2015 Tax | Ron Cohen

Interview Transcript of: 2015 Tax | Ron Cohen

Alan
Welcome back. I’m here today with Ron Cohen. Ron is a partner in the firm of Greenstone Rogoff and Olson, and Ron’s Good to have you on today’s show.

Ron
Thank you. Good to be here.

Alan
So, Ron, how did you end up as a tax partner? where you are today? What? Where did you lay your foundation and desire really to specialize in income tax?

Ron
Well, I had gone the normal CPA route in college, and I worked with Arthur Andersen for a while back in the 80s. And very quickly determined that were the clients were really interested was, how much money can I save or get back. And unlike the audit of financial statements, where it’s not really a cash thing, tax returns have an immediate impact on people’s cash flow.

And that was very motivating and joy, you know, enjoyable to do a project, come up with some ideas to to save some money. And even if you can’t save some money, make sure that things are done correctly, so that the client doesn’t have to worry about the IRS scrutiny in the future.

So we went down that route. And then that led to going into the international world where I spent a lot of years and still do a lot of international work, which is more complicated. And, and, and you always try to again, I tell clients, you try to stabilize the patient to make sure things are being done right on a compliance level. And then you’re always looking for well, what if we just tweaked it this way, it’s all within the law.

And we can actually save you some money and, and be confident that you’ve done the right thing. So that’s, that’s a constant daily challenge and very fulfilling, as we work through 250 clients of the firm that I work on, and we have near 2000 clients in total, and you and I consult on many projects from time to time. And so that’s how we kind of went down that route.

We’ll get as I’m sure you also almost every day of clients saying thank you, thank you, thank you that’s, I never thought of that. That’s a great idea that really changed the outcome and glad to be working with you and that on a daily basis, get you’re very motivated.

Alan
But what are some of the trends if you’ve noticed in the past seven years or so if there have been big rocks or movements are shifts with the IRS and their enforcement.

Ron
And there’s two things going on, it’s at the top of the IRS in Washington, the the attorneys and the people who run the place, I have no problem sitting down writing a 50 page Regulation and saying all of you go off and comply. And here’s four forms to work through the regulation. And at the bottom of the IRS where they actually interact with the people, the fundings going down and down and down.

And the IRS agents seem to have less and less training. And and through the conduct of an of an audit, I’m sure you have the same experience, we end up educating the examiners half the time about well, you’re saying this, but here’s the rule. And the IRS has even acknowledged that the CPA community has some kind of duty to educate the some of their stepdad or younger staff.

And so you’ve got these two things that are that are pushing, especially on the high end income earners with complex returns, like we work on increased complexity, endless more regulation, endless more rules, rules and lists more forms, and have the lower they don’t even know what they mean, frankly, half the time I had an agent last year and I’d say I don’t understand alternative minimum tax.

Can you help me out? And I said, Well, sure. And we worked through it. But that’s, that’s a bad law. Right? It means it’s not understandable. It’s not administrable. It’s not audible. And yet we always have the duty to do the right thing and get it done as well as we can. So we try to meet that standard, but that I see those two things getting worse over time I hear

Alan
this year for the 2015 Filing Season, that it’s going to be even more difficult to reach an IRS representative by phone if you have a simple question. You heard anything on that or

Ron
Absolutely I tell clients you know, if you want me to call the IRS, I’m happy to do it. It’s going to be an hour on hold. And so you can call yourself and maybe get help, you know, and maybe get information on this. But have a beer turn on the TV. It’s going to be an hour on hold and the IRS commissioner has come out and said they’re cutting my funding. Sorry, that’s the best I can do.

