But if non-lawyers disdain lawyers, whom do lawyers pick on? Tax collectors, perhaps. Maybe I will write a book of tax-collector jokes for the lawyer market. Then again, no.

There is historic support for the contempt of lawyers for tax collectors. The New Testament, for instance, records multiple instances of lawyers dissing tax collectors. In that day, the line may have been, “I may be a scumbag lawyer, but I’m no tax collector, thank God.” In fact, there is a parable to this effect.

Levi, the apostle who recorded that parable, was himself said to be a tax collector. His plight is explainable by the ancient practice of tax farming, which in some parts of the world endured as an official institution even into the 20th century. The short definition of this is that a ruler or governor would grant a franchise to a taxation agent, or “farmer,” whose job was to collect whatever was assessed against a town, city or province. Anything above this, he could keep.

The tax farmer collected his quota however he liked, justly or unjustly, so woe to you if you crossed him. Given this circumstance, even honest tax collectors fell under suspicion and contempt. And if the town, city or province you lived in was a conquered entity, then it was all the worse. So it was that Judean tax collectors, employed by Imperial Rome, were reckoned lower than the scum at the bottom of the septic pool.

Even today, this perception takes a toll, on both despiser and despised. I recall a visit I made 25 years ago to a Nevadan IRS office (the IRS, for my non-paisanos, is the tax collection apparatus of the United States). I had some questions, but the people inside were too hardboiled to address them. They had chafed, I concluded, under a modern version of the daily opprobrium suffered by their first-century counterparts. The waiting room was in fact full of people cocked with head-exploding anger. Someone later told me that, since I saw no outbursts, I had gone on a good day. Even so, I never got to talk to a live IRS employee.

I casually befriended a vacationing IRS employee I met one day, circa 2000, in La Antigua. He was looking for a marzipan store, and since I do not know the street names in that town, I had to actually lead him to the place. En route, I discovered his line of work, and found that he was willing to be candid about it.

Now, as historically, tax collectors have relatively few friends, and some have none at all—aside from other tax collectors. Paul of Tarsus instructed his co-religionist to treat your offender or enemy like you would a tax collector if he failed to respond to a prescribed series of rebukes for wronging you. But this same teacher was himself under the imperative to love one’s enemies, including, presumably, those as bad as the tax collectors. How do these two commands square with each other?

Perhaps in the following way. Tax collectors may be someone on a wicked trajectory through life; but even if they are, they retain their human identity, they have needs, and they can be reconstructed, and they might even have integrity to begin with. Paul may have personally known a tax collector, one Zaccheus, who did turn over the leaf.

In my 21 years in Central America—mostly in Guatemala—I have had many dealings with tax officials. Sometimes, I see them on my own matters. At other times, I am accompanying (as a consular volunteer) a compatriot who has received a scary-looking summons from the SAT, Guatemala’s answer to the IRS.

In all that time, I admit to encountering occasional corruption or apathy. But there is less of this now, since SAT is much more transparent than the machinery it replaced some years ago. Increasingly, I have found people who were not only honest, but genuinely nice. I have even experienced that rarest of bureaucratic events, the returned phone call.

Doña Tatiana, the former tax commissioner of Sololá Department, was my friend, and remains so even after her trans- fer. I recently met her replacement, Don Pedro, while answering a scary-looking summons of my own. The guard directed me to a row of chairs but, before I could sit, Don Pedro came out of his glass-walled office. He all but grabbed me and my son by the collar, and asked how he could serve me. I quickly thanked him for the apparent special treatment.

During our opening small talk, he remarked (with the candor I have become used to from disarmed officials), that his experience with “foreigners” had, to date, been largely positive. They accepted in principle, he explained, the need for taxation. In this, I imagined, we foreigners tacitly appreciated the contribution to society of tax collectors. Just the kind of person my new friend, Don Pedro, therefore likes to see.

The care and feeding of lonely tax collectors, then, is a delicate art, but one that may yield quick dividends. A little acceptance may melt them de una vez. It is said that watchdogs can smell fear. Similarly, tax officials may be able to smell the dirt of disdain. So, wash up before you go. Dismiss any negative experiences from the past. Pay your taxes, and do so with a smile. Guatemala gives us “foreigners” a good value for our taxes.

In 2005, a bike accident put me in the public hospital for a few days. It was not Club Med, but the care was adequate, and it was free of charge. In the old country, a stay like that would have wiped me out. So I was grateful.

Wonderful thing—those quetzales at work. And if I ever land in the hospital again, perhaps I will be visited by the person who helped make it possible—my friendly local tax collector.

written by Steven Pittser

If you are a U.S. citizen, the rules for filing income tax returns are generally the same whether you live in the States or abroad. The following is a brief summary of the criteria that would require an individual to file a 2008 tax return.

If you are married filing jointly and your gross income (all income – earned income, investment income, interest, rentals, taxable Social Security, etc.) was at least $17,900 ($18,950 if one spouse is over 65; $20,000 if both are over 65), then you must file a return.

If you are single and your gross income was at least $8,950 ($10,300 if you are 65 or older), you must file.

Married or single, you may not owe any tax due to the foreign earned income exclusion, which is $87,600 for 2008, but there would still be a penalty for not filing.
If you are married filing jointly and all of your gross income plus one-half of your Social Security add up to more than $32,000 (more than $25,000 if you are single), then you have to start adding a portion of your Social Security to your taxable gross income. How much depends on how far over those figures you are. If there is self-employment income of $400 or more, then you must file, due to owing Social Security and Medicare taxes (even though you may not owe any income tax).
Important Note: Because of the Rebate Recovery Credit for 2008, many people who would not be required to file, should file to claim their credit. For example, a married couple whose only income is Social Security would receive a rebate refund of $600, if they had received no stimulus payment for 2007 ($300 for a single person). If a married couple had earned wages of less than $17,900 (normally allowing them to not file), their rebate refund would be $600 if they do file ($300 for a single person with less than $8,950 income).

