Jim's Tax Tips

Back to Basics: What You Need to File Taxes

Excerpt:

Prep the proper paperwork. Gather up all your income statements from the previous year and find the right forms so you can report all income and claim every credit or deduction by taking advantage of every available deal.

My tips:

• Do your own taxes. I've been doing my own taxes for 40+ years. By doing your own taxes, you will understand how the tax system works.
• Use a tool like TurboTax (there are many other products but I've been using TurboTax almost exclusively for decades). The product that I prefer is the client version (versus the cloud or online version). We discovered that the cloud version doesn't handle Federal estimated taxes). Another advantage of the TurboTax client version is that you can go directly to the form(s) if needed
• Download and be prepared to use the official IRS instructions for the current year. This year we used it for the issue of Foreign Dividends.
• Have a filing system: Ours is a hanging folder for current taxes. After we file, we move the contents of this to a manila envelope, seal it and write on the outside "Taxes" + the year
• I also have a folder system (Microsoft One-Drive)

• This year we scanned every document to PDF and saved in the cloud
• Have a checklist. Because we are retired, we are done with W-2's but we receive 1099-R's so for 2018, my document checklist looks as follows:

• I key in the data from the documents as they arrive (the 1099-DIV from Wells Fargo is imported). We have a "two set of eyes" rule. We review (screen share) as the data is entered. Upon filing we review again (a double check)
• Retain: receipts from HSA purchases (we have a separate file for this)
• Retain: all receipts from charitable contributions 
• Celebrate the privilege of paying taxes!

"Wealth is being spread with little to show for it"

More Redistribution, Less Income - Obama has spread the wealth, but the poor and middle class haven’t benefited.

Excerpt:

On taxes, Mr. Obama often claims that the rich don’t pay their “fair share,” yet the most affluent one-fifth of taxpayers on average supplied 68.7% of federal revenue for 2011. That’s according to the Congressional Budget Office, which last week updated its statistics on the U.S. distribution of income and taxes for 2011 and preliminary calculations for last year. As for the top 1%, they funded 24% of everything the government does in 2011. The CBO also estimates that the end-of-2012 fiscal cliff deal that lifted the top marginal income tax rate to 39.6%, plus ObamaCare’s taxes on high-income individuals, increased their average federal taxes by 4.3 percentage points to 33.3% of income. The Warren Buffett minimum-tax rule asserted that no millionaire should pay an effective tax below 30%. Mission accomplished. This has long been the reality of the highly progressive U.S. tax system, but the bigger news in the CBO numbers is that wealth is being spread with little to show for it. According to the CBO, the lowest 60% of earners all collect more in benefits on average than they remit to the Treasury. Yet even the supposed beneficiaries of Mr. Obama’s policies ended up with less in 2011 than 2007.

Comment: See also A Rise in Wealth for the Wealthy; Declines for the Lower 93%. Image source:

...  the “fair share” phrase is just a fancy way of dressing up an argument that poses that someone else’s money is yours. It’s the adult version of two toddlers fighting over a toy. There’s no true “fair share” just dozens of ways to divvy up the spoils of a population.

On "fairness" in taxes: Half of US Taxpayers pay 97% of totalhttps://t.co/Lal4nENP08 pic.twitter.com/NKOfRnJ40Q

— James Peet (@jrpeet) April 22, 2019

Retirement and Taxes

Taxes to Watch Out for in Retirement

Excerpt:

Taxes are likely to be one of your biggest bills in retirement, especially if you have done most of your saving in tax-deferred retirement accounts. But where you live plays a big role in the tax rate you pay on your retirement income. "Taxes are not the only thing that matters for retirement, but they can definitely have a sizable impact as people start to narrow down which states they are considering for retirement," says Scott Drenkard, an economist for The Tax Foundation. "I think one of the driving reasons to move to Florida is because the weather is a lot nicer, and there's no tax on income." Here are the taxes to consider as you select a place to retire:

Income tax. If your retirement income is high enough that you will owe taxes on it in retirement, you can reduce your tax burden if you move from a state with high income taxes to one without an income tax. Seven states do not have an individual income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states -- New Hampshire and Tennessee -- tax dividend and interest income only. However, reducing your income tax bill isn't a guarantee that your overall tax bill will decline. "Before impulsively moving to a state without an income tax, though, the retiree should make sure he or she isn't trading one tax for another," says Twila Slesnick, co-author of "Nolo's Essential Retirement Tax Guide." "For example, although Texas does not have an income tax, the average property tax rate in the state is quite high. You might find that you are paying more in property taxes in the new state than you were paying in income tax and property tax combined in the old state."