So they’re triaging you know they’re saying work li best spend a little money we have and the phone system is not where they see the best bang for the buck. So you sit on or

Alan
or it’s and message back to the American public. When I can respond to you

Ron
and indirectly to Congress say see you cut my budget now your constituents will all call the congressman and complain

Alan
and say there hasn’t been any big layoffs or anything has there. I think

Ron
they they’re are having normal attrition. I think morale I don’t know not to get too personal about the high res, but the people I talk to their internal morale is not great. So between normal attrition and with people aging out morale, I will be go as far to say they’re really good people find a good job with a firm. Not all I don’t want to cast aspersions. But it’s a tough, it’s a tough, it’s a tough place.

Alan
So this year, the Affordable Care Act is something that people will begin to see new on the tax forms.

Ron
Yeah, yeah, the penalties kick in last year, we had the net investment income tax on the higher end people 3.8% of capital gains interest in dividends. But if you don’t have insurance, the audit the penalties, which went all the way the Supreme Court, is that a penalty is it a tax?

That’s all been resolved. And we heard that from H&R block in the news, you know, they’re they’re charging people an extra 100 bucks or so to prepare the return to work through does the half inch? Are you subject to the health insurance penalty?

Did you go and get some insurance through the exchange? If you did, do you qualify for the premium credit, I mean, these are three or four forms on on low income people generally who don’t have health insurance.

So now you’re going to pay more in prep fees, and then get penalized as In addition, and I think over these next six months, the UN cry right back to Congress’s we had no idea that this is what you what you did. The vast majority of people have health insurance, and it’s not a burden, they basically check a box saying this doesn’t apply to me.

But the one those who don’t have insurance didn’t go through the exchange don’t have credit. So to apply. I mean, it’s gonna get really complicated.

Alan
I’m visiting here today with Ron Cohen. He’s a tax partner at Winston Rogoff wholesome company. And we’ve been talking about the 2015 tax filing season, Ron, we need to take a quick break. And we’ll be right back after this message

Alan
Welcome back and busy here today with Ron Cohen. He’s a tax partner at the CPA firm at recent Roger Paulson company and Ron we’ve been talking about the the 2015 Filing Season people are getting ready to W twos are going to be coming shortly. 1090 nines. What can we expect this year? new and different? Is there anything at any of the hot items that could be seen different on the returns?

Ron
Well, wait, we did mention that health insurance for for some folks. And the net investment income tax with regard again to the American the ACA, Obamacare the Affordable Care Act. That’s not that that was in there last year. But I mean, we both had clients who paid 1020 30 $50,000 of this 3.8% tax on capital gains interest in dividends.

I had several discussions with clients and say, hey, look, congratulations, you got to pay for three or four persons health insurance. And I think because of this tax that kicked in, so this will be the second year. And I think it’s become people become more aware of it. These were these are tax law changes in November of 2012. That applied somewhat to 2013 and continue 2014.

Alan
What is the top rate this year

Ron
30. Federal it’s 39.6% income, you get over 465,000 If you’re married filing jointly, if you have a capital gain, it’s it’s 15%. Below that 465,000 Again, married filing jointly, and then it’s 20%. Above that the qualified dividend tax rate also is a split rate 20% below the 465 married filing jointly, and then then 20% thereafter so so in California, it with Prop 30 back in 2012.

The top rate is this amazing 13.3% For people who earn over a million dollars because after a million dollars, the 1% mental health extra tax rate kicks in so you go from 12.3 to 13.3. And I was just we were just talking about I was at Lake Tahoe this weekend, and I had fun stepping back and forth over the California and Nevada border line going, Oh, right now I’m at 13.3%.

Not myself personally, and oh, step over the line. And I’m at 0% state income tax and going back and forth. It’s an amazing state tax rate. We’ve both had clients who have basically packed up and moved out of the state, because after Prop 30 13%, if you make over a million dollars, we have clients certainly in that range, that’s a lot to bear for your state tax rate even more.

So if the alternative minimum tax for federal makes it so you can’t deduct your state taxes, then you’re paying the full 13.3. That’s It’s unbearable, again, in Nevada zero. And many states are in the five 3% range. But here we are, at 13.3.

