Om Vey! Q And A with the Zen Mensch CPA
(Mindful Answers, What’s Not To Like?)

Zen Mensch Accounting

I’m aqua-phobic and I always pay my taxes on April 15, unless it’s raining. Wait a month and I ALWAYS receive a penalty notice from the IRS.  Why is my CPA screwing up and why haven’t I switched?

Your tax return is due April 15, but taxes must be paid throughout the year, whether you are paid as an employee or are self-employed.  Otherwise you may be subject to underpayment penalties or public ridicule, whichever is the most uncomfortable. CPA’s are blessed with divine wisdom and hefty insurance policies.Self-employed individuals, investors  and others with substantial non-salary income are the most at-risk and should consider paying estimated taxes throughout the year.

I took out expensive student loans so I could earn a decent living.  Now that I am, my income is too high to deduct the interest. Why?

(Laughing). Nu, you thought the tax system was rational? The “phase-out” threshold for this deduction is extremely low; for example, if you are single and made more than $75,000, you’re out of luck.Meshugass! ( “craziness”).

Okay, what is phantom income? Do I need tickets to take it to  the opera?

 

You are a partner in MSG for Yu.  You receive a “K-1” reporting $10,000 of taxable income because your ownership share made a profit, even though you did not receive $10,000 in cash. Or you own shares in Herbicides for All and the dividends are “reinvested”. The value of your investment has risen, but you don’t have any more money in the bank. Phantom  income can result in real taxes. Plan accordingly; don’t be a shlub (“fool”).

K-1? Isn’t that a brand of breakfast cereal?

Not yet! S-Corporations, Limited Liability Companies (LLC’s) and Partnerships are “pass-through entities”– they do not pay income taxes on their profit or deduct their losses.  Rather, the proportionate results are allocated to the owners via the IRS Form K-1 and reported on the individual tax returns of  these owners.

 
What is a passive loss? Someone stole my wallet while I was sleeping?
Dad owns Doughnuts with Holes and gives you a 10% share.  You are not  active in the  business. You receive a K-1 and it shows your share lost $8,000 (because doughnuts are Losers).  As a passive owner you cannot deduct those losses on your personal tax return unless they offset other passive income, or the business terminates.

Passive income is: your share of DDT Renewable, that Dad also gave you, made a profit — again, you are not active in the business but you must pay taxes on the income.  But youmay deduct your Doughnut loss from your DDT gain.

Oy vey tsu meina baina! (“Woe is me, down to my toes”).  I always pay taxes on my passive income but cannot necessarily deduct my passive losses?  That’s not fair.
Taxes are NOT fair.  My neighbor Gerry has four kids and I’m a eunuch.  I pay $4,000 in property taxes for their damn school and he gets $4,000 in child tax credits.  Taxes are NOT fair.

Why Zen Mensch?

I couldn’t quite throw off my Jewish upbringing, even after living in a Buddhist   meditation center for seven years. I love Jewish values and Buddhist wisdom. And Zen “koans” (riddles used to break the paradox of dualistic thinking) would fit well in Yiddish dialogue. Some of my finest Buddhist teachers were Jewish.

So then, what IS the sound of one hand clapping?With those grades, you should be lucky to have that much applause.

Gevalt. (“Heaven forbid”) 

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Click on the titles to  read previous issues such as  “Intelligent Divorce”, ““Incorpo-Right! (Don’t Flub Your Business Structure)” , “Fashion, Charity and Death — Your Tax Questions Answered“, and “Co-ops, Collaboratives and Crowdfunding.” All articles are posted on the website of ALSD, where I have been a partner since 1998.

NOTE: Every situation is different and federal and state tax laws are subject to change.  This article is presented exclusively for informational purposes and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional. Names may have been changed for illustration purposes.
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