Should the Wealthy Pay More Taxes?

Our president, later last year, unveiled a new method that he believes will help to increase the revenue to the treasury. The tax plan, designed to tax the wealthy to a greater extent than anyone else  is vaunted by some as being the answer to the prayers of the Treasury Dept., while being denigrated by others as being little more than class warfare promoted by the government.

The core component of the plan and the hype that the government has created to promote it is the ideology that the revenues and the taxation should be given–(a quote from an old philosopher here) “from each according to his abilities to each according to his needs.”

The Obama administration denies most vigorously that they are engaged in the promotion of a class war by asking for a one and a half trillion dollar increase in taxation for the people who earn more than $200 K annually.

What our president and the administration do not state in their rhetoric, and what remains a sticking point for most economists and those with a modicum of common sense, is that while his conversations and Rose Garden speeches promote raising taxes for those who are “billionaires and millionaires” the actual tax plan raises taxes on any American who, by the sweat of their own brow, makes more than 200K per year. Further, it targets small business in a way that quite literally, discourages the average business person and prevents expansion, thereby actually cutting job growth.

This plan will effectively raise taxes on many physicians

Newly graduated students who are lucky may get into a great job, and about a quarter of the technology industry workers, many of whom are paying back outrageous college loans to begin with. Effectively, in order to make ends meet when a tax of this kind is proposed on their work, they will have no choice but to raise pricing in order to meet both the loans and the taxes.

Our administration also fails to note that the tax code of the United States is already nothing if not progressive when it comes to taxation of the people who make the most money. In fact, according to US News, the top one percent of US earners is paying almost forty percent of all of the income taxes and is also paying about 28 percent of all federal taxes combined. The top five percent of US wage earners according to government records and corporate payroll services are paying nearly 70 percent of all income taxes yet, the Obama administration believes that it is necessary to create a hike in taxes that would amount to three dollars in increased taxes for every one dollar in spending cuts made.

The Truth

The simple truth is that the vast majority of people do not make $200K per year. In an election year, it looks and sounds great for the average Joe to think that the government is thinking of him first. Those who are making under $200 K are the vast majority and getting the votes of that group is certainly more important than getting the votes of the basic few who make more than that amount.

It certainly goes without saying that the Obama administration, as most others throughout history, is certainly not going to take time looking at wasteful spending habits such as million dollar secret service bills for multiple vacations for the first family. Those, in combination with the wide array of unnecessary spending, outrageous purchases, and duplicated agencies, and scaling back on governmental spending, would save trillions, but certainly not be as wildly popular as taxing the rich to get the poor vote.

There are ways that we can cut our spending quite dramatically, simply by turning our microscope inward toward our own government. There are ways to improve upon our own taxation codes and create simpler and more effective methods of taxing. The plain truth is that they aren’t going to garner the votes that the administration needs to continue to wreak havoc on our economy.

This guest post was written by indie journalist Patrica H. Hugley who regularly blogs about accounting and corporate payroll services.

Early Bird Gets the Worm: Planning for Retirement in Your Twenties

Thinking about the time when you give up work can never start too early. When you’ve just hit twenty and you’ve been given your first job, thinking about the end of your career is the furthest thing from your mind. Contemplating the end, however, will allow you to take a proactive role in planning for retirement. And maybe allow you to be a grooving granny with cash to burn.

How to go about planning for your retirement

There are certain points that you will need to consider when implementing a plan to cover yourself later in life.

Firstly, before you can even begin to think about embarking on any form of retirement savings plan, you need to have a sufficient emergency savings funds. Do you have three-six months worth of salaries saved up in a secure savings account? If not then you need to take care of that. It is the preamble before planning for retirement. It isn’t a strength of the young to look to the future, but setting up a totally secure reserve that you can dip into when life take’s an unexpected turn for the worse will ultimately help you weather those times. Save you some Botox?

For those that have their unassailable savings taken care of, you can now start ploughing your extra money into a form of retirement savings. Unless you’re one of the fortunate few that fall into the high-income tax bracket, you are advised to set up a ROTH IRA account. In this case, you won’t exceed the income eligibility threshold and you will be able to put away up to 3000 pounds a year. This could significantly fatten your retirement funds. Thailand here you come!

Once you’ve set up your ROTH IRA account there are a few other retirement planning tips to be had. Firstly, keep in mind that investing in stocks is a good idea if you’re thinking about long-term growth. Investing money with the hope that you’ll achieve high returns over long periods always comes with a bit of risk but deserves to be looked into.