Comment: We don't really have a tax avoidance plan. My brother is planning on moving to Wyoming (May 2016). He loves the West. He and his wife formerly lived in Colorado and she has family there. One of my brother-in-laws is preparing to re-domicile in Florida (from Edina MN). They own a condo in Naples and are already gone from the state (MN) for almost 6 months. His main reason to re-domicile is estate taxes. I used to talk about moving to Tennessee but of late (the last 2 years) we have planned to stay in Minnesota. One child has moved away. If one more would move away we would move. But the other two are planning on staying here. Image source with a related article

“You Can Be A Millionaire.. And Never Pay Taxes!”

But First ... a little "King Tut" “You Can Be A Millionaire.. And Never Pay Taxes!” Comment: The original SNL skit

What happens if I don't file my tax return?

Taxes, Schmaxes

Excerpts:

What happens if you get tired of waiting and decide not to file your taxes at all?

Probably nothing. If you're self-employed without any major assets or loans, the odds of getting busted are extremely low. In fact, an estimated 7 million Americans fail to file their taxes every year, and in 2008 the IRS examined only 158,000 such cases. That comes out to a roughly 2 percent chance of getting caught. Even if the IRS does audit you, the agency probably won't press charges. Instead, they'll just file a tax return for you and charge you a fee for the trouble.

...

Tax evasion can catch up with you if you take out a mortgage for a house (since tax statements are usually necessary) or if you take a government job, like, say, treasury secretary (since the IRS automatically audits all incoming employees). Evasion is also a bad idea if you have enemies: The IRS often snags evaders when embittered spouses or fired employees rat out their former lovers or bosses.

...

There's a difference between paying taxes for a few years, then stopping, and never paying them at all. The IRS keeps records, so it knows if you suddenly stop filing. You'd probably have more luck sailing under the radar if you start cheating from the get-go. But, again, that'll work only if you're self-employed—or, better yet, unemployed.

You should also keep in mind that the IRS can bust you down the line. Yes, there's a statute of limitations for criminal penalties: After six years, you can't go to jail for not paying taxes. But if the IRS ever discovers that you didn't file your taxes in 2008, they can still force you to pay civil penalties.

Comment: It would be a very bad idea to not file! Another article below

What Happens If You Don’t File Your Tax Return?

Excerpt:

Penalties may be categorized as failure to file or failure to pay penalties which will automatically assessed by the IRS, and as an underpayment that are related to some negligence or intentional fault of the tax payer.

The failure to file or (FTF) penalty is assessed by the IRS at a rate of 5% per month or partial month up to a 25% maximum. The failure to pay (FTP) penalty is assessed by the IRS at a rate of 0.5% per month or partial month up to a 25% maximum. If both the FTF and FTP penalties are assessed, the FTF penalty is reduced by the FTP penalty.

Taxes "inadequate to support the promises our government has made"

Biggest tax revenue drop since 1932

Excerpt:

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.

"Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

"This just adds to the problem."

While much of Washington is focused on how to pay for new programs such as overhauling health care — at a cost of $1 trillion over the next decade — existing programs are feeling the pinch, too.

Social Security is in danger of running out of money earlier than the government projected just a few month ago. Highway, mass transit and airport projects are at risk because fuel and industry taxes are declining.

The national debt already exceeds $11 trillion. And bills just completed by the House would boost domestic agencies' spending by 11 percent in 2010 and military spending by 4 percent.

Comment: Keep watching that debt clock!

We don't have enough rich people

Excerpt:

There may be reasons to tax the rich more, as a lot of people in Washington are talking about doing.

But to raise taxes on them, and only them, to pay for the country's most ambitious proposals like health care reform, is a problem, experts say.

If nothing else, it makes for some bad math.

"We don't have enough rich people. We could tax the wealthy to extraordinary levels. But we cannot afford everything we want," said Ken Kies, a former director of the Joint Committee on Taxation and currently a tax lobbyist for businesses including insurers.

Yet, rich households are the focus of several revenue generating proposals to help pay for health care reform and other endeavors.

Comment: Not enough "rich" people to pay for all the programs. I don't consider myself as one of these "rich". Most of the Obama tax plans are for millionaires, couples with a gross income over $ 250,000, etc. But the reality is that their is giant disincentive for those who create to wealth, to continue fueling that engine.

