, which roadblocks the changes required of fluid tactical moves on the ground. Speed is essential in fast-moving combat in today’s world.
FEDERAL STUDENT LOAN DEBT FORGIVENESS: On August 24, 2022, the trillion-dollar before election gift by Executive fiat in a federal emergency by President Biden was unveiled. Loan forgiveness which falls under the Bad Debt Cancellation of Indebtedness rules make it taxable in California and normally under the Federal unless bent and broken. “The Lord giveth and taketh.”
CALIFORNIA NEWS: The Labor Department has determined that the Consumer-price index in the U.S. rose 8.2% compared with September a year before. To offset the 8.7% increase in Social Security benefits beginning January 2023, the Social Security tax will increase from maximum earnings of $147,000 to $160,000 while the 1.45% Medicare taxes have no cap, and the employer must match the employee deduction.
Last year, legislation attempted to throttle the GIG economy with a list of restrictive requirements. It forced many of us to be on payroll instead of self-employed. An example was a client who did marketing script writing for many businesses. Under the new guidelines, she was expected to be on the payroll for each of her clients even though the freelance work was created while working out of her house. Consequently, she promptly moved out of state to avoid shutting down her little business. That was one of the thousands of people influenced by nasty legislation.
Like California, President Biden has also declared war on the gig economy with his new proposed Labor Department rule reclassifying 20 million independent contractors as employees. Behind the move is the Labor unions wanting them to become employees so that they can become union members, with the Labor Board controlling overtime and benefit rules. The noose continues to tighten on the self-employed with strangulation by regulation laws and rules.
CALIFORNIA MIDDLE-CLASS TAX REFUNDS: The election is coming up in a week and it is time to prime the ballot box with money from nowhere. Well, it is really from the billion-dollar surplus in overtaxed California, a response to ultra-high gasoline prices. Although the amount is not stated, one thing sure is, it will be Governor Newsome’s signature. A one-time payment to provide RELIEF to suffering Californians is supposed to be issued between October 2022 and January 2023. This is not taxed in California; however, a Federal 1099 Form will be issued if the amount received is $600 or more.
The relief check received by Californians last year was not federally taxable so we will see if the rules will change. To save you a call to our office, check your eligibility or payment status by going to ftb.ca.gov and looking for middle-class tax refund. Middle-Class Tax Refund has now an acronym MCTR.
CALIFORNIA RULES THE COUNTRY: If California goes, so goes the nation, a known adage. Now the pigs are in trouble. Several years ago [in 1918 through a ballot initiative] chickens were made more comfortable in this state from the new farming rules that expanded the cage size of these animals. Consequently, many farms closed and those farms that are out of state had to follow the mandated new rules to ship chickens to California causing the prices to go up in the stores.
Now, the new minimum confinement standards are also applied to adult female pigs to be housed in large group pens, contrary to practice which is to raise them in separate pens to prevent diseases from spreading. What is unique about this law is that less than 1% of the pigs consumed here are raised in California. The FCC rule is an attempt to regulate hog farmers who are in business out of state versus local consumers. The law violates Federal Commercial Clauses to control commercial conduct beyond the boundaries of the State. CA also violated a clause imposing excessive burden on interstate commerce. Now hams are sold locally in our supermarkets ONLY during Holidays! This is another ruling to enact more social and moral codes on our citizens. The effects are always contrary to the proposal’s intentions.
DRUG USERS ARE NOW ALLOWED TO FLEE JAILS: The President has decided to pardon thousands of people convicted of marijuana possession. The pardon is like Prohibition where people could always find alcohol although denatured alcohol cost many lives afterward. The problem with marijuana is that only 6/10,000 of the federal prison population is locked up for possession. All the others are there for violent crimes.
IRS AGENT RECRUITING: A client in the wholesale gun and ammo business mentioned that the IRS has placed huge orders for new guns and ammo. According to him, the ammo has been delivered and guns backordered. Caliber and specific data were omitted. No word on the number of agents signed up but hopefully, they do not look like the jokers in the phony movies with double holsters and extra magazines so they can keep shooting all day long. The gun-toting Revenue Agents I have encountered were nice people but that was some years back and we have a new regime in office now.
The latest count of non-processed paper-filed returns is 17 million. The $79 Billion in new funds will take a year to hire, train, and implement new people and it is HOPED by all outside that the backlog is cleared up first. Audits will not happen until then and I expect the first returns audited with these new people would be for the tax year 2020. Uniquely, the IRS first estimated a return of $5-9 for each dollar expended. New data from IRS has now pegged a new number of $2.50. And you know how optimistic that figure must be. They are not anticipating much productivity from the new hires.
2022 TAX YEAR: We compiled many tax return data for the year and worked for 100 new clients. At least 125 tax returns were completed in addition to the old faithful returning people. It has been a wonderful tax season meeting new clients and old friends. My challenge coin collection has grown to 35 coins, and they are a display to behold. Many thanks to those professionals and military who exchanged theirs with mine.
We were terribly busy this tax year with new clients. Half of them overloaded us in the office so I decided to eliminate advertising for the next tax season. We welcome new clients, but it normally requires more computer work and proofing, not to mention the cost of advertising. I can get some time off instead of working through weekends all the time. Besides, I also have a new book to finish, although business always comes first. By next tax year, these new clients automatically become returning clients in our computer and will be easier to process. Our five-star Yelp and Google will always bring us good clients to replace others who pass or cannot drive or are gone forever. That will be the basis of the practice from now on. Gone were the days when we did 2,200 manual returns one year in Riverside.
FINALLY, thank you for being our clients. We feel honored to work for all of you. We appreciate the new clients this year, as well as the many lifetime clients who for many years, have been following us from office to house with many moves.
Friendly reminder: We have an election coming up in a week and I would say to vote with your brain, not with the propaganda that has been in the air and media.
Best wishes until we see you again.
Phil B Chute, EA & Staff