Money Maven: Weird tax laws

By Sheryl Rowling

Sheryl Rowling
Sheryl Rowling

SAN DIEGO — Here are some questions to the Money Maven.

Q:        I’ve heard that there are some pretty weird tax laws. Can you go through a few of them?

A:        Well, “weird” is kind of hard to define, but I’ll try. How about these mishegash rules?

  • An employer’s payment of an employee’s taxes is taxable income to the employee. Who pays the taxes on the tax?
  • There is an election to designate alimony as “not alimony.” Where is the election to designate income as “not income?”
  • Illegal bribes to U.S. government officials are not deductible, but it’s ok to deduct certain illegal bribes made to foreign government officials. Did the foreign government officials bribe our U.S. government officials on this?
  • Gains on sales of personal assets are taxable; losses on sales of personal assets are not deductible. Who ever said that tax laws are fair?
  • The Internal Revenue Code now has a “uniform” definition of child. Watch out Webster’s!
  • To qualify for beneficial “head of household” tax rates, a parent must have custody of his or her child for more than one-half of the year. So, parents with 50/50 joint custody lose out!
  • To claim college tuition credits, a single person’s income cannot exceed $90,000 (American Opportunity Credit) or $63,000 (Lifetime Learning Credit) and a married couple’s income cannot exceed $180,000 or $127,000 (respectively). If you can afford to pay for college, you can’t claim a credit.
  • Depreciation on a newly-purchased business auto is based on a maximum cost of $15,800. Cars costing more than $15,800 are considered “luxury” autos!
  • Deductions on a leased business auto are virtually unlimited. Hmmm, do Congress members lease their cars?
  • Deductible business gifts are limited to $25 per person – and this limit hasn’t been adjusted since 1962! Married couples count as one person – that’s a big $12.50 each!

Q:        Why can’t we just change to a “flat” tax?

A:        Unfortunately, I think an extreme change like that would cause economic turmoil. A flat tax would hit low-income taxpayers hard while benefiting high-income taxpayers. The disappearance of tax deductions, such as mortgage interest and charitable contributions, would wreak havoc on the housing industry and charitable organizations. Tax simplification would surely be a worthy goal, but it would need to happen over time, with much careful consideration.

*

Sheryl Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com