Tax cuts stimulate the economy ... in what country?

Comment: Guess the country and then read. Hint ... it's not the US!

Auto Sales Rise 25% After Tax Cuts

Excerpt:

___________ vehicle sales surged 25 percent in February, the first gain in four months, after the government cut taxes on some models ....

Sales of passenger cars, buses and trucks climbed ...., the ________ Association of Automobile Manufacturers said today in ________.

....

“Consumers are regaining confidence because of the government’s stimulus policies,”

Barney Frank: Plenty of rich people that we can tax

Comment: I personally am not opposed to taxes. I pay them. My little part helps fund government. I get that. What pains me is that neither party is concerned about paring down government ... making it more efficient ... less wasteful.

Seniors: No tax for you!

Obama's 'no income taxes on seniors' draws critics

Excerpts:

you're a senior citizen and earn less than $50,000 a year, Barack Obama has a deal for you: a life free of federal income tax.

Sounds appealing, right? Maybe to many seniors. But tax policy experts in Washington are giving it bad reviews. They see it as another subsidy for senior citizens, who already get federal help through Social Security and Medicare and often have economic advantages over other demographic groups.

Seniors typically have paid off their mortgages, many have investments and usually don't pay taxes on their Social Security benefits. The kids are usually grown, so they're not saddled with day care or college costs.

"The odds are the retired folks - they're getting pensions, they're getting Social Security, they have investment assets, they own a house - so ... they're better off than somebody who is 30 or 40 years younger who's trying to buy a house (and) trying to start saving,"

...

The Tax Policy Center, a think tank run jointly by the Brookings Institution and the Urban Institute, gave the idea bad grades in a recent study of the two presidential candidates' tax plans.

Seniors already get preferential treatment in the tax code. They can claim an additional standard deduction and only a portion of their Social Security benefits are taxed. Many don't pay payroll taxes because their income is from investments rather than wages.

"The proposal would exempt comparatively well off, though not affluent, senior citizens from taxes and give them a benefit not generally available to working Americans," said the Tax Policy Center paper. It "helps only those low-income seniors who currently pay income taxes. Those too poor to owe any tax - arguably those most in need - would get no benefit."

Comment: More poor tax policy from Obama.

The myth of the rich NOT paying their fair share

Their Fair Share

Excerpt:

the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half.

Aha, we are told: The rich paid more taxes because they made a greater share of the money. That is true. The top 1% earned 22% of all reported income. But they also paid a share of taxes not far from double their share of income. In other words, the tax code is already steeply progressive.

Comment: It's dangerous, in my mind, when not all of the beneficiaries of our great democracy contribute fairly to the federal treasury.

What this tax will really do

First In Nation 'Pollution Fee' Coming To SF - Move Meant To Help Slow Global Warming

Excerpts:

The Bay Area Air Quality Management District's board of directors on Wednesday approved new rules to charge businesses a fee for the pollution they emit.

The group's board of directors voted 15-1 on unprecedented new rules that will impose fees on factories, power plants, oil refineries and other businesses that emit carbon dioxide and other heat-trapping gases.

The agency, which regulates air pollution in the nine-county Bay Area, will be the first in the country to charge companies fees based on their greenhouse gas emissions, experts say. The new rules will take effect July 1.

The modest fee -- 4.4 cents per ton of carbon dioxide -- probably won't be enough to force companies to reduce their emissions, but backers say it sets an important precedent in combating climate change and could serve as a model for regional air districts nationwide.

The fee will not be imposed on vehicles, district spokeswoman Lisa Fasano said.

"It doesn't solve global warming, but it gets us thinking in the right terms," said Daniel Kammen, a renewable energy expert at the University of California, Berkeley. "It's not enough of a cost to change behavior, but it tells us where things are headed. You have to think not just in financial terms, but in carbon terms."

...

More than 2,500 businesses will be required to pay the proposed fees. About seven power plants and oil refineries will have to pay more than $50,000 a year, but the majority of businesses will pay less than $1, according to district estimates.

The proposed program, which requires companies to measure and report their own emissions, could make it more complicated and expensive to do business in the Bay Area, said Shelly Sullivan, who heads the AB32 Implementation Group, a coalition of business groups working with state regulators to implement California's global warming law.

"It's going to make Bay Area businesses less competitive because companies outside the area won't face similar costs," Sullivan said. "There would be a patchwork of plans that would not be consistent."

Comment: Get this .. some businesses will only pay $ 1. But they will pay many dollars in calculating that $. Who will pay? Jobs lost!