Alan
With in the high net worth individuals, of course, President Obama has been focused in on this trying to give greater relief into the middle, the middle class and try to put more burden upon the the upper high net worth individuals, what’s your take on this? Well, I

Ron
without getting too political, he certainly has a point of view of what direction he wants to take the law. Recently in the State of the Union address, he went after the 529 plans where where families can put in a large amount of money into a plan over once the baby’s born up to the date they go to college.

And then they can take any that money as long as it’s spent for college or books and stuff like that, and pay no tax on all the earnings during that. And he pulled back from that after the urging of his own party, that that wasn’t some abuse by the rich of the tax law that was a valid promise made that 529 plans would be would be there and people were able to utilize them. So he’s pulled back from that. And I And that’s good.

Alan
I’ve heard some statistic like half of the American public doesn’t even pay income tax, that they’re entitled Mr. Benefits.

Ron
Yeah, yeah, the tax rate, that at the low end below about $40,000. Essentially, you pay very little income tax, and most of your taxes, Social Security and Medicare. All the tax on a statistical basis is paid by the top 20 or 30%. And you know, you get to the these amazing amounts of tax the top one or 2%.

Alan
So Ron, I need to take a quick break. We were short against the time we’re busy with Ron Cohen, tax partner at Green Sam Rago Olson company, we’ll be back right after these messages.

Alan
Welcome back. I’m here today with Ron Cohen. He’s a tax partner at the CPA firm of Greenstone Rhodope Olson, a company and we’ve been talking about income taxes, we’re getting ready for death, this time of the year.

You know, people are starting to get their W twos attend it. And if you’re thinking about, you know, am I going to get a refund, or am I going to pay this year, I like to focus a little bit more back in the State of the Union address where President Obama has said that he wanted to have the rich pay more tax and give greater breaks to the middle class.

I’d like to throw a statistic out here, run that net for individuals owning or earning over $100,000 a year, okay, that they basically have 60% of the nation’s income and pay 95% of the tax in this country. And then if you if you raise that bar, say, well, people earning over $200,000 a year. They represent just over 5% of the nation’s taxpayers and earn 32% of the income but pay pay roughly 70% of the federal tax.

So if you’re looking at the top 5% of America, and this is for the listeners, the top 5% of America are individuals earning over $200,000 a year. So when you’re talking about going after saying we want these people to pay more tax, what’s your take on that? Well,

Ron
it gets into the theories of what is capitalism Adam Smith’s rule of the invisible hand of capitalism, how the economy grows, and there’s an old French proverb that says, I never got a job from a poor person. If you if you people need to be allowed to make and keep money to build wealth Now certainly there can be excesses, we saw that in 2008, certain things have to be shut down.

But but but you need to allow people to make an earn money, as we’ve just both seen. I mean, there are clients situations where if you just make it too hard for someone to make a good return, they’ll just go to the beach and take vacation. They don’t need to set up a business and deal with the state of California and all the regulation and payroll and Obamacare.

I mean, they don’t need that grief if they’re already doing very well. And so you have to allow an incentive for someone to say, Well, I’m doing well, I have wealth, but I want more, and I’ll earn it fairly. But but as Ronald Reagan said, back in the 80s, he was a, he was an actor. And he said, You know, I went and did a part on some movies. And back in those days, they would take 90% of what I earned on the film as taxes.

And he said, Why am I getting up at five o’clock in the morning and putting on makeup to take 10 cents on $1 home. And now we’re not there at all the rates came way down because of Ronald Reagan and others. But you have to let that incentive be there for people to do well.

Otherwise, they simply won’t. And they’ll go to other countries, which we’ve seen, our corporate tax rate is way out of whack, where 35%, most other countries are in the high 20s or lower. And and if that incentive isn’t constantly there, people will either go on vacation, or just stop and say I have enough, it’s your turn, you go out and do yours, I have mine.

