Wednesday, April 8, 2009

Time To Get Creative Finding Our Exemptions

Next Wednesday, April 15, is the deadline to file our income tax returns. 'Tis the season for creative lawyers and taxpayers to take advantage of weird deductions in the more than 20,000 pages of rules and regulations established by the Internal Revenue Service.

Yes, 20,000 pages. That's equivalent of reading a 400-page book by Ernest Hemingway 50 times. And, no where near as concise.

Every year during the drudgery of preparing our taxes, some expert pounces on the wild and whacky tax exemptions embedded deep in the bowels of the tax code. It lightens the ordeal with a small dose of levity should one favor gallows humor.

For example, did you know you can write off the cost of a clarinet and lessons for your child if an orthodontist prescribes it to prevent overbite?

This and other examples are offered by authors Marc Luscombe of CCH, a tax research firm, and Bob Scharin a tax analyst with Thomson Reuters tax business in an on-line article in Newsweek.

"There are some pretty weird provisions in there," says Luscombe "They are cleverly worded so it's not obvious when they are helping a particular taxpayer."

Cleverly written my fat ass, to paraphrase Mehgan McCain. They are written into the tax code by Congress adhering to the favors of special interest and lobbying groups.

The clarinet loophole extends far beyond the melodic tones of a Benny Goodman. They've successfully used the IRS's sweepingly liberal interpretations of medical expenses to deduct money spent for air conditioners, swimming pools, hot tubs, Indian medicine-man consultations, sex therapy, diet dinners and home remodeling, Luscombe reports.

Did you know Alaskan whalers can take a $10,000 deduction for money they spend outfitting their boats? This comes courtesy of former Alaska Sen. Ted Stevens, Luscombe says.

Since the only real whalers left in the U.S. are Native Americans preserving their cultural heritage, the deduction doesn't aim to benefit businesses as much as it does community groups. Stevens's support for whalers didn't go unnoticed. The Alaska Eskimo Whaling Commission supported Stevens as he fended off corruption charges and throughout his last unsuccessful election.

Let's say you are Canadian or other foreign national. Your wagers on winnings on U.S. horse race and dog tracks are tax free.

That means they don't have to cough up the 30 percent withholding tax that unlucky Americans must pay. This provision was included in the 2004 jobs act, at the behest of (Republican) Kentucky Sens. Jim Bunning and Mitch McConnell to help ease the suffering of bet-taking race courses. This break on legal gambling doesn't have anything to do with taxes you are supposed to pay on illegal activity. That's right. Anyone who receives bribes, deals drugs, takes kickbacks or steals property is expressly required to pay taxes on that income, reminds Luscombe. Of course, they can write off their attorney's fees as a business expense.

Republican congressmen are adept at writing special tax breaks for their consitutents. For example, the makers of fishing-tackle boxes such as the Plano Molding Co. of Illinois.

Before that bill was enacted, they had to pay a 10 percent excise tax on their boxes. Secure sport fishermen were instead stowing their flies in less-expensive plastic sewing boxes. But Rep. Jerry Weller, a Republican from Illinois, got the rate cut to 3 percent, saving the industry as much as $11 million over five years, one tackle box at a time.

Of course there's a number of Democrats seeking confirmation to high government posts that don't even pay their taxes which is a novel way of creating their own exemptions.

The IRS tax code is Exhibit A how our government, besieged by special interests and lobbyists, works. The devil is in the details of this 20,000-page tome.

Kind of makes one yearn for a flat tax if it wasn't so darn regressive to us peons in the middle and lower tax brackets.

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