Archive for April, 2014|Monthly archive page

Tax Return $3 Presidential Election Campaign Fund

Originally published in the Cedar Street Times

April 18, 2014

Have you ever wondered exactly what that little section is at the top right of your personal tax returns with checkoff boxes for the taxpayer and spouse to send $3 to the Presidential Election Campaign Fund?  And why is it on your tax returns?

The majority of people do not check the boxes.  There are of course a variety of reasons for this.  Perhaps they are just apathetic towards politics, and the boxes appear like additional meaningless gibberish to wade through at tax time.  Or perhaps they loathe politics and politicians in general and would dry-heave at the idea of giving three of their hard-earned dollars to a few baby-kissers!  Or just maybe they understand campaign finance laws, agree with Congress’ original intent, and have made an educated decision about whether or not to check the box.

Despite the explicit language in that section on the return: “Checking a box below will not change your tax or refund,” many people still think they are contributing extra money out of their pocket to give to the election process if they check the box.  In reality, what Congress has done is given you the ONLY direct choice you have about how the tax dollars they just collected from you are going to be spent.  This is your one opportunity to pull the purse strings!

The concept of public dollars being used for presidential election campaign financing had its genesis in the early and mid-1960s amidst a series of campaign financing scandals and a growing disparity between the parties’ abilities to raise funds.  The idea was to level the playing field for candidates running for president to make it more difficult to buy America’s vote.

The Presidential Election Campaign Act, sponsored by Senator Russell Long was passed in 1966, but was repealed the next year in a challenge led by Senator Al Gore, Sr.  Gore and Senator Robert Kennedy felt that the current law did not do enough since it was not the sole mechanism of financing and still allowed the “corrupting influence” of large private contributions.  Ironically, the Kennedy family had used vast amounts of its family’s personal wealth to finance and ultimately win the election of 1960 for Robert’s brother, John F. Kennedy, as well as financing Robert Kennedy’s bid for election in 1968 against Johnson.

The issue was then revived and was passed again in 1971 as a tax return checkoff to allocate $1 beginning on the 1972 tax returns.  Congress decided that Americans would get to decide how much money would be utilized to fund the elections.  President Nixon and most Republicans were opposed to the idea in general, so the IRS was not being pressured to make it easy.  It was a separate form that had to be requested and it was not advertised very well – only bringing $4 million into the fund the first year.  In 1973, Senator Long did some negotiating with the IRS and the checkoff box was moved to the front of the Form 1040 the next year.  By the 1976 election $90 million had been collected.

The intent of the Presidential Election Campaign fund is to provide full funding for the major party presidential nominees in the general elections, provide funds for the party nominating conventions, and provide partial funds for the primary elections.

In order to receive the funds, the candidates must show broad national public support in the primaries; they must not spend more than $50,000 of their own money; in the general elections they cannot accept any private individual or Political Action Committee (PAC) funds; and there is a cap on the maximum that can be spent on the election campaign.

The various caps and funding amounts were indexed for inflation, however the checkoff amount was not.  The only change since 1972 came in 1994 when the checkoff amount was raised from one dollar to three dollars by Congress.  Making matters worse, its peak participation in 1980 of 28.7 percent of taxpayers utilizing the checkoff has consistently fallen to the 2012 level of only 6.4 percent.  If there is a shortfall, then candidates will just get less money prorata.

President Barack Obama and Mitt Romney became the first general election candidates since the program’s inception to turn down public financing and to raise the funds privately instead.  And two weeks ago, President Obama signed into law legislation that ends the portion of the law that finances the presidential nomination conventions.

All of these factors combined indicate the pendulum is rapidly swinging the other direction and unraveling the system that has operated over the past 40 years.  I suppose after a few more scandals or when one party starts out-fundraising the other substantially there will be outcry again, and the campaign finance laws will be reinvigorated once again.

At least for now, you still have the option to tell Congress how to spend a few of your tax dollars.  If you have already filed your returns for 2013 and have an incredibly intense desire to contribute to this degenerating fund, you can file an amendment to do so.  Interestingly, if you now have an incredibly intense desire to uncontribute to this fund, you cannot amend your return to do that!  This will lead us to our next topic in two weeks – amending your tax returns!

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

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Tax Deadline Looms

Originally published in the Cedar Street Times

April 4, 2014

If you have been hibernating through the winter months, it is time to awaken from your slumber and complete your tax returns for 2013.  As a tax professional it is interesting to see how each tax season seems to take on a flavor of its own.  This year I found that many clients did not come in early, but delayed gathering their tax information, and came in much later.  Another professional in the area called me last week and said he was experiencing the same issue.  Compressing an already compressed time frame certainly makes for long hours, and will probably lead to more extensions as well.

Over the past few years, new rules have been phasing-in which force financial companies to report cost basis in the stock they sell on your behalf.  (Generally I like this new requirement as I have to repaint my ceiling much less frequently as clients are no longer staring at it so intently to come up with the basis in the stock they inherited  thirty years ago.)  I recall last year, we had many clients with revised 1099 financial packages being issued well into late March.  Although I did not see a lot of late issued/revised financial packages this year, I have a feeling that has something to do with why many people opted to bring in their information later.

Technically, you are supposed to file an amendment if additional information surfaces that was not reported on your original returns.   This can be cost prohibitive, however, especially if it consists of minor changes.  If these items are missed, sometimes the IRS will just send a proposed adjustment and basically rework the tax return for you and propose a balance to pay.  California’s Franchise Tax Board will typically follow-up as well once they get wind of the issue from the IRS..

If you cannot get your returns completed on time, then you may wish to file an extension.

If you are filing your own extension for your personal tax returns with the IRS use Form 4868.  Be sure to get some kind of proof of delivery and make a copy of the extension.  Even with delivery confirmation it is difficult to prove what you sent.  The best way is to e-file the extension through home-use tax software or by using a tax professional that e-files and obtains an electronic submission ID (the new modernized e-file system replaces the old declaration control number system with submission IDs).  What about California?  In the midst of a tiresome sea of nonconformity with the IRS, I continue to applaud California for this one act – you need not file a form to be granted an automatic extension! After you have filed your federal extension you have until October 15, 2014 (six months) to file your California personal return as well.

BEWARE!!  Just because you file an extension does not grant you additional time to pay!  The tax you calculate on the return you are going to prepare and file by October is still due by April 15.  So if you think you might not have enough tax withheld, you need to make some good estimates and send in some checks.  You may want to hire a tax professional to help with this calculation.  You can send the federal check with Form 4868.  For California, you can use FTB Form 3519 to send with your check.  There are also electronic options for paying both of these.

If you do not pay your tax or file your return on time, interest and penalties are calculated based on any amount of tax you come up short. Interest varies with market changes (currently three percent a year for the IRS and California).

If you file an extension, but do not pay in enough tax by April 15, you will pay late payment penalties and interest.  The IRS late payment penalties are a half-percent of the balance each month (up to 25 percent).  California will charge you five percent up front plus another half percent of the balance each month (up to 25 percent).

If you fail to file an extension or file after the extended due date, the IRS and California penalties are each five percent of the balance each month (up to 25 percent).  California has an additional trick.  If you extend your return and then file late, they go all the way back to the original due date to calculate penalties and interest owed as if you never had an extension.

You may also incur underpayment of estimated tax penalties depending on your circumstances.

One other nice thing to know: if you owe no tax, you will owe no penalties, even if you file late.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.