The Goldfish Chronicles

Herein lies a tale, of gross stupidity in tax laws and how it will cost me 100 times as much as it should. I should point out that this is the Kentucky state tax code and not the Federal tax code.

The story begins a few years back, a simple knitter of scarves, to whom I am married, after hearing of the beauty and wonder of her scarves from friend and stranger alike, decided to try and sell a few. Being but a single being in a multitude of beings she was never going to have a high productivity, but the thought that somebody would pay for her scarves and wear them was a warm one.

Dutifully she went to a local small business center for advice, and then to a seminar on how to set up a business. A Limited Liability Company, they all said, and thus she did set up such a beast. She paid her sales tax on time, such as it was for a small barely existent business and her husband took care of the taxes - for that is an advantage of the LLC tax system, it falls into the purview of your personal taxes. Al was good - if not hugely profitable.

Upon leaving the state of KY, said knitter and her husband booked time with local accountants to close down the company - aware as they were that there was some paperwork involved in getting it done. Things seemed to go well, and they filed their taxes from their new home.

Then things took a turn for the worse. After tax season was over, a letter eventually made its way to them. It had been addressed to the accountants, but at the knitters old KY address so the USPS did not know to forward it to them. It only appeared our of the goodness of the new homeowners in KY who sent it on in a collected bundle to the knitters mother, who then sent it on to the new home. This letter pointed out that since the LLC had had business in that tax year ($30 revenue, $10 profit), that it could not be closed down and would have to do so the following year. Also that it had to file a Corporation Tax return.

Herein lay the husband of the knitter’s mistake - he didn’t click that he had to do a tax return for that year, just the next year. Time dragged on in the order of months and a new letter arrived stating the same and this time it clicked in the husband’s brain and he dug into the taxes.

“Could it be?” he cried with shock and horror, “Might it be so?” he exclaimed with disbelief and pain. Indeed it was so. While the tax worked out to be 50 cents, the minimum tax for a corporation was $175 dollars. Plus $15 dollars to keep the company alive for a year so it could be closed in good standing the next year. Plus another $175 dollars that year. Plus interest and penalties for the 6 month overdue taxes of this year. From 50 cents to $500 dollars.

A phone call to the KY tax office did not help, yes they had to pay the tax. Said tax being equal to the LLCs combined revenue over time, and definitely a large amount more than its profit.

The moral of this story - as with other experiences I have had with US tax is “Don’t use accountants. The cheap ones are brainless morons and the good ones are too expensive for an individual/small business.

This entry was posted on Friday, September 29th, 2006 at 10:15 am and is filed under Family etc. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.