Masonry Magazine June 1971 Page. 17
TAXES
By MIRIAM McD. MILLER
AVERAGE TAXPAYER
According to the U.S. Chamber of Commerce after May 10th, the average American will have earned enough during the year to pay all of his 1971 federal, state, and local taxes. After that date he starts to work for himself. Or, looking at it another way, the Chamber says that the average taxpayer works two hours and 51 minutes of each 8-hour day just to make enough to pay his taxes.
TAX PREPARERS
Senator Abraham Ribicoff has proposed a bill that would require the Treasury Department to establish a test to certify preparers of income tax returns. It seems that there are an estimated 200,000 persons and firms that provide tax preparation for a fee. To date there has been no regulation of these commercial tax services.
The Senator's bill stipulates that any person who does more than 25 returns for a fee would have to pass a test and be certified as a licensed tax return preparer. Attorneys and CPAs would be exempt from the requirement.
Incidently, the number of individuals who have their tax return prepared by others has increased. In 1969, the figure was up to 51.5% of the tax returns which showed that someone other than the taxpayer had prepared the return.
RECORD KEEPING
The law requires that every person who is liable for tax must keep such permanent books of accounting or records as are sufficient to establish the amount of gross income, deductions, credits or other matters required to be shown on any return. Cancelled checks, signed receipts are most adequate to show an expenditure. Bookkeeping entries are not generally regarded as conclusive but are merely part of the evidence that is considered.
What happens most often when a taxpayer does not have adequate records to explain a fact is the claimed deduction is simply not allowed. But, the IRS cautions that one area to be sure to keep adequate records is in the area of business travel expenses and entertainment expenses.
EXTRA WITHHOLDING
It is about this time of the year that employees should reassess the amount of money that is being withheld from their salaries for federal income taxes for 1971. If a person's tax picture has changed substantially he may wish to increase his take home pay and claim an extra withholding allowance. Since January 1971 a taxpayer may have incurred heavy medical bills, may have had his property taxes increased substantially, may have had a Couri order him to pay alimony, or he may have bought a new house with a bigger mortgage, and now has a higher interest payment each month.
On the other hand, certain changes in a person's financial picture might indicate that he should increase the amount that is being withheld each month or else be caught with a large payment due next April 15th.
In order to claim an extra withholding allowance, an employee must show that he expects to have deductions that are $750 in excess of 15% of his estimated wages. In order to get this extra withholding allowance it is necessary that the taxpayer itemize his deductions.
"JOB SHOPS"
Two "job shops" supplied temporary personnel to companies with government contracts. One consulting engineer who was registered with these shops encountered a tax problem that led him to the U.S. Tax Court.
The taxpayer's contention was that he was employed by the two shops and that, since he was assigned temporarily to client companies outside a local area, his travel costs should be deductible.
The Tax Court disagreed. The function of the job shops, the Court held, was that of an employment agency and that the location of the job shops were not the taxpayer's principal place of employment. What the taxpayer hopefully regarded as deductible travel expenses, the Tax Court concluded were nondeductible commuting expenses. Turner v. Commissioner, 56 TC-No. 3.
STUDENT LOANS
A recent case before the Tax Court revolved around the question of whether the taxpayer was entitled to claim his daughter as a dependent. Could the taxpayer show that he contributed more than half of her support for the year?
The taxpayer's daughter received funds from scholarships, student loans and earnings as well as contributions from the taxpayer. The taxpayer contended that the student loans (for which he was not liable) and his daughter's earnings in the school library were scholarship related. Not so said the court. Student loans should be treated the same as any other borrowed funds.
Thus, it was the court's position that both the student loans and the daughter's earnings should be included in the daughter's support in determining whether the taxpayer "contributed more than half" of her support for the year. Therefore, the taxpayer could not claim his daughter as a dependent because he failed to prove that he contributed more than half of the support of his student-daughter during the taxable year. McCauley v. Com'r, 56 TC-No. 6.
The IRS recently rendered its opinion on the deductibility of interest paid on student loans. In the case presented, a student had borrowed money under a student loan program to pay tuition, fees, and other expenses necessary to complete his first year of college. In making the loan the bank insisted that the student issue and deliver to the bank a negotiable promissory note for the amount of the loan cosigned by the student and his father.
As the interest payments became due each month, the father would pay them. The question presented to the IRS was could the father deduct the amount of this interest when he filed his tax return.
The IRS held that, inasmuch as the cosigning of the note by the student's father made him jointly liable with his son for payment of the note, the interest paid by the father on the indebtedness was deductible by him for the taxable year in which it was paid. Rev. Rul. 71-179. (Continued on page 21)
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