The Association of Chartered Certified Accountants has some advice for Obama administration officials and erstwhile nominees who have run afoul of the Tax Code, as well as regular taxpayers.
In recent weeks Health and Human Services Secretary designate Tom Daschle and chief performance officer Nancy Killefer have been forced to withdraw their nominations after tax problems surfaced.
In Daschle’s case, they mainly involved taxes on a chauffeur-driven car provided to him by a private equity firm. For Killefer, it was an old tax lien filed in the District of Columbia for household help. Treasury Secretary Timothy Geithner survived the confirmation process after he was found to have missed paying taxes on revenue he earned from working for the International Monetary Fund. The fate of Labor Secretary nominee Hilda Solis remains uncertain after her husband’s auto repair business was found to have several tax liens.
Chas Roy-Chowdhury, head of taxation for the ACCA in London, offers these tips for U.S. taxpayers and Cabinet nominees:
“It is always important to keep records of anything you are deducting. This is especially the case where you work in a cash-based enterprise or such areas as trucking and construction. The IRS, if or when they audit your tax return, will wish to see records to back up your deductions, i.e. invoices.
“Make sure you are taking full deductions for all the business-related expenses you are entitled to. If your home is your office, then you should ensure that those elements of your expenses which you can justify as business related, which might be a proportion of your utility bills, are also deducted.
“In the current economic climate where people are looking for work, you may be able to deduct work search-related expenses, including the costs of attending interviews, creating a resume and cover letter, mailing them out and career counseling. In order to obtain the deductions, you need to be looking for a job in the same field as before.
“Note that some expenses are deductible where they exceed a certain percentage of your income. Hence, in a climate of lay-offs and reduced earnings, some expenses that you previously could not deduct may now be deductible. An example of this is out-of-pocket medical expenses where the amount exceeds 7.5 percent of gross income.
“Make sure that where you are self-employed you do not slip up on paying the self-employment tax. Therefore, if you work for yourself, make sure the Social Security and Medicare tax is paid. Look at the IRS.gov Web site and use Schedule SE with Form 1040.
“In the case of a U.S.-based employee of an international organization who also holds U.S. citizenship, they should pay tax just the same as any other U.S.-based worker. Remove doubt about any special treatment.
“Where a person receives something that is not a gift but a business tool, or some sort of business-based benefit, even though it is not one for which he works, he should be taxed on it in the same way as if it were a fringe benefit from his job. Again, remove doubt.
“In most countries where you have full-time domestic help, you are their employer and all employer taxes are payable. Clearly it is a gray area as to what constitutes full-time. But this could be set as to say more than 15 hours a week or something else that is reasonable.
“It is not reasonable for one spouse to be held accountable for the debts or liens of another. They should be treated as separate economic entities when it comes to privacy of tax information.
“It all boils down to how complex and difficult the whole U.S. system is and the way it needs reform,” Roy-Chowdhury noted.