Believe it or not, the IRS encourages people to file, even if the only reason for filing is to claim their rebate credit.

Getting in the Christmas spirit and year-end tax planning mixes like oil and water. Who wants to think about taxes, you ask, when it’s time for Santa Claus and candy canes.
It may surprise you to know that because of his investment in a fir tree farm in Montana some years back, Santa is a non-resident alien (for U. S. tax purposes) and does some tax planning in December himself. Seriously, for a lot of people, a little time spent at the end of the year concerning taxes can save a load of money in taxes not owed.

1. Start an IRA (from earned income); the maximum this year is $5,000 (and another $5,000 for your spouse). If you are age 50 or older the max is $6,000 (and $6,000 for your spouse). Even if you can’t afford to tie up the money for a long period of time, you can “cash out” the IRA after you file (which creates a taxable event for 2009, of course) and with possible tax planning in 2009, cover the cash-out with deductions or the possibility of lower income in 2009. In the meantime, you have created a $5,000 deduction in 2008 ($10,000 with a spouse). This strategy is particularly effective if it puts you in a lower tax bracket this year, but not in 2009. There is an old rule in tax planning: Always delay paying taxes as long as legally possible.

2. Turn that new hobby you started this year into a business, especially if there is a first-year loss, as there is in most new businesses. Be aware that the IRS states that if a business isn’t profitable in three years out of five that it can deem it a hobby. Also be aware that the IRS lost its case in federal court when it tried to enforce that rule. The court did not agree with that concept, stating that we all have the right to attempt to succeed at business as long as we like; that notwithstanding, I once worked with a couple who each had a separate business. It just happened to turn out, purely by circumstance, that while he had over $20,000 in losses each of the first two years, she made a slight profit both of those years ($10 the first year and $28 the second year). Then her business took a bad turn and lost over $55,000 over the next two years while his turned around a bit and showed a $19 and $36 profit. The fifth year, he made a profit of $16 while she made a profit of $119. The end result was the IRS rule was satisfied (even though legally, it did not have to be) and the couple racked up net deductions in excess of $95,000 over the five years. Most of the losses were items they might have purchased anyway (but would not have been deductible without a business) or involved travel costs that they deemed were business related and therefore deductible. Everything was covered with the proper receipts and bookkeeping (which I highly recommend). All was accomplished with proper tax planning.

3. For those couples where one is a U.S. citizen and the other is a non-resident alien (for U.S. tax purposes), there is the decision to be made as to whether to choose to treat the non-resident spouse as a U.S. resident. If you make this choice, you and your spouse are treated for income tax purposes as residents of the U.S. for your entire tax year. Whether to make this choice or not would depend on your individual circumstances (refer to IRS Publication 519, U.S. Tax Guide for Aliens). As one example, if the non-resident spouse were subject to the 30% tax on fixed or determinable income, it might be wise to make the election described above.

4. Converting an IRA (or a part of an IRA) to a Roth IRA (this subject was discussed in the September issue of Revue). This decision must be made by December 31. However, if later on you feel you made the wrong decision (more income than you expected showed up in the forms you receive in January and February), you can change it back to an IRA with no tax consequences. That is called a recharacterization and can be done on or before April 15 of the year following the year of conversion (October 15 if you file for an extension).

Once again, I will end my writing with a quote, this time from the late Louis D. Brandeis, U.S. Supreme Court Justice: “Where I live in Alexandria, Virginia, near the Supreme Court building, there is a toll bridge across the Potomac River. When in a rush I pay the toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge. If I went over the toll bridge and through the toll without paying, I would be guilty of tax evasion. However, if I go the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical and suitable method of tax avoidance. And, I am providing a useful social service as well.” (The italics are mine.)

Just because you are a U.S. citizens living and working abroad does not mean that you don’t have to report your yearly earnings to the IRS. However, if you pass two tests and qualify for the “foreign earned income exclusion,” you don’t owe any tax unless you made more than $87,500. That’s if your income was earned by working for someone else or within a corporate structure.

For those of us who own businesses (or provide a service) the IRS has a different set of rules for “self-employment income.” If you are self employed, then every dollar over $400 is taxable (and, of course, you must file). The good news is that if you qualify for the foreign earned income exclusion, you still don’t owe any INCOME tax, unless you make more than $87,500.

But now the bad news: Unlike wages earned outside the U.S., self-employment income outside the U.S. IS subject to Social Security and Medicare tax (total of 15.3 percent) on every dollar above $400. And, worse yet, the foreign earned income exclusion does NOT apply to Social Security and Medicare tax.
So, you have a little widget business and you netted $20,000. You do qualify for the foreign earned income exclusion, so you don’t owe any income tax. However, you do have to file AND send a check to the IRS for Social Security and Medicare taxes in the amount of $2,999. ($19,600.00 x 15.3 percent).
There are several ways to avoid this problem; one of the simpler methods is to form a corporation, have all checks made to the corporation, and have the corporation pay you as an employee. Now you are governed by the “wage” rule, not the “self-employed” rule.

I have had a person tell me that they didn’t feel that was “playing fair” – that everyone should pay their “fair share” (of taxes). My first inclination was to tell them that under the present tax structure, there isn’t any amount that I consider to be “fair.” I believe in a flat tax system or, better yet, a national sales tax. Instead, I referred them to a quote from Judge Learned Hand: “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the Treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible.”

I also agree with Arthur Godfrey, who said: “I’m proud to pay taxes in the United States; the only thing is, I would be just as proud for half the money.”