Tax somebody else ... but give me government services

62% of Voters Prefer Fewer Government Services with Lower Taxes

Excerpt:

The latest Rasmussen Reports national telephone survey found that 62% of voters would prefer fewer government services with lower taxes. Nearly a third (29%) disagrees and would rather have a bigger government with higher taxes. Ten percent (10%) are not sure.

Those numbers have changed little over the past month.

Republican voters overwhelmingly prefer fewer government services—83% of the GOP faithful hold that view while just 13% prefer more government involvement. Democratic voters are evenly divided on this question: 46% prefer more government services, while 43% prefer less government services.

Not surprisingly, conservative voters like less government while liberal voters favor a bigger government. Fifty-seven percent (57%) of politically moderate voters prefer smaller government. A separate survey found that most adults (56%) are worried that the next president will raise taxes too much.


Comment: What most really want ... more services but tax somebody else.

TurboTax online

Three Certain Things: Death, Taxes and the Shift to the Web

Excerpt:

For the first time this year, more people filled out their tax forms using TurboTax’s online product than the version that comes in a box.

You might think people would be queasy about doing their taxes online, but that is certainly a passé notion judging from the numbers from Intuit, the maker of TurboTax. The company said it sold 7 million TurboTax federal tax preparation packages, about the same as last year, but it sold 8.3 million units of the online version, a 37 percent increase.

Comment: This was our first year using the on-line version of TurboTax. I like it because I can work on my taxes from any PC.

---

Three day weekend ahead. Tomorrow is Kathee's birthday.

Feeling undertaxed?

The Tax Me More Act

Excerpt:

We recently suggested that if Bill and Hillary Clinton are eager to pay more taxes, they should write a personal check to the U.S. Treasury to compensate for the lower tax rates they so frequently decry. And lo, here comes legislation to make it easier for the former first lady and other pseudo-populists to do just that.

California Republican John Campbell yesterday introduced in the House his "Put Your Money Where Your Mouth Is Act," which would amend the tax code to allow individuals to make voluntary donations to the federal government above their normal tax liability. The bill would place a new line on IRS tax forms to make this easy.

Mr. Campbell says he has heard the "cries" of those wealthy Americans – Mrs. Clinton, Warren Buffett, Barbra Streisand – who reject the lower tax rates passed in 2001 and 2003 and complain that they and their fellow rich don't pay enough. "It's a great injustice that citizens wishing to fulfill their dream of paying more taxes cannot simply check a box on their 1040 form to make a donation," he says. His bill would give liberals a chance to salve their consciences without having to raise taxes on millions of Americans who already feel overtaxed as it is.

Also:

Congress raises limit again as U.S. debt nears $10 trillion

Until the early 1960s, people couldn't donate money to the federal government with a specific use in mind. When a Texas woman wanted to contribute money specifically to lower the debt, she got Congress to pass a law creating a special fund for gifts. Since then, thousands of Americans have contributed, donating $1.6 million last year alone. In 2006, a 98-year-old Ohio woman donated her $1.1 million estate.

Pete Hollenbach, the bureau’s spokesman, said the names and addresses of donors are kept secret because of privacy concerns. Most of the donations are modest, with people sending checks of $25 to $50 as they express a desire to both reduce the debt and give a little something back to their country. Hollenbach said donations usually peak during tax season.

If you’d like to donate, make your check payable to the Bureau of the Public Debt. In the memo section, note that it’s a gift to reduce the Debt Held by the Public. And mail your check to: Attn Dept G, Bureau of the Public Debt, P. O. Box 2188, Parkersburg, WV 26106-2188.


Comment: My soon to be 88 year old Mother had a bad day yesterday. First she lost Daddy's wedding ring that she has been wearing on her thumb for the 9 years since his death. And then her tax accountant called to tell her she owed $ 4,000 on her taxes. She was in a panic about both when I called her last night. Turns out Mom misunderstood the accountant - he said $ 400! Feeling undertaxed? Send your check to the address above!

The illogic of ‘Tax Defiers’

U.S. Says It Will Increase Efforts Against ‘Tax Defiers’

Excerpt:

If you think paying taxes is unfair, illegal or unconstitutional, then watch out — the Justice Department is after you.

Just as the Internal Revenue Service is getting into its perennial tax-season tough talk, Justice Department officials weighed in Tuesday with a vow to ramp up efforts against “tax defiers.”