Never rely too heavily on your bond, even in retirement. Inflation can easily wear away the purchasing power of your bond’s interest payment.

Lastly, if you invest your time in the right company, you can benefit from pension schemes that supplement your savings. The office you choose could potentially be the place that increases your nest-egg and help you to plan ahead. If you start implementing some of these retirement planning guides now, you’ll determine your own fate in more ways than one.

In the working world, many business people tend to look ahead in terms of their careers, their office space, and their progression. Planning for your retirement is a means to an end, and a good one at that. You could be playing bingo and soaking up the sun in the Caribbean if you start saving now!

 

Bella Gray is busy planning her retirement at her executive suites New York. She likes to share the tips she picks up while looking for new investment opportunities. Impressed by her return on investment from her serviced offices Victoria, Bella now recommends serviced offices to all of her business partners and friends.

Discharging Tax Debt Through Bankruptcy

Filing for bankruptcy can be an effective way to get out of debt and get started rebuilding your financial life. While bankruptcy can provide quicker relief than other options such as debt settlement or credit counseling, some debts are ineligible for discharge. When dealing with tax debt, it can be difficult to get a discharge for it through bankruptcy. While it is possible, you’ll have to make sure that you meet certain standards. Otherwise, your tax debts may remain even after you file for bankruptcy.

Tax debts are subject to specific rules that must be met before they can be discharged in any kind of bankruptcy. The tax debt in question must be at least 36 months old in order to be eligible. When you need to discharge a tax debt, the return associated with that debt must have been filed at least 24 months ago as well. In addition to filing the return more than 24 months ago, you also have to make sure that the tax assessment is at least eight months old. The tax return that you file also has to be legitimate and cannot be fraudulent. You also cannot simply file for bankruptcy so that you can get out of paying taxes. This is considered tax evasion and is against the law.

If you want to qualify for bankruptcy discharge with your tax debt, you also have to prove that you have filed your last previous four tax returns with the Internal Revenue Service. Without having proof of filing those returns, you will not be eligible to have the debt discharged through the bankruptcy process.

While it is possible to get your tax debt discharged in bankruptcy, it is not very likely. In order to get part of your tax debt discharged, you have to prove that it is at least three years old. In most cases, the Internal Revenue Service will start contacting you almost immediately after your tax debt is not paid. The chances of you being able to hold out for more than three years without having anything done by the IRS are not good. The Internal Revenue Service has many ways that they can try to get you to pay your tax debt. For example, the IRS can file a tax lien on your property and make it difficult to sell any of your property without paying back the debt. In some cases, the IRS also has the right to seize your property such as your house, your vehicle, jewelry, securities and money from your bank account. If you do not pay the debt in the appropriate amount of time, the IRS will start trying to collect this money from you.

If you are having trouble repaying your tax debt, you may want to explore some other options besides trying to wait out the three year period for filing bankruptcy. For example, you could try to set up an installment agreement with the IRS or use an offer in compromise to settle your tax debt for less than you owe. The IRS will evaluate your proposal and decide if it is worth accepting.

A Candidate’s Offshore Tax Havens

Stories of offshore tax havens belonging to Mitt Romney have been causing a stir in the news media. Several sources such as Reuters and the Washington Post have unearthed troublesome material in the candidate’s most recent tax returns. Reuters journalist Sam Youngman reports that Romney may have sheltered offshore bank accounts as a result of his business dealings with Bain Capital. Youngman’s published findings do imply this information, though his actual wording is somewhat vague.

Romney has amassed a large fortune due to investments in several dozen funds with ties to this private equity firm that he helped start over 15 years ago. A number of Bain funds have connections to offshore accounts. This firm also has a record of generating tax breaks for only the most wealthy Americans.

Evidence in tax returns could reveal that Bain and Romney have avoided paying 2012 taxes with these offshore account tactics. A detailed analysis of his securities filings show that the candidate has Bain funds stashed in accounts located in far-flung regions, such as Bermuda, the Cayman Islands, Hong Kong, and Ireland.

Much of this information is true and verifiable, though it does not solidly point to tax evasion or avoidance. This type of corporation is only responsible for tax payment in cases of repatriation. These factors are often considered a grey area in terms of this implied information in the media about Romney’s supposed offshore financial holdings. Some of these early reports also describe conflicting roles of the Cayman Islands as locations for some of these holdings

Dealing with Social Security Uncertainty

Recent reports published in Daily Finance suggest that the Social Security trust fund is going to begin its collapse around the year 2036. This means that you have about 24 years to adjust your planning and savings to compensate for this problem. This really is adequate time for most people to figure out how to make up the difference between what Social Security promises and what it will be able to deliver.

