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"Fair" Tax Controversy

It’s tax preparation season for Americans, and it’s only natural for us to be questioning the need for income taxes, how income taxes are spent, and income tax rates. Hand holding money

For the past few years, the debate to end income taxes altogether in favor of consumption taxes has gained momentum.  A positive spin labels the taxation method “fair” taxes as only consumers who can afford to buy products and services would pay the tax that would then fund government programs that benefit everyone.  However, many experts say sales taxes cannot be relied upon to work that way.

As a review, the idea is to eliminate federal income taxes and replace them with sales and use taxes on everything a consumer buys.   Proponents say it would replace the following federal income taxes:

  • personal
  • estate
  • gift
  • capital gains
  • alternative minimum
  • Social Security
  • Medicare
  • self-employment
  • corporate taxes

Arguments against a federal consumption tax say it would have to be so high to replace income tax revenues it would affect consumer spending and product demand.

They also worry how it will affect the availability and price of products and services which are already subject to excise taxes before they hit the marketplace.

While much of the attention has been focused on a nationwide federal sales tax, state-by-state lawmakers are also considering a variety of income tax changes that could add to the mix.   

For example in Missouri, House Joint Resolution 25 proposes a constitutional amendment that “phases out state individual income tax and replaces the current state sales and use tax with a state sales tax on retail sales of new tangible personal property and taxable services.”

Another bill, HB 422, would authorize Missouri to enter into a “multistate Streamlined Sales and Use Tax Agreement” and phases in a flat income tax rate, eliminates all state tax credits and increases the sales and use tax.”

Those who oppose consumption taxes question how consumers will behave if they have to pay both federal and state sales taxes on every purchase they make. 

Some estimate that a federal sales tax would have to range between 15% and 20%.  State sales taxes ranging from 3% to 12% could be added to that.  Additional regional sales taxes for things like highway construction, schools, special projects and more also have rates that may add another 1% to 5% to the total.

What would happen if all purchases of products and services would be subject to an average 25% to 35% sales tax or higher?  The debate on the effects of switching tax rates and taxing methods has spread nationally and has gained momentum as lawmakers search for ways to boost sagging economies.  For more on the ups and downs of the sales tax debate, watch this edition of McRuer Money Minutes.


Thoughts on the Payroll Tax Cut Debate

We've been asked a lot of questions recently about the Payroll Tax and the debate in Washington about extending the Payroll Tax cut that's been in effect for awhile.  As in any debate, there are positives and negatives to consider. Any payroll tax cut affects the bottom line for businesses as well as the government's ability to pay benefits owed to a wide range of working and retired Americans. The Payroll Tax also has a direct affect on an individual's paycheck. 

Here's a short segment on McRuer Money Minutes with a quick review of both sides of the debate.

If you have any questions or would like more information about how the Payroll Tax affects your business and/or your personal income, please give us a call and we'd be happy to talk things over with you.  816.741.7882


Why Use a CPA?

To avoid sounding self-serving, I will begin by sharing my thoughts about when you don’t need a CPA.  If you have a simple tax return, one filed using Form 1040EZ (absent claiming credits for lower-income taxpayers), or your Form 1040 reports a standard deduction, then preparing and submitting the return yourself is fine.  However, if yours is a more complicated tax situation, if it takes a lot of time for you to prepare the return, or if you have questions about the tax code, (e.g. your eligibility for deductions, and more), you should consider engaging a professional who is a practicing CPA.

Take a minute to listen to “Why Use a CPA” from McRuer Money Minutes for more thoughts.

A CPA is a certified professional, literally a Certified Public Accountant.  He or she must deliver professional services meeting specific standards and tough regulations.  By law, to prepare others’ tax returns, he or she must also maintain continuing education on all laws governing taxation to keep that certification. 

There is more to it than tax preparation.  A CPA is trained to think beyond completing your tax returns by computing your tax payment strategies in a way that matches your current financial goals, your history and your future plans.

High standards also help you receive more accurate, comprehensive and trustworthy service.   A CPA is there for you year after year and understands your long-term needs.  Most CPAs are in business as a business, and you won’t see them set up a short-term office for just tax preparation services which disappears in a few months.  These standards assure you that you’re getting a quality service.

Having someone like a professional CPA on your side year-round is a major advantage for you.  It allows you to focus on ‘big picture’ tax-saving strategies and overall business and financial decisions.  As an individual, your CPA can help you identify tax savings you might miss if you wait until year end. If you’re a business owner, engaging a professional offers even more advantages because they know all the perks and pitfalls that can occur throughout the year regarding what you owe in taxes. 

For those of you who use packaged (and sometimes free!) tax preparation software, consider this:  Do you really know the hundreds of tax law changes that can occur in just a few years?  Software packages have access to large information data bases, but if you don’t know the questions to ask, you may not be getting the answers you need to accurately compute your tax obligation.  Additionally, while many terms in the tax laws use common-language words, they have special meanings in the tax code.  Who’s responsible if (or when) you make a mistake?  CPAs meet a lot of their new clients when they are called after-the-fact to fix “I did it myself” tax filings.

Another key feature more advanced firms like McRuer CPAs offer is a secure method to store your confidential tax information and records.  Paperless electronic filing systems provide faster, more secure information transfers with virtually unlimited storage space.  You’ll be able to find and file records with ease and enjoy the confidence of knowing that your records are safe in a highly secure storage environment.  Your CPA can review your records with you easily and note issues that need more information quickly, and you’re doing your part for the environment.

We all know time is money.  Though you will have to take some time to gather and organize your tax records, CPAs save you time from the beginning by taking care of the trouble it takes to complete complicated filings. Yes, CPAs charge by the hour for their services, but you’ll find it well worth it, not just for the time you save, but also because a professional accountant provides more accurate results saving you time and trouble from mistakes. Perhaps most important, you will have confidence knowing that you will pay only the taxes you owe.

Your CPA can offer a wide range of tax preparation and personal financial planning help.  Increasingly, people turn to CPAs for retirement planning, planning education funding for their children, estate planning, and help with the financial impact of life-changing events like marriage, serious illness, death, and divorce. 

Think about using a CPA, because, in the end, it’s about more than your annual taxes.

Here’s a link to more information from the Missouri Society of Certified Public Accountants.

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