A tax defier is not a wealthy individual who buys a sophisticated tax shelter in a fraudulent effort to shield legitimate income from taxes. Nor is a defier a taxpayer who has a difference of opinion with the I.R.S. over deductions, or one who challenges specific tax policies enacted by Congress.

A tax defier, according to a Justice Department statement, is someone who “seeks to deny and defy the fundamental validity of the tax laws.”

“The tax defier is someone who rejects the legal foundation of the tax system, despite decades of legal precedent upholding the system’s constitutional and statutory validity, and who takes specific and concrete action to violate the law,” the department’s statement said.

Such people were once more commonly known as tax protesters. A spokesman for Justice said Tuesday that the department official who announced the new program, Nathan J. Hochman, the assistant attorney general for the tax division, “is calling them defiers because he feels ‘protesters’ implies constitutionally protected rights.”

Comment: Think Kent Hovind now blogging from a federal penitentiary!

Hovind was originally reported to the IRS by Pensacola Christian College senior vice president Rebekah Horton in the mid 1990s, after she learned of Hovind's anti-tax stand. "'We know the Scriptures do not promote (tax evasion),'" Horton said in testimony against Hovind during his 2006 trial, "'It's against Scripture teaching'.... Horton believed it was the college's duty to report the misleading doctrine. 'I didn't want to see innocent people get led astray,' she said. Pensacola Christian College then decided its students no longer were permitted to work with Creation Science Evangelism".

2008 EZ 2 DO form

Comment: This relates to the Laffer curve: Laffer: A serious blow to economic health.

On the serious side of things, check out www.obamaspendometer.com

McCain: a "free-enterprise, capitalist, full-bore guy"

If elected: Fiscal Mantra for McCain: Less Is More

Excerpt:

[McCain] aid that he would consider resuscitating the work of a bipartisan tax-reform commission, appointed by Mr. Bush, whose 2005 report on simplifying the tax code was largely ignored by the administration. Using the process that has been used to close military bases, Mr. McCain said he would ask Congress to vote yes or no on an entire tax-simplification program.

...

Mr. McCain now favors the extension of the Bush income tax cuts, saying that letting them lapse would amount to a tax increase that would damage the economy. He said the Democrats’ plans to allow the expiration of the Bush tax cuts for households making at least $250,000 would simply redistribute wealth and lead to an endless fight over who was truly affluent.


Comment: My son says every Presidential candidate should take macro-economics. Here's The final report of the President's Advisory Panel on Federal Tax Reform (pdf) (Suggestion: read the 2 page executive summary!)

Save your rebate!

Don't Spend Your Stimulus Rebate!

Excerpt:

If Uncle Sam sends you a check of a few hundred dollars as part of the new economic "stimulus" package, don't bother trying to stimulate the economy with it.

By far the smartest thing you can do with the money, if you can afford to, is to save it instead.

Comment: Best not to count one's chickens before they hatch ... but if and when that check comes, save it or invest it! I predict that thousands of Americans will be buying HD TV's, IPODs, and other gizmos! Don't be one of them.

Updated: Rebate details: Senate under pressure to approve stimulus deal to get tax rebates to workers in May

Under the agreement announced by the White House, Boehner and Pelosi, individual taxpayers would get up to $600 in rebates, working couples $1,200 and those with children an additional $300 per child. In a key concession to Democrats, 35 million families who make at least $3,000 but don't pay taxes would get $300 rebates.

The rebates would phase out gradually for individuals whose adjusted gross income exceeds $75,000 and for couples with incomes above $150,000. Contributions to IRA and 401(k) retirement accounts and health savings accounts would not count toward the income limit.

The case against increasing gas taxes

Gas Taxes Are High Enough

Excerpt:

Contrary to the views of the majority of the commission, we do not believe Washington is capable of spending billions more of Americans' money wisely when it comes to transportation investments. Anyone who doubts that should review the more than 6,000 earmarks in the last transportation bill or visit the new Woodstock Museum in upstate New York.

Even if Congress loses its taste for pork, raising gas taxes and spending more on highways still won't improve the quality of Americans' commutes, though it would likely make them more expensive. We tried this already and it simply doesn't work.

Over the past 25 years, the federal government has increased transportation spending by 100%, yet traffic has grown by over 300%. Not surprisingly, recent studies, including one last summer by the Government Accountability Office, have found that higher gas taxes do nothing to improve traffic congestion.

Comment: Secretary of Transportation Peters makes a valid point: can we trust the federal government with more highway revenues? Her case is "no"!