Tip #1 – Understand the Predictions

Before you panic you need to understand what the predictions about the Social Security trust fund are and how they will impact your retirement. First of all Social Security will still be paying out benefits after 2036. Chances are, however, that these benefits will be only about 70 to 80% of what is promised. If you are depending solely on Social Security as your retirement income then this is a bigger concern than if you were only depending upon it as a supplement to your other retirement income options.

Talk with Your Financial Advisor Now

The more time you have to make adjustments to your retirement planning the better your results will be. The best thing you can do right now is to meet with your financial planner or the advisor for your retirement plan. Talk about what you need to do to increase your final retirement fund balance so that it will cover what Social Security will not. When you talk with your financial advisor ask about your options and do not forget to tell him or her what your retirement goals are so they have a better idea about what strategies will work best for you.

Find New Sources of Retirement Income

For many people facing an uncertain financial future because of the problems associated with Social Security the idea of retirement is a fading dream. Many people will need to continue working well past retirement age to compensate for retirement fund scandals, financial hardships and other issues that have made saving for retirement problematic. If you enjoy work then finding a post-retirement position or business opportunity is not a bad thing, but an opportunity to have a second or third career.

There are many options that older adults have to make money during their retirement years. These options include acting as consultants to corporations, starting a new business and working part-time in a field that interests them. Finding post-retirement income will be a challenge, so it is important to start thinking of what you will do right now.

Citations:
  • Saletta, C. (2012). Ponzi scheme or not, Social Security can’t keep up the pace. Daily Finance.

J.R. Budnar, the author of this article, reports about about personal finances online.

Top Tax Reduction Methods

Borrowing Against Shares

This method of borrowing allows share holders to realize the value of their stock market positions as cash, without incurring capital gains tax. It works very simply; rather than selling their shares, the holder can get a cash loan for their equivalent value, using them as collateral. By buying ‘puts’ and ‘calls’ for the shares they can ensure that they can be bought or sold later at a set price, offering protection against any depreciation that may occur.

The holder then has the cash available to do with what they will. If they don’t repay it, the shares go to the bank, but this would occur some time down the line. In the mean time the money gained has been working for them since the original deal, dramatically lessening the impact of the tax bill when it comes.

Deferred Compensation

Many top earning executives when negotiating their contract will be offered shares, often worth much more than their actual salary, as an incentive to put their signature on the dotted line. Of course, owning shares of such high value, will lead to a high tax bill.

However, this eventuality can be side stepped by the executive in question choosing options instead of shares (options being the right to eventually buy the shares when they see fit.)

As gains from options aren’t taxed until the option is exercised (i.e. the executive actually buys the shares) the holder can see the capital at their disposal go up, without being duty bound to pay tax on the increase.

As well as using stock options to this end, some highly paid individuals have their pay put into a deferred compensation plan, where funds can grow without being taxed for decades before any payment is due.

Planned Losses

Taxes payable on income from the sale of shares can be offset by the losses from the sales of shares. By planning ahead a trader can realize the tax benefit of a loss and offset his gains, without actually offloading the shares he has in a losing position.

The IRS forbid traders to sell at a loss and re-buy the same shares within 30 days, however this can be worked around by buying another block of the losing shares, equal to the amount already held, 31 days in advance. Buying ‘puts’ and ‘calls’ will effectively freeze their value, then it’s a case of waiting the 31 days out and selling the original block of shares.

This way the loss occurs, and the trader gets the tax benefit of it, but he still has the same number of those losing shares, at the same value as before.

Borrowing Against Property

To avoid paying tax on the income generated by real estate, its owner can borrow against it in such a manner that they effectively sell the property, without paying capital-gains.

By entering into a partnership with a potential buyer, the owner of the property can contribute their real estate to the partnership, alongside the assets of the other partner. The partnership can then borrow a sum equal to the value of the property using it as collateral, which is then distributed to the seller.

Although the value of the property is now in the owner’s hands in cash form, technically there’s been no sale, so none of the taxes that would have otherwise been charged are applicable.

Joan Bret writes on various tax issues, from filing timely returns, to finding the best ISA rates.