And you need this, this constant specially specially as we’ve both seen with our clients, for young people, if you don’t create opportunities for young people to do well in college, go get a job, have children start building a house, the whole economic system and the money supply. It all breaks down. It’s all based on this growth and constant moving forward.

And I think we’re getting to the point where a lot of people who have done well baby boomers are saying, I’ve got mine, all I see is risk and tax. And people view me as I have a target on my back because I’ve done well. And I’m supposed to give part of mine to you because you didn’t do well. And I’m going to the beach.

And I think that’s that’s the problem for the next 20 years as how do we politically economically keep the incentives take care of the poor and the sick in a compassionate way. But still leave these incentives otherwise, the economy stalls.

And quite frankly, I mean, all you have to do is look at Japan, older population, people feeling a little bit desperate about Will my retirement be taken care of squirreling away money, not taking great entrepreneurial risk, because the regulations aren’t what you think California is bad, Japan is amazing. And people just slow down. And that’s it’s a really bad sign that we have to work through.

So So taxes, the job of government is to make it so that people aren’t allowed to break the law. They’re not allowed to abuse each other. But otherwise, let get out of the way for industry and companies to build wealth. And we’re we’re at a crossing point politically about what people believe whether and I’ll just quickly say I was I was taking a ride with a gentleman from Argentina.

He says in Argentina, beautiful country, 65% of the people work for the government. We know that doesn’t work, and you don’t get growth, and the young people are suffering. And so that’s my long answer to I don’t think it’s a good thing. I think it’s the wrong direction.

Alan
All right. Well, we’re running up just a few minutes left here. So let’s talk about this. This this next year. What else do we have to look forward it pretty much the same as 2013 returns 2014 any major changes here,

Ron
the the fast depreciation on equipment, we thought it was going to go down 25,000 Thankfully, right around Christmas, or after Christmas, they came in and brought it back up to 500,000. With certain limitations that was we thought that would be terrible for went down to 25,000. Again, not stimulating people to grow their businesses.

But generally the landscape is roughly the same except for the ACA stuff for people who don’t have insurance. That’s a big problem. And it’s bad. It’s complex. The stockbrokers are taking longer and longer to get the 1099 B’s out with all your stock trades and all that because they have things in their back office they have to do to get the numbers right.

And so you compact the season, where clients get their 1099 B’s from their brokers, you know, on March 25. They’ve been waiting all the way since year end, and the returns gotta go up a April 15. So we do a lot Out of extensions. There’s nothing wrong with filing the extension as long as you make sure your clients paid enough tech, but the process is getting compacted because everybody has more and more compliance to do.

Alan
and been visiting here today with Ron Cohen. He’s a tax partner at the firm of Greenstein Rogoff and Olson Nanda is an expert in this in this field teaches classes at a local college on income tax and Ron if someone needs to reach you, how did they do that? Oh, at

Ron
Greenstein Rogoff Olson, you can look at our website 510-797-8661. My extension 237 Or just call the front desk bear and we’ll be happy to follow up.

Alan
Ron, thanks for being on today’s show. Thank you. We’ll be right back after these messages.

 

 

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About Ron Cohen

Ron Cohen has more than 30 years of experience in public accounting and related industry work. He earned an undergraduate accounting degree from the University of Illinois, Chicago, and then a Masters in Taxation from Golden Gate University.

Ron has extensive knowledge in International Tax and has traveled extensively throughout Europe and Asia handling tax issues. He has also served as a tax director for a company with sales in excess of $2 billion. Ron teaches courses in taxation and financial accounting at Ohlone Community College.

Ron lives in Fremont with his wife, who teaches English at Mission San Jose High School, and has two sons.

Prior to his life as a CPA, Ron did some stand-up comedy in Chicago and received personal advice and coaching from Bill Cosby and Tim Reed. However, after observing that the vast majority of comedians have a very low taxable income, Ron decided to follow his father’s example and become a CPA.