It's A Scam
Many businesses have been receiving letters telling them that it's time to prepare their annual minutes, or that certain posters must be hung in the workplace, or that the annual fee for a registered agent is now due. Furthermore, these letters generally appear very official, as from a government agency, and the return address is usually Sacramento. Don't be fooled into sending money unless you are sure you really need or want the product or service they are offering.

A corporation is required to hold an annual meeting and maintain minutes thereof. However, many businesses either have an attorney handle this or they do it themselves. As for the posters, yes some are required to be hung in the workplace, but they generally can be obtained free from your workers compensation insurance carrier. And as for a registered agent, if you own a California business and you are located in California, you can and should be the registered agent. There is no need to pay someone for this service. All they will do is mail any notices to you anyway!

Now That Tax Filing Season Is Behind Us
Now that the tax filing season is behind us (at least for those not on extension), here are some observations by Ed Blitz.

A few weeks ago, an elderly woman came into the office with two plastic shopping bags full of papers and files. I passed by my partner's office and heard him telling her about a very complex tax rule. She had a dazed look in her eyes. It really hit me, what a crazy tax system. We all are doing our best to keep up with all of the rules, but it becomes more difficult each year.

This year we had to deal with two major tax bills that were passed in the last year or so. The publicity on both of these tax bills was that taxes were going to be reduced. Maybe so, but the complexities of the tax law increased several times over. For example, we were forced to keep track of our stock sales and dividends before and after May 5, 2003. Why that date? That's the date the changes took effect. What a nightmare to track this stuff. Would it really have been that bad if the changes took effect on January 1, 2003? Really now.

And speaking of reduced taxes - yes, tax rates went down - slightly. Yes, the child credit increased. Yes, the capital gains rate decreased. But no, the Alternative Minimum Tax (AMT) did not go away. Without going into great detail, the AMT is a second way that your taxes must be calculated. Certain deductions are not allowed and there is no special tax rate for capital gains. If it turns out that the AMT is greater than the regular tax, you pay the AMT. So even though rates went down, more people than ever really didn't benefit because they got caught by the AMT. Tell me that's not crazy! Put yourself in my position of having to tell clients over and over again, well, the reason your tax is so high is due to the AMT. Then asking them not to kill the messenger!

Retirement plans are another nightmare to keep track of. There is the traditional IRA, the nondeductible traditional IRA, the ROTH IRA, the SEP-IRA and that's just for starters. If you are under 50 years of age, you can contribute one amount; over 50 years another amount. You can take the money out, penalty free, if you are over 59 *. But, in the case of traditional IRA's, you must take minimum distributions - I love this one - beginning no later than April 1 following the calendar year in which the owner reaches age 70 *. I didn't make that up.

Then there are itemized deductions. Medical expenses must exceed 7.5% of your adjusted gross income in order to be deductible. Miscellaneous deductions must exceed 2% to be deductible unless they are of a certain type, then the 2% doesn't apply. And, if your adjusted gross income exceeds $139,500 there is another reduction. Who comes up with this nonsense? Either it is a deduction or it isn't!

But here's the ultimate. In 2005, the child-credit shrinks, and the marriage penalty returns. In 2009, the dividend tax cut disappears and the maximum tax on capital gains goes back up. In 2011, income tax rates rise, 529 plans lose tax-free status, and the estate tax exclusion goes back down.

So what's the answer, a flat tax or a national sales tax? The flat tax always sounds good at this time of year. Some have proposed a postcard filing. Put down how much you earned and pay a fixed percentage. Nice and easy. But think about all of the repercussions. Mortgage interest and real estate taxes would no longer be deductible. Imagine the crash in real estate values!! Charitable contributions would not be deductible. Who is going to take all of those old cars? No more child credit, dependent care credit, or tuition credit. Forget getting a deduction for yourself and the kids. Forget deducting that computer, the internet expense and all of that software, all of which is used solely for business purposes. And forget those auto expenses. So much for writing off that $50,000 Hummer all in one year, or getting a special credit for buying a fuel efficient hybrid car.

And can you just imagine a national sales tax, of let's say, 30%? Everything you buy would cost about 38% more, including the State sales tax. A $30,000 car would cost $11,400 more and a $2,000 appliance, an additional $760. I don't think we would really like this either. Worse, spending would be curtailed by the higher prices and ultimately the 30% would increase to 40%, then 50% and so on.

In the end, I think our system, with all of its faults, is probably better than most. Now if Congress could stop changing the rules every year and only use a January 1st effective date when they do, things would be much better. Oh, and one more thing, get rid of the AMT!